Raw materials for the sustainability transformation: resilient supply chains
Climate neutrality is to be achieved by 2045, yet with global demand surging, serious challenges may arise in both the extraction and the processing of seven key resources: iridium, graphite, cobalt, lithium, manganese, nickel, and light and heavy rare earths. Due to the high concentration of suppliers, mainly in China, strong dependencies exist at almost every stage of the supply chains for photovoltaic modules, permanent magnets and lithium-ion batteries. The challenges thus affect not only the resource supply itself but also the downstream processing of these raw materials.
However, resolute policy action can do much to avoid significant dependencies impacting strategic raw materials. This includes locating highly critical elements of the supply chain in the EU, expanding new and more differentiated trade relations with further partner countries and investing early in recycling capacities in Germany. These are some of the key findings of a study, conducted by the Oeko-Institut, Prognos and the Wuppertal Institute on behalf of the Climate Neutrality Foundation, which investigates the resilience of strategic supply chains in the context of the climate transformation.
Supply chains for key climate neutrality technologies
The study analysed resource demand and supply chains for the following technologies of strategic importance for the energy and mobility transition:
- Wind power
- Lithium-ion batteries for electromobility
- Permanent magnets for electromobility and wind power
- Electrolysers, e.g. for power-to-hydrogen production
- Heat pumps
- Green steelworks
In particular, the researchers assessed the availability of these raw materials and possible vulnerabilities in the supply chains to the years 2030/2035, by which time key roadmaps must be in place for the development of low-carbon technologies. Supply chain vulnerability means that supply cannot meet demand in time or that a small number of countries or companies dominate the supply side. Establishing resilient supply chains for key raw materials by 2030/2035 is essential for reaching the climate neutrality target.
As an example: due to the expansion of electromobility, demand for lithium is surging and is projected to peak at around 20,000 tonnes per year between 2030 and 2035. There is thus a need to expand existing lithium mines or production from salt lakes and initiate new projects, particularly in Europe, potentially in combination with geothermal schemes. And as China currently plays a predominant role in the processing of other raw materials of critical importance for lithium-ion battery production, such as graphite, manganese and cobalt, it is essential to increase production in Europe and diversify the range of partner countries to a greater extent.
Another example is the production of green hydrogen from electricity, for which electrolysers are required. Around a third of the growing demand for green hydrogen is likely to arise in Germany itself. Iridium is required for the operation of electrolysers, and most of this raw material, along with platinum, is currently sourced from natural deposits in South Africa. As there is no scope to increase global production and recycling will be unable to supply significant amounts for some time, alternative electrolysis technologies requiring little or no iridium must be developed.
“We analysed the entire supply chains for key technologies,” explains Dr Matthias Buchert, Head of the Resources and Transport Division at the Oeko-Institut. “This produced a matrix which allowed us to rank strategic raw materials and all other stages in the supply chains for policy-makers’ benefit as ‘ very critical’, medium critical’ or moderately critical[A1] ’. Based on these priority categories, we then developed targeted measures to increase resilience in the German economy for the short to medium term onwards.”
Policy strategies for more supply chain resilience
In order to secure the supply chains of relevance to the transition to climate neutrality, the study recommends a variety of measures, from expanding production in Europe and diversifying trade relations with supplier countries to building recycling capacity for key raw materials within Europe. And as it is also important to reduce the future requirement for critical raw materials in key technologies, research and development (R&D) must make efforts to identify alternatives.
“Policy-makers must ensure that all the key technologies can be manufactured in Europe as well and that more intensive steps are taken to develop reliable markets within the EU,” says Matthias Buchert. “There should also be a focus on boosting economic cooperation beyond the existing resource and technology partnerships and on building value chains in new partner countries.”
“Souveränität Deutschlands sichern – Resiliente Lieferketten für die Transformation zur Klimaneutralität 2045” [Safeguarding German’s sovereignty – resilient supply chains for the transition to climate neutrality by 2045]: Study by the Oeko-Institut, Prognos and the Wuppertal Institute (full-length version in German language)