Author: Marina Yue Zhang, UTS
Clean energy technologies are essential to achieve the decarbonisation targets set in the Paris Agreement. Critical minerals — including lithium, nickel, cobalt, graphite, copper and rare earth elements — are vital to produce clean energy products like solar panels, wind turbines and power batteries for electric vehicles (EVs).
Demand for lithium, a key component in lithium-ion batteries, has soared over the past three years as the clean energy transition accelerates. Though abundant, lithium is unevenly distributed and non-renewable. And until an alternative material for or approach to power batteries becomes available, lithium looks set to be at the centre of geopolitical tensions over the control of critical resources.
The top three producing countries process over 80 per cent of the most critical minerals used in lithium batteries. China dominates the processing of almost all minerals, with more than 50 per cent of total market share — except for nickel and copper — of which China controls 35 and 40 per cent, respectively.
Technology-intensive industries rely on interdependencies between countries with different endowments. This works well during periods of geopolitical stability and cooperation but the high concentration of processing in the lithium battery supply chain means that it is vulnerable to disruption by war, global pandemics, natural disasters or geopolitical tensions.
Australia has the world’s largest battery-grade lithium deposits, and export revenues have skyrocketed, with lithium becoming Australia’s sixth most valuable commodity export. Australia needs to consider how to profit from the boom and what role it can play in the lithium race.
Lithium battery production relies on a global supply chain composed of mineral extraction and production, mineral refinement and processing, and battery-cell production and battery-pack assembly. This supply chain is a complex network of organisations, people, activities, information and resources.
Australia and China complement each other in this supply chain. Australia supplies 46 per cent of lithium chemicals and a large proportion goes to Chinese processing facilities and then to Chinese battery and EV makers. China produces 60 per cent of the world’s lithium products and 75 per cent of all lithium-ion batteries, primarily powering its rapidly growing EV market, which accounts for 60 per cent of the world’s total.
The severity of supply chain vulnerability is different for Australia and China. China relies on imports of lithium chemicals from Australia for downstream productions, but it can source lithium from other channels, including its domestic supplies or from South America.
Yet China’s dominance in lithium processing means that few countries could absorb Australia’s supply if China looks to alternative sources. Long lead times in building lithium processing facilities limit the speed at which new production can be ramped up to meet rapid demand increases. Building such capabilities requires capital investment, skilled workers, and an ecosystem where complementary suppliers of components, equipment and services are clustered to minimise costs.
Prioritising national security over economic benefits, the United States and European Union aim to increase their self-sufficiency in the lithium supply chain out of a concern about potential disruption to battery supplies stemming from China’s dominance of production. China could face the possibility of being cut off from the US-led supply chain system.
Australian Industry and Science Minister, Ed Husic, commented: ‘Australia has globally significant deposits of essential battery materials and strong local innovation and research capabilities. By drawing on these strengths, Australia can take its place in the profitable global battery supply chain’. He implied that faced with the geopolitical tensions of lithium, Australia should move from low-value-adding ‘digging it and shipping it’ to a higher value-adding position, including lithium chemical processing and even battery manufacturing.
While Australia has not suffered a ‘resources curse’ in the traditional sense, its resources boom in iron ore and natural gas in the past thirty years has led to the appreciation of the Australian dollar, which has lowered the competitiveness of other exports, especially in manufacturing. In 2021, value-added in manufacturing dropped to less than 6 per cent of Australia’s GDP, down from almost 14 per cent in 1990.
Australia moving up the value chain would…
Australia’s troubled EU trade deal still second best
The proposed trade agreement between Australia and the EU is in trouble due to EU protectionism, particularly in agriculture. This offers lessons for both parties and poses a potential threat to the Asia-Pacific region’s trade diplomacy.
Trouble in the Australia-EU Preferential Trade Agreement
Author: Ken Heydon, LSE
After five years of intense negotiation, the proposed preferential trade agreement (PTA) between Australia and the European Union is in trouble. On 29 October 2023, talks were suspended, with little immediate prospect of resumption. This setback, plus other recent developments in EU preferential trade policy, offer some broad lessons — for both Australia and the region.
Issues and Challenges
The failed negotiation is, in part, a victim of current times. With liberal trade policy in retreat, government-fuelled industrial policy is on the rise, and, according to the Eurobarometer Poll of July 2022, the majority of Europeans now view protectionism positively. The immediate cause of breakdown in the talks was, unsurprisingly, agriculture. This is the sector that, given EU intransigence, was a key factor in the failure of the Doha Development Round of multilateral trade talks.
Implications and Lessons
Australia’s particular concerns during negotiations with Brussels arose from EU resistance to opening up its market to Australian beef and sheepmeat, and protective geographical indications that would restrict the labelling of Australian feta cheese and prosecco. As highlighted by the WTO Trade Policy Review of the EU, the number of products subject to EU ‘geographical indication protection’ continues to rise. Looking ahead, there are still some broad strategic factors that might favour a deal. For the European Union, this includes gaining secure access to Australia’s critical minerals, such as lithium and copper.
