Around the world, leaders are looking at ways to reduce or offset carbon emissions using low-carbon technologies. With products like electric vehicles and batteries expected to soar over the next decade, certain minerals, such as lithium, graphite, cobalt, titanium and rare earth elements, will be in high demand to power the energy transition. These are known as 'critical energy minerals'.
It’s good news for Australia, a resource rich country, which has been tapped to play a key role in exporting high value products to the rest of the world.
Researchers at CSIRO believe Australia could become as a primary exporter for critical energy minerals to countries with lower natural capital.
Faced with a slice of the estimated $5 trillion opportunity, we examine some of their recommendations to better connect Australia’s mining, manufacturing and energy sectors on the road to net zero.
The critical (energy minerals) information needed
Our recently released Critical Energy Minerals Roadmap estimates the metal value of the energy transition’s top technologies to reach more than AUD$5 trillion dollars globally by 2050 – with over half of that being for battery metals.
But the details on what critical metals will be required, and when, are still unclear.
Economists consider the trajectories of supply and demand (referred to as ‘metal flows’) as complicated and dynamic. It’s particularly the case at a global scale: metals can be locked-up for decades in durable consumer goods, and product life spans differ. Uptake rates of technologies vary under different policy settings. Technologies such as electric vehicle (EV) batteries may enter second-life applications[Link will open in a new window] like home or grid energy storage. All of these factors interact to create the aggregate demand picture.
Common forecasting methods do not provide adequate nor coherent accounting of these physical factors. We need different ways of thinking about the dynamics of metal flows on a global scale, and the expected changes in underlying technologies.
Enter the Physical Stocks and Flows Framework (PSFF) tool
PSFF and related modelling has been used for decades for various purposes, sometimes with a very broad scope. However, with structural change it will bring, it is vital that these tools now be routinely applied to questions around the energy transition. In this case, the question of critical energy metals demand.
PSFFs enable us to keep track of many physical variables and the complex dynamics that emerge when they interact with each other. This capability can yield powerful and often counter-intuitive insights, like how three technologically interrelated metals may have very different demand profiles.
In our just-released report ‘Known Unknowns: The devil in the details of energy metal demand[Link will open in a new window]’ we look at the demand for lithium, cobalt and nickel under three different EV uptake scenarios – including factors not currently accounted for in traditional economic modelling with the PSFF tool - to test the demand and supply assumptions.
So what did we find?
Trajectories for minerals used in electric vehicles (EVs) may be more complicated than what is commonly thought.
For example, it is often assumed that cobalt and nickel mining will continue to increase for the foreseeable future, as they are essential for high performance lithium-ion batteries used in EVs.
This was reflected in the International Energy Agency report which predicts that there will be no hint of downturn for mined cobalt out through 2040.
By accounting for linked drivers such as changes of battery chemistry, quicker EV uptake, and higher levels of recycling, the PSFF tool suggests that this may not be the case. Even within the same scenario, individual battery metals can have very different outlooks. Under one scenario, for example, cobalt had a surprisingly short demand window, followed by an extended glut. Effective recycling combined with evolving chemistry battery ends any boom in primary cobalt demand by the early 2030s, in a way that isn't reflected for either nickel or lithium.
Devil in the details: critical energy minerals demand
Different models of EVs have different material compositions, and EV battery types will change over time. Similarly, the average service lives of EVs vary between different models over time, and even for the same EV model and time when used in different environments.
Furthermore, EVs might be seen as containing at least two distinct systems – the vehicle and the battery pack. It is possible that the vehicle reaches end of life (EOL) and becomes available for recycling, while the battery goes on to serve in a second life, for example, as stationary storage in the electricity grid. This would greatly delay the return of battery metals for recycling.
Finally, the percentage of EOL products that are actually collected for recycling, and the efficiency with which materials can be recovered can vary greatly between products and materials over time, and between different regions.
The PSFF tool demonstrates how varying a few basic assumptions can radically alter metals demand, and the balance between primary and secondary supply of those metals over time. Furthermore, the outlook for individual metals can diverge quite rapidly, even for metals as tightly linked as nickel, cobalt, and lithium in EV usage.
Our model also finds that primary (mining) demand for lithium remains stronger for a lot longer in many of the scenarios. This could change of course, if the recovery rates for lithium[Link will open in a new window] via recycling improve dramatically in the near term.
Not a prediction tool, but a risk management system
It’s worth noting, the PSFF is not intended to be used as a prediction tool.
Even a fully comprehensive PSFF cannot provide ‘accurate’ forecasts because there are so many unknowns, interactions, and complexities around the future demand for metals, like the prices of metals and substitution effects.
A PSFF does, however, enable the development of internally consistent scenarios to explore how ‘views’ on major components of the energy transition will play out and interact with each other. This means it can quickly identify where developments in any of those linked components are likely to significantly change the demand outlook.
The PSFF tool isn’t just limited to battery metals. It could be used by leaders wherever major new technologies require new mixes of metals, to input their assumptions about the market to understand the implication for their business. It can also keep track of other physical quantities of great potential value: for example, the total electricity storage potential of retiring EV batteries for grid storage.
The PSFF tool allows users to take assumptions about a range of factors. This allows users to test what supply and demand will look like for different metals under those conditions, empowering decision makers to manage risk and respond in an agile way.