Expert Speak Terra Nova
Published on May 29, 2021
As India’s industrial sector grows, creating a regular and stable supply of clean energy will be essential for meeting the country’s climate targets.
The material needs of the green transition This article is part of the new publication — Reconciling India’s Climate and Industrial Targets: A Policy Roadmap.

Introduction

A switch to low-carbon manufacturing will require adequate and reliable supply of renewable energy. As the costs of generating wind and solar energy fall, they are increasingly becoming more competitive sources of energy. The rapid deployment of renewables, however, poses two challenges for India.

First, India’s energy security will now depend on creating a diversified supply chain for solar and wind energy infrastructure, as well as increased domestic manufacturing (as described in Chapter 4). Second, the pressing need to shift to clean energy and manufacturing has rapidly changed the types of inputs and raw materials required in industries. Rare earths, for instance, which were not used at all in the Indian manufacturing sector just a decade ago, will now be required for most green technologies. In solar components, for instance, India’s import dependence has increased steadily, and is currently at over 92 percent.a A study by the Federation of Indian Chambers of Commerce and Industry (FICCI) shows that both the raw materials and the machinery required for producing solar modules are imported by Indian companies — this increases both production and inventory costs.<1> Lithium and cobalt will be required for battery storage, with the global demand set to increase by 488 percent and 460 percent, respectively, by 2050. Similarly, aluminium is used across most energy-generation and storage technologies, and achieving the 2-degree centigrade global climate target is estimated to require around 6 million tonnes of aluminium, annually, by 2050.<2>

Global alliances and investments will be required to manage supplies of raw materials for which India lacks domestic endowments, as well as engagement with domestic industries to build up downstream supply chains.

This chapter looks at the risks to energy security that arise as the Indian economy shifts to clean sources. While Chapter 4 focuses on encouraging domestic manufacturing of solar and wind components, this looks at securing supplies of essential materials required for the energy transition. In the first instance, this will require regular audits of the materials needed to meet clean energy targets. Global alliances and investments will be required to manage supplies of raw materials for which India lacks domestic endowments, as well as engagement with domestic industries to build up downstream supply chains. Finally, as the energy transition progresses, current infrastructure installations will rapidly start to become obsolete. Investment in technologies that enable recycling and reuse of the materials used could help secure future supplies, as well as reduce the need for raw material extraction.

Materials required for a green transition

Figure 1 shows the minerals used in different low-carbon technologies. Aluminium, copper and nickel, for example, are all widely used in generating solar power, and have a range of other uses. The demand for these, therefore, is likely to remain high over the next few decades, irrespective of the energy mix.<3> Major industrial economies, recognising this need, have declared aluminium a strategic sector (See Figure 2). Neodymium, in contrast, is used only in wind energy generation, but is a magnetic rare earth with a range of uses in electronic devices, including electric vehicles. Forecasts suggest that the market for magnetic rare-earths will increase five-fold by 2030, with a supply shortfall of 48,000 tonnes for neodymium.<4>

Regulatory and political changes can have a significant impact on energy security.

The International Energy Agency, in a 2020 study, highlighted that geopolitical risks to energy will intensify with the shift to clean energy, as the endowment of critical raw materials is more geographically concentrated.<5> Refining operations are also highly concentrated, with China controlling 50-70 percent of the lithium and cobalt value chains, as well as almost 90 percent of rare-earth processing. Therefore, regulatory and political changes can have a significant impact on energy security. India, unfortunately, lacks domestic endowments of some of these raw materials. A Department of Science and Technology study estimates that risks to the supply of heavy rare earths, which are essential to most green technologies, will be at critical levels by 2030.<6> Moreover, India has not invested sufficiently in technology and refining capacity for a number of these sectors.

Figure 1. Mapping Minerals with Relevant Low-Carbon Technologies

Source: World Bank<7>

Figure 2. Industrial Economies that have Declared Aluminum a Strategic Industry

Source: NITI Aayog

Geopolitical risks to India’s energy security

While India has always been dependent on imports for its energy security — with more than 80 percent of crude oil and natural gas supplies coming from abroad — it has managed to maintain a reasonably diversified supply chain. However, the shift to green energy will lead to a concentration of import dependence on China, which in 2019 accounted for 70 percent of imports for critical sectors (See Figure 3).

