The role of critical minerals in clean energy transitions

How critical minerals can unlock a cleaner energy future

An energy system powered by clean energy technologies differs profoundly from one fuelled by traditional hydrocarbon resources. Critical minerals such as copper, lithium, nickel, cobalt and rare earth elements are essential components in many of today’s rapidly growing clean energy technologies – from wind turbines and electricity networks to electric vehicles. Demand for these minerals is growing quickly as clean energy transitions gather pace.

Solar PV plants, wind farms and electric vehicles generally require more critical minerals to build than their fossil fuel-based counterparts. A typical electric car requires six times the mineral inputs of a conventional car and an offshore wind plant requires 13 times more mineral resources than a similarly sized gas-fired plant. Since 2010, the average amount of mineral resources needed for a new unit of power generation capacity has increased by 50% as the share of renewables in new investment has risen.

The types of mineral resources used vary by technology. Lithium, nickel, cobalt, manganese and graphite are crucial to battery performance. Rare earth elements are essential for permanent magnets used in wind turbines and EV motors. Electricity networks need a huge amount of aluminium and copper, the latter of which is the cornerstone of all electricity-related technologies.

As countries accelerate efforts to reduce emissions, they also need to ensure energy systems remain resilient and secure. The rising importance of critical minerals in a decarbonising energy system requires energy policy makers to expand their horizons and consider potential new vulnerabilities. Concerns about price volatility, security of supply, and the shifting sands of geopolitics do not disappear in an electrified, renewables-rich energy system.

This is why the IEA is paying close attention to the issue of critical minerals and their role in energy transitions. In July 2023, the Agency published its inaugural Critical Minerals Market Review, which aims to provide a clear understanding of today’s demand and supply dynamics and what they mean for the future. The Agency will also host the first ever international summit on critical minerals and their role in clean energy transitions on 28 September 2023 in Paris. The event aims to foster dialogue among a wide range of global stakeholders, including government ministers, industry leaders, investors and members of civil society.

Additionally, critical minerals have been fully integrated into the IEA’s Global Energy and Climate Model, which means that the projections for critical minerals demand and supply are regularly updated in line with latest policy and technology trends in the IEA energy scenarios, notably in the World Energy Outlook and the Global EV Outlook. The updated projections are available through the IEA Critical Minerals Data Explorer, an online tool that intends to allow users to easily access and navigate the latest data.

Clean energy transitions are driving a significant increase in mineral demand

From 2017 to 2022, demand from the energy sector was the main factor behind a tripling in overall demand for lithium, a 70% jump in demand for cobalt, and a 40% rise in demand for nickel. Propelled by rising demand and high prices, the market size of key energy transition minerals doubled over the past five years, reaching USD 320 billion in 2022.

This rapid growth is set to continue. In the IEA’s Announced Pledges Scenario, demand for critical minerals more than doubles by 2030. In the Net Zero Emissions by 2050 Scenario, it grows three and a half times to 2030, topping 30 million tonnes. Given this trajectory, the development of diverse, resilient and sustainable clean energy supply chains for critical minerals is an essential task.

Investment has jumped, led by funding for lithium projects

Investment in critical minerals development rose by 20% in 2021 and 30% in 2022. Among the different minerals, lithium saw the sharpest increase in investment, with a jump of 50%, followed by copper and nickel. Companies based in China nearly doubled their investment spending in 2022.

Exploration spending also rose by 20% in 2022, driven by record growth in lithium exploration. And despite headwinds in the venture capital sector, critical minerals startups raised a record USD 1.6 billion.

The supply outlook is improving, but there’s little room for complacency

The strong growth in spending by companies on developing mineral supplies supports the affordability and speed of clean energy transitions. If all planned critical mineral projects worldwide are realised, supply could be sufficient to support the Announced Pledges Scenario. However, project delays, potential cost overruns and technology-specific shortfalls pose a risk, and more projects are needed for the Net Zero Emissions Scenario.

Limited progress on diversifying supply sources also remains a major concern, while environmental, social and governance performance offers significant scope for improvement.