Critical minerals policies and the pivot away from China
Through the Energy Act of 2020, the United States (US) has a list of critical materials, called the “electric eighteen,” which are crucial for energy. An additional 50 minerals are under a list of critical minerals as determined by the interior secretary.
The European Union passed the Critical Raw Materials Act, recognizing the role of CRMs in the energy transition. It identifies 34 critical materials, where 17 are strategic raw materials because of high risk of supply issues. Nickel, manganese, cobalt, copper, and lithium are among them.
Australia has the Critical Minerals Strategy 2023-2030, to grow its critical minerals sector and contribute to global supply chains, with an emphasis on domestic processing, which it had previously neglected. A significant mining global player, Australia is also positioning itself as a “renewable energy superpower.”
Another mining player, Canada has a critical minerals strategy where criticality is based on supply chain security and on a high probability of the mineral being mined in Canada.
The policy has also been articulated, albeit unevenly, in developing countries with rich deposits of critical minerals. For these countries, the demand side of criticality is more relevant i.e., its role in growing the economy and helping to balance trade.
In the Democratic Republic of Congo, three critical minerals - cobalt, germanium, and columbite-tantalite, have been classified as strategic minerals under a separate legal framework. The 2018 mining code imposes a ten percent royalty for the government for minerals considered strategic. But outside of this, no comprehensive policy has been introduced regarding CRMs.
Chile aims to retain control of its lithium industry even as it plans to increase production and invite new investors through its lithium strategy.
The world’s largest producer of nickel, Indonesia has a ban on the export of raw nickel ores, to encourage domestic processing. This defensive policy has received criticism, and a formal complaint has been lodged. In 2022, a panel of the World Trade Agreement found that Indonesia’s defensive stance violated its obligations under the 1994 General Agreement on Tariffs and Trade.
China has significant reserves of transition minerals, especially rare earth elements (REE). But what is remarkable is its role in the global value chain: In terms of processing, China refines 35% of the world’s nickel, 50-70% for lithium and cobalt, and nearly 90% for rare earth elements. Chinese companies have also made substantial investment in overseas assets in Australia, Chile, the DRC, and Indonesia.
This is, in fact, one of the policy drivers regarding transition minerals. Majority of the policies of consumer countries around criticality are shaped not just by demand but an impetus to rely less, if at all, on China; and, to a lesser extent, from other suppliers of certain minerals.
The geopolitics of transition minerals pursues two parallel tracks in relation to China: decoupling or derisking. Most of the new policies anchored in criticality are an attempt at de-risking the industry from China by mapping out other sources of goods and minimizing risk to disruption.
The United States, in particular, has been considering the idea of decoupling, which involves severing trade and investment ties.To achieve this goal, the US has thus pursued a series of bilateral partnerships. However, China’s dominance and the impracticality of this approach are likely to render these efforts futile.
China has secured this position through a multi-pronged approach by attracting investments, mitigating risk, and bolstering its expertise throughout the value chain. Criticality could inadvertently endanger the environment and communities in the global South, where huge volumes of key transition minerals are located.