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The author served as special assistant to the president and senior director for international economics in the White House from 2021 to 2023.
Fast forward to 2031. The European Union’s €250bn Green Deal fund has been depleted, and the US Inflation Reduction Act is coming to an end. The situation is not looking optimistic. Global shortages and price surges in lithium and other minerals have hindered the sales of electric vehicles. The lack of minerals for assembly lines has resulted in furloughed workers in America’s ‘Battery Belt’, while similar supply problems are affecting Europe. Talks with a new cartel of critical minerals producers have been challenging, partly due to China’s control over member countries’ mines and its prioritization of its own battery manufacturers.
However, there is a solution. Industry analysts agree that to achieve the energy transition by 2030, the world will need significantly more lithium and other minerals than it is currently producing. Boosting global production responsibly is of utmost importance to avoid critical minerals shortages. According to Benchmark Minerals, approximately 330 new mines, including 59 new lithium mines, will be required in the next decade, even with significant progress in recycling.
This is a challenge that no single country can tackle alone. Cooperation between the US and its partners to enhance overseas production is essential. Market forces alone cannot effectively manage this problem. The saying “the cure for high prices is high prices” is questionable in this context, especially considering the 800% increase in lithium prices over the past three years, which has not led mining companies to invest adequately due to price volatility concerns.
The recent critical minerals agreements between the US and Japan, and soon with Europe, present a promising start. However, to prevent global shortages, policymakers must take more extensive actions. It is crucial to involve exporting countries, not just buyers, by expanding Washington’s bilateral deals with Japan and the EU into a comprehensive critical minerals pact with major net importers and exporters. Failing to do so may lead to misinterpretation of the US agreements as an exclusive “buyers club” and potentially trigger calls for an OPEC-style cartel for critical minerals by some exporters.
To establish an effective minerals club, buyer countries should incentivize responsible production expansion. This entails treating battery minerals as essential commodities and adjusting policies accordingly. Measures like price insurance, which provides sellers with options to sell minerals at predetermined prices and times, can encourage investment amid high price volatility. The US and other net importers could also offer tariff reductions, concessional financing, and technology access conditional on stronger labor and environmental standards.
Furthermore, longer-term purchase agreements should be coupled with more favorable value sharing and royalty models for exporting governments. Mining executives have expressed openness to such arrangements as long as mineral-rich governments guarantee the protection of existing investments, which is reasonable.
Another crucial aspect is diversifying supply chains, particularly in minerals processing where China currently dominates approximately 85% of the market. Members of the minerals club should collaborate on innovation to reduce demand and promote recycling. Given the predicted deficits, technological advancements become a significant factor. However, promising technologies like sodium-based batteries still face significant challenges.
Implementing these measures benefits all parties involved. Supply is increased, net exporters attract investment and secure better terms for new deals, affected communities gain higher profits, and progress is made in decarbonizing one of the world’s dirtiest industries. Additionally, a guaranteed supply may incentivize other major emitters to commit to climate goals. For example, convincing India to ban internal combustion engines becomes more feasible if there is no acute risk of EV battery shortages.
The history of essential commodities, particularly those related to energy, is heavily influenced by governments. With proactive actions from Washington and Brussels, the headlines in a decade could be positive: a thriving electric vehicle manufacturing sector, achievement of transatlantic climate goals, and reduced geopolitical tensions caused by oil dependency through secure and clean energy alternatives. The key lies in taking action now.
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