The challenge of sourcing EV battery minerals in an ESG world
Under demand pressures, mining companies must balance social issues and lengthy extraction horizons
Do you want your electric-vehicle (EV) batteries to be cheap, or do you want them sourced ethically?
Obviously, it is a more nuanced conversation than that but with environmental, social, and governance (ESG) concerns dominating the sourcing of rare metals, minerals, and elements, the mining of the raw materials that power EVs is undergoing a sea change. If we want our cars' battery packs, motors, and inverters to be the equivalent of fair-trade coffee, rather than blood diamonds, we may be in for an abrupt awakening in terms of how many EVs reach market—simply based on ethical supply constraints.
With projected EV sales forecast to grow by tens of millions of vehicles by 2030, the demand for minerals and elements such as lithium, copper, and nickel is going to be extremely challenging to reach. A CERAweek panel featuring government, mining, and geopolitical experts analyzed the challenges facing the auto industry in achieving its goal.
"Is the goal widespread energy adoption as quickly and cheaply as possible, or a responsibly, ethically sourced supply chain?" asked Frank Fannon, managing director of Fannon Global Advisors and the inaugural US assistant secretary of state for energy resources.
S&P Global Mobility forecasts market demand of about 3.4 Terawatt hours (TWh) of lithium-ion batteries for light vehicles, annually, by 2030. The 2021 output for the auto industry: 0.29 TWh.
Even if fresh lithium reserves were to be discovered, it takes at least 15 to 20 years to develop an operating mine from time of discovery, said Andrea Vaccari, director of responsible production frameworks and sustainability for copper giant Freeport-McMoRan.
Physically digging the mine can be the least of the concerns, Vaccari added: "We have some mines in the US that could be online right now that have been in litigation for several years. There is no equation, no piece of equipment, that will drill through social problems."
Vaccari points to Copper Mark, an environmental assurance program established in 2019 that can trace the chain of custody of a shipment of copper from extraction to end user—whether it is mine-to-vehicle, mine-to-laptop, or mine-to-building-wiring. A similar framework could be created for the minerals and elements that go into EV batteries.
"We don't have a lot of (tracing and transparency) of battery metals," Fannon noted of the thinly traded market. "There have been calls for increased transparency, but companies haven't embraced that to a sufficient degree. But if we can track emissions of invisible gases, we can track what types of workers are in the supply chain."
Those extra steps—of convoluted permitting processes, getting community buy-in, and ensuring equitable treatment of workers—add layers of cost compared to older, more blunt methods of mineral exploitation.
"Once we understand there is a value to that, the moral implication forces us down that road. But there is a price to that," said Christopher Skeete, minister for the economy for the province of Quebec.
The Inflation Reduction Act (IRA) provides a tax credit for EVs if the OEM sources its battery within the US or one of its free trade partners. Despite the industry's move toward ESG sourcing, Vaccari said that the current regulatory and permitting environment in the US may stifle any chance for growth in domestic mining: "Until we fix these complex multitudes of problems, the IRA won't have any impact on minerals sourced in the US."
If EV batteries are not locally sourced, that means going abroad, and the possibility of working in countries undergoing political upheaval or associating with bad actors engaged in child-labor practices.
For instance, Peru and Chile—which control 40% of the world's copper—are undergoing political instability as well as protests regarding worker rights and compensation. The Chilean government also recently nixed a USD2.5-billion mining project that would threaten a rare species of penguin. Child labor also has been well-documented in cobalt mines in the Democratic Republic of Congo.
"The first consideration is securing access," Skeete said. "Going somewhere where the rule of law isn't as established, you might get faster, but not reliable, sourcing.
"If the goods come from processes not done in an ethical way, you could be left out of the OEM's bid," Skeete added. "Or if you are an OEM that doesn't concern yourself with (ESG), your customers might not buy your product because they don't like how you sourced."
That may be the final deciding factor: Will consumers pay thousands of dollars less for an EV—a supposedly virtuous purchase—with batteries sourced from child labor, compared to ones that are ethically sourced? Or will they boycott, even if it considerably lightens their wallet?
The most promising development is that automakers are talking directly to mining companies about ESG sourcing, Vaccari said. "There are 6,000 parts in a car, layer upon layer upon layer of suppliers, and now we are having direct conversations with automakers. That's good, not just in terms of security of supply but how they can raise the standards."
- By Mark Rechtin, Executive Director and Executive Editor, S&P Global Mobility
This article was published by S&P Global Mobility and not by S&P Global Ratings, which is a separately managed division of S&P Global.