Mining a Solution for Clean EnergyCharl Malan, Senior AnalystSeptember 08, 2021
On September 8, 2021, the Biden administration released its plan for solar energy to provide 45% of the nation’s electricity by 2050. The previous month, President Joe Biden signed an executive order aimed at making zero-emissions vehicles 50% of new car sales by 2030. Transportation Secretary Pete Buttigieg in a CNBC interview further emphasized that “We have got to act, the transportation sector is the biggest part of our economy emitting greenhouse gases, and cars and trucks are one of the biggest parts of that.”
Underemphasized amid this discussion is how much minerals – such as lithium, nickel, cobalt, manganese, graphite, rare earths, copper, silicon and silver – play a key role in these and other decarbonization efforts, globally. The applications and technology that are driving the transition to clean energy and decarbonization are extremely minerals intensive.
Minerals Used In Electric Vehicles
Minerals Used In Clean Energy Technologies
Heavy Demand for Heavy Metals
A typical electric vehicle (EV) requires six to eight times more mineral inputs than a conventional, internal combustion engine vehicle. An EV requires 60 to 83 kilograms (132 to 183 pounds) of copper, compared with a conventional car which requires only 15 kilograms (33 pounds). Meanwhile, a single, fully-electric bus requires a whopping 370 kilograms (816 pounds) of copper. By 2030, it is estimated that total demand for copper from EVs and associated infrastructure could be as high as 2.6 to 3.2 million tonnes (7.1 billion pounds) or approximately 13-15% of 2020 global supply, according to U.S. Geological Survey.
The minerals intensity of clean energy technologies may accelerate demand by as much as four to six times, depending on the technology. An offshore wind plant requires thirteen times more mineral resources than a similarly sized gas-fired power plant. The use of individual minerals such as cobalt, graphite and lithium (to name a few) could jump some 21, 25 and 42 times, respectively, during the next decade as the result of an aggressive push for clean energy use.
Supplying Decarbonization Needs
As the energy transition continues to accelerate, it seems feasible that decarbonization becomes the leading consumer of minerals. In other words, the global economy is transforming from one that is highly dependent on fossil fuels (coal, natural gas and crude oil) for its energy needs to one that is reliant on minerals. However, that may raise even deeper concerns surrounding supply—not only with the industry’s ability to appropriately match projected supply and demand, but also with the security of future supply.
In June 2021, the White House published a report describing the global supply chain for a number of these minerals as “nominally distributed, diverse and at serious risk of disruption”. According to the International Energy Agency (IEA), mineral extraction and processing are more geographically concentrated than traditional sources of energy, such as oil and natural gas.
Top 3 Producing Countries of Select Minerals and Fossil Fuels (2019)
Clean Energy Minerals: Location, Location, Location
The geographic location of clean energy transition minerals raises geopolitical concerns. Rightfully so, too, as just the top three producers account for 50-85% of global supply, with a majority of these minerals processed in just a single country (China). The same White House-issued report referenced above goes so far as to encourage U.S. federal and local governments to incentivize new, responsible extraction of minerals within the country’s own borders. Development of lithium mining projects in North Carolina, which currently holds approximately 3.6% of the world’s known global reserves according to the White House’s report, are an example of such effort to bolster domestic production. In terms of processing, though, the U.S. is still at a significant disadvantage, despite recent efforts to increase its processing capacity of these critical minerals.
“Security” of supply also extends to how minerals are sourced. Auto manufacturers have made significant strides to increase the transparency of their materials sources and supply chains, for example. According to Drive Sustainability’s recent study on automotive and electronic industry supply chains, materials mass-processed in China, such as zinc, may be contributing to pollution in surrounding water resources, soils and crops of local communities and pose serious health hazards there. Says Ullrich Gereke, Head of Procurement Strategy at Volkswagen, in regards to the company’s recent partnership with a global supply chain analysis provider, "[we need to] better understand which raw material sources and suppliers are in our supply chain and to measure their responsibility performance".
