Policy Brief
May 2024
Task Force 3: Future of the Global Economy

Fueling Clean Energy Transitions:Addressing Value Chain Polarizationin Critical Minerals
Emre Hatipoglu, Research Fellow, KAPSARC School of Public Policy (KSPP), Saudi Arabia
Daniel Gros, Director, Institute for European Policymaking, Bocconi University, Italy
Jitendra Roychoudhury, Research Fellow, King Abdullah Petroleum Studies and ResearchCenter (KAPSARC), Saudi Arabia

Abstract
The global demand for critical minerals required in clean energy transition technologies faces
challenges due to supply chain disruptions, geopolitical tensions, and environmental costs. The
concentration of mineral processing, refining, and manufacturing capacities within specificgeographies poses risks, prompting governance initiatives like the EU’s Critical Raw Materials
Act and the US’s Securing a Made in America Supply Chain for Critical Minerals Act, amongothers (US Dept Treasury 2024; European Commission 2023a; White House 2022b). However,increasing domestic supply within the G7 advanced economies is costly and time-consuming inTask Force 3 Policy Brief

permitting approvals and setting up greenfield processing and refining facilities. This policybrief focuses on the increasing polarization occurring in the critical minerals space as nations
compete against each other to secure access to raw materials required to feed their energy
transition ambitions. The policy brief argues that the G7 can leverage its existing economic andtechnological heft to align market forces to address the issue of critical minerals availability
better. Ensuring supply chain restructuring through increased commercial collaborations andforging complementary and cooperative arrangements within the existing G7 frameworks
would be an added benefit. Moreover, creating a strategic reserve would reduce concerns
about supply disruption, allowing nations to leave more room for market forces.

The challenge
Critical minerals occupy a central role in enabling a sustainable, low-carbon future. TheInternational Energy Agency (IEA) estimates that the energy sector’s overall need for criticalminerals could increase by as much as six times by the middle of this century (IEA 2022). The
escalating demand for critical minerals has resulted in significant impediments within supply
chains, causing raw material shortages across various sectors. Supply chains are already understress, from automotive microchips and solar panels to fuel cells and specialized batteries,
because of regional conflicts, sanctions on countries, and post-Covid-19 aftershocks. In 2023,
the IEA highlighted that an insufficient mineral supply could lead to a more expensive, delayed,or less efficient energy transition (IEA 2023). The geographical concentration of critical mineralproduction, processing, and refining, often situated in politically unstable regions, coupled withextended supply lead times to markets and the substantial environmental and social costs ofextraction, refining, and processing, contribute to heightened risks and add to expenses related
to resiliency and security in supply and value chains.
Naturally, nations that bear the environmental and social costs of often highly polluting mineral
extraction, processing, and refining seek to ascend economically in these value chains to extract
additional value and create economic growth opportunities for their economies. Furthermore,some nations have occasionally used their command over critical minerals to gain geopoliticalleverage in international crises. As a consequence, the increasing economic and geopoliticalrisks associated with potential critical minerals supply disruptions have prompted many
countries (primarily developed) to embark on domestic prospecting, extraction, and processing,
contributing to onshoring /nearshoring practices that seek to polarize value chains and challenge
current global trade governance principles centered on accessibility and equity. The disruptions in
critical minerals supply sat at the forefront of the worldwide supply chain problems, a prominent
feature of the post-Covid-19 recovery of the global economy. These immediate problems
caused the most developed economies to onshore/nearshore to produce and process criticalminerals, often invoking national security discourse in tandem as illustrated by the Securing aMade in America Supply Chain for Critical Minerals Act from the US and the EU’s Critical Raw
2

Fueling Clean Energy Transitions:
Addressing Value Chain Polarization in Critical Minerals
Materials Act. This polarization exacts a toll on global welfare, particularly affecting developing
and less developed countries. The main challenge in this reactionary environment is that theseon/nearshoring efforts will likely occur at the expense of global welfare. In other words, such
immediate protectionist responses may evolve into long-term rigidities in critical mineral supply
chains and polarized markets. Such undue pressure can make the energy transition for othercountries costlier, diluting global efforts and collective progress towards Net Zero Emissions
goals. Hence, it becomes inherent for the G7 member countries to focus on addressing the issuesof geographical concentration of mineral supply and value chains, focus on resolving the problems
of increasing geopolitical and energy security risks associated with such concentrations, andwork collectively to ensure that economic and political rent-seeking doesn’t negatively impact thecollective progress on free trade globally and the progress towards an equitable and sustainable
future.

