Why semiconductor shortages matter
The current global shortage of semiconductors is affecting production of everything from computers and cars to toothbrushes and tumble dryers. The transport sector, which relies on chips for everything from engine management to driver assistance systems, continues to suffer the worst. Companies including Ford, Volkswagen and Jaguar Land Rover have shuttered plants, laid off workers and slashed production. Hmmm.
The demand for chips continues to outstrip supply and the public will feel a greater impact as products become unavailable, prices rise, delivery lead times lengthen, functionality is impaired, and system repairs become impossible.
Raw materials - hard to come by and not so green
If you think that sounds pessimistic, The RamTruck brand – alongside other manufacturers including Ford and Jaguar Land Rover - recently announced that some option packages have been modified on its fifth-generation RAM 1500 and updated fourth-generation RAM 2500/3500 Heavy Duty models to eliminate blind-spot monitoring and help conserve chip usage.
This shortage, however, pales in significance against the surging demand for the energy transition minerals (“ETM’s”) which are critical to ensure that aspirational growth targets for wind, solar and battery technologies are met.
The International Energy Agency “IEA” have just released a comprehensive report on what needs to be done to deliver the Biden Administration’s clean energy targets. This includes an assessment that by 2040 demand for lithium would need to increase by 4,200%, graphite 2,500%, nickel by 1,900% and rare-earth minerals by 700% respectively. That is some challenge.
By any measure, there is no capacity to meet such an increase in requirements. The world’s energy transition is moving from a well-developed and diverse fuel-intensive energy system to a supplier-concentrated, under-developed and mineral-intensive one. To materially increase the supply of ETM’s with current manufacturing protocols would require the building of mines and processing plants on an unprecedent scale, with all the unwelcome environmental, economic and community challenges that would bring.
A typical lithium mine
Some thorny issues
Experience has taught us that the typical leadtime from discovery to commercial mining operation takes 16 years: that’s 2037 if begun today. The current administration plan is for carbon-free electricity by 2035, a catalyst for dramatic action but currently lacking a clear strategy as to how vital ETM’s will be sourced to enable its achievement. Such a strategy is pressing if the transport sector is to play its part in an accelerated transition to net zero.
In addition, many of the currently known ETM’s are in countries with governance challenges, where “corruption and bribery pose major liability risks” and in sectors where Chinese companies are dominant. That exposes national and energy security issues that we are not yet debating in terms of costs to the country.
The IEA report, The Role of Critical Minerals in Clean Energy Transitions – Analysis - IEA is an illuminating spotlight on a critical issue that we face today. The tremendous innovations being made in renewable energy and battery technologies now face massive physical constraints from the limited availability of critical minerals that will a) require very high levels of energy to produce; b) generate considerable emissions of GHGs, and c) leave major environmental damage behind. Indeed, the IEA data shows that depending on the location and nature of future mines, the emissions from ETM’s could neutralize almost all the emissions saved by driving electric vehicles.
Time for strategy, time for planning
The IEA has posed a very serious question: how will Federal government debate, strategize and implement unprecedented EV productionin the context of global supply and geo-political constraints?
Once again, the issue is nuanced – and black-and-white solutions difficult to find. The transport industry will need to work closely with governments both in the US and globally to find holistic answers.
Jonathan Elton is Senior US Partner at PHC. If PHC can help you work through the challenges associated wth transition to net zero energy and transport operation, please contact Jonthan at firstname.lastname@example.org
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