New US–China working groups bridging bilateral gaps
US-China economic and financial working groups established in September 2023 aim to stabilize relations and prevent economic decoupling, addressing trade imbalances and fostering dialogue between the world’s largest economic powers.
US–China Economic and Financial Working Groups
The establishment of the US–China economic and financial working groups in September 2023 marked a significant turning point in the often uneasy relations between Washington and Beijing. In the midst of increasing tensions due to great power rivalry, these working groups have the potential to promote greater stability between the world’s two largest economic superpowers.
Challenging the Notion of ‘Decoupling’
While ‘decoupling’ has become a popular term representing the United States and China’s efforts to separate their economies, the establishment of the working groups challenges this idea to a certain extent. Policymakers on both sides understand the risks associated with complete economic decoupling, as bilateral economic ties are characterized by intrinsic interdependence.
Promising Benefits and Potential Challenges
The working groups, supported by high-level officials from both countries, offer a structured channel for ongoing dialogue. They have the potential to promote trust, transparency, and direct communication while also addressing challenges such as structural trade imbalances and intense rivalry in high-tech competition.
Rethinking Indonesia’s nickel policies to power economic growth
Indonesia is a major player in the global nickel market, but may face challenges as the EV battery industry shifts away from nickel-based batteries. Cultivating relationships with the US and EU is crucial.
Author: Cullen Hendrix, PIIE
Calling Indonesia ‘the Saudi Arabia of nickel’, one of the metals underpinning global steel production and ambitions to decarbonise energy and transport systems, would be an insult to Indonesia’s market dominance.
Indonesia’s mines accounted for nearly half of global nickel production in 2022. It has banned raw nickel exports since 2020 as the country pushes to move up global value chains for renewable energy. Indonesia is a G20 member, a developing democracy and has an enormous potential home market for both steel and electric vehicles (EV).
But despite the seeming centrality of nickel to net-zero ambitions, Indonesia may find itself in a situation eerily similar to that of Saudi Arabia and its oil reserves — sitting atop plentiful resources whose value is set to wane as the EV sector booms. The challenge lies in navigating two landscapes, one geopolitical and one chemical.
In a shifting geopolitical environment, Indonesia is attempting to secure a more prominent place in the EV battery supply chain. This involves moving beyond mining ore and benefaction to battery assembly at a time when major EV battery importers like the United States and the European Union (EU) are onshoring battery assembly.
In the United States, these attempts include enticing tax credits in the Inflation Reduction Act (IRA). In Europe, they include government loans via the InvestEU program, independent member-state initiatives and an anti-subsidy investigation into Chinese automakers. The investigation aimed to prevent Chinese EV makers who source nickel from Indonesia from flooding the European market with cheap imports. In both instances, Indonesia’s reliance on Chinese manufacturers and finance in the nickel sector creates vulnerabilities for its EV ambitions.
The second challenge is more fundamental. Indonesia’s nickel reserves and industrial ambitions are at risk of being rendered less valuable by changes in battery chemistry, or the combination of materials and technologies used in the batteries themselves. Nickel is a key component in nickel-manganese-cobalt (NMC) batteries, which currently dominate the market due to advantages in range and power-to-weight. But this dominance may be fleeting.
As with most things EV-related, Tesla is the bellwether. In 2021, Tesla adopted lithium iron phosphate (LFP) batteries, with nearly half of its production models using them by the first quarter of 2022. In August of this year, Tesla CEO Elon Musk announced that the company would be transitioning most of its entry-level vehicles — Model 3 and Model Y — and its shorter-range semi-trucks to using LFP batteries. For a regional hub, Tesla chose to set up shop in neighbouring Malaysia rather than in the nickel giant.
Tesla did not invent or even bring to market the first EVs, but it popularised and democratised them. Its move toward LFP batteries is one major reason that S&P Global forecasts that after 2030 the dominance of NMC batteries will wane in favour of LFP batteries. LFP batteries offer less range and high-end performance. But they are also less prone to catching fire and are made of much more globally abundant and cheaper raw materials. For most EV users, LFP batteries provide more than enough range and power.
This forecast does not include the effects of potentially market-disrupting frontier technologies like sodium-ion and solid-state batteries, upon which Toyota has placed a heavy bet. These technologies would further depress the relative demand for nickel. There will still be a market for NMC batteries in performance-oriented EVs offering pavement-wrinkling torque and acceleration. But the global market in the future may be smaller than the current one – and with technology, disruption is rarely linear. The market may change even more quickly than S&P anticipates
For Indonesia to sustain nickel as an engine for growth and development within these landscapes, its priority should be to cultivate closer relationships with the United States and the EU. These markets and their comparatively affluent consumer bases will drive an appetite for higher-performance, NMC-based EVs. Indonesia’s relationship with the EU is seemingly on track to expand, with shared ambitions to conclude negotiations on a comprehensive Indonesia–EU free trade agreement (FTA) before Indonesia’s 2024 election.
The outlook regarding the United States is less straightforward. In September, Indonesian President Joko Widodo proposed a critical minerals trade agreement with the United States during talks with Vice…
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