In Short : Clean energy transitions, while essential for combating climate change, come with challenges and bitter truths that need to be acknowledged. One bitter truth is the high initial cost of renewable energy technologies. Although they are becoming more affordable, the initial investment can be a barrier for many developing countries and individuals.
In Detail : The unified push towards CET by world leaders reflects a shared sense of urgency, appropriately emphasising a gradual shift from fossil fuels to renewable energy sources
The term “Clean Energy Transition (CET)” resonates globally, as countries come together in recognition of the imminent threat of global warming. The rising emissions of greenhouse gases from fossil fuel combustion are steadily elevating Earth’s temperature. The resulting erratic and extreme climate events are profoundly affecting our natural surroundings and causing significant distress to humanity. The unified push towards CET by world leaders reflects a shared sense of urgency, appropriately emphasising a gradual shift from fossil fuels to renewable energy sources. The Delhi Declaration from the G20 summit pledges to triple global renewable energy capacity by 2030, further accelerating the momentum towards achieving ‘net zero emissions’ by 2050.
The push towards solar energy is tremendous. Solar photovoltaic (SPV) is the fastest of all renewable energy sources and is expected to become the world’s largest power generation source, outpacing coal by 2027. In 2022, global spending on renewables reached a record high of nearly $600 billion, driven primarily by investments in solar PV and wind energy. Surprisingly, solar energy is set to attract more capital, amounting to $380 billion, than oil production for the first time in 2023. The transportation sector has witnessed a staggering 2,000% growth in electric vehicle sales between 2015 and 2022, totalling over 25 million units.
While the journey towards a clean energy transition is imperative and inevitable, it’s crucial to acknowledge the challenges that come with this transformation. Here are some key aspects to ponder:
Exponential growth in demand and supply constraints for Strategic Metals
The transition to clean energy intensifies the demand for strategic metals such as lithium, nickel, cobalt, graphite, copper, and aluminum. Lithium, nickel, cobalt, manganese, and graphite are essential components for batteries used in electric vehicles and energy storage systems. Additionally, copper and aluminium are crucial for renewable energy technologies and electricity networks. From 2017 to 2022, the demand for lithium witnessed a staggering 300% increase, a 70% rise for cobalt, and a 40% increase in nickel demand. Projections by the International Energy Agency (IEA) and other independent experts suggest that the demand for these critical metals is expected to more than double by 2030 and further increase by three-and-a-half times by 2050.
Another group of strategic metals, known as rare earths, has emerged as the ‘new oil’ of the twenty-first century. These metals serve as the foundational components not only for the clean energy transition but also for sectors such as electronics, telecommunications, healthcare, and defence and aerospace industries. Currently, there is no substitute capable of replacing rare earths, underscoring their critical role in the clean energy transition. Rare earths are anticipated to grow at a compound annual growth rate of approximately 8% from 2019 to 2024, with estimates suggesting a demand surge of 15% to 34% by 2040. In fact, two specific rare earths, neodymium and dysprosium, could see demand increases of up to 191% and 168%, respectively, by 2030.
The question arises: do we have enough supply options to bridge the demand-supply gap of these strategic metals, considering that a major portion of supply comes from a few countries, some of which are politically categorised as ‘critical’ to ‘very critical’?”
China’s Dominance
China has solidified its status as a ‘clean energy superpower’ by monopolising the mining and processing of strategic metals and the essential technologies for the Clean Energy Transition, as depicted in the figure below. The global pursuit of a greener future faces a significant setback if China were to halt its supply of these vital metals and technologies. Establishing an alternative supply chain beyond China is of utmost importance, but it requires time and economies of scale to make these products available at affordable prices.
Financing Challenges
Securing funding for the clean energy transition poses a monumental challenge. According to a McKinsey study, capital spending on physical assets for energy and land-use systems in the net-zero transition between 2021 and 2050 would amount to about $275 trillion, or $9.2 trillion per year on average. Developing and emerging economies, accustomed to relying on fossil fuels, are experiencing rapid growth, which has resulted in increased carbon emissions. Mobilising finance for clean energy projects in these countries has been decreasing since 2016. Annual capital spending falls short by seven times what is needed to put the world on track to reach net-zero emissions by 2050. The climate finance target set in 2009, aiming to generate $100 billion annually for developing nations by 2020, fell woefully short of the actual requirements. Surprisingly, the current global climate financing, as reported by the IMF, amounts to approximately $630 billion annually, with only a meagre fraction directed towards developing countries. This glaring disparity highlights the urgent need for substantial and fair funding to address climate challenges in vulnerable regions.
Environmental Impact
Contrary to what many of us may think, the shift towards clean energy comes with a hidden cost. It leads to significant harm to our environment and leaves a substantial carbon footprint, especially during the mining, processing, and eventual disposal of electric vehicles (EVs) and renewable energy (RE) technologies. Research by Zhehan Weng and colleagues highlights that rare-earth metal mining and processing have far-reaching ecological consequences, surpassing the environmental impact of commonly used metals. Even more concerning, for every ton of rare earth mined, a staggering 2,000 tons of toxic waste are generated. Recycling batteries and solar modules poses its own set of environmental risks, while wind turbine blades are a particularly challenging problem as they lack efficient recycling solutions and end up accumulating in landfills. The IEA projected that when all electric vehicles sold in 2019 reach the end of their lifetime, it would result in 500,000 tonnes of unprocessed battery pack waste.
Additionally, it’s crucial to understand that the production of solar panels, wind turbines, and electric vehicles often demands more mineral resources compared to their fossil fuel-based counterparts. To put it in perspective, a typical electric car requires six times the mineral resources of a conventional vehicle, and an onshore wind plant needs nine times more minerals than a gas-fired power plant. This trajectory suggests a growing need for more mines and processing facilities, which could lead to catastrophic environmental consequences. It’s high time we recognise and address these issues to make the clean energy transition truly sustainable.
Politics & Public Perception
The geopolitics of clean energy are growing increasingly complex. China maintains significant influence in African nations, receiving over 40% of the continent’s mineral exports. However, countries such as Namibia and Zimbabwe are aspiring to play a significant role in rare earth and strategic metals market. Australia is also aiming to challenge Chinese dominance by collaborating with partners like America, India, Japan, Indonesia, Taiwan, and South Korea to establish alternative critical-mineral supply chains. The pivotal question remains: can Australia disrupt China’s strategic sector dominance, reinforced by subsidies and economies of scale? Meanwhile, public sentiment on climate change, though prioritised in opinion polls, can sway when policies directly impact finances. Additionally, developed nations like Britain, Sweden, Germany, and the US are adjusting or extending their ‘net zero’ targets, adding another layer to the global energy transition landscape.
In summary, the clean energy transition, while holding the promise of a sustainable future, confronts us with stark realities. Challenges, including the surging demand for critical metals, environmental impact, financial constraints, and geopolitical complexities, loom large. Acknowledging these challenges and gaining a deeper understanding of these complexities are essential steps toward a realistic assessment of the future of the clean energy transition.