Real world constraints to rapid move toward clean energy technologies

Four large trends or themes emerged in the move toward decarbonization and clean energy in 2021. All of them are expected to grow in prominence in 2022.

1. The move toward clean energy is gaining pace.

2. The move is far too slow to be meaningful in the race to combat climate change.

2a. Electric vehicles (EVs) will not significantly reduce carbon dioxide (CO2) output, only shift its location.

3. There are real constraints to moving toward clean energy industries.

4. The world is bifurcating,

4a. Between China and the rest of the world

4b. Between upstream raw materials supply constraints and downstream battery, motor, and other component manufacturing capacity

Looking forward, 2022 will not be the year in which these trends ‘break,’ but they will grow in importance, criticality, and public awareness.

The move toward clean energy is gaining pace

Rising global temperatures, deteriorating climate conditions, and increasingly hostile weather events have combined to drive home the realities of global warming, climate change, and the economic and social devastation these are causing.

The period when ‘climate change deniers’ could argue that global warming either was not real or was not exacerbated by human activities including the burning of fossil fuels has passed except for the most diehard luddites.

In 2021 the world paid verbal homage to the concept that ‘something’ must be done to reverse the climate damage. The waves of earnest desire to do good will continue in 2022 and probably will accelerate.

The move is far too slow to be meaningful

Those waves of optimism will meet increased resistance from reality in 2022, however. Most of the homage is rhetoric, not backed by actions or programs that actually are designed to significantly combat the human portion of forces leading to global warming. The hollow words of COP26 in November 2021 drive home that point. There was nothing substantive in those two weeks of chatter to suggest real efforts will be undertaken. This realization will become more prominent in the coming year.

Some climate scientists are increasingly focusing on the reality that the governments, corporations, and people of the world do not have the political and social willpower, capacity, and sufficient understanding of the scope of the problem to mount effective programs to counter global warming. A growing strain of commentary from informed groups suggests the scarce financial, political, and social resources being allocated to climate change be re-directed to programs designed to mitigate the effects of global warming. Plainly put, there is too little too late to turn the tide. It is best to try to prepare societies for the consequences of a global failure to effectively address climate change.

Largely unspoken but hovering just off stage is the further realization that much of the attention being paid to proposed solutions are not going to produce positive results.

Western nations that lead in terms of designing decarbonization policies initially focused on the energy sector, given its relative concentration and ease with which it could be regulated. The transportation sector has only come under the spotlight when EV technologies put new electrification on the horizon.  Regulators have promptly followed.  It will be much more difficult to regulate the other CO2 emitting sectors — agriculture (owing to entrenched political interests) and construction.  In both cases, CO2-reducing technologies are still at a laboratory level. 

Prospects for the mineral industry rely predominantly on the developments in the transportation sector.  However, a move to electric vehicles will do little to reduce CO2 emissions unless EVs are accompanied by the sort of massive move to increase energy storage capacity and re-development of baseload capacity.  Determining the role of nuclear reactors has eluded most governments for half a century.

The International Energy Agency’s most likely scenarios have the world increasing its burning of petroleum derived fuels between now and 2050, along with natural gas, with non-nuclear renewable sources of electricity a distant third source of energy until sometime after 2040.

Given this, any move to EVs will not significantly reduce CO₂ output, only shift its location from where the vehicles are operated to where the electricity is produced.

Should this stark reality become widely discussed in 2022 it has the potential to destroy consumer and societal acceptance of electric vehicles and tear up the plans to try to solve global warming with a technology that clearly would fail to address CO₂ emissions.

Real constraints will slow the move

There are many real-world constraints to any rapid move toward clean energy technologies, from EVs to wind turbines.

Regarding EVs, there is a lack of electricity generating capacity, coupled with the sober expectations that even three decades from now most of our energy will come from petroleum, natural gas, and coal. Most countries do not have sufficient electricity generating and storage capacity to meet current stationary electricity demand let alone adding enormous electricity demands for motive power.

