Green trans­ition could trig­ger a glob­al race for raw ma­ter­i­als

The green transition requires more than political will and new technologies. It also depends on access to very specific raw materials. 

Copper for electricity grids. Lithium for batteries. Rare earths for magnets in wind turbines. 

As the global climate agenda gathers pace, demand for critical minerals is growing rapidly, however, the available supply is concentrated in a handful of countries such as the Democratic Republic of Congo, Indonesia and China, and many other countries with potentials are still exploration and development stages.

Processing the materials is even more concentrated, reflecting China’s scale, efficiency, and technical capability.

Who will be in control?

This raises a new geopolitical question:  How will the market for critical minerals develop? 

Will it remain an open global market? Become an area of international cooperation? Or will producing countries coordinate supply and prices among themselves? In other words, could a cartel emerge that resembles the role of OPEC in the oil market?

These questions are asked in a new research article by Tooraj Jamasb, Professor at CBS, co-authored with colleagues from the University of Oxford and the University of Cambridge.

“In theory, all scenarios are possible, it depends entirely on the agreements policymakers choose to make,” says Tooraj Jamasb, adding that stable supplies of critical minerals are essential for a successful green transition.

Similarities with earlier markets

According to the researchers, the current situation shares several characteristics with the early oil and gas markets, where state actors, long-term investments and geopolitics all played a decisive role in shaping those markets.

The researchers therefore ask whether producing countries could coordinate their policies and thereby gain greater market power because several conditions that favour cartel formation are in fact already in place: 

Demand is rising rapidly. Supply cannot be increased overnight.  And governments exercise direct control over the resources.

At the same time, the market for critical minerals is more complex than the oil market, according to the authors. 

Researchers do not expect an OPEC 2.0

“There are many different minerals, and technologies are evolving rapidly. At the same time, consumers, particularly in the EU, the US and Japan, are actively seeking to reduce dependency through recycling, substitution and new trade agreements,” says Tooraj Jamasb, Professor of Energy Economics at CBS.

Tooraj Jamasb does not believe the world is likely to face an OPEC-style cartel in critical minerals.

“Creating such a cartel would require a high degree of agreement among producers; on production volumes but also on coordinating rules and enforcement. In addition, experience shows that it can be very difficult to detect and sanction non-compliance,” he explains and adds:

“Furthermore, the lithium market remains relatively small and underdeveloped, and technologies keep changing, so there is no guarantee that a cartel would be able to achieve genuine market power.”

An obvious solution is not that simple

Another possible development is greater international cooperation, where producer and consumer countries could work together on stable investment frameworks, shared standards and more transparent markets. 

Although such cooperation may seem like the obvious solution, Tooraj Jamasb and his co-authors argue that cooperation is far from guaranteed. It requires trust, which is not a defining feature of global politics at the moment.

“How the market for critical minerals evolves will depend heavily on political choices, nationally as well as internationally. Industrial policy, trade agreements and climate policy will all play a decisive role,” says Tooraj Jamasb and points out that there is a tendency to overlook the fact that the green transition is not only about climate ambitions but also about access to critical minerals that are subject to political economy.

The EU needs to build partnerships

For Europe – and Denmark – this means that raw materials policy matters.

“The EU should pursue an inclusive strategy to secure access to the critical minerals needed to build the energy system of the future. It will be wise to develop business models and partnerships that allow producing countries to also benefit from the value added created downstream from their materials,” says Tooraj Jamasb and elaborates:

“This includes making supply chains more resilient by diversifying suppliers, scaling up refining and recycling, and accelerating approval processes,” the CBS professor explains.

“At the same time, the EU should develop targeted partnerships that avoid creating full dependency on the more exclusionary bilateral models,” he adds.