Climate: Energy Transition Teething Troubles

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Critics often argue that renewable energy and electric cars use such huge amounts of strategic materials that the energy transition will be delayed by price spikes and supply shortages. Renewable energy's vast infrastructure and space needs could also trigger pushback on environmental, social and governance (ESG) grounds. But neither issue is likely to derail the energy transition. Renewable energy and electric cars are better for the climate than fossil fuels and internal combustion engines. But they also have an environmental and social impact that cannot be overlooked. Wind is often criticized for its visual impact on landscapes, noise and disturbance of local ecosystems. Similarly, batteries require large amounts of materials such as lithium, cobalt and nickel with all the potential issues related to mining, such as local pollution, carbon emissions from diesel machinery and child labor. Renewable energy is diffuse, which means it requires a lot of equipment to be harvested and a lot of space to locate that equipment. Solar photovoltaic (PV), for example, requires about 15 square meters per megawatt hour of annual production and onshore wind around 50 sq meters, versus only 1 sq meter for gas and 4 sq meters for coal. This could potentially trigger a host of ESG issues, particularly given that the world’s carbon neutrality implies the massive electrification of demand with solar and wind power, as suggested by new net-zero modeling by the International Energy Agency (IEA) that sees solar meeting 20% of global energy demand in 2050 (related). Fears too are that the sheer mismatch between supply of critical materials and booming demand could also delay the energy transition on pure economic grounds (EC Oct.30'20). Meeting the Challenge However, the near-term picture is generally not worrying, the IEA found in a separate recent report on The Role of Critical Minerals in Clean Energy Transitions. That's despite a typical electric car requiring six times more critical minerals than a conventional one, and an onshore wind farm nine times more than a gas-fired power plant, according to the IEA. In its sustainable development scenario last year, the IEA found that by 2040, clean energy technologies will account for over 40% of global demand for copper and rare earths, 60%-70% for nickel and cobalt, and almost 90% for lithium. But some of these minerals are expected to be in surplus in the next few years. And while medium-term projected demand surpasses the expected supply from existing mines and projects under construction for most minerals, the challenges are "not insurmountable," says IEA Executive Director Fatih Birol. Indeed, history suggests that scarcity fears often appear when new technologies pick up, but never materialize despite occasional supply bottlenecks and price spikes. A good example is the late 1970s rollout of platinum-based catalytic converters in cars, which fueled speculation that pushed up prices and led to volatility -- until Ford introduced a platinum-free catalyst in the late 1980s. Similarly, aluminum became a serious competitor to copper in electrical cabling after World War II when copper producers could not meet demand, and a substitute for tin in packaging when international cartelization triggered high prices. And as aluminum demand rose, technological innovations kept prices low, the IEA notes. The energy transition's critical materials are not expected to be different. Lithium mining, for example, was historically led by Chile and Argentina. But Australia recently became the world's top producer and numerous projects are under consideration around the globe, including across Europe. China’s hold on primary resources and processing operations is often seen as a geopolitical threat. That may be true, but China’s market share in mining and processing is in line with its share in manufacturing, which is arguably the biggest threat. If bottlenecks were to appear, alternative technologies are readily available, such as copper-based magnets to substitute rare earths, or actively researched, such as battery cathodes without cobalt. Recycling could also relieve the pressure on primary supply while reducing the ESG impact of mining and waste management. By 2040, recycled quantities of copper, lithium, nickel and cobalt from spent batteries could reduce primary supply requirements for these minerals by around 10%, the IEA says. The amount of battery capacity installed globally could eventually mean that new batteries will mostly come from old ones, Tesla boss Elon Musk even believes. ESG Playbook ESG issues are the same in energy transition related activities as in other businesses and need the same -- but not more -- careful attention, says Caroline Le Meaux, head of ESG research at French asset manager Amundi. "We're always looking at protecting natural capital, particularly biodiversity, which has an impact on climate change. Social aspects are also really important because the transition won't be acceptable if it increases inequality." There are many examples of renewable energy projects that have been "impacted by delays, legal action, civil unrest or damage to corporate reputation because of a failure to adequately consider and manage social impact issues," legal firm Norton Rose Fulbright wrote in a recent article. While the public has a positive attitude toward renewables in general, local populations often oppose projects because of a "lack of substantial investment in good stakeholder relations." Still, there is "a myriad of guidance" for renewable project developers on best practice procedures, Norton Rose adds including International Finance Corp. standards that have been widely used for almost two decades, including oil and gas. Creative solutions will also figure. The massive deployment of solar PV in densely populated regions could generate a "social backlash" against it, consultancy EY's Gus Schellekens believes. To address potential conflicts around land use between solar power and agriculture, Germany's Fraunhofer Institute for Solar Energy Systems is working on "agrivoltaics" -- now at 3 gigawatts globally -- to demonstrate that dual use of land for agriculture and PV generation is possible. With the shift to a clean energy system set to drive a huge increase in the requirement for critical minerals and land use, concerns about shortages and resistance to new projects are an inevitable part of the process. Both could trigger sporadic delays or higher costs on a project-by-project basis, but aren't seen as showstopper.

Coal, Low-Carbon Policy, Renewable Electricity
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