Critical minerals for the energy transition and electromobility: economic development opportunities and socioenvironmental challenges

Main article

The transition to renewable energy sources and the growth of electromobility are driving an increase in demand for key minerals, including lithium, copper, cobalt, graphite and nickel. These minerals are essential for manufacturing wind turbines, solar panels and the high-capacity batteries used in electric vehicles and energy storage systems, for example (see box 1 on lithium-ion batteries).

These low-carbon technologies, which are essential for combating climate change, are more mineral-intensive than conventional fossil fuel-based technologies. According to the International Energy Agency (2021), electric vehicles consume 6 times more critical minerals than vehicles that run on fossil fuels (see figure 1A), while offshore wind farms and solar photovoltaic power plants require 13 and 6 times more minerals, respectively, than a gas plant of similar size (see figure 1B).

Figure 1

Quantity of minerals used in selected clean-energy technologies

A. Transport

(kg/vehicle)

B. Power generation

(Tons/MWh)

Source: Prepared by the authors, on the basis of International Energy Agency (IEA), The Role of Critical Minerals in Clean Energy Transitions, Paris, 2021.

In its publication Net Zero Emissions by 2050 Scenario, the International Energy Agency estimates that global demand for the minerals required for clean energy could grow as much as 17.1 times for lithium, 5 times for cobalt, 6.5 times for nickel, 4.6 times for rare earth metals and 3.1 times for copper (see figure 2). Boosting production sufficiently to meet the growth in demand will require massive investment and the expansion of the mining frontier to territories with resources that have yet to be exploited. In light of the increasing strain on communities and ecosystems from mining activities, it is essential for the region’s countries to establish a strategic vision, appropriate economic, social and environmental regulations and enhanced coordination.

Figure 2

Projected demand for selected minerals to 2050

(Multiples of estimated 2023 demand)

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of International Energy Agency, Global Critical Minerals Outlook 2024, Paris, 2023 [online] https://www.iea.org/reports/global-critical-minerals-outlook-2024.

Note: STEPS refers to stated energy policies scenario and NZE refers to net-zero emissions by 2050 scenario. Supply (demand) increases by a certain factor (multiples of demand = [demand in 2050/production in 2023] to cover clean energy requirements: electric vehicles, battery storage and other uses).

Growth in the demand for these minerals will hinge on how fast countries adopt renewable energy technologies and electromobility. For example, lithium demand today is largely driven by electric vehicle battery technologies. However, demand for many minerals will also continue to be driven by other technologies.

The mining industry of Latin America and the Caribbean can contribute to the global supply of several of these critical minerals. The region has significant reserves of lithium, copper, nickel, molybdenum, graphite and other minerals. Chile has reserves of lithium and copper; Peru has copper and molybdenum; Brazil has lithium, graphite and rare earth metals; and Mexico has copper (see figure 3).

Figure 3

Latin America and the Caribbean (5 countries): share of selected global mineral reserves, 2023

(Percentages)

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of statistics from U.S. Geological Survey, Mineral Commodity Summaries 2024, Washington, D.C., 2024.

Notably, the region has large deposits and reserves of lithium (see maps 1 and 2). Over the next 10 years, lithium carbonate equivalent production capacity in the region is expected to increase by a factor of 2.7, going by projects that are in the pipeline or classified as probable, and by a factor of 5, when possible and speculative projects are also considered (Jones, Acuña and Rodríguez, 2021).

Map 1

World: share of lithium resources, 2023

(Percentages)

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of statistics from U.S. Geological Survey, Mineral Commodity Summaries 2024, Washington, D.C., 2024.

The following map shows the main countries that have lithium reserves, an essential mineral in the manufacturing of rechargeable Li-ion batteries, now one of the main energy storage solutions in electric vehicles.

Map 2

World: share of lithium reserves, 2023

(Percentages)

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of statistics from U.S. Geological Survey, Mineral Commodity Summaries 2024, Washington, D.C., 2024.

Note: Other countries that have declared reserves include Austria, Czechia, the Democratic Republic of the Congo, Finland, Germany, Ghana, Mali, Mexico, Namibia, Serbia and Spain, which together have 10.1% of global reserves.