The role of the G7
It is important to note that the current reliance on non-OECD critical mineral extraction andprocessing is not due to scarcity of resources; deposits of many critical minerals are widespreadon the Earth’s crust. Instead, economics has brought about the geographical concentration ofcritical minerals production. For example, the Chinese dominance in rare earth element markets
has been chiefly due to its “operational cost competitiveness” (Mancheri et al. 2019).
Against this backdrop, nearshoring/onshoring has regained popularity worldwide after theCovid-19 pandemic as a policy response to supply chain breakdowns. The politicization ofnearshoring/onshoring threatens the gains that the G7, the G20 and the global community
have eked out through tenuous trade negotiations over the last several decades. Furthermore,a polarization of value chains can have negative geopolitical externalities, partially costing
the global community the dividends of peace in trade, investment, and human capital flows.
Undoubtedly, nearshoring/onshoring policies provide a short-term solution to these potential
crises and soothe the markets by mitigating worst-case scenarios. However, a “metamorphosis”
of near/onshoring into trade protectionism in the longer term will impose significant costs for
global welfare. Policy mechanisms for enhancing existing global trade governance mechanisms
to prevent “cornering” markets for political or economic purposes by resource-rich countrieswill help ensure stability in global commodity markets that have faced volatility in terms of priceand volume. These mechanisms also aim to avoid protectionist reactions by end-user countries
that could invalidate existing global value chains. G7’s institutional framework offers a unique
opportunity to underpin efforts towards sustaining a global critical mineral value chain (Serebrin2022). Its ministerial meetings platform facilitates regular business-to-business engagements
within its member nations to formulate a bottom-up based on trade, commerce, and enterpriseto establish a resilient, globally dispersed critical mineral value chain. In doing so, G7 support
towards establishing resilient global critical mineral supply chains will also ensure subscription
3Task Force 3 Policy Brief

to all the SDG aspirations (Natural Resources Canada 2022; Franks et al. 2023; UNECE 2022).

Recommendations to the G7
We focus on establishing a fungible and equitable global market for critical minerals byenhancing business-to-business (B2B) relations within a collaborative global supply chain. Thisapproach can serve as a vital facilitator for increased funding, consequently mitigating the riskof supply shortages, mainly through the introduction of transparency in pricing. We proposethat technology transfers driven by foreign direct investment (FDI) will create innovative criticalmineral clusters connecting producers, refiners, and consumers. Extending fiscal incentives foressential mineral investments from the G7 to developing countries through G20 mechanisms canhelp enhance critical minerals supply chain resilience while optimizing global production factors.
G20’s various platforms constitute good springboards to initiate related B2B and governmentto-business (G2B) discussions. Additionally, including the African Union as a member of the G20
helps provide a formalized mechanism to ensure greater coordination between the memberstates of the G7 and the G20 (African Business 2023; Acharya and Chaganti Singh 2023).
Our proposals offer the following action points towards enabling an equitable distribution ofcritical mineral extraction, processing, and research and development efforts to sustain futureenergy transitions.

A time to revisit/leverage tools of global trade: The supply-security concerns are legitimate;critical minerals producer nations have already weaponized their market power several times
to gain geopolitical advantage (Home 2024; Rachman 2023; Tabeta 2023). Existing monitoring,
dialogue, and dispute resolution mechanisms can be finetuned to bestow trust in global criticalmineral supply chains. Democratize international trade governance to a holistic/supply-chainoriented one by involving the global trade bodies to further strengthen the value chains’ building
blocks. Our specific recommendations rest on the idea of devolving the focus of the global
trade framework from regulating commodity exchange to managing supply chains. In doing so,
we especially recommend (i) business- and society-driven priorities to provide evidence-based
inputs for the global governance of trade, (ii) prioritize countermeasures for either the initial orend-users to corner their respective markets, but in doing so, (iii) ensure equitable, incentivecompatible means for the businesses of resource-rich countries to move up in the global
value chains. Technology sharing and reforming global IPR regimes are vital enablers of theserecommendations.
Creation of a strategic reserve of critical raw materials: The European members of G7 could
create a ‘coalition of the willing’ and pool resources to build strategic reserves of the mostimportant critical materials, such as rare earth elements, Germanium, and Gallium. A strategicreserve based on the commonly identified critical minerals should be formed. The G7 can work4