The grids are not stable enough to transmit, store, and distribute such levels of electricity in all but a handful of countries. The power outages in Texas, California, and the northeastern United States last winter and this summer demonstrated that, as did the vulnerability of power distribution systems in parts of Europe and elsewhere.

Third, there is not enough lithium, graphite, high purity manganese sulphate, high purity nickel and cobalt sulphate, rare earths, and other metals to meet the requirements of some of the overly optimistic projections of EV introductions in Europe, North America, Asia, and elsewhere. Throughout 2021, the world has gone beyond projections.  The commitments to build $250 billion worth of gigafactories, however politically expedient, remain disconnected from the reality of primary mineral supply. 

It is not just the raw materials: There also is insufficient capital investments into factories to produce motors, controllers, and other components. Capital markets are not set up to provide the required funds to the small and privately owned companies that manufacture these components for auto manufacturers.

Put together, these and other constraints strongly suggest that the rapid growth in EV production and sales bandied about by politicians, corporate chieftains, and others will not be met.

The world is bifurcating

The world’s move toward clean energy and the materials required to build a new energy system globally meanwhile is bifurcating in ways that will further limit these efforts.

The growing hostility between China and the rest of the world will worsen in 2022. Some fear outright military conflict. Others foresee worsening political and economic strains, limiting economic growth and stability for everyone.

There is plenty of blame for all sides in the split between China and the world. China definitely has contributed to the bifurcation. The Made in China 2025 project, adopted in 2015, focusing on import substitution and replication of foreign technology has contributed to the growing deep asymmetry in global trade relations. Over the last several years the Chinese economy has become more independent of commercial flows, while rendering the rest of the world increasingly reliant on its products. This shift has also affected decarbonization technologies. The government’s responses to both domestic and international pressures have led to further criticism and reduced cooperation.

The U.S. government bears a heavy responsibility for the increased hostility between China and countries in North America, Europe, and Oceana. U.S. governments since the Obama Administration have recognized the challenge posed by the Chinese Communist Party, but have so far done little to offset the burden of increased dependence on China’s dominance in key value chains. These U.S. governments have pushed the theme of China as an enemy as opposed to a partner. U.S. policies grew worse over the ensuing two administrations. Prior administrations supported industrialists moving production to related companies, focusing U.S. hostile foreign policies on Russia and Middle Eastern oil producers as perceived adversaries. Russia remains a target of U.S. adversity, but China has been a focal point as well for more than a decade.

This split will worsen in 2022 and can be expected to deepen further in the years to come. In 2026, the European Union will introduce ‘carbon tax’ — imposing heavy levies on importers and foreign manufacturers.  Given the huge spread between carbon pricing in the EU and China, it is expected that the global trade will be durably transformed by this policy. Increased investments in Europe and America by South Korean, Japanese and Taiwanese technology companies indicate that targeted leapfrogging these tax changes may accelerate further bifurcation. 

So too will it deepen the split between upstream raw materials supply constraints and downstream battery, motor, and other component manufacturers’ demand. This development is mostly attributable to incompatible development timelines.  It takes a couple of years to build the manufacturing facilities for the components of EVs, wind turbines, and other clean energy technologies. While those couple of years may be delayed by the lack of financing available to the small and private companies that make these parts for the large auto manufacturers, there is the ability to move forward. Finding, delineating, financing, and developing the mines to supply the raw materials takes a decade or longer, and faces enormous headwinds, which means the metals needed to make the auto parts may not be there on time, by a matter of many years.

In 2022, all these factors are likely to present real obstacles to the optimism of a clean energy future anytime soon.

—Jeffrey Christian is managing partner of the CPM Group. He wrote the EV Focus newsletter in 1978 and the World Guide To Battery-Powered Road Transportation in 1979. He has analyzed metals and energy markets since the 1970s, including alternative energy technologies and the raw materials needed to support them.  Tomasz Nadrowski is creating Terra-Den Clean Energy Materials Fund in collaboration with CPM, a private fund that will invest in metals and materials required for the move to clean energy focused on assets without Chinese attributes.