The increasing adoption of low-carbon technologies has led to an upsurge in exploration and extraction of the required minerals in various parts of the world in general, and in Latin America and the Caribbean in particular, which poses production challenges and issues of economic, social, environmental and institutional sustainability. In 2022, Chile was the largest producer of mined copper in the world (23.7%) and Peru was the second-largest (10.2%). Among lithium producers, Chile ranked second (30.2%), Argentina fourth (4.8%) and Brazil fifth (1.7%). Chile also ranked second in molybdenum production (17.4%), Peru fourth (12.7%) and Mexico fifth (6.3%).

Responsible mineral supply chain management is critical to ensure a just, effective, inclusive and sustainable energy transition. In particular, mineral production and refining poses significant socioenvironmental challenges, such as water consumption in areas with high water stress and repercussions for biodiversity and the traditional economic activities of the social groups living in surrounding areas. To address these challenges, the mining industry will need stricter regulations and standards that make mining more sustainable and ensure that critical natural heritage is safeguarded.

Appropriate management of socioenvironmental conflicts along with greater transparency and public participation will be crucial for environmental and social sustainability as mining activities increase. The importance of reaching national consensus in that regard is increasingly evident, as. consensus will be critical for avoiding the high cost of winding up operations, which may entail judicial redress, stranded assets and the elimination of the productive networks established, following decisions by the population to oppose mining (see box 2 on socioenvironmental conflicts). In particular, there is a need for proper regulation and implementation of International Labour Organization Convention 169 with regard to the free, prior and informed consent of Indigenous Peoples.

Better management of the tax revenues and expenditures relating to the exploitation of mining resources can support productive diversification and value addition. Taxation must be more progressive, efficient and equitable to boost the economic rent from minerals. This rent must also be better distributed and used so that it can support an inclusive and sustainable production agenda, with resources allocated, for example, to building technological and productive capacity and infrastructure to add value, developing productive linkages and scaling up global value chains, as well as to research and development (R&D) to provide the knowledge required to spur innovation.

The region offers opportunities for productive development of the minerals and technologies critical to the energy transition at all points of the value chain. As energy system decarbonization gains ground, countries that supply essential minerals are presented with unique opportunities to avoid being confined to the early stages of development of transition technology value chains. These opportunities are not only upstream —in mining activities themselves— but also downstream, from mineral refining to industrialization through to intermediate or final products. The opportunities in the copper and lithium industries are a case in point. Refined copper is used to produce alloys and intermediate products, such as wires, pipes, cables and valves, which may be components or parts in other products like electric vehicles, solar panels and wind turbines.

Countries that produce minerals like lithium have an opportunity to diversify, add value and become bigger players in the production chains for Li-ion batteries, their precursors and refined minerals (ECLAC, 2023). In the case of lithium brine, lithium carbonate and lithium hydroxide can be produced from lithium chloride concentrate, with varying degrees of purity based on industry needs. Through industrial chemical processes, these compounds can then be combined with others, for example to obtain cathode active materials, which are components of rechargeable lithium batteries (see box 3 for examples of initiatives to add value in the region).

Amid the climate emergency, commodity-dependent developing countries should innovate and diversify production in a way that avoids increases in fossil fuel use and greenhouse gas emissions, issues that have traditionally dogged diversification efforts (UNCTAD, 2023).

Initiatives to diversify production, such as the development of upstream and downstream hubs and linkages in the mining industry, require investment in the framework of a productive development agenda. However, according to fDi Markets, investment announcements in the region’s mining and metals sector, measured in current dollars, have been trending downward over the last 20 years, both in average annual value and as a share of the total value of announcements. Breaking them down by activity shows that these have been concentrated in extraction. Investment announcements in the sector between 2004 and 2008 averaged US$ 15.8 billion per year and accounted for 22% of the total value. Between 2014 and 2018, following the commodities boom, the average for the sector fell to US$ 7.5 billion —a 50% decline— and its share of the total value of announcements fell to 10%. Most recently, between 2019 and 2023, the annual average for the sector amounted to US$ 8.8 billion, although the sectoral share of the total value of investments announced remained below 10%. Of the announcements in the sector between 2004 and 2018, 62% focused on extraction, just 37% on manufacturing (for example, building plants for processing, smelting and refining), and less than 1% on other activities (including research and development). However, in the most recent period, between 2019 and 2023, announcements were equally distributed between extraction and manufacturing, at over 49% each, while other activities accounted for 1% (see figure 4).