Accessing the Energy Transition Opportunity
The clean energy transition is at an inflection point, creating long-term investment opportunities across a variety of associated industries. Within mining, specifically, two companies that we believe are well positioned to benefit from this shift are MP Materials (1.27% of Global Resources Fund net assets and 2.10% of Environmental Sustainability Fund net assets) and Piedmont Lithium (0.59% of Global Resources Fund net assets and 3.08% of Environmental Sustainability Fund net assets). Per the companies’ websites, MP Materials is the only integrated rare earth mining and processing site in North America, while Piedmont Lithium continues to develop its world class, fully-integrated lithium business domestically in North Carolina.
Prior to May 1, 2020, the Global Resources Fund was known as the Global Hard Assets Fund.
All company, sector, and sub-industry weightings as of July 31, 2021 unless otherwise noted. This is not an offer to buy or sell, or a solicitation of any offer to buy or sell any of the securities mentioned herein. Fund holdings will vary.
Please note that the information herein represents the opinion of the author, but not necessarily those of VanEck, and this opinion may change at any time and from time to time. Non-VanEck proprietary information contained herein has been obtained from sources believed to be reliable, but not guaranteed. Not intended to be a forecast of future events, a guarantee of future results or investment advice. Historical performance is not indicative of future results. Current data may differ from data quoted. Any graphs shown herein are for illustrative purposes only. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission of VanEck.
ESG integration is the practice of incorporating material environmental, social and governance (ESG) information or insights alongside traditional measures into the investment decision process to improve long term financial outcomes of portfolios. Unless otherwise stated within the strategy’s investment objective, inclusion of this statement does not imply that the strategy has an ESG-aligned investment objective, but rather describes how ESG information is integrated into the overall investment process.
Global Resources Fund: You can lose money by investing in the fund. Any investment in the fund should be part of an overall investment program, not a complete program. The fund is subject to risks associated with concentrating its investments in Canadian issuers, commodities and commodity-linked derivatives, commodities and commodity-linked derivatives tax, derivatives, direct investments, emerging market securities, foreign currency transactions, foreign securities, other investment companies, management, market, operational, small- and medium-capitalization companies and hard assets sectors risks, including, precious metals and natural resources, that can be significantly affected by events relating to these industries, including international political and economic developments, inflation, and other factors. The fund’s portfolio securities may experience substantial price fluctuations as a result of these factors, and may move independently of the trends of industrialized companies. The fund’s investments in foreign securities involve risks related to adverse political and economic developments unique to a country or a region, currency fluctuations or controls, and the possibility of arbitrary action by foreign governments, including the takeover of property without adequate compensation or imposition of prohibitive taxation.
Environmental Sustainability Fund: Companies that promote positive environmental policies may not perform as well as companies that do not pursue such goals. Issuers engaged in environmentally beneficial business lines may be difficult to identify and investments in them maybe volatile. Environmentally-focused investing is qualitative and subjective by nature, and there is no guarantee that the factors utilized by the Adviser or any judgment exercised by the Adviser will reflect the opinions of any particular investor. Information regarding responsible practices is obtained through voluntary or third-party reporting, which may not be accurate or complete, and the Adviser is dependent on such information to evaluate a company’s commitment to, or implementation of, responsible practices.
You can lose money by investing in the Fund. Any investment in the Fund should be part of an overall investment program, not a complete program. An investment in the Fund may be subject to risks which include, among others, investing in derivatives, equity securities, emerging market securities. environmental-related securities, foreign currency transactions, foreign securities, investments in other investment companies, management, market, new fund risk, non-diversification, operational, sectors, small and medium capitalization companies, special purpose acquisition companies. Small- and medium-capitalization companies may be subject to elevated risks.
Investing involves substantial risk and high volatility, including possible loss of principal. An investor should consider the investment objective, risks, charges and expenses of the Fund carefully before investing. To obtain a prospectus and summary prospectus, which contains this and other information, call 800.826.2333 or visit vaneck.com. Please read the prospectus and summary prospectus carefully before investing.
Explore Related Blogs
Harnessing Growth: China at the Forefront of Sustainable Technology
How We Approach ESG Investing
AgTech: Cultivating Sustainable Solutions to Food Inflation
Harnessing Growth: Brazil’s Transportation Innovators Move Towards Sustainability
Capture the Entire Low Carbon Energy Opportunity Set