Mining value from the Circular Economy
As we peep into the future, we look at more sophisticated electronic gadgets, batteries with enormously high storage densities and a transition from conventional to clean energy. If we look closer we would find some critical minerals at the centre of this evolution and an immediate need to secure their supply chain. Does Circular Economy has a role to play in it? Let us have a look.
Importance of Mining & Raw Material Industry in the Global Economy
Mining and Raw Material Industry is one of the most important sectors for any major economy in the world. Mining Foreign Direct Investment (FDI) often dominates the total flow of FDI in low-income economies that have only limited other attractions for international capital. This could range from 60% - 90% of their total FDI. Mineral exports, at the same time, have rapidly risen to be a major share of total exports in low-income agrarian economies even when starting from a low base They contribute as much as 60% of total exports in mining driven low-income economies. Mineral taxation has now become a significant source of total tax revenues in many low-income economies which have limited tax-raising capacity, with the share varying from 5% - 25% of total government revenue[1]. For every job created in mining, the International Council on Mining and Metals (ICMM) estimates a further two to five are created in other sectors. A clear dependence is evident of this increase in the rising demands in major middle-income countries and a persistent ongoing shift in the production of major minerals to tap previously inaccessible deposits in remote less developed regions[2].
Importance of metals for our future
The role of metals in our daily life used consumer goods ranging from micro-sized electronics gadgets to Boeing Air Carriers are well known to most of us. Let us have a look at some of the modern industries and technologies while trying to understand why some of the lesser-known minerals hold the key to our future.
When we consider the energy transition movement we are witnessing right now, wind power generation is being considered as one of the more prominent renewable sources. Direct drive wind turbines account for one-third of all wind power generation[3]. Compared to other wind technologies they have higher energy output and lower maintenance requirements. To operate direct-drive turbines, permanent magnets are needed and to produce them, Rare Earth Elements such as neodymium form essential raw material components. Rare Earth Elements (REEs) are a group of 17 metals that share certain unique properties including heat resistance and high electrical conductivity. These characteristics make REEs essential to many products, ranging from smartphones to more advanced technologies, particularly green technologies. A shadow looms over wind farms as concerns about supply chain restrictions and market monopolies have been raised in recent years and warning signs of an imminent REE Supply crisis can be seen all over.
Batteries hold the key to transitioning away from fossil fuel dependence and are set to play a greater role in the coming decade[4]. In 2010, batteries powered our phones and computers. By the end of the decade, they are starting to power our cars and houses too. The next step, and what will define the next decade, is utility-scale storage. As of now the whole Electric Vehicle industry which is expected to surge in demand in the coming years is highly dependent on Lithium-Ion Batteries. Lithium, Cobalt, Nickel, and Graphite are integral materials in the composition of lithium-ion batteries (LIBs) for electric vehicles[5]. A global supply crisis for any of these metals (Lithium, Cobalt, Nickel, and Graphite) would mean a setback to our idea of a cheap and affordable source of an energy storage device.
Touch Screens are already dominating almost all devices we operate presently. Ranging from Smartphones, Notepads to Computers, touch screens are everywhere. In our pockets, on our cash points, built into the seat-backs on transatlantic aircraft and even on obscure things like touch screen guitars! Indium Tin Oxide (or tin-doped indium oxide) is particularly important to the world's dominant smartphone and tablet manufacturers because of its unique material properties perfect for touch screen applications[6]. ITO is not just used for touch screens, its fantastic properties have created a huge global demand in technologies like LCDs, Plasma Screens, LEDs, and Solar Cells. Similar to the case of REEs, it is becoming more and more evident that we are running out of supply for Indium, the main element in ITO.
Evaluating the Supply Chain for these Critical Minerals
It is abundantly evident that for a future which we are envisioning, i.e. the future of ‘Screens & Clean Energy’, these above-mentioned minerals are going to be an essential component. Hence securing its supply chain for a long term should be one of the important priorities globally.
