IRENA worried over geopolitical risks, seeks diversification of renewable energy
• China processes 50% of critical materials
The International Renewable Energy Agency (IRENA) has asked players in the renewable energy sector to urgently diversify critical material supply chains to mitigate geographical risks.
This was contained in a new report released by the renewable energy body on ‘Geopolitics of the Energy Transition: Critical Materials’.
The concerns were that external shocks, resource nationalism, export restrictions, mineral cartels, instability, and market manipulation could increase the risks of supply shortages.
Reportedly, mining of critical materials is highly concentrated in specific geographical locations. Australia (lithium), China (graphite and rare earth), Chile (copper and lithium), the Democratic Republic of Congo (cobalt), Indonesia (nickel) and South Africa (platinum and iridium) are the dominant players.
IRENA insisted that although energy transition requires a dramatic increase in the supply of critical materials, their supply chains remain vulnerable to a range of geopolitical risks.
According to the agency, while there is no scarcity of reserves for energy transition minerals, global capabilities for mining and refining are limited.
It noted that supply disruptions could impact the speed of the energy transition in the short to medium term.
While examining the geopolitical risks and opportunities linked to a growing demand for materials in the coming years, IRENA called for a holistic approach to diversify supply chains.
The body added that with the differences in dependency and supply dynamics away from fossil fuels, mining and processing of critical materials is geographically concentrated, with a few countries and a few major companies playing a dominant role.
The report also highlights the opportunity to rewrite the script for extractive commodities and build momentum for more inclusive, ethical, and sustainable value chains.
Geographically widespread material reserves open opportunities to diversify the mining and processing to notably developing countries, IRENA noted, stressing that supporting policies would allow developing countries to realise new business opportunities and could improve resilience while keeping the global decarbonisation agenda on course.
IRENA’s Director-General, Francesco La Camera said energy transition would become a main driver of demand for critical minerals.
“The risk of supply chain disruptions is less about energy security and more about the potential slowdown of the transition, which must be avoided. On the road to COP28, my message is to urgently strengthen collaboration on critical materials to minimise the geopolitical risks of concentrated supply chains and accelerate the deployment of renewables to limit rising temperatures to 1.5°C.
“The significant increase in critical materials allows the international community to diversify supply chains and make them more sustainable. No single country can alone fulfill its demand for materials, so collaborative strategies that benefit all involved need to be developed and implemented. Particularly mineral-rich developing countries gain if they can capture a greater share of the critical material value chain. By redefining the narrative of extraction, we can promote a more responsible approach to the benefit of people and communities in pursuit of inclusive and resilient economies,” he said.
IRENA noted that processing is even more geographically concentrated, with China accounting for more than 50 per cent of the world’s refined supply of (natural) graphite, dysprosium (a rare earth), cobalt, lithium, and manganese.
Furthermore, the mining industry is dominated by a few major companies, leading to frequently oligopolistic markets, the group noted, adding that the industry is highly concentrated, with few controlling a significant portion of global production and trade.
The top five mining companies control 61 per cent of lithium output and 56 per cent of cobalt output, it noted.
By contrast, IRENA noted that critical material reserves are widely distributed as developing countries currently account for most of the global production needed for energy transitions, even as their share in reserves is even greater.
Bolivia has 21 million tons of lithium reserves but produces less than 1 per cent of the world’s supply, the report noted.
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