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Global production of several raw materials needs to be scaled up significantly to meet demand for the green transition and achieve global net zero CO2 emissions targets. Rare earth minerals, lithium, cobalt, nickel and other raw materials are essential to building renewable energy technologies. Demand for them will continue to grow substantially as countries pursue their CO2 emission reduction targets. In the next ten years, clean energy and other sectors’ demand for materials such as cobalt, natural graphite or lithium is estimated to increase from four to six times.
For several raw materials, current production and investment plans meet only a part of the projected requirements. Investments in new mining capacity must be scaled up rapidly, notably as new mining projects typically take several years to come on-line. Investments in recycling and new technologies which reduce natural resource requirements will also be essential, and recent advancements in modernising the OECD Arrangement on Officially Supported Export Credits is a step forward in this direction. The modernisation will make financing under the Arrangement more flexible to better face challenges posed by the economic and financial needs of projects—as well as the increasingly competitive landscape—and it will create further incentives for supporting a wider range of climate friendly and green transactions. Notably, the modernisation includes an expansion of the scope of green or climate friendly projects to clean energy minerals and ores.
International trade: a stumbling block or tailwind?
The experience of past technological and economic transformations has shown that international trade can be a major enabling factor for the green transition. By the same token, major trade disruptions risk jeopardising it.
International trade is a backbone of the raw materials industry because the economic viability of this industry (and its clients) requires extraction in places where these materials are the most naturally abundant or where the geological and climatic conditions and available technology make the extraction the most economically viable. International trade connects localised extraction to a wide global market of users. This means there are natural reasons for concentration of production and international trade of raw materials. Also, economies of scale are significant in mining which is an industry with high fixed capital costs and in some cases this may result in concentration of production and trade of even relatively ubiquitous materials. At the same time, falling costs of trade mean that extraction and processing of raw materials is taking place in locations where this may have not been economically viable even a short time ago.
Our latest report shows that export restrictions on critical raw materials have seen a five-fold increase since the OECD began collecting data in 2009, with 10% of global trade in critical raw materials now facing at least one export restriction measure.
A new OECD policy paper on Raw Materials for the Green Transition shows that the production and international trade of several raw materials has become more concentrated amongst a handful of extracting and processing locations which account for the bulk of global supply. Concentration of both imports and exports is particularly significant for unprocessed forms of lithium, borates, cobalt, colloidal precious metals, manganese and magnesium.
Given the uniqueness and concentration of production of some raw materials, market power dynamics can come into play and be exploited for economic and non-economic reasons – for example, through restrictions on output or trade. Raw materials are mainly used to produce other goods—i.e. they are positioned ‘upstream’ in domestic and international supply chains. This means that disruptions or policies affecting their supply may have important systemic ramifications and are sometimes used as a reason for state intervention (i.e. in the form of subsidies, restrictions on exports or foreign ownership to support downstream domestic sectors). The systemic importance also makes raw materials more prone to be targeted in economic coercion and political rivalries. In the context of current geopolitical challenges as well as the pressure to meet environmental targets, several countries are analysing their reliance on imported raw materials. The aim is to identify linkages that could cause disruption in case of unexpected interruptions of supply, or those that could be used as tool of coercion or might create national security risks.
Increasing export restrictions could be cause for concern
Restricting exports of raw materials is clearly not helpful for advancing greener technologies that use them. Export restrictions on raw materials are some of the most egregious forms of state intervention because they undermine the economic viability—and thus decrease output—of the domestic extractive industries and benefit domestic downstream users of these materials to the detriment of foreign users. This diversion of raw materials to domestic use by imposing export taxes or quantitative export restrictions, such as export quota or even bans, may also contribute to the rise of world market prices, in particular if the exporter holds a large share of the market. Such restrictions create incentives for other producing countries to introduce similar restrictions, putting yet more upward pressure on international prices and ultimately creating more incentives to restrict exports. Such spiralling increases in commodity prices have been both a reflection of, and a factor behind, escalating export restrictions on raw materials in countries seeking to develop domestic processing industries.
To explore co-operative options for alleviating harmful export restrictions, it will be important to better understand the motivations of the countries using them and the effects they have on trading partners.
Our latest report shows that export restrictions on critical raw materials have seen a five-fold increase since the OECD began collecting data in 2009, with 10% of global trade in critical raw materials now facing at least one export restriction measure. Export restrictions on ores and minerals — in essence the raw materials located upstream in critical raw material supply chains — grew faster than restrictions in the other segments of the critical raw materials supply chain. This correlates with increasing concentration of upstream production, imports and exports.
China, India, Argentina, Russia, Viet Nam and Kazakhstan issued the most new export restrictions for critical raw materials from 2009 to 2020, and also account for the highest shares of import dependencies of OECD countries. The trend toward increasing export restrictions may be playing a role in key international markets, with potentially sizable effects on both the availability and prices of these materials. This situation warrants further scrutiny. To explore co-operative options for alleviating harmful export restrictions, it will be important to better understand the motivations of the countries using them and the effects they have on trading partners.
Further information on Raw Materials Critical for the Green Transition: Production, International Trade and Export restrictions, including access to the OECD Inventory of Export Restrictions on Industrial Raw Materials
In some countries, mineral resources represent a huge source of income and wealth. But resource abundance does not always bring sustained economic growth and development – it can have the opposite effect, which is sometimes referred to as the “resource curse”.
Register to the OECD Forum on Responsible Mineral Supply Chains, taking place on 24-28 April 2023 at the OECD Headquarters in Paris.
The Forum will reflect the current priorities of the OECD implementation programme, featuring sessions on combatting corruption, engaging with mining communities in high-risk areas, and taking action against environmental degradation linked to mineral production and processing. A key theme will be on leveraging due diligence to foster synergies between the policy objectives of a responsible and reliable supply of minerals critical to the energy transition.
And read more on the Forum Network: Critical Minerals: Responsible supply chains for a sustainable future by Fatih Birol, Executive Director, International Energy Agency
Wind turbines, solar panels, electric vehicle batteries: all examples of technology where demand is growing—and that require large quantities of critical minerals. Fatih Birol, Executive Director of the International Energy Agency, takes stock of this critical sector for the clean energy transition.
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