Rise in Demand
The demand for raw materials, in general, will increase in future fuelled by the growth of the industrial and construction sector particularly in emerging economies. But as the deployment of clean energy technologies picks up, demand for critical minerals is set to grow much significantly. Since 2015, electric transport and grid storage have quickly become the largest consumers of lithium, together accounting for 35% of total demand today.
Likewise, the share of these applications in cobalt demand has risen from 5% to almost 25% over the same period. Over 3 billion tons of metals and minerals will be needed by 2050 to scale up wind, solar and geothermal power and energy storage to reach a below 2°C future, the exact amount will vary, according to what the energy transition looks like.
One of the important challenges in developing clean energy products such as Electric Car is that they would require higher per unit volume of minerals than a conventional car. Based on the chart above prepared by IEA, an electric car would require close to 4 times the amount of copper compared to a conventional car and 3 times the amount of Manganese.
We are not only looking at growth in demand of Cars per capita, but we are also looking at a rise in the volume of raw material required in producing a single unit of the car. In a way, it’s a premium we are paying for switching from conventional to clean energy technology.
Challenges in Supply Security
Critical minerals have highly complex global supply chains. Their production is subject to a high degree of monopoly. Hence, the availability of these minerals faces high levels of supply risks. The International Energy Association study has identified that China produces 63% of the world’s output of rare earth elements (REEs) and 45% of molybdenum. More than 70% of cobalt is mined in the Democratic Republic of Congo, with China having majority ownership of these mines. Australia produces 55% of the world’s lithium with China as its major importer. South Africa mines 72% of the world’s platinum output[7].
For lithium, cobalt and various rare earth, the top three producers control well over three-quarters of global output. In some cases, a single country is responsible for around half of the worldwide production. The concentration of refining operations is also high, with China alone accounting for some 50% to 70% of global lithium and cobalt refining. China also holds a dominant position along the entire rare earth value chain. It is responsible for 85% to 90% of the processing operations that convert mined rare earth into metals and magnets.
With the rising trend of Economic Nationalism and opposition to Globalisation, the fact that supply of some of most critical minerals remains in control of a few handfuls of countries creates challenge and uncertainty for various Clean Energy and Electronic Products and their supply chain. Adding fuel to the fire has been the recent isolation of China which controls a significant share in downstream and upstream operations of many of these minerals including REEs, Molybdenum, Lithium, and Copper.
From Value Chain to a Value Cycle: How Raw Material Value Chain needs to adapt
Role of a Circular Value chain or as it can be called a Value Cycle would be crucial in securing these supply chain challenges for these critical minerals.
As concluded in a study conducted by World Bank Group[8], future increases in recycling rates can play an important role in mitigating increases in demand for primary minerals, as can reuse of components for energy storage technologies, such as Li-ion batteries, although the commercial application of such reuse is currently limited. Incentivizing recycling, reuse, and refurbishment is going to be a vital part of the low-carbon transition. Recycling some of these low-carbon technologies once they reach the end of life could help reduce emissions associated with primary mineral production.
Recycling alone cannot eliminate all emissions associated with supplying minerals, but it could have a dramatic effect in reducing some of these emissions. For example, secondary aluminium (for example, recycled content) could have a carbon footprint that is about 5–10 per cent of that coming from primary aluminium production[9]. Increasing recycling, therefore, can greatly assist in the transition to a cleaner energy system, but challenges relating to the availability of mineral scrap and the need for purity of materials in some applications will exist, along with reducing the emissions intensity of recycling processes themselves.
Role of the Mining & Metals Sector
Mining and metals companies need to innovate their business models[10] to accelerate their transition to the circular economy.
Innovate new circular products and services. The mining industry needs to actively engage with downstream users of materials to co-develop innovative circular products and services, which might include leasing materials (using advanced track-and-trace systems) or supporting certification of customer products to enable reuse and ease of remanufacturing. For instance, the coffee maker Nespresso, for example, has announced that its coffee pods will be made with the world's first certified responsible aluminium, produced by Rio Tinto. Improving processes for scrap recovery, reprocessing and reuse can cut production and materials costs while creating potential new sources of revenue.
