How Lack of Copper Could Slow the Energy Transition

Avoiding a climate catastrophe is often portrayed as a question of political will. Yet the push to reduce carbon emissions is also a daunting technical challenge. Retooling power and transportation systems to run on renewable energy will require far more copper than the companies able to produce it are currently equipped to deliver. The question is whether a traditionally cautious mining industry will embrace the scale of investment needed to rewire the world. Failure would throw the transition to cleaner power sources off course.

1. Why is copper so important?

Copper is the most conductive metal after silver. While it's expensive, using cheaper alternatives like aluminum means compromising on efficiency. You can find copper in products as varied as toasters, air conditioners and microchips. There are about 65 pounds (29 kilograms) of it in the average car and more than 400 pounds in the typical home. Millions of feet of copper wiring are needed to build the more complex grids that can handle electricity produced by decentralized renewable sources and balance out their intermittent supplies. Solar and wind farms, often spread out over large areas, require more copper per unit of power produced than do centralized coal- and gas-fired power stations. Electric vehicles use more than twice as much copper as gasoline-powered cars do, according to the Copper Alliance. In order to achieve net-zero carbon emission targets, annual copper demand is likely to double to 50 million metric tons by 2035, according to an industry-funded study by S&P Global. It's far from certain that this much of the red metal will become available.

2. Why is that?

Although more copper is being recycled, it won't be enough to cover demand so the only alternative is to dig more out of the ground. Yet growth in output from copper mining is forecast to peak as soon as 2024 because fewer new projects are coming online and many existing ones are winding down. Copper is a classic bellwether of the global economy – rising and falling in tandem with industrial production – and miners are cautious about ramping up capacity for fear of getting caught out by a drop in demand. Added to this is a deeper, more structural problem: New deposits are getting harder, and costlier, to extract as ore grades fall, meaning more rock needs to be mined to secure the same amount of metal. Growing scrutiny of the environmental costs of copper mining is also discouraging more investment. Worst-case projections from S&P Global show a supply shortfall by 2035 equivalent to about 20% of demand.

3. How is this playing out?

Much as oil dictated the geopolitics of the last century, access to copper is becoming an economic imperative in this one, with governments jostling to secure those limited future supplies. Most copper ore is mined in Latin America and Africa and processed locally to create a more concentrated product, which is then exported to other nations where it's smelted to create pure copper. China has compensated for its poor domestic reserves by building out massive smelting capacity and snapping up mines overseas. Uneasy with Beijing's sway over such a strategic industry, the US and its allies are looking to source and refine more of the metals needed for the energy transition at home or in friendly nations. The prospect of copper scarcity has also led to a flurry of mergers and acquisitions as metal producers look to buy rather than build production growth.

4. What are the considerations for producing nations?

With so many eager buyers, major copper producers such as Chile, Peru and the Democratic Republic of Congo have more opportunity to dictate the terms of trade. Communities in mining regions are pushing for more social benefits from mine projects and calling on miners to do more to mitigate the environmental damage. Copper is extracted from ore using chemicals that can enter groundwater, contaminate farmland, kill wildlife and pollute drinking water. The amount of waste rock that's left over after copper ore is processed is set to grow from an annual rate of 4.3 billion ton in 2020 to 16 billion ton in 2050, according to researchers at the University of Queensland in Australia. Safely storing this byproduct, which needs to be managed carefully to avoid slumps and landslides, could cost the industry an additional $1.6 trillion, the researchers estimated.

5. What happens if there's not enough copper to go around?

Severe shortages would cause a surge in prices that risks damaging the economics of EVs, smart grids and renewables and slowing their adoption. Manufacturers of clean-energy technologies could help themselves by finding ways to use less copper in their products. And higher prices would give miners at least some incentive to ramp up production. But it takes several years to develop a new mine, so even if a burst of new demand gave miners the confidence to embark on massive new investments, it would take about a decade to move the needle on output.

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