The transition to net zero faces a myriad of challenges. There is the technological challenge of developing the products and services needed for decarbonization. The infrastructure challenge of deploying them at pace and scale. The financial challenge of financing them. The challenge of skills to develop a workforce capable of installing and operating them. The political challenge of fighting free riders, minimizing stranded assets and maintaining competitiveness during the transition. And the political challenge of garnering public support for what is poised to be the largest and fastest industrial revolution in history.
But at the base of the maze the net-zero transition is trying to navigate is a hidden problem in plain sight: the commodity challenge.
Commodities are literally the building blocks of the global economy. They are the materials that make up our buildings, the components of our technologies, the fuels that provide our energy and even the food that we eat. And yet, despite their pivotal role in so many of the challenges facing the global economy in recent years, commodities remain strangely undervalued and often misunderstood. Everything from the Covid-19 pandemic and the grounding of the Ever Given in the Suez Canal to the Russian invasion of Ukraine and this year’s Indian heat wave have highlighted just how how fragile supply chains can be and how seemingly disconnected events can cause economic jolts around the world. . But political and business understanding of supply chain risks often remains patchy at best. Commodities are too often taken for granted by companies who view commoditization as something to be avoided.
However, if the world is to achieve net zero emissions by 2050, it will have to think much harder about raw materials.
It is almost inevitable that achieving net zero emissions will cause the biggest shake-up in global commodity markets in decades. On the one hand, demand for fossil fuels that continue to dominate global energy systems will contract sharply through 2050 and beyond. Some scenarios suggest that to achieve net zero emissions by mid-century, coal demand would have to contract by 98%, oil demand fall by 75% and gas demand fall by 55%. Other scenarios suggest that if carbon capture and storage capacity fails to increase, the contraction of the fossil fuel industry will have to be even more pronounced. As the Carbon Tracker think tank has spent more than a decade pointing out, the risks of stranded assets for fossil fuel infrastructure that is still being expanded is imminent and extremely significant.
The other side of the coin is that the demand for the products essential to the manufacture and deployment of clean technologies is set to soar. Copper, nickel, cobalt, lithium, silicon, steel, aluminum, cement, semiconductors and, more controversially, biomass and energy crops, are all already at the foot of a decades-long boom as major economies around the world race to electrify their energy and transportation infrastructure. The question of how quickly mining companies can scale to meet this demand and how quickly industrial companies, such as steel, cement and aluminum producers, can decarbonize their manufacturing processes is one critical challenges facing the entire net zero mission.
That said, concerns about the ability of global supply chains to meet changing demand may be exaggerated or even weaponized by opponents of the net-zero transition. Concerns about the environmental impact of new lithium or cobalt mines or fears about the security implications of a reliance on China for the supply of rare earth minerals are legitimate, but the impacts and risks associated with continued reliance on fossil fuels remain an order of magnitude greater.
In a recent Twitter threadSky News’ Ed Conway, who is working on a book about the ongoing transformation of commodity markets called Material World, pointed out how each wind farm needs around 15 tonnes of copper for every megawatt of capacity. Much of this copper comes from mining hotspots such as Chile, where the government is under intense and conflicting pressure to open new mines and reduce the industry’s environmental impact.
The inconvenient truth about climate change is that solving it will involve digging, blasting and leaching more minerals from the skin of this planet than ever before.
Nobody likes to talk about that very much.
But we have to talk about it.
— Ed Conway (@EdConwaySky) July 2, 2022
But in response, Lauri Myllyvirta, principal analyst at the Center for Energy and Clean Air Research, argued that on a global level “the zero-carbon transition will *reduce* the overall amount of mining and drilling required, for to the continued reliance on fossil fuels as the energy system we have”. Citing figures from the World Bank, he highlighted how the clean energy transition requires around 1.5 to 2 billion tonnes of minerals over the next 30 years. That sounds like a lot, and it’s a lot, but it’s also equal to the amount of coal and oil that the global economy extracts every six weeks.
