Mineral scarcity and the transition to a green economy

22 januari 2010

Increasing demand for minerals worldwide may lead to shortages that impede transition towards a greener economy. For instance, to produce one hybrid car, it requires approximately 1 kilogram of neodymium, a so-called rare-earth element. Currently, the production totals 7000 tons a year and the most important producer of neodymium, China, has imposed restrictions on the export of this element. What does this mean for policy plans of, for instance, Dutch Transport Minister Eurlings to have 1 million electric cars on the roads in 2025? In our latest report Mineral Scarcity: a strategic security issue we analyze whether the scare of mineral scarcity is realistic and what security implications this may have. Will states use access to or possession of minerals as a strategic resource? Will relations between states that have access to minerals and those that don't change due to scarcity? Are future wars about minerals rather than oil, territory or water? One thing is clear: hard and fast predictions that we will run out of a certain mineral cannot be made. Mineral scarcity is not a matter of simply asking "how much is still left?" or "when will this or that mineral run out?" In reality, only a very small percentage (0,01-0,001%) of existing mineral resources in the earth' crust is extracted. The bulk of available mineral deposits is not (yet) exploited, due to technological or economic limitations, or because it would require too much energy to do so. In fact, the global reserves of minerals that can be exploited fluctuate but have remained fairly constant over time. Global mineral reserves today are at roughly the same level as one decade ago, even though demand and production have grown. Thus scarcity of minerals is not about depleting existing stocks but about the amount of extraction that becomes profitable under existing market conditions.

Given the growth of the world's population, increasing living standards and rising demand for green technology, it is likely that demand will double in 25 years. If the exploitation of minerals does not keep up with demand, prices may rise and states will attempt to gain access new to mineral reserves for their economic survival. In terms of mining, the 'low-hanging' fruits have been picked and mining will have to move to more remote and hostile environments. Whether these difficult to access minerals can be extracted depends on new technologies, the price of energy and the price of the mineral. Known reserves of important minerals that are essential for a transition to a sustainable economy are located in a handful of countries. A quarter of the world's production currently takes place in a mere six developing countries. The demand for minerals from China has risen by 17% a year over the last couple of years. China has imposed export restrictions for a number of important minerals of which large reserves are found in the country. China is also securing its supply of minerals through multi-billion dollar deals with other countries. For some African countries, Chinese investments in mining and mineral extraction are the biggest foreign investments in the country. Among the primary products purchased by China from Latin America are iron and copper.

Europe is largely dependent on import of minerals for the production of hi-tech applications. Yet, it does not have a coherent policy aimed at securing access to essential minerals nor a clear idea of the implications of mineral scarcity.

The consequences of mineral scarcity depend on whether there are substitutes, new technological innovation, as well as adaptation of policies. For a number of scarce minerals, there are no known substitutes, for instance for those used in the generators of windmills. Without a transition from scare to less scarce minerals, a transition to a sustainable and green economy may be hard to achieve Mineral scarcity is an issue that needs urgent attention of policy-makers. Mineral scarcity: a strategic security issue recommends looking at mineral scarcity not solely as a trade issue but as an issue with geopolitical ramifications. Rather than short-term action based on fears of depleting known mineral reserves, prudent, long-term approaches are needed to mitigate mineral scarcity and prevent its most harmful effects.