Among the many questions surrounding the current energy transition is what geopolitical advantages might accrue to countries that move fastest to secure control over the critical minerals needed in huge quantities to facilitate the greening of the world's economy. Experts have attempted to categorize these critical minerals in different ways, but the International Energy Agency (IEA) has identified two broad subgroups in which future demand growth is expected to be most dramatic: battery-related metals (lithium, graphite, cobalt, nickel, and manganese) and rare-earth elements (REEs)--a diverse group of minerals used in niche high-tech industrial applications and typically much costlier to extract at scale. Global production of lithium, cobalt, and REEs is especially concentrated geographically, as the three largest producing countries of each currently account for over 75 percent of the world's total supply.
Cobalt is uniquely salient as a lens through which to explore the geopolitical ramifications of access to and control over critical minerals. Nearly 70 percent of the world's cobalt output in 2022 was produced within a single country, the Democratic Republic of the Congo (DRC). The DRC is also estimated to contain nearly half of the world's recoverable cobalt reserves. Moreover, the IEA provides forecasts for a range of possible future energy transition scenarios, in which cobalt demand is projected to grow anywhere from 6 to 30 times over the next two decades. Although cobalt will continue to be used for a variety of industrial purposes, the bulk of that growth is expected to come from the world's insatiable appetite for lithium-ion batteries used in electric vehicles (EVs) and battery storage systems (BSS). The Biden administration has characterized cobalt as an area of “critical vulnerability” for U.S. automakers, since Chinese firms—many of them state-owned enterprises—dominate the upstream and midstream, with ownership control over 70 percent of the Congolese mining sector and even greater market shares in the refining and processing of battery metals. As China has rapidly consolidated its market position in both mining and refining, prominent American analysts have expressed concerns that its capabilities in green energy manufacturing may continue to race ahead of those of the United States.
Since China and the United States each account for miniscule fractions of both global mined production and reserves, the combination of cobalt's geographic concentration, expected future demand growth from battery technology proliferation, and inherently unstable pricing dynamics has prompted policymakers in both countries to view the metal as a potential supply chain vulnerability. President Biden's signature environmental policy achievement, the Inflation Reduction Act, seeks to reshape the critical minerals supply chains for EVs by offering hefty tax credits with strings attached. The bill requires qualifying EVs to be made with batteries that source at least 40 percent of their critical minerals from North America or U.S.-aligned countries—a number scheduled to increase to 80 percent by 2027. More to the point, it also states that no EVs with battery components manufactured or assembled by a “foreign entity of concern” (likely to include many Chinese firms) from 2024 onwards will be eligible for the $7,500 vehicle tax credit. Moreover, China and the United States appear to be mirroring each other's tactics. A recent OECD report found that China, for its part, has quietly implemented more than 13,000 export controls on critical minerals as of 2020—by far the most of any country.
Over the past decade, the dramatic decline—close to 90 percent by one estimate—in the cost of producing battery packs has paved the way for the accelerating adoption curves seen in both EVs and BSS technologies. The lithium-ion cathode currently makes up around half of the all-in manufactured pack cost—although this figure varies with fluctuations in the prices of the underlying metals—and is thus widely viewed as crucial for bringing the total cost of EVs closer to parity with fossil fuel vehicles. But if producing cheaper cathodes is key to scaling up EV and BSS adoption, cobalt is arguably the main roadblock. The metal's relatively high cost and scarce supply, in addition to its embedded geopolitical and reputational risks, has driven many downstream manufacturers—particularly leading EV manufacturers such as Tesla, BYD, Volkswagen—to seek out battery chemistries that reduce or eliminate entirely the amount of cobalt used in cathodes.
The world's largest battery maker, a Chinese firm called Contemporary Amperex Technology Ltd. (CATL), has taken a leading role in these efforts with its commercialization alongside Tesla of cobalt-free lithium iron phosphate (LFP) batteries and ambitious plans to develop sodium-ion batteries. If successful, these nascent chemistries would dramatically lower total pack costs. Running parallel to these R&D initiatives, downstream players have aggressively sought to reduce their supply risk through vertical integration—by securing joint-venture agreements and long-term contracts, or even purchasing majority ownership stakes in upstream suppliers. CATL's continued investments in cobalt mine assets indicate that, despite the enthusiasm behind LFP and other cobalt-free formats, battery manufacturers expect to continue using cobalt in large quantities to enhance the performance and safety profile of their products for the foreseeable future.
Although such maneuvering may limit the utility of China's hold over cobalt as a geopolitical tool, significant economic benefits have nonetheless redounded to China from its dominant market share in cobalt mining and processing. China's command over the upstream and midstream segments has helped spur it to global leadership in both battery and EV manufacturing. Add to this the country's advanced infrastructure, vast consumer market, and myriad schemes of state support for strategic industries—including targeted subsidies and abundant below-market financing—and it is little wonder that Chinese firms' prowess in many green technologies has come to surpass that of the United States and other developed economies. As a testament to its multipronged industrial policy approach, China's annual EV sales nearly doubled in 2022, growing by 87 percent and bringing the country's estimated share of the world's total EV sales to an astounding 59 percent. Top foreign firms such as Tesla, Volskwagen, and LG Energy Solution have little choice but to embrace the Chinese market or else risk being left behind. The geopolitical significance of China's hold over critical minerals may therefore lie less in its ability to restrict their supply—as OPEC has long done with the supply of oil—than in the fuel it lends to China's ambitions to dominate manufacturing of high-end green technologies that the rest of the world craves.
