In a Low-Carbon Future, Better Mineral Governance Could Power Development

In spite of the U.S. government’s possible withdrawal from the Paris climate accord, policies to reduce carbon emissions continue to gather pace. In July, the U.K. government announced plans to ban the sale of gasoline and diesel cars by 2040, following in the footsteps of France. India and Norway aim to do the same by 2030 and 2025, respectively.

These are the latest signs of a global economy moving away from carbon-intensive fossil fuels toward renewable energy, which will have far-reaching effects on demand for extractive resources. Clean technologies require large quantities of metals and rare minerals, the majority of which are mined in developing countries. Two recent studies—a World Bank report and a paper in the journal Nature—examine the implications of this demand.

Exactly which technologies authorities and manufacturers will adopt is uncertain. The World Bank report focuses on solar photovoltaics, wind turbines and batteries, and identifies minerals and metals likely to be required for future energy needs. Using the U.S. Geological Survey (USGS), they provide country level data for identified reserves of these commodities.

We have run this data against 2017 Resource Governance Index (RGI) scoring and found that across the different minerals, on average 42 percent of reserves are in countries with “good” or “satisfactory” resource governance, 37 percent are in countries with “weak” scores (China accounts for 14 percent of this total) and a further 7 percent are in countries that score “poor.” Almost none of the reserves are in countries that are “failing” in their resource governance.

At the national level, a boom in demand for these minerals presents significant opportunities. For example, identified lithium resources are concentrated in salt flats in Argentina, Bolivia and Chile. If the world shifts to lithium-ion batteries to power vehicles and electricity consumption, South America will become a globally strategic region for energy. And if governed well, this industry could be transformative for these countries’ economies.

The outlook also presents some serious risks. A high average proportion of minerals reserves is found in countries with “weak” or “poor” governance and for some of the individual minerals, this proportion is much higher.

For example, 90 percent of the reserves of chromium, a mineral used in wind turbines, are in Kazakhstan and South Africa, two countries with “weak” RGI scores. Almost two-thirds of reserves of manganese, used in both wind turbines and lithium-ion batteries, are in countries that score “weak” or “poor” in the index—32 percent in South Africa, 23 percent in Ukraine, 7 percent in China, 4 percent in Gabon and 2 percent in Ghana.

This raises some significant concerns.

Rising demand for these minerals could be an opportunity for countries to fund development programs, but with weak governance, they are more likely to suffer as a result of the resource curse. Weak governance, including a lack of public accountability, lowers the chances that governments will adopt policies and practices to raise and manage revenues in ways that will benefit citizens. Instead of a beneficial boom for these countries, greater mineral demand is more likely to result in wasted spending, corruption and low economic growth.

Weak governance adds to concerns about environmental and social damage from extraction.

Increasing mineral prices will render new mining projects more commercially attractive—including many in or near sensitive areas such as forests, rivers and coastlines. Some of these will be lower-grade deposits, resulting in more waste and greater damage to the environment. This, in turn, could spark local conflict over land and water use. Conflicts tend to occur when formal channels to resolve disputes fail and these channels are less likely to be open when the accountability environment is weak. Similarly, when licensing practices are murky, social and environmental standards are often overlooked.

These conflicts can lead to delays and project cancellation, which could, in turn, restrict world supply. The link between those living near mineral extraction and the world markets of these minerals is hugely important. Many of the minerals needed for renewable energy technologies cannot be substituted, so a supply squeeze of any one of the inputs can threaten entire production chains.

Because avoiding disruption is so crucial for the progress of clean technologies, the group of experts writing in Nature propose a global governance approach to avert potential bottlenecks. They call for the international community to set targets for mineral production; map resources; monitor impacts; research and invest in new extractive technologies; and carry out exploration in new frontiers, from sea beds to deep in the earth’s crust. Additionally, they propose an early warning system, using data analysis to trigger alarms for impending supply, governance and environmental concerns.

The USGS data, while not complete, suggest that some regions, particularly Africa, the Middle East and Southeast Asia, have comparatively low reserves of the listed minerals per square kilometer, and many of the countries in these regions have no identified reserves at all. This is unlikely to be a function of geology – these regions also have some of the lowest RGI scores, including many of the countries classed as “failing.” Research from the Oxford Centre for the Analysis of Resource Rich Economies shows resource endowments depend on governance—reserves increase when countries have stable political environments, low risk of expropriation and a favorable investment climate, since these create the conditions for companies to explore for and extract resources. Poor governance, on the other hand, deters investors.

In a context of rising demand for minerals, concerns about governance risk may start to be outweighed by potential profits and we could start to see discoveries in these countries. This could present serious problems. But if countries can improve their governance, they might be able to benefit from a nascent minerals boom and supply the world with the materials needed to power the low-carbon economy.

Alex Tilley is a development officer at the Natural Resource Governance Institute (NRGI). David Manley is a senior economic analyst at NRGI.

Source of article: Natural Resource Governance Institute (NRGI)