Critical minerals trade and the green energy transition
Published 18 July 2023
The industrialization of resources for emerging technologies crucial for the green energy transition has often led to adverse social and environmental outcomes. APEC provides an opportunity to promote sustainable cross-border practices to meet these challenges.
New technologies and new economic demands bring new resource requirements. This is especially true of the green energy transition, where the rush to meet rising demand for critical minerals is made more urgent by the challenges of global climate change. Exploiting new resources for emerging technologies has often led to adverse outcomes for the local communities and the environment in which those resources are found. This proved the case for coal, oil, and the raw materials—including some critical minerals—that powered Silicon Valley and the computing revolution. However, as the world rapidly scales up technologies for the green energy transition, there is an opportunity to adopt better practices for processing, refining, and using critical minerals.
The Asia-Pacific Economic Cooperation (APEC) forum provides an ideal opportunity to promote shared standards across borders for critical mineral exploitation. APEC members are in a unique position to bring together many of the existing discussions of improved standards and resiliency. As a group, APEC countries control most of the global supply chain for critical minerals—from mining to processing to end use—and they account for approximately 70% of global mining and almost 80% of global processing and refining capacity.1 For some minerals critical to the green energy transition, that number is even higher. APEC members hold the market power, expertise, and institutional architecture to shape new rules for mineral extraction, processing, manufacture, and trade.
For example, consider six minerals key to permanent magnets and advanced batteries: copper, nickel, lithium, rare earths, graphite, and cobalt. These minerals are essential ingredients in electric vehicles and energy storage.2 APEC members play an important role in the supply chains of all these minerals—more than 90% of global lithium and rare earths are mined and processed in APEC countries, as well as over 70% of copper, natural graphite, and nickel.3 While only 20% of cobalt is mined in APEC countries, a large percentage of mines are owned by companies headquartered in APEC members, particularly China.4 Moreover, even for minerals such as cobalt that are mostly mined outside APEC countries, the refining and processing largely takes place in China. According to the International Energy Association, in 2020, China processed approximately 90% of rare earths, 65% of cobalt, 60% of lithium, and 35% of nickel.5 In addition to centrality in production networks, APEC members are also some of the primary consumers of the end products of these materials, including electric vehicles. Whichever way one looks at the data, it is clear that APEC member economies play a market-defining role.
APEC members also possess a wide range of specializations and capabilities in handling critical minerals, making this forum a particularly good place to address supply chain challenges and resiliency goals in a meaningful, multilateral way. Cooperation can be mutually beneficial—mining and resource extraction giants such as Australia, Chile, and China have much to offer resource-rich but perhaps technology- and innovation-scarce members eager to seek development opportunities, such as Papua New Guinea and Indonesia. Potential benefits include shared commitments on environmental standards and on supply chain and price transparency. In addition, experienced countries in APEC could provide technical assistance to developing members to help them leapfrog some of the more costly externalities of mineral extraction, particularly regarding cleaner mining practices. For downstream countries, partnerships with upstream countries can increase supply chain resiliency and could assist with stabilizing global commodity prices and increasing transparency in the sector.
Competing approaches to critical minerals policy
Currently, the focus of many countries is on either increasing domestic production or diversifying raw material supply chains to avoid overdependence on a single source. These policies are motivated not only by rising demand and the recently exposed fragility of some supply chains but also by concerns that reliance on a single source creates vulnerability to economic coercion.
Many critical minerals have highly concentrated production within a single country, making them susceptible to supply chain disruptions—whether natural or coercive. Cobalt, for example, is largely mined in the Democratic Republic of the Congo, lithium in Chile, and nickel in Indonesia. Most of the world’s rare earths are mined and processed in China. Diversification is a core principle of risk management and, as such, should be pursued to relieve the risks of geographic concentration. However, other risks endemic to critical mineral supply chains can also arise, often from the severe environmental and social costs of dirty, difficult, and dangerous mining and processing projects. These challenges are not as easy to solve through diversification, and multilateral cooperation could improve the overall resiliency of the sector.
