Overview of the results
In a nutshell
- Along with other high-tech products, renewable energy plants, storage facilities and grids require ever larger quantities of a growing variety of metals. A computer chip for the digital control of a power plant, for instance, contains about 60 different elements. The required metals include rare earths, gallium, germanium, indium, tellurium and the platinum group elements.
- If metals become too expensive, investments in more climate friendly technologies are less profitable. In addition, mining methods presenting ethical, health or ecological risks can threaten the social acceptance of raw material production.
- With a declining number of players and companies controlling an increasing share of raw materials, the markets are often highly opaque. Individual countries and companies can abuse their market power and render access to important raw materials more difficult.
- Germany requires a long-term raw material policy to foster open and transparent markets as well as high environmental and social standards. Higher recycling rates, mining in Europe and the deep sea as well as strategic investments in raw material projects can improve supply security.
Metals and minerals
The platinum group elements platinum, palladium, rhodium, ruthenium and iridium are used in fuel cells and as catalysts. They are therefore indispensable not only for hydrogen-based mobility systems, but also for long-term energy storage devices and power-to-X technologies. By means of the latter, power can be used to produce hydrogen, which can subsequently also be converted into methane or other chemical compounds.
Often, the mining of valuable metals and minerals is controlled by a very small number of countries. Around 75 percent of the worldwide palladium supply, required e.g. for electric vehicle batteries, is thus produced by Russia and South Africa. Rare earths are used, for instance, in wind power plants, motors and generators. More than 86 percent of the worldwide rare earth production is located in China, giving the country an enormous market power in this field.
Elements such as indium, tellurium, gallium or germanium are extracted as by-products in the mining of another metals: indium, for example, is a by-product of zinc production, tellurium of copper mining. These elements are found in the solar modules of photovoltaic panels and in magnets.
Companies have to buy most metals from producers abroad or on international exchanges. The markets are rarely in equilibrium: To be sure, metal prices tend to rise rapidly if the demand increases; however, since mining projects have a long lead time, it may take several years for the supply to catch up and the prices to fall again. An average of ten years will elapse between the discovery of a metal deposit and the start of exploitation. The consequences became obvious between 2003 and 2013: During this period, the economic boom in China entailed not only a lengthy high-price phase on the metal markets, but even temporary supply bottlenecks.
How secure the raw material supply is in the long term, depends largely on the reliability of the supplier countries. Here, political stability and the security of investments are pivotal factors. Critical raw materials are usually only produced by a small number of rather unreliable supplier countries. Being difficult to replace, these materials are, however, of paramount importance for the economy. In the event of a supplier country limiting its exports – like China did for the rare earths –, the supply is in jeopardy.
Efficiency and recycling
Improved production processes in the industry can contribute to a more economical (efficient) use of scarce raw materials or, indeed, to their substitution. In addition, end-of-life vehicles, electronic devices or power lines are valuable sources of raw materials: Around the world, about 50 million tonnes of electronic scrap accrue every year, including close upon two million tonnes in Germany. This potential should be exploited, recycling as many of the contained raw materials as possible.
Whereas scrap recycling already covers a large part of the current demand in the mass metals steel and copper, the recovery rates in the field of high-tech elements, such as rare earths remain low: For one thing, recycling is technically complex and expensive. For another, electronic scrap too often ends up in the household waste or little efficient recycling plants.
The following measures could increase the recycling rates:
- legal provisions and/or labels for product designs allowing for an easy recycling
- consumer-friendly collection systems (e.g. the possibility of giving back end-of-life products in shops as well as deposit and leasing systems for consumer electronics)
- waste legislation for a high-quality recycling enabling the recovery of valuable metals accruing in small quantities, namely precious and special metals
- tighter export controls for consumer goods to prevent the illegal exports of electronic scrap or end-of-life vehicles
With a greater variety of raw material suppliers holding sufficiently large market shares, individual shortfalls can be better compensated for. Developing additional deposits could therefore mitigate the dependency on a small number of countries.
