The Role of Critical Minerals in the Energy Transition

In the past decade, critical minerals have emerged as an important input in the global energy transition. Minerals like copper, lithium, cobalt, nickel and rare earth elements play an indispensable role in manufacturing electric vehicles (EVs), renewable energy systems and advanced electronics. As global demand intensifies, concerns around sustainability and supply chain security introduce both risks and opportunities for commodity investors.

Rising Demand for Critical Minerals

Over the past decade, prices for these minerals have generally risen, with lithium and cobalt seeing increases of 53% and 70%, respectively¹.  With accelerating electrification and clean tech deployment, demand is expected to surge further by 2030².

Figure 1: Growing Industrial Applications of Critical Minerals

Sources: International Energy Agency (IAE), European Commission, Cobalt Institute, Bloomberg Finance L.P, TDAM Research. As of March 2025.

An EV requires roughly 440 pounds of critical minerals, compared to just 66 pounds in a gas-powered car³. Demand is also rising from data-driven sectors like AI and cloud computing, which intensify rare earth usage. Governments and corporations are racing to secure diversified supplies, but doing so remains difficult amid refining bottlenecks and geopolitical tensions⁴.

Challenges in the Supply Chain

Despite strong demand tailwinds, several factors threaten the stable supply of critical minerals: geopolitical disruptions, environmental concerns, extreme weather events and social issues.

China dominates a significant portion of the global critical mineral supply chain, refining over 70% of the world’s cobalt and producing nearly 60% of its lithium⁵.  Many Western nations are attempting to diversify their supply chains to reduce reliance on China, but progress has been slow, posing persistent geopolitical risks⁶. 

These risks are compounded by environmental concerns worldwide. Nickel mining in Indonesia has caused widespread deforestation and water pollution⁷.   Similarly, lithium extraction in South America’s so-called Lithium Triangle requires large amounts of water, raising sustainability concerns⁸. 

Extreme weather events like floods and droughts also are increasingly disrupting mining operations. In Australia, severe flooding has halted transport and delayed project timelines⁹.  In Chile, prolonged droughts in water-scarce regions are increasing pressure on lithium extraction and raising operational sustainability concerns¹⁰.  

Mining operations have also triggered ethical concerns in several regions. In countries like the Democratic Republic of Congo, there are widespread reports of child labor in illegal mining sites, particularly for lithium and cobalt¹¹.  Meanwhile, violent clashes with Indigenous communities in Brazil and Australia have brought mining projects to a halt or led to legal action¹².  In Canada, protests over Ontario’s “Ring of Fire” project - which includes minerals such as chromite, copper, zinc, gold, diamond, nickel and platinum group elements - have underscored the critical importance of inclusive consultation with First Nations communities¹³.  Without this, companies risk losing their social license to operate.

All these challenges have important market and investment implications.

Price Volatility

Supply shocks and rapid demand swings have made critical mineral markets highly volatile. For example, lithium prices skyrocketed in 2022 due to shortages and investor speculation, only for them to tank in 2023 amid fears of oversupply and cooling EV demand¹⁴.  This volatility complicates budgeting, hedging and long-term planning for industries dependent on mineral-intensive technologies.

Corporate and Government Investments

In response to supply insecurity, companies are pursuing upstream acquisitions to lock in critical inputs. A notable example is Rio Tinto’s recent $10 billion acquisition of Arcadium, a lithium refining company, which signaled the growing trend of vertical integration in the mining sector¹⁵.  On the policy side, governments are stepping in with incentives. The 2022 U.S. Inflation Reduction Act included generous tax credits for domestic extraction and battery production, a goal supported by the current administration, while the European Union’s 2024 Critical Raw Materials Act pushes for diversified, localized mineral supply¹⁶. 
 