Many APEC members are already involved in international initiatives to increase supply chain resiliency for critical minerals. Most of the relevant initiatives to date, including the Mineral Security Partnership, the Indo-Pacific Economic Framework, the G-7’s Five-Point Plan for Critical Mineral Security, and a host of other bilateral or minilateral agreements, contain similar language emphasizing environmental, social, and governance (ESG) standards along the whole supply chain.6 In addition to high ESG standards, these initiatives focus on market-based approaches, increased transparency, and the incorporation of multiple stakeholders. However, despite language concerning inclusivity and sustainability, these initiatives are largely centered on the preferences of high-income countries, most of whom are net importers of critical minerals.
Contrary to language contained in multilateral initiatives, actual policies on critical minerals are more exclusionary and are largely beneficial to downstream countries in the global value chain—that is, high-income consuming countries. In the United States, for example, the Inflation Reduction Act has strict domestic component requirements that lock out many mineral-producing countries, and the European Union’s proposed Critical Raw Materials Act, which seeks to establish a central purchasing agency for critical minerals, has the potential to introduce market distortions that will benefit high-income countries at the expense of countries that are mining or processing the raw materials.
APEC itself has institutional infrastructure related to mining that addresses many of the same issues in recent initiatives. In 2007, APEC ministers created a Mining Task Force that established core principles, including a focus on improving the information and policy environment, utilizing a multistakeholder approach, and adopting a sustainable and inclusive development strategy.7 In 2018, the ministerial group responsible for mining met in Papua New Guinea and established an agenda for “inclusive and sustainable mining” in the region that promotes “the importance of the wider value chain and the mining equipment, technology, and services sector, which helps to drive employment, growth and innovation and is an integral part of the mining, energy and resources industry.”8 At the time, the ministers emphasized the need to invest in exploration and to seek multiple sources for initial mining investments to bring projects to fruition. They also stressed the need for transparency in the mining sector, technological advancement, and innovations that allow for more environmentally responsible mining and economic development opportunities. A perennial concern is volatility in commodity prices, particularly when prices fall so low that mining is not profitable. Increased transparency in commodity pricing would help producers realistically project capital requirements and future revenue, lowering investment risks and improving long-term success rates. An APEC mining-centered event in Chile, held in 2019, similarly focused on innovation-driven growth and inclusive development in the primary producing countries.
In short, for almost two decades APEC has been promoting an agenda that is similar in aspiration to these new international initiatives on critical minerals. However, the experiences of low-income countries in APEC show that there is still friction between these aspirational objectives and the realities on the ground. Countries such as Papua New Guinea rely on the extraction of raw materials (like bauxite) for economic growth opportunities but do not wish to be stuck at the bottom of the value chain. The Indonesian nickel market is another example. While Indonesian mines account for about half of the global supply of nickel, Indonesia only processes about 15%. China is the world’s leader in nickel refining at 35%, with Japan and Russia following at 8% and 6%, respectively.9 Indonesia has been clear that it wishes to have a larger role in the nickel supply chain beyond resource extraction, and it implemented an export ban in 2020 on raw nickel to encourage inward investment in smelters to process nickel domestically.10 While the export ban has been largely successful in building Indonesia’s domestic industry, it has also become an impediment to negotiations on free trade and investment agreements, limiting opportunities for both Indonesia and its potential partners.
Advancing an effective critical minerals agenda in APEC
Building a diverse and resilient supply chain sufficient to meet rising demand will require buy-in and resources from producing countries as well as consuming countries. In addition to possessing an abundance of resources and expertise in APEC, members have complementary roles. While high-income countries are largely seeking reliable, secure, and increasing supply, low- and middle-income countries want a greater share of the economic gains, commensurate to their bearing the bulk of the negative externalities that range from environmental concerns to commodity price volatility in countries without robust social safety nets. The 2023 APEC summit can build on the momentum of other critical mineral agreements but also incorporate the interests of primary producer countries, with particular attention to low- and middle-income countries such as Brunei, Papua New Guinea, Indonesia, and the Philippines. A potential model is the World Bank’s Climate-Smart Mining Initiative, which advocates methods for increasing the supply of minerals in ways that are environmentally and economically sustainable for resource-rich developing countries.11 As a consensus-based organization consisting largely of developing countries, APEC is an ideal forum to work out implementable details between producer and consumer giants.
To this end, higher income countries should commit to investing in initial exploration and technology that will improve the ESG outcomes of mining. China, Japan, and South Korea have already pursued state funding of overseas exploration and development, including in the Asia-Pacific region.12 These efforts can be expanded, with greater financial support for initial exploration and the training of local personnel.