The following measures could serve to expand the raw material base:
- At present, there is no metal mining in Germany, because the deposits are exhausted or have become uneconomical. There are, however, lithium, copper and tungsten deposits as well as potentials for the discovery of zinc deposits with indium and germanium. Their exploitation would require explorations in greater depths and the development of new technological processes. The copper deposits in Germany could also be used to produce tellurium. However, this would require the development of more profitable exploitation and processing methods.
- The deep sea likewise harbours deposits of valuable metals, such as cobalt, copper and nickel. Germany has already invested in marine mining and has obtained exploration licenses for the Indian and the Pacific Ocean. An important next step would involve test mining, to trial the technologies and obtain a better estimate of the costs and environmental impacts. As mining is more expensive in the deep sea than on land, private companies will be reluctant to invest. Marine deposits can therefore only be developed if the government grants financial support and bears part of the entrepreneurial risk.
Raw material data
Good market data enables companies a realistic assessment of their supply situation. Knowledge of the geological underground facilitates the search for deposits.
The following measures could contribute to facilitating access to raw material data:
- In Germany, raw materials companies are obliged to submit the geological data obtained during exploration to the mining authorities. A modernised legislation on deposits could further compel the companies to publish this data after a suitable waiting period. This would avoid duplications of efforts and save costs, since academia and industry could use the information to develop new exploration concepts in Germany.
- Elements that are obtained as by-products, such as indium and tellurium, are often traded by only a few producers and purchasers; the markets are highly opaque. Governments, producers and consumers could be linked under the umbrella of the United Nations to collect data on these elements, which could then, for instance, be prepared for market statistics. Such International Metal Study Groups already exist for lead, zinc, copper and nickel.
The best way for companies processing large quantities of raw materials to safeguard their supply is either to engage in mining themselves, acquire interests in mining projects, conclude long-term supply contracts or secure pre-emption rights. The government, in turn, can promote free and transparent markets by concluding trade agreements and intergovernmental treaties.
Things become difficult, however, once a supplier has a monopoly position. In the extreme case, this could result in a raw material no longer being procurable, because the country in question has imposed an export ban. If a market failure is indeed impending, the government can become involved in the procuring and securing of raw materials. Before any such action takes place, however, it must be carefully analysed whether the expected benefits justify the high economic costs and whether the measures are indeed appropriate to counteract the impending market failure.
Should this be the case, there are the following options:
- A government-subsidised raw materials company could initiate mining projects and establish strategic partnerships with producers of raw materials and intermediates. For financial reasons, the government should attempt to invest in raw material projects anticyclically, i.e. in phases of price depression – always aiming at a rapid reprivatisation of the shares. This, however, involves a significant investment risk, since success cannot be guaranteed.
- Once shut down, a mine cannot be relaunched at a moment’s notice. In order to save mines from having to close during temporary price depressions, they could be granted public subsidies enabling them to switch into the “stand-by mode” until commodity prices rise again.
- Since the oil crisis in 1973, Germany has kept up a strategic oil reserve. Critical raw materials could likewise be stocked in order to cushion temporary supply bottlenecks. Companies could take out specific insurances against a supply failure of their most important raw materials. In the event of a supply crisis, only they would receive raw materials from the reserve. By means of the “insurance premium”, the industry would bear part of the costs, while the selection and quantity of the stored raw materials would be regulated according to demand.
International resource policy
Consistent, high environmental and social standards are not only required from an ethical point of view, but are also a prerequisite for fair competition. They would further prevent the ecological benefits of the energy transition from being counteracted by energy expenditure and environmental pollution during the extraction of raw materials. This applies to both mining and recycling.
The following measures could strengthen international networking:
- Bilateral commodity agreements and partnerships are easier to implement than agreements between several states. In addition to consolidating raw material supply relations, they can aim at establishing environmental and social standards, improve job security in the raw materials production and contribute to climate protection and raw material efficiency.
- Binding transparency mechanisms can create political pressure: In the EU, companies are obliged to disclose the supply chains for conflict resources in order to uncover links between producers, governments and armed groups. Similarly, environmental and social standards could be made transparent. This would importantly require monitoring by an independent auditor.