Challenges the Energy Transition Poses to Critical Mineral Industry

The world’s transitioning from the use of fossil fuels in favor of clean energy will advance the development of energy-storage technologies while also limiting greenhouse-gas emissions globally. The primary goal of the transition is to mitigate climate change, as stipulated in the 2015 Paris Agreement. Achieving this will require considerable investments from both public and private entities, the use of technological innovations and various regulatory interventions.

Renewable energy-generation technologies and electric cars are some of the technologies required in this transition. These technologies require substantial amounts of critical minerals, which mean the demand for critical minerals is expected to increase as the global energy infrastructure changes.

The International Energy Agency’s Sustainable Development Scenario forecasts that the low-carbon energy sector’s demand for these minerals will grow exponentially by 2040. In a scenario where the Paris Agreement’s objectives are met, the agency expects that the demand for cobalt and lithium from energy transition technologies will be 21 and 42 times higher than the levels recorded in 2020.

However, the increasing reliance on critical minerals may cause an imbalance in the demand and supply for those minerals, which in turn, could create conditions for resource nationalism to grow. Resource nationalism refers to the tendency of governments and individuals to exert control over natural resources found in their territories.

Maplecroft’s 2021 Political Risk Outlook established a growing risk of resource nationalism in more than 30 countries. Increasing resource nationalism will create conflicts between the interests of producers wanting to maximize production in response to the demand brought on by the energy transition and the interest of states wanting to maximize the value of their natural resources.

This, among other things, has given rise to other hurdles that will make it hard to achieve the needed production of critical minerals without compromising the objective of the energy transition. Other challenges include a lack of investment in exploration, which has reduced the number of projects that potential investors can readily inject their funds into.

It doesn’t help that the forward trajectory for capital expenditure in the mining industry is far from encouraging. According to a Wood Mackenzie analysis, the total capital expenditure is expected to drop by more than 70% by 2026. Additionally, a lack of collaborations between producers and governments will make it hard for the mining industry to meet future demand for critical minerals.

This is why it is necessary for governments and miners to collaborate in the creation of fiscal terms that will ensure fair distribution of the economic benefits of resources while also allowing a high rate of return to encourage more investment.

These industry challenges could well be opportunities for entities such as Hecla Mining Company (NYSE: HL) that focus on extracting these critical minerals needed during the energy transition.

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