The energy world has changed. Oil and gas prices were once kept in check by states – friendly and unfriendly alike – working together to control shocks. Russia’s war in Ukraine is forcing leaders to focus on ditching fossil fuels, but energy security will remain an issue long after the West ends its dependence on Russian fossil fuels, because the renewables supply chain has been centralised – and power lies firmly in Beijing.
The stakes. Climate scientists have said that the world is on track to be “unliveable”. Emissions must peak by 2025 and fall 43 per cent by 2030 to keep climate change under control. That requires the rapid electrification of energy systems.
The problem. Demand for metals and minerals needed to build wind turbines, batteries and electric vehicles will quadruple by 2040. It is already outpacing supply. Lithium, nickel and cobalt are among the most sought-after, but supplies of copper, tin and the 17 rare earth metals are also under pressure.
That’s pushing up prices. The cost of lithium, a core ingredient in electric vehicle batteries, has increased 500 per cent between January 2021 and 2022 – potentially squashing the boom in demand that the green transition requires.
This demand gap is only going to grow. Almost all big car manufacturers are committed to electrifying their fleets over the next decade – Volkswagen, for example, is building six “gigafactories” to make lithium-ion batteries, and struck a deal last year to get 34,000 tonnes of the metal between 2026 and 2031. Brian Menell, CEO of TechMet Ltd, a metals and mining company, says the EV market is heading for a “major crisis” because of the demand gap for lithium.
“It is an almost inescapable inevitability that in five years’ time, the massively increased lithium-ion battery manufacturing capacity that they will have built… a significant part of it will be sitting idle because they can’t secure the inputs,” Menell says. “That’s a massive issue for the energy transition.”
We’ve been thinking about this for a few years now at Tortoise – it came up when we did a podcast from the Salton Sea in California, and when we held a Responsible Energy Forum last October, the issue was a hot topic for industry experts.
The worrying thing for politicians in the West is that China holds the key to supply. Its territory covers around seven per cent of global lithium reserves (putting it in fourth place after Chile, Australia and Argentina), but it processes 58 per cent, taking on exports from countries in Africa that can’t process the material themselves.
Washington is increasingly dependent – 80 per cent of imported lithium-ion batteries are now from China, compared with 50 per cent at the end of 2020. If Beijing were to invade Taiwan as Russia did Ukraine, and Chinese batteries were boycotted as a result, the green transition would take a big hit.
There are other reserves of lithium, including in Europe and the Americas. It’s been found in the geothermal brines of California’s Salton Sea, in the UK in Cornwall and in Chile, Argentina, Bolivia, Brazil, Portugal, Spain, Germany, France, Serbia and Ukraine. The US is trying to incentivise further exploration, while also buying back the stockpiles it sold off cheaply at the end of the Cold War.
The problem is:
- Mining in the West is expensive and unpopular. Environmental standards are strict and mining is unpopular with the public.
- There’s stiff competition for reserves in South America. The USA is bidding against Russia and China to secure the 21 million tonnes of lithium brine reserves in Bolivia. If it succeeds there, or in Chile, Argentina and Brazil, supply will still depend on shaky alliances with the leaders of those countries and the companies that control reserves.
- It’s all a little late. It can take a decade for new projects to get the financing, technology and environmental approval to start working, by which time the demand gap will have grown and the planet will need the green transition to be well underway.
The other options in the patchwork of partial solutions are familiar but inadequate. Improvements in efficiency could help materials go further and recycling could provide 20 per cent of the supply for new batteries by 2030.
The lesson for governments is that they cannot rest easy. Generating energy – even renewable energy – still relies on the exploitation of finite resources. Even optimists reckon there is only a century of lithium left. To avoid crisis after crisis, work on finding its replacement needs to begin now.
Tortoise Climate Summit
The world must cut emissions fast. At the second annual Climate Summit on 12 May, we will investigate whether a fair transition can help the world get to net zero faster. Do join us.
The “hate factory”
Peter Thiel, the billionaire investor and co-founder of PayPal, made headlines last week after he described ESG reporting standards as a “hate factory for naming enemies”. In an interview with the FT, Thiel says his intervention was prompted by a distaste for the way ESG investors have tried to curtail oil and gas exploration and energy-intensive bitcoin production. He’s not the first, nor will he be the last, to question sustainable investing. In January Terry Smith, a Unilever shareholder, criticised the company’s leadership for “losing the plot” by prioritising green credentials ahead of returns. What to make of the backlash against ESG? Clearly Russia’s war and the resulting energy crunch have raised the stakes in the trade-offs between social and environmental concerns. Is a green company ESG-friendly if it’s linked to Putin? Maybe the dissociation of E and S and G is nigh?
engagement and activism
Just Stop Oil
Extinction Rebellion and affiliated activist groups are staging protests across London this week by blocking bridges, hunger striking and marching through London’s West End. The actions will follow others by new kids on the blockade, Just Stop Oil, which disrupted three oil terminals at the weekend, leading to shortages at petrol stations across southern England. They’re asking for an end to all new oil and gas exploration in the UK. George Eustice, the environment secretary, warned that the use of such tactics will soon be made illegal when the Police Crime and Sentencing Courts Bill goes through parliament later this month. Police have warned that damage to oil supply points is putting activists and officers at “unacceptable” risk of harm. So far 338 arrests have been made as a result of Just Stop Oil’s actions.
Fracking for plastics
Sir Jim Ratcliffe, the founder of petrochemicals company Ineos and formerly the richest man in Britain, has capitalised on the UK government’s decision to reassess the feasibility of fracking by requesting permission to drill a new test site. Ineos holds 28 separate licences for onshore oil and gas drilling in the UK and argues that the “science behind shale was totally ignored” when the government imposed a moratorium on fracking in 2019. But previous forays into fracking have not worked out well for Ratcliffe, who, as we revealed last year, made much of Britain’s potential to be self-sufficient post-Brexit while at the same time choosing to offshore a large proportion of Ineos’ profits. To note: one of the company’s subsidiaries owns a pipeline that delivers 40 per cent of the UK’s North Sea oil output. No wonder Ratcliffe is in favour of the government’s recent decision to allow more drilling.
Hope for coral
Two of the world’s most common species of coral have been found to survive and even cope well with up to 2 degrees of global warming. A 22-month simulation by scientists off the coast of Hawaii has found that two-thirds of finger and lobe coral species were especially resilient to temperature rise. The study opens up the possibility that degraded reefs could be revived through the transferring of resilient species. Warming oceans aren’t the only threat: a scientist involved in the study tells National Geographic that local stressors like overfishing, sedimentation, and pollution will also need to be managed in order for reefs to have a hope of rebounding. But at least that sort of management has been shown to work, for example in the Philippines. A full ban on fishing off parts of the Danajon Bank, southeast of Manila, has led to the miraculous recovery of its corals.
Thanks for reading.
Additional reporting by Barney Macintyre. Edited by Giles Whittell.
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