Figure 4

Latin America and the Caribbean (33 countries): investment announcements in metals and minerals sector, by activity, and share of total announcements in all sectors, 2004–2023

(Billions of dollars and percentages)

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of Financial Times, fDi Markets [online database] https://www.fdimarkets.com/.

The region’s agenda for the production of critical minerals for the energy transition will be implemented in a global context in which major economic blocs are implementing a variety of initiatives to support productive and industrial development, which are strongly focused on expanding domestic manufacturing capacity for the technologies needed for the transition to a low-carbon economy. In this global competition, countries are responding with policy strategies such as subsidies, tariffs and other instruments to foster the development of national or regional supply chains, through nearshoring or friendshoring, with neighbouring or allied countries (see table 1).

Table 1

Initiatives in support of productive and industrial development

(Billions of dollars and percentages of GDP)

Concept	China: Made in China 2025	United States: Inflation Reduction Act	European Union: Green Deal Industrial Plan and Critical Raw Materials Act	Japan: Green Transformation (GX) policy	Brazil: New Industry Plan
Date	Launched in 2015	Adopted in August 2022	Proposed in March 2023	Proposed in February 2023	Launched in January 2024
Main objectives	Strategy to promote technological innovation and reduce dependence on technology imports by developing strategic emerging industries, such as electric vehicles. The strategy is complemented by five-year plans and other policies such as the New Energy Vehicle Industrial Development Plan for the period 2021–2035.	Federal incentive and spending plan aimed at catalysing investments in domestic manufacturing capacity, encouraging domestic production of critical minerals and procurement from allied countries, and promoting R&D in technologies such as electric cars and Li-ion batteries.	Set of regulatory and policy measures to increase low-carbon technology manufacturing capacity in the European Union and reduce dependence on imports of manufactures and raw materials.	Policy to promote investment in decarbonization and accelerate the transition to clean technologies, with targets for carbon neutrality, renewable energies, electrification of transport, and other sectors.	Set of six “missions” aimed at stimulating the productive and technological development of strategic sectors, including the bioeconomy, the energy transition and transport.
Subsidies and resources	There is no official information, but it is estimated that hundreds of billions of dollars have been disbursed in direct subsidies, tax incentives and preferential loans in various sectors.	It is estimated that US$ 391 billion in tax credits and loans have been issued for the green transition in electricity, transport, industry, construction and other sectors.	Estimated at US$ 288 billion. The extension of the “new crisis and temporary transitions framework” facilitates access to funds by States.	Seeks to raise investments of US$ 1 trillion over 10 years, starting with the issuance of US$ 144 billion in public bonds, to be complemented by carbon emissions trading schemes and private investments.	Public investments of approximately US$ 60 billion up to 2026.
Provisions on nearshoring investments and critical mineral supply	Mandated an increase in the domestic content of key components and materials to 40% by 2020 and 70% by 2025, and domestic sourcing of electric cars. Does not set specific targets for minerals but has contributed to dominance in the production of minerals and related technologies (accounts for more than 80% of global production of solar panels, 50% of batteries, and is the largest producer of refined products from most minerals).	Minerals and materials used in the manufacture of batteries and EVs must be produced or recycled in the United States or in countries with free trade agreements, on an incremental basis, at 50% in 2024 and 80% in 2027.	By 2030, consumption should comprise at least 10% locally produced minerals, 40% components processed in the European Union and 15% materials recycled in the European Union. No third country may supply more than 65% of the annual consumption of any raw material.	It does not specify requirements as to location of suppliers and allows subsidies for international suppliers of critical minerals.	Sets goals for national industry share in domestic technology supply (e.g. increase share in the electric bus value chain by 25%); ensure that 95% of machinery used in family farming is produced domestically).

