Neodymium at the Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Co. factory in Baotou, Inner Mongolia. (NELSON CHING / BLOOMBERG)
Western governments should consider stockpiling critical battery metals such as cobalt and lithium, the International Energy Agency said, in a stark warning of the geopolitical risks that accompany the green-energy transition.
That call comes as some policy makers worry the shift from burning fossil fuels to a greener economy will expose the world to new threats. Unlike oil, a relatively ubiquitous commodity, production and processing of minerals such as lithium, cobalt and some rare earth elements is highly concentrated, with the top three producers accounting for more than 75 percent of global supply.
The IEA was founded in 1974 following the first global oil shock as leading industrial nations including the US, Japan and Germany sought to enhance energy security through stockpiling
Stockpiling programs could provide a valuable buffer as leading industrial nations look to develop reliable supplies of metals and minerals that will play a critical role in a decarbonizing world, the energy watchdog said in a report on Wednesday.
“Meeting our climate change goals will turbocharge demand for mineral resources,” Fatih Birol, the head of the IEA, said by phone. “Voluntary strategic stockpiling can in some cases help countries weather short-term supply disruptions.”
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The IEA was founded in 1974 following the first global oil shock as leading industrial nations including the US, Japan and Germany sought to enhance energy security through stockpiling. Those strategic oil reserves have been used several times, including during the Gulf War in 1990-1991 and during the Libyan civil war in 2011.
The agency has since broadened its remit, advising governments on energy policy and increasingly on climate change. Now the influential watchdog is urging governments to brace against new supply risks as the world becomes increasingly reliant on an array of critical minerals that are often only produced at scale in a handful of countries.
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Building new strategic reserves could have unintended consequences, potentially boosting demand and prices as governments vie with automakers for scarce metals. Commodities from copper to palladium are already soaring as the global economy rebounds from the pandemic.
Now cobalt plays a crucial role in high-capacity lithium-ion batteries of the type used by Tesla Inc. Cobalt has become a particular concern because the Democratic Republic of Congo, a conflict and poverty-wracked African nation, accounts for more than 70 percent of the world’s supply.
US Warning
Earlier this year, the US Department of Energy warned that the nation lacked “sufficient domestic resources to meet expected demand for certain critical materials, such as cobalt and gallium.” Partnerships with allies to build supply chains and developing substitutes were among the department’s recommendations.
To address the looming challenges, the IEA advocates boosting recycling of raw materials and setting a clear policy agenda to encourage miners to develop new sources of supply. The agency also joins investment banks and commodities trading houses in warning that rising demand during the energy transition could drive markets like copper into deep deficits.
While the likes of Goldman Sachs Group Inc. and Trafigura Group say higher prices are needed to incentivize new supply, the IEA is calling on governments to directly address supply vulnerabilities. Stockpiling is likely to be most effective in small and opaque markets where supply is heavily concentrated, the IEA said.
“Today’s supply and investment plans for many critical minerals fall well short of what is needed,” the watchdog said. “The response from policy makers and companies will determine whether critical minerals remain a vital enabler for clean energy transitions or become a bottleneck in the process.”