Collaborate with customers and build a circular partners' ecosystem. Raw material producers must start looking for ways to collaborate proactively up and down the supply chain by working to create regulatory regimes favouring improved circularity or establishing cross-industry partnerships to design ways to extend product life and retain ownership. It is also important to develop cross-industry standards to validate the integrity of products and/or materials for end-of-life take-back and repurposing. In the circular economy, mining and metals companies face risks, but also an abundance of opportunities in areas ranging from recovery and recycling to product life extension to product-as-service.
Industry leaders need to understand how supply and demand are evolving for each material, how to source materials and energy, how to create partnerships inside and outside the industry, and how to optimise operations. This means building closed-loop systems, locking in downstream ecosystems and creating sustainable value. The stakes are high, but the companies that get this right will be in a position to grow along with the circular economy while minimising the environmental and societal impact of their businesses.
In conclusion, Circular Economy principles and strategies for the Mining & Raw Material Industry could turn out to be the next crucial step in securing its supply chain. It is necessary that mining industry leaders act immediately in this regard, as a transition to ‘value cycle’ from the value chain is not a short term action. FMCG industry leaders like Unilever have already shown what it takes to achieve a full-scale transition for an industry with a global footprint. It took almost a decade for Unilever to develop and implement its Sustainable Living Plan which resulted in their supply chain becoming more sustainable and circular.
As a continuation to this article series, in the upcoming editions, we would focus on Global and Indian mining companies which are leading the way in a circular economy, the rise of secondary producers and waste management start-ups in tackling this challenge and the role of geopolitics and international trade relations in the coming years to create a globalisation movement for a circular economy. Stay tuned & Stay Circular!
About the Author
Utkarsh Akhouri (LinkedIn) is an alumnus of Indian Institute of Technology, Kharagpur and has over 5 years of experience in the field of Mineral Economics, Governance, Raw Material Security and Circular Economy. He is currently leading a European Mineral Policy Think Tank as its COO and has participated in several inter-governmental projects promoting sustainability in the mining sector.
References
[1] Role of Mining in National Economies. Copperalliance.org. (2017). Retrieved 1 August 2020, from https://copperalliance.org/wp-content/uploads/2017/01/161026_icmm_romine_3rd-edition.pdf. [2] MCI Index Report; https://copperalliance.org/wp-content/uploads/2017/01/161026_icmm_romine_3rd-edition.pdf
[3] https://www.windpowerengineering.com/recycling-rare-earth-metals-is-key-to-sustaining-direct-drive-turbines/
[4] https://www.cnbc.com/2019/12/30/battery-developments-in-the-last-decade-created-a-seismic-shift-that-will-play-out-in-the-next-10-years.html [5] www.usitc.gov/publications/332/working_papers/gvc_overview_scott_ireland_508_final_061120.pdf [6]https://www.azom.com/article.aspx?ArticleID=9634#:~:text=Indium%20Tin%20Oxide%20(or%20tin,optically%20transparent.
[7] Kim, Tae-Yoon and Milosz Karpinski (2020), Clean energy progress after the Covid-19 crisis will need reliable supplies of critical minerals, International Energy Agency (IEA): https://www.iea.org/articles/clean-energy-progress-after-the-covid-19-crisis-will-need-reliable-supplies-of-critical-minerals
[8] Minerals for Climate Action: The Mineral Intensity of the Clean Energy Transition; http://pubdocs.worldbank.org/en/961711588875536384/Minerals-for-Climate-Action-The-Mineral-Intensity-of-the-Clean-Energy-Transition.pdf [9] Nuss, P., and M. J. Eckelman. 2014. “Life Cycle Assessment of Minerals: A Scientific Synthesis.” PLoS One 9 (7): e101298.
[10] https://www.miningmagazine.com/industry-comment/opinion/1370543/can-mining-go-circular