Figure 3. India’s Energy Imports by Country of Origin

Note: Country-wise imports of solar cells and modules, wind turbines, permanent magnets, rare earths, lithium-ion batteries, crude oil and liquefied natural gas from April-Dec 2019 in USD million. Calculations: Author’s own. Data source: Tradestat database of the Department of Commerce.

While such a high dependence on a single country for a critical resource carries inherent risks, in this case the risk is intensified by China’s control of global supplies of raw materials essential to green manufacturing. China has used export restrictions on these materials in the past as a leverage in its political conflicts, for instance in 2010 with Japan. In 2020, the Chinese government proposed new legislation that would allow the government to curb exports of strategic materials on grounds of national security.<8> Other countries, too, have put in place restrictive export policies. Indonesia, for example, banned the export of nickel in 2020,<9> and Congo put in place a new mining policy in 2018 which tripled royalties on cobalt — in turn increasing the price for the end-user.<10>

Companies are looking increasingly to the supply of clean energy and transport decisions, as they determine the locations of their factories.

Supply chain disruptions in these materials can also impact the viability of industrial production. Companies are looking increasingly to the supply of clean energy and transport decisions, as they determine the locations of their factories. Furthermore, many upcoming manufacturing industries essential to reducing emissions — in particular, electric mobility and energy storage — will require large quantities of batteries, semiconductors and permanent magnets, which India does not produce domestically. Though the government is incentivising companies to set up battery manufacturing plants, 40-50 percent of the raw materials will still have to be imported.<11> Disruptions in international supplies often impact local industry. For instance, in January 2021, media reports said that auto manufacturers in China, Japan, the EU and the US would be forced to cut production of electric vehicles due to a shortage of semiconductors.<12> In order to maintain energy security, therefore, India will need to develop robust supply chains for the required components.

Managing supply risks

Conduct audits of critical minerals

The first step to managing supply risks is to conduct an audit of critical elements essential to India’s green transition. While the Department of Science and Technology conducted such an analysis in 2016, it was not mapped in any way to match India’s requirements for the green transition. Given rapidly changing technology, it also needs to be updated regularly, in order to identify substitutes and changing intensity of use of different materials.

The European Union (EU), for example, conducts such an audit every three years, and the number of materials on its list has more than doubled in the last decade, from 14 in 2011 to 30 in 2020.<13> In addition, the European Commission estimates material needs for growing technologies based on the EU’s 2050 climate-neutrality scenarios<14> and provides an outlook to 2030 and 2050 of material demand for these sectors. Similarly, Australia identified 15 critical materials<15> for the defence and hightech sectors in 2017, and is working on developing projects for each of these. The US, for its part, declared a “national emergency” in the supply of critical minerals in 2020, and the government is working on hastening the development of mines.<16>

Use international alliances and strategic investments

A number of countries are entering into alliances for the extraction of these raw materials, and to build processing and developing capacity, in order to create secure supply chains. The European Raw Materials Alliance works with member countries to ensure reliable and sustainable access to critical raw materials to support the industrial ecosystem.<17> They are currently focused on permanent magnets, essential for wind energy, as well as energy storage solutions. To direct investment to critical sectors, they are establishing a Raw Materials Investment Platform (RMIP) to bring investors and investees together, and use EU funding, both within and outside Europe, to develop these projects. Russia has offered reduced mining taxes and cheaper loans to investors to increase their share of global rare earths output to 10 percent by 2030 from the current 1.3 percent.<18>

While India has domestic deposits of light rare earths, the technology and infrastructure to extract and refine these has yet to be developed.

