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Global Energy Transformation Brings Opportunities and Risks for Developing Countries

By Aar Jay

BERLIN | GENEVA (IDN) — As the climate emergency intensifies, demand is rising for minerals that are critical for renewable energy technologies like solar panels, wind turbines and electric vehicles (EVs). Many developing countries have a wealth of these minerals but lack the processing capabilities needed to add value.

The UN Trade and Development (UNCTAD) is of the view that the booming demand poses significant opportunities and challenges for developing countries rich in critical energy transition minerals, especially those grappling with commodity dependence—when 60 per cent or more of a country’s merchandise export revenue comes from raw materials.

To strengthen their industrial sectors, diversify their economies, and redefine their roles in the global economy, developing countries rich in critical energy transition minerals must avoid past pitfalls of commodity dependence.

Otherwise, the current surge in demand for these minerals could further entrench commodity dependencies, worsening economic vulnerabilities while the benefits remain out of reach for local communities and businesses.

An opportunity

UN Trade and Development advocates for more sustainable and transparent mining contracts and exploration licences to bolster domestic industries and enable local firms in developing countries to better participate in the value chain of renewable energy components.

The organization emphasizes the crucial role of global support in ensuring they have access to the needed investments and technology. The UN, for example, has a key role to play in setting up principles for the fair and sustainable production and trade of the minerals needed for the energy transition.

UN Trade and Development provides analysis of the trade and development aspects of this sector to the Panel on Critical Energy Transition Minerals, established at the COP28 climate summit by UN Secretary-General António Guterres and launched on 26 April.

“There is now an opportunity to leverage these new commodities to update our trade regime, promote structural diversification and turn the tide of commodity dependence once and for all,” says UN Trade and Development Secretary-General Rebeca Grynspan.

“Commodities and commodity dependence are issues at the heart of the past and especially the future of trade and development,” she adds.

Such dependence impedes economic development and perpetuates inequalities and vulnerabilities across sub-Saharan Africa, South America, the Pacific and the Middle East. It affects 66 per cent of small island developing states (SIDS), 83 per cent of least developed countries (LDCs) and 85 per cent of landlocked developing countries (LLDCs).

Almost half of the UN’s membership—95 developing countries—a total of 29 out of the 32 nations classified as having low human development in 2021 were commodity-dependent.

UN Trade and Development projections based on data from the International Energy Agency (IEA) hint that by 2050, for example, lithium demand could rise by over 1,500%, with similar increases for nickel, cobalt and copper.

$225 billion investment shortfall in critical mineral mining projects

According to UNCTAD, global investments in critical energy transition minerals are not keeping pace with accelerating demand. Current production levels are inadequate to meet the needs required to limit global warming to 1.5°C, in line with the Paris Agreement.

UN Trade and Development has identified 110 new mining projects worldwide, valued at $39 billion, with $22 billion invested in 60 projects in developing countries.

Yet to achieve the 2030 net-zero emission targets, the industry may need around 80 new copper mines, 70 new lithium and nickel mines each, and 30 new cobalt mines.

The investment needed between 2022 and 2030 ranges from $360 billion to $450 billion, potentially leaving a gap of $180 billion to $270 billion. The most significant shortfalls are in copper and nickel, accounting for 36% and 16% of the total gap, respectively.

Mineral-rich developing countries need to add value locally

The new critical mineral mining projects needed, offer opportunities for many developing countries, especially in Africa. The continent boasts over a fifth of the world’s reserves for a dozen metals essential to the energy transition, including 19 per cent of those required for electric vehicles.

But to fully capitalize on their mineral wealth, developing countries must go beyond merely supplying raw minerals and advance up the value chains.

UN Trade and Development analysis of EV supply chains, reveals that no country from Africa or Latin America is currently a major player in manufacturing or trading cathodes or battery materials.

However, the Democratic Republic of the Congo’s experience shows that developing countries can make progress in adding some value to their minerals.

By refining and processing cobalt locally, the country boosted the mineral’s unit price from $5.8 per kilogram at extraction to $16.2 per kilogram after processing. With this initial move up the value chain, the African nation’s exports of processed cobalt reached $6 billion in 2022, compared to just $167 million in exports of unprocessed cobalt. [IDN-InDepthNews]

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IDN is the flagship agency of the Non-profit International Press Syndicate.

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