Climate commitments are changing the global raw material distribution chains due to the transition to a net-zero emissions economy. A new McKinsey study, entitled "The net zero materials transition: implications for supply chains" examines the changes in the supply chain covering the demand for raw materials, the forecast of shortages, and the measures needed to ensure a successful transition.
According to McKinsey, raw materials, including minerals and metals, play a crucial role in the transition towards net-zero emissions. The world is entering a phase of decarbonization towards a net-zero emissions economy, which will require fundamental technological advances in all sectors at an unprecedented speed. Many of these technologies require significantly greater quantities of physical materials to achieve the same performance compared to conventional methods during the construction phase. For example, battery electric vehicles (BEVs) are generally 15% to 20% heavier than internal combustion engine vehicles (ICEs), resulting in an increased demand for materials in the coming decades.
Even with the current decarbonization trajectory pointing to a temperature increase of 2.4°C, McKinsey warns that many minerals and metals used in key low-carbon technologies will face shortages by 2030. For example, nickel could face a moderate shortage in the order of 10-20%, while materials such as dysprosium, used in electric motors, could face a shortage of up to 70% in relation to demand.
The study emphasizes that a significant concentration of the supply of minerals and metals is likely to occur in a few countries, including China (rare earth metals), the Democratic Republic of Congo (cobalt) and Indonesia (nickel). Coupled with increasing regional regulation, such as the US Emissions Reduction Act and the EU's Green Deal Industrial Plan, this centralization of supply could affect regional access to raw materials in certain areas, even when the global market is balanced.
Measures for a swift transition
According to McKinsey, a series of actions related to supply, demand, innovation, and policies are essential to balance the equation and ensure an efficient transition. In regards to supply, the study stresses the importance of expanding the projects already announced in a timely manner, which will require an increase in mining exploration above historical growth rates for many materials. At the same time, mineral exploration must be doubled to ensure an expanded supply beyond 2030.
According to the study, investments in mineral exploration, refining and smelting are expected to increase by between 3 and 4 trillion dollars by 2030 (300 to 400 billion dollars a year). McKinsey predicts that the workforce in the mining sector should grow by between 300,000 and 600,000 qualified professionals, and to sustain these assets, it will be necessary to add an additional 200 to 500 GW of energy capacity by 2030, equivalent to 5% to 10% of the forecast solar and wind energy capacity for the same period.
On the demand side, the report highlights that upstream industries will need to adjust their demand patterns towards proven technologies that require fewer materials or need different materials with less restricted supply. Innovation plays a key role, requiring increased investment in materials and technologies related to renewable energies, energy storage, hydrogen and circular solutions or next-generation materials. Stakeholders should also consider investigating options for replacing materials that are limited in the long term or localized to a particular region.
McKinsey believes that the implementation of new policies can facilitate the expansion of supply, including simplifying authorization procedures for the development of new assets. Such policies could also enable a shift in demand towards alternative technologies, ensuring a level playing field between different technological options to preserve regional security of supply and the competitiveness of the industry.
The study emphasizes that all stakeholders have the opportunity to increase their chances of success by developing strategies that provide greater flexibility and resilience in various global responses to raw material shortages. Maria João Ribeirinho, partner at McKinsey & Company, says: "As a first step to mitigating risks and seizing the vast opportunities presented by the materials transition, it is critical that governments and businesses maintain or strengthen their understanding of the global dynamics of raw materials supply chains and potential long-term scenarios. For governments, this can help ensure security of supply and the long-term competitiveness of local industries. For companies, it can serve as the basis for decisive actions that position them as industry leaders in the years to come."
As the world accelerates the implementation of climate technologies to support the transition, McKinsey highlights the risk that the supply of materials will not increase at the necessary speed. The study concludes that energy and materials are closely interlinked, and that the world will have to undergo a materials transition to meet its net-zero emissions ambitions.