The US and Australia entered into an alliance in 2018 for strategic minerals exploration, extraction, processing and research, and the development of rare earths and high performance metals.<19> In 2019, the US, Australia, Canada, Peru and Botswana founded the Energy Resource Governance Initiative to meet the demand for materials required for clean energy technologies. They intend to engage resource-rich countries in extracting these metals, directing investment to these projects and supporting the creation of sustainable supply chains.<20>

The US is also increasing the range and scope of strategic investments in these sectors. The US International Development Finance Corporation, set up in 2019 to provide an alternative to Chinese overseas investments, already has more than 800 projects across the globe.<21> One of the priority areas is the diversification of critical supply chains, and investments in this area include a Brazilian mining project for nickel and cobalt in partnership with a UK company.<22> The US-Australia partnership has identified projects worth AU$5.7 billion for investments.<23> To lower the cost of capital in this sector, the US Congress introduced bipartisan legislation in 2020 to provide tax incentives to companies involved in the mining, reclaiming and recycling of these minerals.<24>

Given the complexity of the supply chains, as well as rapidly changing technologies, India should focus instead on integrating its companies into global supply chains.

The Indian government, for its part, has created a government monopoly in this sector and has not exploited its resources effectively. Domestic mining of rare earths is carried out by Indian Rare Earths Limited (IREL), a public sector company, and is largely focused on raw materials for nuclear energy generation.<25> While India has domestic deposits of light rare earths, the technology and infrastructure to extract and refine these has yet to be developed. For materials which are not domestically available, India in 2019 set up the Khanij Bidesh India Limited (KABIL), a public sector enterprise for the acquisition, exploration and processing of strategic minerals abroad; it has identified lithium and cobalt as priority sectors.<26> KABIL signed MoUs with Australia, Bolivia and Argentina in 2020.<27>

Recent policy announcements from the Indian government, in the 2021 budget speech as well as discussions around KABIL,<28> indicate a focus on import substitution and self-sufficiency in these sectors. Given the complexity of these supply chains, as well as rapidly changing technologies, India should focus instead on integrating its companies into global supply chains. Joining existing US and EU alliances, for example, could provide access to a diversified supply chain as well as new technologies and investment opportunities.

Work with industry for supply chains and alternatives to scarce minerals

The industrial strategy should look at supporting the creation of manufacturing capacity along the supply chain. The Indian government is already planning to expand the production of electric vehicles (EVs) by building mega-scale manufacturing facilities, charging stations, solar photovoltaic (PV) cells, and lithium-ion batteries. It proposes financial incentives for EVs to increase demand and achieve the target of 30-percent EV penetration by 2030.<29>

To build capacity further up the value chain, partnerships should be expanded to domestic manufacturing companies, with the government supporting the process of investment and technology acquisition.

To be sure, continued interaction with industries will be required to ensure a well-coordinated industrial policy. Indonesia, for example, has embarked on a multi-year project to build an EV supply chain — from mine to final product.<30> The chain started with the acquisition of nickel mines in 2020. The government has inked agreements with the world’s largest lithium-ion battery makers to start production in 2021. Finally, they are working with the South Korean multinational automaker, Hyundai, to start an EV manufacturing hub in the region. The EU Raw Materials Alliance works with companies to mitigate regulatory and financing bottlenecks.<31>

In India, Rare Earths Limited has an MoU with Japan’s Toyota for the promotion of mining within the country, and for export to the US, EU and Japan.<32> Such agreements limit Indian companies to extraction processes, while the refining process — which creates greater value — is carried out abroad. To build capacity further up the value chain, these partnerships should be expanded to domestic manufacturing companies, with the government supporting the process of investment and technology acquisition.<33>

Recycling and reuse as investment opportunities

In only a few years, existing green technologies and infrastructure will start becoming obsolete. The UN Innovation Network states that although e-waste generated by the solar sector represents less than 0.1 percent of current global e-waste streams,<34> this will rise to 78 million metric tonnes by 2050.<35> India is one of the worst of all producers in recycling e-waste, with only 1 percent collected and recycled each year.<36>

Figure 4. E-waste Generated and Recycled in Major Economies

Source: Global E-waste monitor 2020<37>

Similarly, renewable energy installations like solar panels usually last from 20 to 25 years, and early installations are likely to start being decommissioned within the current decade. As India is prioritising solar in its energy mix, having a headstart in recycling will ensure that the solar industry remains sustainable in the long run. India, therefore, has potential to secure future supplies by investing in recycling industries, as well as creating a secondary market for recycled minerals. Recycling is also much less polluting than mining. For example, the World Bank estimates that depending on the source of aluminium, recycling could mitigate the global warming potential of aluminium use by anywhere between 8.7 – 30.5 percent.<38>

As India is prioritising solar in its energy mix, having a headstart in recycling will ensure that the solar industry remains sustainable in the long run.

