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BNP Paribas Asset Management – How will Europe secure the metals needed for its energy transition?

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Achieving decarbonisation involves scaling up low-carbon technologies. Safeguarding the steady supply of a number of key metals that these sustainable technologies rely on means using them more efficiently and judiciously, as Julien Bouyssou, ESG Analyst at BNP Paribas Asset Management explains.  

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Russia’s invasion of Ukraine has had a substantial impact on a number of commodity markets, including metals markets. Nickel, for example, earlier this year reached prices not seen since 2007 and at the time of writing is still at a level last reached 10 years ago.

Price shocks such as these are impactful now, but for key markets such as Europe, high prices will be felt more in the future given their role in the low-carbonenergy transition. Notably for metals used in batteries, including nickel, and rare earth metals, for which demand is expected to rise markedly. [1]

The role of low-carbon energy technologies as the major driver of future metals demand is the subject of a comprehensive new study by KU Leuven for trade body Eurométaux.

The report, which investigates the metals intensity of the energy transition, primarily focuses on non-ferrous base metals and silicon, alongside lithium, nickel and cobalt, and rare earth metals such as dysprosium, neodymium and praseodymium. [2]

It uses the International Energy Agency’s (IEA’s) Paris Agreement-aligned Sustainable Development Scenario (SDS) to forecast the supply needs for low-carbon energy technologies. [3] The SDS foresees global annual demand of 75 million tonnes (Mt) for the metals studied by 2050, up from 45 Mt under current climate policies.

As the report outlines, this would come with potential supply tensions and bottlenecks, although there are solutions to alleviate these issues.

Supply challenges

Electrification in the car sector is set to be the main driver of demand, accounting for 50-60% of total volume to 2050, followed by electricity networks and solar photovoltaic production with 35-45%. Five metals – aluminium, copper, lithium, nickel and zinc – will be responsible for 80% of global demand.

Eurométaux says projected demand under the SDS for 2030 (see Exhibit 1) for copper, lithium and nickel, alongside rare earth elements, exceeds the current capacity of today’s full project pipeline. These supply constraints would be felt particularly towards the end of the 2020s.

It is important to note the metals that are by-products of base metals and that rely 100% on base metals production – such as tellurium, iridium, scandium, gallium, germanium and indium – will play a fundamental rolein the digitisation of our economy. The expected double-digit growth in demand for some of these metals could be constrained strongly by base metal production.

At the European level, the report estimates that the energy transition requires almost 5 Mt of aluminium in 2040, alongside 1.5 Mt of copper and 300-320 Mt of zinc. By 2050, lithium consumption is projected to hit 600-800 kt (3 500% of today’s demand); nickel consumption is expected to rise to 300-400 kt (110% of current consumption).

Meeting this rapidly rising demand will be challenging in the near and medium term.

Theoretically, domestic resources could cover between 5% and 55% of Europe’s consumption by 2030, but new mining projects are facing significant obstacles due to local opposition, a lack of supportive policy frameworks and technical uncertainties.

Europe’s refining capacity for lithium or rare earth elements is limited. However, building new capacity for these and other metals will result in metal ores being imported in higher volumes rather than the metals themselves, as Europe does not have enough ores to replace imports.

This import dependency will result in supply challenges for Europe up to and beyond 2030. These could hinder the rollout of low-carbon energy technologies.

From around 2040, Europe should benefit from a softening in primary demand and greater volumes of materials available for reuse and recycling. By mid-century, secondary supply is projected to meet 45-65% of European demand for most critical metals, rising to over 75% for lithium and rare earths. This will aid the bloc’s goal of achieving greater self-sufficiency.

The importance of demand-side measures

The study identifies several levers to alleviate some of these supply issues. They include focusing on sustainable imports (relying on the quality of certification programmes), increasing domestic mining and refining potential, alongside improving recycling rates.

However, these actions should be complemented with improvements to lower demand. Passenger vehicles are currently responsible for 7% of global CO2 emissions and, perhaps unsurprisingly given this, the development of EVs is the main driver of energy transition metals demand under the SDS.

To address this, all stakeholders should be encouraging investment in public transport and railway networks, the development of lighter vehicles to reduce metal demand and technologies to aid car sharing. This would ease some of the supply constraints that risk slowing the energy transition.

Measures to reduce demand, including investing in recycling facilities to tackle the growing problem of e-waste would reduce the environmentaland social impact currently borne by exporters such as Chile and the Democratic Republic of the Congo. This would limit the potential knock-on effects to biodiversity from developing new mining sites, as well as any wider ESG concerns from doing so.

The Eurométaux study focuses on the IEA’s SDS ‘well-below 2C’ scenario. The IEA’s more ambitious ‘net zero by 2050 scenario’ (NZE), which is aligned with a 1.5C rise in global temperatures, would require a faster energy transition and present an even greater strain on metals markets. This would make the steps outlined above more of a priority.

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