I hear a version of this argument all the time. This is wrong at the aggregate level: the zero carbon transition will *reduce* the overall amount of mining and drilling needed, compared to continuing the fossil fuel dependent energy system we have. https://t.co/Y3EiFwtw5k
—Lauri Myllyvirta (@laurimyllyvirta) July 3, 2022
“Even taking into account that the ratio of overburden and tailings to product is tens of times higher with metals, this still represents a dramatic reduction in the overall volume of digging, blasting and drilling,” said he wrote. “None of this is to say that managing both the very real ecological and social impacts and emissions of increased demand for metals, and public perceptions, is not a major challenge…The industry Zero carbon energy shouldn’t get a pass for flouting the environment and human and labor rights just because they’re better overall than the fossil fuel industry. That’s not an invitation. to engage in whataboutism. But let’s not minimize the impacts of fossil fuel extraction by suggesting that the impacts of mining and extractive industries are a particular challenge for clean energy technologies when they apply equally to fossil fuels, even though they are technically not minerals.”
There are also encouraging signs that businesses, investors and policymakers are beginning to understand these realities and the enormous importance of net zero commodities. Around the world, investments are increasing to identify and extract the minerals and resources that can meet the growing demand from clean technology developers, at the same time as supply chains become increasingly transparent and regulations aimed at to minimize environmental impacts are becoming increasingly stringent. Many of the world’s largest and most carbon-emitting mining, steel and cement companies now have net zero targets in place and are participating in far-reaching cross-industry initiatives to ensure they are met.
Concerns that supply chain constraints could drive up the costs of renewable energy and electric vehicles have yet to come to fruition, with a recent report from the International Renewable Energy Agency (IRENA) detailing how the cost of onshore wind fell 15% last year, while offshore wind projects saw costs drop 13% and solar PV projects saw a 13% reduction compared to 2020. The agency acknowledged that the sector was beginning to experience inflationary pressures in its supply chain, but any slowdown in the rate at which renewable energy costs are falling is “overshadowed” by the huge rise in fossil fuel prices.
On a policy level, meanwhile, the UK government has just launched a new Critical Minerals Strategy and Critical Minerals Intelligence Hub as it seeks to track and secure supplies of the minerals needed for the net zero transition. In addition, belated progress is being made around the world to develop new circular economy business models that can ensure the recycling and reuse of valuable net-zero products, to ease the strain on supply chains.
The truth is that the changes rocking global commodity markets resemble those seen in countless historical and technological revolutions. The demand for resources that were once essential can quickly drop, just as a gold rush can quickly emerge thanks to new technologies. The whale oil market, for example, is no longer what it used to be.
But the big difference with the net zero transition is the pace and scale at which it must be achieved and, given the visceral nature of escalating climate impacts, the enormous economic and humanitarian costs that will result if it fails. Therefore, the transformation and expansion of the net zero commodity market is of critical importance to businesses, investors and policymakers around the world, presenting both huge systemic risks and huge business opportunities. .
And we’ll be exploring these questions in much greater detail over the next three months via a new content hub, hosted in association with leading research and advisory firm Wood Mackenzie, which will dive deep into some of the pinch points and the hotspots that define the net zero commodity boom. Through a series of reports, interviews and podcasts, we’ll examine everything from sustainable mining practices and the green steel revolution to the rapidly changing hydrogen market and whether biofuels can ever win over their critics. . Throughout it all, we will ask ourselves how the challenges facing the net zero transition can be overcome and what all companies can do to minimize commodity risk and accelerate their decarbonization plans.
It promises to be fascinating work that will put under the microscope what is one of the greatest challenges facing the net-zero emissions economy and show how companies around the world are demonstrating that it can be overcome.
This article is part of the Net Zero Commodities Hub, hosted in partnership with Mackenzie Wood.
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