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of M. Castillo, I. Garcés and R. Furtado Messias, “Perspectivas de desarrollo de las cadenas de valor relacionadas con el litio en Chile y América del Sur”, Natural Resources and Development series, No. 223 (LC/TS.2024/38), Santiago, ECLAC, 2024; Center for Strategic and International Studies (CSIS), “Critical questions by Scott Kennedy. Made in China 2025”, 2015 [online] https://www.csis.org/analysis/made-china-2025; G. Yeung, “Made in China 2025’: the development of a new energy vehicle industry in China”, Area Development and Policy, vol. 4, No. 1, 2019 y EIU, “The global green subsidy race. How is it reshaping climate policy and geopolitics?”, 2023 [online] https://www.eiu.com/n/campaigns/global-green-subsidy-race/.

Geopolitical tensions among industrialized countries because of the need to secure the supply of critical minerals for the energy transition present an opportunity for the region, for example in increasing mineral smelting and refining capacity. New smelting and refinery facilities could entail the transfer of cutting-edge technology that meets high environmental standards and provides a competitive advantage, given that new facilities must be carbon-neutral and align with the circular economy to reclaim or safely dispose of waste. These installations could also serve as R&D laboratories for developing new, more complex concentrate processing methods (Lagos and others, 2021).

However, most of the region has focused on mining rather than smelting and refining. Importantly, most of the copper reserves in the region’s countries are primary copper sulfide, which requires smelting and refining. In contrast with smelting capacity in the region, which is stagnating, the production of copper concentrates has increased.¹ Between 2010 and 2019, concentrate exports, mainly destined for the Asian market, increased by 128% in Brazil, 89% in Chile, 276% in Mexico and 170% in Peru. In terms of regional productive and technological capabilities, this implies a decrease in scientific research, in the development of new technologies, and in innovation for concentrate smelting and refining, as well as a failure to take advantage of the potential of refinery productive chains and industrial clusters.

One point in favour of boosting smelting and refining capacity in the region is that the carbon footprint of transporting concentrates is some 45% higher than that of cathode production.² In addition, the electricity systems of the countries of the region (Brazil, Chile and Peru) have a lower carbon footprint than those of Asian countries.

Critical minerals for the energy transition: technical, operational, political and prospective (TOPP) capabilities in the sector

The region’s mining sector faces the challenge of participating in the mining cycle of minerals that are critical for the global energy transition. Seizing the opportunities and overcoming the challenges will require a new governance model for non-renewable natural resources. It must span the entire mining life cycle and be multilevel, transparent, democratic and effective, while also taking a territorial approach (ECLAC, 2024).

The technical, operational, political and prospective (TOPP) capabilities of mining sector institutions need to be strengthened for public policy implementation to be effective and make a greater contribution to transforming extractive activities and development models in the countries of Latin America and the Caribbean (Salazar-Xirinachs, 2023). Table 2 lists some key TOPP capabilities that must be established or strengthened in the mining sector in Latin America and the Caribbean.

¹ Copper ores are generally processed in one of two ways, depending on their composition. Copper sulfides are processed using flotation (a traditional method), which yields concentrates. Concentrates must be smelted and then electrorefined to produce cathodes. Copper oxide ore processing involves hydrometallurgy, and consists of heap leaching, solvent extraction, and electrowinning to obtain cathodes. In 2020, 82.9% of the world’s mined copper was refined using flotation, while the remaining 17.1% was processed using hydrometallurgy (Lagos and others, 2021).

² This assumes that the sulfuric acid generated during smelting is consumed in the same or a nearby operation, so that its transportation footprint is very small.

Table 2

Technical, operational, political and prospective (TOPP) capability initiatives for mining development