Strategic Responses to Supply Risks

To reduce reliance on volatile supply chains, firms are exploring the use of alternative materials. One scalable alternative which is gaining traction are sodium-ion batteries. They use sodium, which is more abundant and widely available than lithium. While their energy density is still lower, these batteries could play a significant role in grid storage and low-cost EV markets in the years ahead.

Recycling and Circular Economy

Recycling of critical minerals is emerging as a key strategy for mitigating supply risk and lowering environmental impact. Companies like Nth Cycle are rolling out clean-tech methods to recover critical materials like nickel and cobalt from e-waste and industrial scrap¹⁷.  Their closed-loop systems aim to reduce reliance on mining and to be far less carbon-intensive. Their process can also cut emissions by up to 90% compared to traditional extraction methods¹⁸. 

Policy and Regulation

Governments are increasingly aligning policy with sustainability goals. The 2024 bipartisan U.S. Critical Mineral Consistency Act mandates more transparent sourcing and supports domestic processing through tax credits¹⁹.  In parallel, the European Union is reviewing and expanding its Conflict Minerals Regulation to include minerals such as cobalt and lithium, moving beyond its original focus on tin, tantalum, tungsten and gold²⁰.  These steps aim to improve ethical sourcing and boost investor confidence in mineral supply chains²¹. 

Conclusion

Critical minerals are the backbone of the global clean energy transformation. Despite their importance, the path from mine to market is increasingly complex — shaped by geopolitical risk, environmental externalities and growing social expectations. To meet rising demand while ensuring long-term sustainability, governments and investors must look beyond securing access to critical minerals. They must champion innovation in recycling, fast-track supply diversification and integrate ESG principles into the core of mineral sourcing strategies. Only then can the global race for critical minerals serve as a catalyst — rather than a contradiction — to the energy transition.

¹ BloombergNEF. Electric Vehicle Outlook. Retrieved from https://www.bnef.com/interactive-datasets/2d5d59acd900003d
² IEA. (2021). The Role of Critical Minerals in Clean Energy Transitions. https://www.iea.org/reports/the-role-of-critical-minerals-in-clean-energy-transitions/executive-summary
³ IEA. (2021). The Role of Critical Minerals in Clean Energy Transitions
⁴ Advisor Analyst. (2023). Commodities in 2024: An Opportunity for Growth
⁵ IEA. (2023). Clean Energy Supply Chains – Vulnerabilities.
⁶ IEA. (2023). Clean Energy Supply Chains – Vulnerabilities
⁷ IEA. (2023). Clean Energy Supply Chains – Vulnerabilities
⁸ IEA. (2023). Clean Energy Supply Chains – Vulnerabilities
⁹ Deloitte. Preparing Operations for a Changing Climate.
¹⁰ McKinsey & Company. Climate Risk and Decarbonization: What Every Mining CEO Needs to Know.
¹¹ Associated Press. (2024). Child Labor in Illegal Mining Sites.
¹² Reuters. (2021, Oct 28). Violence Against Brazil’s Indigenous People Rose Last Year.
¹³ Reuters. (2023, July 20). Canada First Nations Protest Ontario’s ‘Ring of Fire’ Mining Plans.
¹⁴ Bloomberg. (2023). Lithium’s Rollercoaster: From Peak to Pullback.
¹⁵ The Australian. (2023). How Rio’s Powerplay is Rewriting the Rules of Lithium Powerplay.
¹⁶ U.S. Department of Energy. (2024). Inflation Reduction Act – Clean Energy Tax Credits Overview.
¹⁷ Nth Cycle. (n.d.). Recycling Technology Overview.
¹⁸ Time. (2024). Megan O’Connor: How Nth Cycle is Changing Battery Recycling.
¹⁹ U.S. Senate Committee on Energy. (2025). Critical Mineral Supply Chain Bill.
²⁰ IPIS Research. (2024). EU Acknowledges Shortcomings of Conflict Minerals Regulation.
²¹ European Commission. (2025). Conflict Minerals and Supply Chain Transparency Report.