How a Copper Shortage Could Hamstring the Energy Transition

The world is currently facing a critical copper shortage that triggered increased copper prices at the start of the year. Several factors, including the coronavirus crippling supply chains, increased demand for copper and a decline in copper ore quality, contributed to a global shortage that could last until 2030.

Some experts fear that these shortages could also threaten the transition to clean energy. Dozens of countries have pledged to transition from dirty fossil fuels, such as oil and coal that have significantly contributed to global warming and climate change, to clean sources of energy.

Copper, which already has numerous applications in wiring, vehicle motors, industrial machinery and construction, is also a crucial component in green technologies. The metal is used to generate power from thermal, wind and hydroenergy because it is a very efficient conduit. Cooper is also a crucial component in electric vehicles (EVs) because of its high electrical conductivity, reliability, malleability and durability. In fact, the Copper Alliance noticed that the average EV uses twice as much copper compared to an internal combustion engine (ICE) vehicle.

With a large portion of the world looking to adopt clean renewable energy over the next few decades, demand for copper is predicted to double to 50 million metric tons over the next two decades. Unfortunately, the current copper production machine simply won’t be able to meet this demand in time, especially because it is already struggling to supply enough copper to meet current market demand.

Current copper deposits have been decreasing in quality for close to a decade, and miners are finding it harder and more expensive to find and extract new copper deposits. This means that miners often have to spend more money mining more rocks for the same amount of copper that a more high-quality ore would have provided, increasing their production costs without a commensurate increase in revenue and reducing their incentive to ramp up production.

Furthermore, with investors becoming more environmentally conscious, the environmental effects of mining copper are pushing away investment in the industry.

As has been the trend in recent years, China has secured a significant portion of the world’s copper supply by gaining access overseas mines and building up its local smelting capacity.

All of these factors work to jeopardize America’s transition to clean energy, especially in the wake of recent investment in EV infrastructure by the Biden administration. The shortage could cause the cost of EVs and green infrastructure such as charging grids and solar stations to surge significantly, pushing green energy out of the reach of the majority of the population.

Higher prices and increased production costs due to lower-quality copper deposits could also discourage miners from investing in increased copper production, threatening the transition to green energy even further.

It remains to be seen how major players in the copper industry, such as Freeport-McMoRan Inc. (NYSE: FCX), will keep their costs manageable while ramping up production to benefit from the surging demand for this valuable metal.

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