Additionally, consuming countries can commit state and private-sector funding to develop the resulting mining projects with transparency and sustainability. The G-7 communique that suggests working with the International Energy Administration to forecast supply and demand is a good start.13 It may also constitute one step toward reaching the 2018 APEC mining group’s goal of stabilizing commodity prices while avoiding market-distorting cartels that keep prices unnaturally low.
A core contribution of the higher-income APEC economies must be market access. When critical minerals are mined or processed in member countries, particularly lower-income countries, it is essential that those materials can be exported to South Korea, Japan, the United States, and other high-income countries in a way that enjoys equal market access with domestically mined or processed goods. The current policy trajectory in the United States does not provide this market access without special agreements (such as the U.S.-Japan Critical Minerals Agreement),14 neither does the Indo-Pacific Economic Framework for Prosperity (IPEF) Supply Chain Agreement reached in May 2023.15 However, the United States would be wise to remember that market access is one of its strongest negotiating levers. The 2023 APEC meetings provide a forum to further discuss avenues toward greater market access.
Finally, much of the existing institutional infrastructure on critical minerals to which the United States is a party was developed to facilitate diversification away from Chinese supply chains, including the aforementioned IPEF agreement. Nonetheless, China necessarily will be a central player in the global critical mineral supply chain for at least the next decade. China is the country with the highest stake in the full supply chain and can—and should—be a participant in shaping and complying with new global rules and norms. While several APEC members (such as Japan and the United States) have made it clear that they want to diversify away from China, other members (particularly in the Association of Southeast Asian Nations) would prefer to avoid this choice and instead see their future economic prosperity connected to integration with all the major economies of the region. Some of the shared issues—such as price transparency and decreasing environmental risk—are places where Chinese firms along the value chain can find mutual benefit. These are also areas where APEC members could find common ground. Solving the problems of critical mineral supply chains will continue to be a discussion where China is a key party. Therefore, we need a forum that includes China, such as APEC, to discuss these issues.
Adapted from the original article by the National Bureau of Asian Research.
 Asia-Pacific Economic Cooperation (APEC), “APEC Mining Activities,” January 2022
 International Energy Agency, “The Role of Critical Minerals in Clean Energy Transitions,” May 2021
 International Energy Agency
 Agnes Chang and Keith Bradsher, “Can the World Make an Electric Car Battery without China?” New York Times, May 16
 Nick Ferris, “Why Critical Mineral Supplies Won’t Scupper the Energy Transition,” Energy Monitor, June 23, 2021
 See “Minerals Security Partnership,” U.S. Department of State, Media Note, June 14, 2022; “Fact Sheet: In Asia, President Biden and a Dozen Indo-Pacific Partners Launch the Indo-Pacific Economic Framework for Prosperity,” White House, May 23, 2022; and G-7, “Five-Point Plan for Critical Minerals Security,” annex to the “Climate, Energy and Environment Ministers’ Communique,” 2023
 APEC, “APEC Mining Activities.”
 “Statement of the 6th Meeting of the APEC Ministers Responsible for Mining Meeting (MRM6),” APEC, August 23, 2018
 “U.S. Geological Survey Releases 2022 List of Critical Minerals,” U.S. Geological Survey, Press Release, February 22, 2022; and British Geological Survey, World Mineral Production, 2017–2021 (Nottingham: British Geological Survey, 2023)
 Cullen Hendrix, “Indonesia Wants to Sell Nickel to the U.S., but First It Should Scrap Its Export Bans,” Peterson Institute for International Economics, April 26, 2023
 World Bank, “Climate-Smart Mining: Minerals for Climate Action,” May 26, 2019
 Kristin Vekasi, “Building Resilient Critical Mineral Supply Chains: Lessons from Japan and South Korea,” in “Critical Minerals: Global Supply Chains and Indo-Pacific Geopolitics,” National Bureau of Asian Research, NBR Special Report, no. 102, December 2022
 “G7 Climate, Energy and Environment Ministers’ Communique,” Ministry of Foreign Affairs (Japan), April 16, 2023
 Kyla H. Kitamura, “U.S.-Japan Critical Minerals Agreement,” Congressional Research Service, Insight, IN12152, May 17, 2023
 “Indo-Pacific Nations Vow to Fortify Supply Chains for Critical Items,” Japan Times, May 28, 2023
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