What Impacts does Mineral Prices have on Energy Transitions?

Highlights

• A study reveals that rising prices of critical minerals like lithium and cobalt can significantly disrupt renewable energy technologies’ production and adoption.
• Global spillover effects demonstrate how mineral price shocks in one country can impact energy transitions across different economies.
• Investors are advised to diversify supply chains and anticipate government responses to mitigate risks associated with volatile critical mineral markets.

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The study (opens in a new tab) “Impact of Critical Mineral Prices on Energy Transition” by researcher Luccas Assis Attílio examines how fluctuations in critical mineral prices affect the global shift toward renewable energy. The research hypothesizes that rising costs for minerals such as lithium, cobalt, nickel, and rare earth elements can slow down the adoption of renewable technologies like batteries and wind turbines by increasing production expenses. Using a Global Vector Autoregressive (GVAR) model, the study evaluates 10 economies, including key producers like Australia, Indonesia, and China, and highlights significant “spillover effects.” These occur when price shocks in one country impact energy transitions in others, with nations holding near-monopolistic positions in mineral production experiencing the greatest challenges.

Findings

The research reveals that while aggregated increases in critical mineral prices significantly disrupt renewable energy adoption through higher production costs and financial market instability, individual price shocks for specific minerals like lithium or cobalt tend to have a localized impact. A notable policy insight from the study is that reducing credit costs, such as through government-subsidized loans, could accelerate the energy transition by easing financial barriers caused by rising mineral prices.

Limitations

Despite its findings, the study has notable limitations. It equates energy transition solely with renewable energy’s share in production, potentially oversimplifying broader factors like socio-political and technological influences. Additionally, the dataset spans 2012–2021, which may not fully reflect recent market shifts or advancements in technology. While global spillover effects are well-explored, the research provides limited insight into how individual regions adapt to or counteract these disruptions. The suggested solution of subsidized credit assumes that governments globally have the capacity and willingness to implement such measures, which may not always be feasible.

The study’s economic focus raises questions about its potential biases. By emphasizing price mechanisms and direct production impacts, it underplays geopolitical influences, such as trade restrictions and resource nationalism, which could exacerbate supply chain vulnerabilities. Additionally, the simplicity of its policy recommendations, like credit subsidies, may not fully capture the complexities of global energy transitions.

Investors beware

From an investor’s perspective, the research highlights the risks tied to critical mineral markets, especially for renewable energy technologies. It underscores the importance of diversifying supply chains and exploring alternatives to reduce exposure to volatile mineral prices. Understanding regional dependencies and anticipating government responses will be essential for navigating the challenges posed by critical mineral price fluctuations.