Energy transition commodities: Riding the wave of new demand drivers
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One effect of the Paris Agreement has been to prioritise new social objectives within the functioning of the energy system and the global economy it supports. These objectives can be summarised as the need to improve access to energy while reducing the environmental impacts energy production and consumption holds. More specifically, the global economy needs to service the demands of an estimated 10 billion people by 2050 – 25% more than today’s nearly 8 billion – while reducing net greenhouse gas emissions levels by 100% over the same period. Wood Mackenzie (WM) has developed distinct scenarios for how the pursuit of these goals plays out (see Figure 1).
Source: Wood Mackenzie, 2022.
Forecasts are not an indicator of future performance and any investments are subject to risks and uncertainties.
The scale of the challenge is enormous. Equally broad are the means by which the global response to need for more energy and less emissions is being made. Electric vehicles (EVs), energy storage, charging, electricity transmission and distribution cables, solar and wind generation; hydrogen across the energy value chain we see regulatory, market and technology trends calling forth unprecedented levels of demand for certain mined commodities over the next 3 years (see Table1).
Table1: Energy Transition Commodities and Applications
A slower transition, like that detailed in our WM ETO pathway, where willingness and capacity to remake our energy system is variable across markets, brings upsides across the mined commodity complex. Limiting global temperature rises below 2 degrees through an accelerated transition requires a lower probability, higher consequence revolution in our energy system. The United Nations Climate conference climate conference of 2021 (COP26) confirmed the international community’s commitment to this goal. And delivering this reconstruction would be transformative for the building blocks of the transition – metals (see Figure 2).
Source: Wood Mackenzie, 2022.
Forecasts are not an indicator of future performance and any investments are subject to risks and uncertainties.
But the current projection for supply growth is not sufficient to meet technology needs. The resulting structural undersupply would typically lead to higher prices as manufacturers compete to secure raw materials. The question is what price level will be enough to incentivise the required metals capacity?
The views expressed in this blog are those of Wood Mackenzie, any reference to “we” should be considered the view of Wood Mackenzie and not necessarily those of WisdomTree Europe.
Wood Mackenzie, a Verisk Analytics business, is a trusted source of commercial intelligence for the world’s natural resources sector. Wood Mackenzie empowers clients to make better strategic decisions, providing objective analysis and advice on assets, companies and markets.
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