The U.S. Can Secure Critical Supply Chains to Advance Decarbonization Goals, But It Will Take a Fresh, Nuanced Approach

The U.S. Can Secure Critical Supply Chains to Advance Decarbonization Goals, But It Will Take a Fresh, Nuanced Approach
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Recent months have made it painfully clear to consumers and policymakers that we can’t take supply chains for granted. That’s especially true for critical goods and materials, a notion reinforced by President Joe Biden’s Executive Order 14017 that begins the process of creating more secure supply chains for critical minerals that are essential to high-tech and environmentally beneficial applications including electric vehicles, wind turbines, solar panels, and even smart phones. Such critical minerals are not only necessary to exit the COVID-19 pandemic on strong footing, but for winning on climate change too.

As the President noted in a new Executive Order issued as he held a Summit on Global Supply Chain Resilience with the European and 14 like-minded countries on the sidelines of the G20 meeting in Rome, a “critical component of safeguarding supply chain resilience and industrial base health is ensuring that both the Federal Government and the private sector maintain adequate quantities of supplies, equipment, or raw materials on hand to create a buffer against potential shortages and import dependencies.”

Some policymakers have suggested that reshoring—bringing back home the sourcing of certain materials rather than depending on foreign imports—is the solution for securing America’s supply chains, but that’s flawed thinking. In some cases, the U.S. simply doesn’t have the necessary geology. In most cases, though, reshoring isn’t a viable strategy because of market dynamics and politics, and due to the absence of domestic reserves, production, and processing capabilities. If the U.S. wants to secure supply chains for critical minerals, it’s going to take a thoughtful and nuanced approach that goes beyond sound bites calling for “bringing production back home.”

The International Energy Agency made a similar point in its World Energy Outlook 2021, noting that securing critical minerals is fraught with geopolitical hazards because of “a lack of geographical diversity in critical mineral extraction and processing operations.” In fact, the number of nations supplying critical minerals is even smaller than the number supplying oil and natural gas. Demand for these minerals continues to climb, creating ever-increasing pressure on supplies from just a handful of nations.

How should the U.S. navigate these geopolitical hazards? For starters, we need to acknowledge the reality that most critical minerals will need to be imported. Of the 35 minerals or groups of minerals designated as essential for U.S. economic and national security under a process initiated by the Trump administration, imports account for over half of the country’s consumption of 31 of these and 100 percent of 14 of them. That’s unlikely to change, since even in cases when U.S. companies can mine critical minerals domestically, they often must send those minerals elsewhere for processing.   

American policymakers also need to acknowledge that securing supply chains is tied to meeting climate goals. Decarbonizing the U.S. power and transportation sectors will require more solar and wind and a huge increase in electric vehicles, all of which require critical minerals. To meet the president’s goals on electric vehicles, Tesla alone would need to need to produce 20 million automobiles a year, forty times its current production, consuming 30 percent of the world’s current nickel production, 165 percent of the world’s current cobalt production, and 40 percent of the current global output of permanent magnets.

To secure access to critical minerals, the U.S. needs to ensure that no one country can cause a market failure or hold-up caused by the dominance of a single country or its firms in the supply chain of any given mineral or group of materials. One of the leaders participating in the supply chain resilience summit was President Félix Tshisekedi of the Democratic Republic of the Congo, which has roughly half of the world’s cobalt reserves and currently accounts for about 60 percent of global production of the mineral. The challenge is not the relatively diversified mining sector in Congo, but that almost all of what is produced there and in several other countries gets processes in China, which controls about three-quarters of the global supply of refined cobalt such as is used in rechargeable batteries.

The U.S. should consider a strategic reserve that helps mitigate the risks of the near-total monopoly on processing of cobalt and other minerals presently enjoyed by China. Instruments such as off-take agreements and incentives to private companies to supply needed critical minerals, not only signal U.S. demand for the select critical materials, it can also serve to catalyze investment by appropriate countries and companies that will provide further protection for U.S. supply chains.

This point was communicated clearly in the recent Executive Order which noted that “the Federal Government will both ensure that it is keeping adequate quantities of goods on hand and provide a model for the private sector, while recognizing that private sector stockpiles and reserves can differ from government ones”—signaling the latter by limiting the authority to release of strategic and critical materials from the National Defense Stockpile by the Under Secretary of Defense for Acquisition and Sustainment to occasions “only when required for use, manufacture, or production for purposes of national defense.”

American policy should also emphasize market interdependence, noting that bolstering trade ties, not eliminating them, is the answer. In some cases, that means making more nuanced distinctions between foreign firms. In the case of aluminum, for example, EN+ Group is the largest aluminum producer outside of China, but unlike some other Russian firms, EN+ is traded on the London Stock Exchange and has undertaken important reforms toward transparency and corporate accountability. U.S. policy should view publicly traded multinationals beyond America’s circle of political allies as a trustworthy links in building resilient supply chains, and consider similarly situated multinationals with diverse supply chains as potential partners.   

Creating secure supply chains for critical minerals is possible, but it won’t be accomplished with simply calling for more economic independence or reshoring. The successful strategy will be more market interdependence, not less. With thoughtful, nuanced policy, the U.S. can begin securing the critical minerals required to build a strong post-COVID economy and do its part to beat climate change.

 

Ambassador J. Peter Pham is an Atlantic Council Distinguished Fellow and previously served as U.S. State Department Special Envoy for the Sahel Region and Great Lakes Region in Africa.



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