Fueling Clean Energy Transitions:
Addressing Value Chain Polarization in Critical Minerals
together to determine a standard list amongst its member states, and then the reserve would
be under joint EU and G7 management, and part of its stock would be released to its members
in case of supply disruptions. Other members of the G7 would be invited to join or create theirreserves. The G7 should then work towards an agreement between these national reserves tocoordinate accumulation policies and release stockpiles into the market when necessary basedon commonly identified threat perceptions. The stockpile and its withdrawal operations should
be isolated from seasonal variations and utilized predominantly for strategic actions (e.g., supplydisruptions because of wilful acts by states controlling such mineral value chains with an impact
on the energy security of the G7 member states and their partners). This should strengthen theconfidence in supply availability and thus reinforce the other recommendations.

A firm-level critical minerals ecosystem with solid global connections: We suggest a marketdriven approach where businesses and local initiatives take the driver’s seat. We argue that sucha “distributed” global critical minerals market will bolster innovation and underpin global efforts
towards a low-carbon future with an agile structure. Adding non-governmental platforms asadditional leverage in strengthening global value chains: We also argue that the best way forcountries with critical natural resources to move up the value chain is to promote indigenous
innovation rather than disrupting global value chains as a means of populist response. In doing
so, the G20’s engagement groups, like Business 20 (B20), Urban 20 (U20), Science 20 (S20),and Think 20 (T20), provide a platform to communicate, coordinate and formulate such agile
non-governmental (and preferably market-based) responses (G20 Italy 2021). Technology
transfer and cooperative mechanisms for sharing knowledge and expertise within national
and international collaborative ecosystems can also accelerate Indigenous innovation. Suchecosystem development can also help incubate technology development, especially in regions
currently outside of global value chains, which are focused primarily on exports of raw materials
without any significant value addition.
Use existing business clusters: The energy transition opens up business opportunities in criticalminerals beyond extraction and processing. These opportunities constitute a chance for a more
equitable share of the benefits of the energy transition for developing countries. Much knowledge
can be transposed from cutting-edge expertise in product development, B2B services, etc.,
towards creating a genuinely global critical mineral value chain. Existing business clusters acrossthe globe may constitute a significant springboard in these efforts. Additionally, the G7 canseek to leverage the opportunities represented by infrastructure and mining projects in which
the Partnership for Global Infrastructure and Investment and Global Gateway initiative areinvesting, e.g., economic corridors and infrastructure projects in Asia and Africa (White House
2022a; European Commission 2023b; Gupta 2024). Through such investments, the G7 would
be able to address the issue of setting up diversified supply chains for both minerals and metals.
This would also enable the dilution of the current geographical concentration of minerals andmetals processing within specific geographies, which often allow geopolitical rent-seeking andincrease associated risks of supply disruptions. Such actions would also enable the development
5Task Force 3 Policy Briefof supportive mechanisms (e.g., non-governmental bodies to monitor and address environmental
and social costs associated with producing rare earths and processing critical minerals). These
locally developed and evolved mechanisms would be much more suitable to address local
contextual issues, helping resolve potential conflict in mineral extraction.

Implementing design requisites for critical mineral recycling and circularity: As per the Circularity
Gap Report, only 8.6 per cent of the over 100 billion tonnes of raw materials in oil, metals, andgas consumed in 2021 were reused (Berger 2024). The potential for recycling from creating acircular economy would be immense. While making “spare capacity” for critical mineral extraction
and processing to smooth out volatility may be costly, creating an equivalent capacity throughrecycling, optimal, and circular use of critical minerals may be feasible. Since many products,
including recyclable critical minerals (e.g., lithium in batteries), will be recycled towards the endof this decade, the G7 has enough time to implement an encompassing governance mechanism
to promote a circular economy approach for critical minerals. It is, however, essential to note thatcritical mineral recycling is an energy-intensive process and should go hand-in-hand with using
low-carbon energy vectors such as clean hydrogen and renewable energy. To progress towards
a circular economy, it would be critical to identify and map the recycling opportunities across theG7 member countries and create a database for the overall size of the recycled minerals that canbe brought into circulation. This would also enable policymakers to develop policies that could
allow recycling.