TOPP	Actors	Description and objectives
Technical
R&D for sustainable extraction technologies	Mining companies and academic institutions	Foster R&D in technologies that minimize the environmental impact of mining and boost resource efficiency, such as green and low-impact mining techniques. This requires that strategic planning include water recycling systems, reduced gas emissions and efficient mining waste management.
R&D and innovation in mineral processing	Mining companies and academic institutions	Implement and improve processing technologies that boost efficiency and reduce waste. This includes the development of critical mineral processing methods with a lower environmental impact and reclamation of by-products.
R&D for recycling and reuse technologies	Mining companies and academic institutions	Encourage research on and implementation of advanced technologies for recycling the components of energy transition technologies, such as batteries and electronic components, to reduce demand for virgin raw materials.
Learning about critical minerals for the energy transition and applying the knowledge	Governments and academic institutions	Strengthen training and education of officials and academics in areas related to mining, energy and the production of critical minerals and their relationship with energy transition technologies, critical mineral supply chains and energy transition technology value chains.
R&D, innovation and technology transfer for energy transition technologies	Businesses, academic institutions and mining companies	Generate and encourage R&D, innovation and technology transfer in the use of energy transition technologies, such as wind turbines, solar panels, electric vehicles, and batteries and their components, to create a national or regional technological knowledge base and reduce dependency on other countries and regions.
Operational
Integrated supply chain management	Mining companies, government, academic institutions, civil society and communities	Establish traceability and certification systems that ensure mineral supply chain sustainability, from extraction to manufacturing and recycling of end products. This includes regulatory amendments, the adoption of international standards, and transparent processes.
Development of mining clusters	Mining companies, educational institutions, government agencies and local communities	Foster competition, innovation and sustainable economic growth in the mining sector by establishing mining clusters with technology, service and education providers, encouraging collaboration and knowledge-sharing in the region among mining companies, educational institutions, government agencies and local communities.
Strengthening of production chain sustainability	Mining sector, mining companies, educational institutions and government agencies	Foster national and regional linkages between the mining industry and other industrial and service sectors, including manufacturing, energy transition technology, and new information and communications technology, to enable them to access new markets and improve production practices to increase market share and scale up technology value chains. Strategies may also be established to incorporate social and environmental factors, targeting sustainability in chain management.
Strengthening of citizen participation and consultation with communities and Indigenous Peoples	Civil society and local communities	Establish clear and effective procedures and methods for citizen participation and consultation with Indigenous Peoples for free, prior and informed consent to increase social licence and reduce socioenvironmental conflict.
Political
Development of responsible and sustainable mining policies	Mining companies, government, academic institutions, civil society and communities	Develop and update regulatory frameworks to encourage the design and implementation of responsible and sustainable mining policies and practices, including environmental protection and respect for human rights, ensuring free, prior and informed consent, access to information, and public participation in mining project oversight.
Good practices to improve socioenvironmental conflict prevention and management	Mining companies, government, academic institutions, civil society and communities	Create effective conflict prevention and resolution mechanisms that include public consultation and good practices across all stakeholder relationships, fostering dialogue and negotiation to prevent and mitigate the negative impacts of mining on communities and the environment and reduce socioenvironmental conflict. Promote principles and instruments for environmental, social and cultural management, environmental justice, respect for Indigenous Peoples and citizen participation .
Strengthening of transparency and access to information	Mining companies, government, civil society and communities	Strengthen transparency in mining project management and ensure public access to relevant and timely information, fostering accountability and trust between society and the mining industry.
Strengthening of regulatory and oversight agencies	Mining companies, government, civil society and communities	Strengthen regulatory and oversight institutions to ensure compliance with regulations and continuous due diligence in bidding, contracting, impact assessment and other processes for mining projects.
Improvement in the capture of economic rents from minerals and the management of tax revenues from mining activities	Mining companies, government, civil society and communities	Strengthen tax regimes and tax administration bodies to improve economic rent capture while introducing mechanisms or rules for managing the revenues from mining activities so that resources are invested in capacity-building and in closing gaps in infrastructure, production, technology and human talent.
Prospective
Strategic planning for critical mineral mining	Mining companies, governments and academic institutions	Develop long-term strategic plans that align critical mineral production with the needs of the energy transition, including assessment of future demand and sustainable production capacity.
Investment in human resources and education	Mining companies, governments and academic institutions	Foster professional education and training in key areas for the mining industry and the energy transition, boosting educational and technical training programmes that respond to the sector’s needs.
Development of sustainable financial mechanisms	Mining companies, governments and financial institutions	Create and strengthen financial mechanisms to support sustainable mining projects, including green investment funds and sustainable bonds, to ensure the economic profitability and environmental sustainability of mining activities.

Source: Economic Commission for Latin America and the Caribbean (ECLAC).

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