The green energy transition, while necessary, deepens dependence on minerals from unstable countries, underscoring the need for strategic reassessment.

Green energy shift: A geopolitical quandary

The green energy transition, while necessary, deepens dependence on minerals from unstable countries, underscoring the need for strategic reassessment.

In the wake of the Ukraine invasion, there is a mounting drive to replace Russian gas and oil with renewable electric energy sources. The transportation sector, currently undergoing electrification, is a focal point for this transition. Consequently, the quest for access to critical minerals essential for electrification has emerged as a pivotal strategic concern within the electric vehicle industry.

Our analysis highlights that the markets for scarce and essential minerals such as cobalt, graphite, lithium, and rare earth elements are heavily concentrated in a select few countries. China, a key ally of Russia, wields considerable influence in the production of graphite and rare earth elements and plays a dominant role in the processing of copper, nickel, cobalt, lithium, and rare earth elements. Additionally, a significant proportion (at least 70%) of global cobalt, graphite, and rare earth element resources are situated in countries known for their high levels of corruption.

The electrification of the transportation sector could potentially amplify Europe’s and the USA’s reliance on authoritarian, corrupt, and politically unstable nations for critical resources. This deepening dependency on China, a vital strategic partner of Russia, heightens the geopolitical risks associated with the shift toward green energy.

Why is it urgent to reassess our approach to critical resources in light of evolving uncertainties in the green shift? The evolving uncertainties in the green shift highlight the need to reevaluate our approach to critical resources. The interplay between geology, geopolitics, and sustainability underscores the urgency for reassessing our dependence on critical minerals.

Arne Nygaard

To address these risks, we recommend implementing various strategies, including establishing vertical control over supply chains, making targeted investments in technology and infrastructure, fostering innovation in alternative green energy sources, and exploring new sources of critical minerals in diverse regions. Substitution and closed-loop technologies can help reduce resource dependency and mitigate geopolitical risks. However, relying solely on closed-loop recycling may not be enough to keep up with the rapid growth of the electric vehicle market in the short term.

The European Union aims to spearhead the green transition to combat the climate crisis, focusing on minerals such as Rare Earth Elements (REE), Titanium, Silicon, and Graphite. However, the production of these minerals predominantly occurs in corrupt, unstable, and authoritarian states like China and the Democratic Republic of Congo (DRC), which dominate the production of crucial minerals for green technologies. Although Russia is a major producer of oil, natural gas, nickel, and cobalt, China, its strategic ally, dominates the supply chains essential for the green transition.

The evolving strategic uncertainties surrounding the green shift underscore the imperative for reevaluating our approach to critical resources. The interplay between geology, geopolitics, and sustainability underscores the urgent need for a strategic reassessment of our dependence on critical minerals.

The concentration of countries producing critical minerals for the green shift surpasses that of oil and natural gas markets, as indicated by recent analyses from the International Energy Agency (IEA). Notably, minerals like cobalt, graphite, lithium, REE, and silicon are highly concentrated in a few countries, with over 70% of production occurring in corrupt and unstable states such as Myanmar, DRC, and Mozambique. This concentration heightens geopolitical vulnerabilities in our energy and transportation systems, exacerbating dependence on concentrated market power in unstable and corrupt regimes.

To address these challenges, increased mineral recycling is a crucial step in securing critical mineral supplies. However, this measure alone will not fully solve the problem, as projected by the IEA, with recycled cobalt, nickel, lithium, and copper meeting only 10% of the demand for these minerals by 2040. Thus, we face a growing vulnerability and dependence on these “green” minerals.

Implementing closed-loop recycling systems in the automotive industry demonstrates technological advancements within the circular economy that reduce strategic uncertainties. However, the rapid growth in electrification will increase reliance on concentrated market power in corrupt and unstable regimes, outweighing the benefits of a more circular economy.

A more robust pace of innovation in green technology is essential to provide alternative solutions to resource dependency and promote the recovery of critical minerals. Accelerating the exploration, development, and production of our mineral resources can reduce strategic reliance on authoritarian and corrupt states. Strengthening institutions, fostering integration, and promoting democracy in unstable producer states are crucial to reducing uncertainty. For instance, Congo’s cobalt production is undergoing environmental certification to meet the standards of customers like Tesla and investors in the US and Europe. However, this incremental progress may not result in a substantial change in the geopolitical landscape in the near term.

New forms of uncertainty on the horizon highlight the pressing need to address the limited short-term alternatives to critical minerals and the resulting strategic uncertainties. Ignoring these challenges in the context of the green shift could exacerbate geopolitical risks and hinder progress toward a sustainable future.

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Journal reference

Nygaard, A. (2023). The geopolitical risk and strategic uncertainty of green growth after the Ukraine invasion: how the circular economy can decrease the market power of and resource dependency on critical minerals. Circular Economy and Sustainability3(2), 1099-1126.

Arne Nygaard is a Professor at Kristiania University College, holding a Dr. Oecon degree from the Norwegian School of Economics, awarded in 1992. He has been a Visiting Scholar at several institutions, including the Wharton School at the University of Pennsylvania and the Smith School of Business at the University of Maryland. With more than 50 papers, eight books, and numerous comments and articles, Nygaard has authored a range of works on economic and business-related topics. His research has been featured in several renowned journals in marketing, entrepreneurship, and sustainability. Nygaard's research interests include supply greenwashing, geopolitical risk, and strategic uncertainty.