The Indian government has recognised the need to recycle e-waste; if effective, recycling could allow for the reuse of cobalt, nickel, lithium and neodymium. In February 2020 the Draft Battery Waste Management Rules were released,<39> making manufacturers responsible for collecting used batteries and sending them to registered recycling units, and filing an annual record of their sales and buyback to state pollution control boards. The rules are based on the principle of extended producer responsibility (EPR) and propose to cover 70 percent of waste generated within seven years of the rules being implemented (See Figure 5).

Figure 5. Targets for Extended Producer Responsibility

Source: GoI’s Battery Waste Management Rules (2020)

The experience with EPR in India, however, has been mixed. Gupt and Sahay (2019), analysing the effectiveness of four different waste management rules based on the principle of EPR, between 2001 and 2019, find that they have failed to achieve the desired results.<40> These legislations have been a driver for the setting up of formal recycling facilities, and there are 312 authorised recyclers in India, with the capacity for treating approximately 800 kilo tonnes (kt) annually. However, formal recycling capacity remains underutilised, as the large majority of the waste is still handled by the informal sector which has the capacity for collecting waste.<41>,<42> These laws have also been difficult to implement due to the high regulatory burden and inadequate time.<43>

Increasing recycling in these sectors will therefore need to integrate the informal sector with formal recycling units. Research by the Organisation for Economic Cooperation and Development (OECD) shows that the disposal of waste by the informal sector is usually hazardous and polluting.<44> A viable solution might be to rely on monetary incentives to the informal sector to collect waste, and then using formal facilities to undertake the recycling process.<45>

Formal recycling capacity remains underutilised, as the large majority of the waste is still handled by the informal sector which has the capacity for collecting waste.

For metals, meanwhile, India does not have an organised recycling industry. Only about 25 percent of metal is recycled, and largely in the informal sector.<46> The NITI Aayog identifies a number of problems in metal recycling, particularly for aluminium: lack of collection infrastructure, primitive technology, poor quality control, and high levels of pollution.<47> A comprehensive policy will be required to establish the appropriate legislative, administrative and institutional framework for the recycling of metals and materials.

Conclusion

As India’s industrial sector grows, creating a regular and stable supply of clean energy will be essential for meeting the country’s climate targets. Companies are already looking to the supply of clean energy and transport options as they determine the locations of their factories. However, the shift to clean energy creates a new set of challenges to energy security, as the supply of materials required for clean energy installations is geographically concentrated. India will need to conduct a serious inventory of its material needs in line with clean energy targets, and expand both domestic capacity and international alliances to meet this demand.


Endnotes

<1>FICCI Solar Energy Task Force Report on Securing the Supply Chain for Solar in India”.

<2> Kirsten Hund et al., “The Mineral Intensity of the Clean Energy Transition,” n.d., 112.

<3> Hund et al.

<4>Adamas: ‘Unfathomable’ Rare Earth Demand Growth Awaits Post-2030,” Green Car Congress.

<5>Clean Energy Progress after the Covid-19 Crisis Will Need Reliable Supplies of Critical Minerals– Analysis,” IEA.

<6>CEEW Critical Non Fuel Mineral Resources for India Manufacturing Sector Report 19 July 2016”.

<7> Hund et al., “The Mineral Intensity of the Clean Energy Transition.”

<8>China Readies New Law to Ban Companies on National Security Grounds,” Nikkei Asia.

<9> Reuters Staff, “UPDATE 1-Indonesia Nickel Ore Export Ban to Remain -Mining Ministry Director,” Reuters, June 4, 2020.

<10>Congo’s Mining Code Will Raise Costs for Cobalt Consumers — Analysts | Financial Times”.

<11> Malyaban Ghosh, “PLI Scheme Powers up Lithium-Ion Cell Manufacturing,” mint, December 1, 2020.

<12> Joe Miller and David Keohane, “Car Manufacturing Hit by Global Semiconductor Shortage,” January 8, 2021.

<13> Anonymous, “Critical Raw Materials,” Text, Internal Market, Industry, Entrepreneurship and SMEs - European Commission, July 5, 2016.