References
Acharya, Shivangi, and Chaganti Singh, Sarita. 2023. G20 admits African Union as permanentmember. Reuters 9 September. https://www.reuters.com/world/g20-admit-african-unionpermanent-member-new-delhi-summit-draft-declaration-2023-09-09
African Business. 2023. The race for critical minerals: G7 action plan eyes African resources.
African Business 18 April. https://african.business/?p=133035
Berger, Georg. 2024. On track for a circular economy? Deutsche Bank. https://www.db.com/
what-next/responsible-growth/Circular-Economy--Kreislaufwirtschaft/Facts-Fakten/index
European Commission. 2023a. Critical raw materials: Ensuring secure and sustainable supply
chains for EU’s green and digital future. 16 March. https://ec.europa.eu/commission/presscorner/detail/en/ip_23_1661
European Commission. 2023b. Global Gateway. https://commission.europa.eu/node/5445_en6

Fueling Clean Energy Transitions:
Addressing Value Chain Polarization in Critical Minerals
Franks, Daniel M., Keenan, Julia, and Hailu, Degol. 2023. Mineral security essential to achieving
the Sustainable Development Goals. Nature Sustainability 6(1): 21-27. https://doi.org/10.1038/
s41893-022-00967-9
G20 Italy. 2021. Engagement groups. http://www.g20italy.org/italian-g20-presidency/engagement-groups.html
Gupta, Prithvi. 2024. The Global Gateway in Africa: Europe’s foray into infrastructure diplomacy.
ORF Expert Speaks 6 January. https://www.orfonline.org/expert-speak/the-global-gateway-inafrica-europe-s-foray-into-infrastructure-diplomacy
Home, Andy. 2024. Nickel producers fear growing Indonesian pricing power. Reuters 6 March.
https://www.reuters.com/markets/commodities/nickel-producers-fear-growing-indonesianpricing-power-2024-03-05
IEA 2022. The role of critical minerals in clean energy transitions. https://doi.org/10.1787/
f262b91c-enIEA. 2023. IEA Critical Minerals and Clean Energy Summit delivers six key actions for secure,sustainable and responsible supply chains. https://www.iea.org/news/iea-critical-minerals-andclean-energy-summit-delivers-six-key-actions-for-secure-sustainable-and-responsible-supplychains
Mancheri, Nabeel A., et al. 2019. Effect of Chinese policies on rare earth supply chainresilience. Resources, Conservation and Recycling 142: 101-112. https://doi.org/10.1016/j.
resconrec.2018.11.017
Natural Resources Canada. 2022. Countries commit to the sustainable development andsourcing of critical minerals. 12 December. https://www.canada.ca/en/natural-resourcescanada/news/2022/12/countries-commit-to-the-sustainable-development-and-sourcing-ofcritical-minerals.html
Rachman, Joseph. 2023. Japan might have an answer to Chinese rare-earth threats. ForeignPolicy 15 August. https://foreignpolicy.com/2023/08/15/japan-rare-earth-minerals-greentransition-china-supply-chains
Serebrin, Jacob. 2022. Canada, other G7 nations launch sustainable mining alliance at COP15
nature meeting. The Globe and Mail 12 December
Tabeta, Shunsuke. 2023. China tightens rare-earth export curbs amid tension with U.S. Nikkei
Asia 7 November. https://asia.nikkei.com/Spotlight/Supply-Chain/China-tightens-rare-earth7

Task Force 3 Policy Brief

export-curbs-amid-tension-with-U.S
UNECE-United Nations Economic Commission for Europe. 2022. The Working Group on
Transforming the Extractive Industries for Sustainable Development. https://unece.org/node/369631
US Department of the Treasury. 2024. Inflation Reduction Act. https://home.treasury.gov/node/975281
White House 2022a. President Biden and G7 leaders formally launch the Partnership for
Global Infrastructure and Investment. 26 June. https://www.whitehouse.gov/briefing-room/
statements-releases/2022/06/26/fact-sheet-president-biden-and-g7-leaders-formallylaunch-the-partnership-for-global-infrastructure-and-investment
White House. 2022b. Securing a Made in America supply chain for critical minerals. 22 February.
https://www.whitehouse.gov/briefing-room/statements-releases/2022/02/22/fact-sheetsecuring-a-made-in-america-supply-chain-for-critical-minerals

About Think7
Think7 (T7) is the official think tank engagement group of the Group of 7 (G7). It provides
research-based policy recommendations for G7 countries and partners. The Istituto AffariInternazionali (IAI) and Istituto per gli Studi di Politica Internazionale (ISPI) are the co-chairs of
T7 under Italy’s 2024 G7 presidency.
8