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February 7, 2023

IEA highlights supply chain risks for clean energy technologies

Report suggests governments must do their due diligence on ESG to avoid reputational damage to the clean energy sector, and guard against supply chain problems with critical resources.

Governments’ policies and industrial strategies for clean energy technologies should ensure the environmental, social and governance due diligence of supply chains, according to a report by the International Energy Agency. It warns that allegations of corruption and bribery, and a lack of adequate environmental and labour standards could diminish the sector’s public reputation and delay the transition to net zero.

The report, Energy Technology Perspectives 2023, examined the supply chains of some of the world’s most in-demand clean energy resources, and flagged up the mining of critical minerals and subsequent technology manufacturing as the most carbon-intensive and high-risk areas of concern.

The IEA says governments should design policies that focus on traceability, ESG regulations, “near zero emission” materials and recycling. Other recommendations include reducing permitting times, investing in skills development and financing innovation in early-stage technologies.

Raw materials

Another concern is the limited availability of the raw materials used in clean energy manufacturing of products such as solar panels, wind turbines, electric vehicle batteries and heat pumps, with only a few countries mining crucial natural resources.

The majority of critical minerals are found in only a handful of countries, notes the report. For example, 70 per cent of cobalt production worldwide takes place in the Democratic Republic of Congo, while lithium is produced almost exclusively in Australia, Chile and China. Both minerals are key to the production of EV batteries.

Meanwhile, China dominates the manufacturing and trade of most clean energy technologies.

IEA executive director Fatih Birol says: “As we have seen with Europe’s reliance on Russian gas, when you depend too much on one company, one country or one trade route, you risk paying a heavy price if there is disruption.” More diversified supply chains are needed, he says, with the caveat that competition must be fair.

Unlike fossil fuels, the clean energy market relies on a wider variety of different natural resources, while the type of mineral resources needed also vary according to the technology. 

The report acknowledges that countries that lack these natural resources rely heavily on imports and it suggests that one way to overcome this challenge is through strategic partnerships, such as the EU’s Action Plan on Critical Raw Materials or the Indo-Pacific Economic Framework for Prosperity

The IEA says governments could also diversify their supply chains by developing geological surveys; stockpiling minerals; investing in new mines and facilities; and exchanging supply chain assessments and experience.

It estimates that, if countries honour their energy and climate commitments, the mass manufacturing of clean energy technologies could be worth around $650bn a year globally by 2030 – a threefold increase on today’s market. Meanwhile, the number of jobs in the sector could more than double, reaching nearly 14mn by 2030.

“If everything announced as of today gets built, the investment flowing into manufacturing clean energy technologies would provide two-thirds of what is needed in a pathway to net zero emissions,” says Birol. 

 

A service from the Financial Times