The Stumbling Block in ‘the Race of our Lives’: Transition-Critical Materials, Financial Risks and the NGFS Climate Scenarios

Several ‘critical’ raw materials, including metals, minerals and Rare Earth Elements (REEs), play a central role in the low-carbon transition and are needed to expand the deployment of low-carbon technologies. The reliable and affordable supply of these resources is subject to supply-side risks and demand-induced pressures. This paper empirically estimates the material demand requirements for ‘Transition-Critical Materials’ (TCMs) implied under two NGFS Climate Scenarios, namely the ‘Net Zero by 2050’ and ‘Delayed Transition’ scenarios. We apply material intensity estimates to the underlying assumptions (e.g. with regard to technological innovation) on the deployment of low-carbon technologies to determine the implied material demand between 2021 and 2040 for nine TCMs. We find several materials to be subject to significant demand-induced pressures under both scenarios. Subsequently, the paper examines the possible emergence of material bottlenecks for three materials, namely copper, lithium and nickel. The results indicate possible substantial mismatches between supply (accounting for variables such as existing reserves, technological deployment and recycling rates) and demand, which would be further exacerbated if the transition is delayed rather than realised immediately. We discuss these findings in the context of different possible transmission channels through which these bottlenecks could affect financial and price stability, and propose avenues for future research.