In their 2023 Energy Transition Outlook, Wood Mackenzie set out what would need to happen to achieve net zero by 2050 (in line with the 2015 Paris Agreement). The most likely outcome, the report notes, given the current rate of investment and technology and policy advances, is “consistent with a 2.5 degrees global warming by 2050.” Key drivers of what will determine the scenarios are:
- Renewables
- Electrification
- Policy
Figure 2: Wood Mackenzie 2023 Energy Transition Outlook
Source: 2023 Energy Transition Outlook (Wood Mackenzie)
“The energy transition is, and will continue to be, metals intensive – metals and mining is a key strategic growth driver over the next two decades,” explains Deutsche Bank’s Ropers. For this reason, he sees constraining factors, including the availability of minerals and metals to support green energy decarbonisation investments (which include increased electrification), as obstacles in the pathway to net zero.
Somewhat controversially, there is no getting away from the fact that a successful transition does mean ongoing investment in oil and gas so that supplies of affordable energy are not interrupted along the way. “Much more investment and accelerated project cycles in critical minerals/metals are primordial to support the decarbonisation of the global economy. The Wood Mackenzie report indicates that oil and gas will still have to play a role in the energy transition in line with the IEA net zero transition analysis of the industry,” says Ropers.
Figure 3: Energy consumption and demand
The Wood Mackenzie estimate of total final energy consumption demonstrates how the share of electricity and low-carbon hydrogen in total final consumptions “rises to 34% in the base case and 61% in our net zero scenario by 2050”. See Figure 3.
In its response to G7 Leaders in December 2023, the IEA applauded the rise in clean energy investment to US$1.8trn from US$1trn five years earlier.2 But, it adds, “today’s clean energy investments remain well short of the amounts needed to align with the net zero emissions by 2050 pathway, which requires spending of well over US$4trn annually by 2030.” It also expresses concern that “many clean energy supply chains exhibit a high degree of geographical concentration, both for the mining and processing of critical minerals and ultimately in the manufacturing of clean technologies, many of which rely on critical minerals.”
Given that the EU is a net importer of oil, gas and critical minerals, the bloc remains exposed to market volatility and high energy prices – impacting competitiveness. The other issue is the energy/electrification needed in the first place to extract and process metals as well as recycling them – at present, renewables infrastructure is insufficient to meet total primary energy demand.
China’s investments in clean energy supply chains have helped bring down costs around the world for key technologies, explained the IEA in its Energy Technology Perspectives.3 However, the issue surrounding geographical concentration in global supply chains, it adds, “creates potential challenges that governments need to address”. In short, “for mass-manufactured technologies like wind, batteries, electrolysers, solar panels and heat pumps, the three largest producer countries account for at least 70% of manufacturing capacity for each technology – with China dominant in all of them.”
The specific dominance of China in electric vehicle (EV) inputs was highlighted in March 2024 by science journal Nature. The article, Electric vehicle battery chemistry affects supply chain disruption vulnerabilities, explains the three segments of the EV battery supply chain:
- Upstream (mining and extraction of raw materials);
- Midstream (processing of raw materials into battery-grade components); and
- Downstream (cell and pack manufacturing, as well as end-of-life recycling and reuse)
“While upstream mining is geographically distributed by material, China dominates every part of the midstream and downstream supply chains of all materials, from material processing and refining to electric vehicle production,” note authors Cheng, Fuchs, Karplus and Michalek.4
“The energy transition is, and will continue to be, metals intensive”
Wood Mackenzie’s Kettle believes that China does not care which part of the value chain generates the returns “as long as the total returns are there”. In the West, “we look at each individual part of the value chain. If we are going to wean ourselves off China, there are higher capital costs and higher prices – so the returns might not be there at first.” In short, says Kettle, “we are going to have to do more risky things to deliver the transition.”