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  • How the metals and mining sector will be at the core of enabling the energy transition.
  • Release Time:2022-01-14

    As the world gears up for net zero, demand for raw materials is set to soar. The energy transition presents unique challenges for metals and mining companies, which will need to innovate and rebuild their growth agenda.


    he transition to a net-zero economy will be metal-intensive. As the move toward cleaner technologies progresses, the metals and mining sector will be put to the test: it will need to provide the vast quantities of raw materials required for the energy transition. Because metals and mining is a long lead-time, highly capital-intensive sector, price fly-ups and bottlenecks will be unavoidable as demand outstrips supply and price volatility creates uncertainty around the large up-front capital investments needed for production. Supply, demand, and pricing interplays will emerge across different commodities, leading to feedback loops followed by a combination of technology shifts, demand destruction, and materials substitution. Metals and mining companies will be expected to grow faster—and more cleanly—than ever before. At the same time, end-user sectors will need to factor potential resource constraints into technology development and growth plans.

    Sidebar

    By the end of the November 2021 United Nations Climate Change Conference (COP26), it became clear that momentum had shifted. Climate commitments made in Glasgow have entrenched the net-zero target of reducing global carbon emissions (aimed at preventing the planet from warming by more than 1.5°C) as a core principle for business. At the same time, another reality became apparent: net-zero commitments are outpacing the formation of supply chains, market mechanisms, financing models, and other solutions and structures needed to smooth the world’s decarbonization pathway. Even as debate continues over whether the conference achieved enough, it is evident that the coming decade will be decisive for decarbonizing the economy. While every sector in the global economy faces common pressures—such as stakeholder and investor demands to decarbonize their own operations—metals and mining companies have been presented with a special challenge of their own: supplying the critical inputs needed to drive the massive technological transition ahead.

    Raw materials will be at the center of decarbonization efforts and electrification of the economy as we move from fossil fuels to wind and solar power generation, battery- and fuel-cell-based electric vehicles (EVs), and hydrogen production. Just as there are several possible trajectories through which the global economy can achieve its target of limiting warming to 1.5°C, there are corresponding technology mixes involving different raw-materials combinations that bring their own respective implications. No matter which decarbonization pathway we follow, there will be fundamental demand shifts—and these will change the metals and mining sector as we know it, creating new sources of value while shrinking others.

    Requirements for additional supply will come not only from relatively large-volume raw materials—for example, copper for electrification and nickel for battery EVs, which are expected to see significant demand growth beyond their current applications—but also from relatively niche commodities, such as lithium and cobalt for batteries, tellurium for solar panels, and neodymium for the permanent magnets used both in wind power generation and EVs (Exhibit 1). Some commodities—most notably, steel—will also play an enabling role across technologies requiring additional infrastructure.


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