<14>DocsRoom - European Commission”.

<15> Science Department of Industry, “Australia’s Critical Minerals Strategy,” Text, Department of Industry, Science, Energy and Resources (Department of Industry, Science, Energy and Resources, March 27, 2019).

<16>Trump Moves to Expand Rare Earths Mining, Cites China Threat,” Bloomberg.Com, September 30, 2020.

<17>European Raw Materials Alliance (ERMA),” European Raw Materials Alliance (ERMA).

<18> Anastasia Lyrchikova Stolyarov Gleb, “Russia Has $1.5 Billion Plan to Dent China’s Rare Earth Dominance,” Reuters, August 12, 2020.

<19>The White House: Trump-Turnbull Meeting Strengthens the Alliance,” U.S. Embassy & Consulates in Australia, February 24, 2018.

<20> Science Department of Industry, “Meeting of the Founding Partners of the Energy Resource Governance Initiative (ERGI),” Text, Department of Industry, Science, Energy and Resources (Department of Industry, Science, Energy and Resources, July 7, 2020).

<21>DFC | Investing in Development”.

<22> Henry Sanderson, “TechMet Wins US Backing for Brazilian Mining Project,” October 4, 2020.

<23> Jamie Smyth, “Australia’s 15 Projects Aim to Break China Rare Earths Dominance,” September 3, 2019.

<24> “Lawmakers Seek to Curb U.S. Reliance on China for Rare Earths,” Bloomberg.Com, September 1, 2020.

<25>Home - IREL (India) Limited”.

<26>KABIL Set up to Ensure Supply of Critical Minerals”.

<27>BECOMING ‘KABIL’ IN MINERALS: A STEP TOWARDS ‘MAKE IN INDIA’ – USI”.

<28>NALCO, HCL & MECL Form JV Company to Power India’s Growth in Acquisition of Critical Minerals from Abroad | NALCO (National Aluminium Company Limited) | A Govt. of India Enterprise”.

<29> “India 2020 - Energy Policy Review,” n.d., 305.

<30>Indonesia Aims to Grab EV Supply Chain with CATL and Hyundai,” Nikkei Asia.

<31> “European Raw Materials Alliance (ERMA).”

<32>Toyota Tsusho Inks Rare Earths Contract with Indian State Corporation-Rare Earth Oxides Produced in India to Be Exported to Japan, Europe and Americas-,” Toyota Tsusho.

<33> Anirudh Kanisetti, Aditya Pareek, and Narayan Ramachandran, “A Rare Earths Strategy for India,” n.d., 33.

<34>Solar E-Waste Challenge,” UN Innovation Network, accessed February 8, 2021.

<35>Solar Panels Are Starting to Die. What Will We Do with the Megatons of Toxic Trash?,” Grist (blog), August 13, 2020.

<36> Vanessa Forti et al., “The Global E-Waste Monitor 2020,” n.d., 120.

<37> “Solar E-Waste Challenge.”

<38> Hund et al., “The Mineral Intensity of the Clean Energy Transition.”

<39>BATTERY RULE”.

<40> Samraj Sahay and Yamini Gupt, “Waste Management and Extended Producer Responsibility - Lessons from the Past,” Economic and Political Weekly 54 (May 4, 2019): 34–40.

<41> “FICCI Solar Energy Task Force Report on Securing the Supply Chain for Solar in India.”

<42> Forti et al., “The Global E-Waste Monitor 2020.”

<43>Over Regulation Will Not Solve Plastic Waste Problems, We Need to Transform the Market and Municipal Services,” Times of India Blog, June 27, 2020.

<44> BOFFA Katjusha, “EPR Perspectives and Experiences from India,” n.d., 13.

<45> Sahay and Gupt, “Waste Management and Extended Producer Responsibility - Lessons from the Past.”

<46>RecyclingReport.Pdf,” accessed February 22, 2021.

<47> “RecyclingReport.Pdf.”

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Contributor

Annapurna Mitra

Annapurna Mitra

Annapurna Mitra was Fellow at ORF. She led the Green Transitions Initiative at ORFs Centre for New Economic Diplomacy.

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