International Monetary Fund warns concentrated critical minerals sector may make energy transition more costly

The heavy concentration of the world’s critical minerals means the cost of the green energy transition could be much higher than expected, the International Monetary Fund has warned.

New analysis suggests prices for critical minerals like lithium, cobalt, nickel and copper could return to previous peaks and remain there for extended periods. For cobalt — primarily mined in the Democratic Republic of the Congo, prices could rise by almost 700 per cent by 2030 from 2020 levels.

Closer to home, the average annual value of lithium for Australia could climb to $US70 billion ($104.6b) by 2040, according to the IMF’s modelling released late on Tuesday.

Critical minerals are seen as increasingly important as the world shifts away from fossil fuels and towards new technologies said to be less environmentally intensive.

But the IMF points out given 70 per cent of global cobalt production — crucial for lithium batteries — is in the Democratic Republic of the Congo, there was an increased risk of geoeconomic fragmentation caused by natural disasters, war and a fragmentation in trade and investment.

This was in stark contrast to oil production, where the world’s top three producers comprise only 30 per cent of global supply.

Supply was also a major concern, the IMF said, given new mines can take up to a decade to open.

The projections are contained in a new IMF report about the macroeconomic impact of food and energy insecurity. It warns of a further energy instability from the switch to green technologies given higher costs and limited supply of materials.

The fund called on G20 nations, including Australia, to start sharing data on consumption and production of critical minerals.

While there are ample data for fossil fuels and established minerals and metals such as copper and nickel, there is much less information about the supply of and demand for critical minerals such as lithium, graphite, and cobalt,” the report stated.

“This makes it difficult to assess market imbalances and creates unnecessary price volatility, making investment for both producers and consumers challenging.”

The IMF has urged a strengthening of rules for international trade to more quickly reflect the shift from fossil fuels to critical minerals, suggesting more stringent rules on export restrictions would prevent market fragmentation.

It also wants governments to reduce policy uncertainty, which weighs on mining investment and risks aggravating delays to the energy transition.

“A credible, globally co-ordinated climate policy could help to reduce such uncertainty,” the report states.