Unless you’ve been off the grid for the past decade, you’ve likely heard the big news: the world is moving toward a more sustainable and environmentally friendly future.
The constant beat of the drum is getting louder, and now we’re finally starting to see U.S. states put legislation where their mouths are. California recently sent shockwaves through the U.S. by moving to ban the sale of new gas-powered vehicles by 2035. Ultimately, this puts the wheels in motion for more states, including New York, to eventually follow suit.
The action is expected to bolster the burgeoning electric vehicle (EV) industry, increasing the market share held by EVs to as high as 20% by 2025. EV market share has been rising recently, going from less than 3% in the first half of 2021 to about 6% in 2022.
We can all agree that taking steps toward a more sustainable and environmentally friendly future is in everyone’s best interests. However, there is one looming question: Where do we get the copper to meet these new renewable energy goals, and how long will it take?
Copper has been instrumental in human development for thousands of years but became critical with the rise of electricity in the 1800s.
In only about 200 years, copper demand has grown exponentially, reaching an astounding 25 million metric tonnes (MMt) in 2021. Based on current projections, it won’t be slowing down anytime soon.
According to a recent report by S&P Global, the need for copper will grow as we dive deeper into the renewable revolution. Experts with the organization suggest demand could rise to nearly 50 MMt in 2035 and eventually top out at 53 MMt in 2050, when self-imposed net-zero deadlines occur for several countries, including the U.S.
Right now, the world produces about as much copper as it uses, but there are fears an imbalance may occur soon. Frank Hoffman, Consulting Principal of Economics and Country Risk for S&P Global Market Intelligence, believes it could happen in only a few years.
“2050 is one deadline, but the other is 2035,” Hoffman explains. “A lot of the increased demand is frontloaded through 2035, and it’s certainly a challenge. We highlight trouble ahead, and when you consider some of the different operational challenges, I think two big takeaways are that there’s a problem and we need to start working on a solution that doesn’t come from just one area.”
We’ve already seen signs, including record-high copper prices earlier in 2022. And while everyone is seemingly treading water, the world will start feeling the squeeze later toward the middle of this decade.
Thankfully, there are ways to manage the issue and reduce the strain we could face. Technological breakthroughs can increase production capacity, while better recycling habits can reduce the need for new circulation. Additionally, building political and social support for the cause could prevent slowdowns that could keep us from reaching our 2050 goals.
“Over the last 5-6 years, there’s been a lot of attention paid to pledges by different world leaders and governments to fight climate change,” Hoffman said. “But there hasn’t been a lot of attention until maybe the last one and a half, two years, as to what exactly the roadmap is and what it means for supply chains. What are some of the requirements?”
The copper market will likely need to grow and evolve, relying on more production and refining from the world’s leading countries. It could come from several areas, including increased miniaturization, better mining practices, increased mining, and better recycling and refining practices.
“There’s this idea that mining copper and reducing emissions are a trade-off. This isn’t to say the mining process is anywhere near carbon-neutral, but Chile accounts for about 0.1% of global CO2 emissions and is the #1 mining country in the world. So, for that idea, the best thing Chile can do to reduce global emissions is produce more copper.”
From electric cars and renewable energy to a greater focus on the latest technology, climate change efforts and 2050 net-zero targets drive the need for copper.
As we transition from combustion engines to electric vehicles and increase our reliance on renewable energies like solar and wind, the copper supply will need to grow. If not, there’s a good chance we’ll miss our green energy goals amid a decade-long copper shortage.
More EVs mean more copper in the near term. Though the strain will initially lead to shortfalls, Hoffman believes the copper used for EVs will recirculate well.
“One thing we found is that we could likely see an increase in recycling in the late 2030s through the 2040s, that comes with EVs,” Hoffman explained. “The idea is that EVs use a lot of copper – about two and a half times as much copper as a traditional internal combustion engine vehicle. But there’s also a very, very high recycling rate.
The problem is it doesn’t help us in the near term. There could also be additional initiatives to increase recycling in the near term that could help, but they would need to be large-scale on the industrial level.”
Add increased global electrification, the constant need to sustain current electrical systems, and more reliance on technology, and global copper demand will grow.
If the goal is to increase the global copper supply, we have two main ways to produce copper – mining or recycling it.
More mining seems like the simpler option, but it comes with a slew of concerns that complicate the issue.
Copper mining seems like a slam-dunk answer to a complex problem, but the time it takes to establish a new mine has grown exponentially since the 1950s. Add in permitting and legal hurdles, along with the rise of environmental and labor activists voicing their concerns, and a complicated process becomes much harder.
There’s also the mindset of damaging the environment today to save it later, which doesn’t generally sit well with many people.
Speaking of environmental risks, pressure from political and environmental groups makes it harder to mine copper without taking on risks.
Improper mining processes may leave copper companies facing expensive fines for violations alongside reputational risks. The result is a chilling effect that could force the cancellation of millions of dollars’ worth of projects slated to begin in the coming years.
Provided a company can jump through the regulatory hoops and mine copper as sustainably as possible, there’s still the issue of opening the mine.
It currently takes more than 16 years for a copper mine to go from discovery to operation. Even if plans were to be accepted today, a company might not see the fruits of its labor until the end of the next decade.
“If you compare that to a quote from the 1950s, they estimated at the time that it was 3 to 4 years (to open a mine),” Hoffman explained. “So, you might be thinking, 16 years, that’s less time than there is to 2035. That makes it a challenge. The good news is there are a lot of properties that have already been discovered, so that could provide a bit of a window.”
While we wait for new mines to open, the short-term shortages still loom large on the horizon.
Unfortunately, the countries with the highest production, including Chile and Peru, have some of the worst infrastructure and no plans to improve it in the coming years.
From power outages and broken roads to poor water quality and sourcing issues, infrastructure issues can have far-reaching effects. In the meantime, local populations have to deal with the lack of investment, leading to upset communities with no incentive to support increased operations in their backyards.
Better technology could lead to more efficient production.
Innovations in mining technology may lead to safer and cleaner extraction methods that cause less pollution and environmental damage and may be less expensive to operate.
Copper recycling will be a cornerstone of any copper supply projections moving forward.
In 2021, recycled scrap copper made up about 17% of all refined copper globally. As copper prices rise, the hope is recycling rates will too. Hoffman believes the industry could see an influx of copper toward the end of the next decade, as copper from EVs produced today is recycled.
S&P Global estimates that new EVs will have an 18-year lifespan, meaning copper going through the recycling process in 2050 was probably last refined around 2032.
There’s still time to make positive changes before 2050, but the wheels need to start turning soon or the industry will quickly fall behind demand.
As of now, there are four conditions to keep in mind:
Production isn’t going to increase overnight, and neither will recycling efforts. As a result, the strain of higher demand will push up copper prices. Higher prices could lead to more recycling as people take advantage of better returns.
The difference between S&P Global’s positive and negative outlook is massive. Without bolstering copper supplies with either new mining or recycling efforts, we could be millions of tonnes off-course. On a positive note, taking action now could leave the world with only a small deficit for several years.
EVs carry more than double the copper of traditional combustible engine vehicles. However, as those vehicles come off the road years later, their scrap will recirculate into the overall copper supply.
Even if we kick recycling programs into high gear, we’re still going to see shortfalls throughout the 2020s and 2030s – although the ambitious path does predict small surpluses around 2040 and beyond. Under the less favorable model, the results are dire, at best.
The truth is we need to be ready for a world fueled by renewable energy and sustainable practices.
Private and public organizations must work together alongside environmentalists, governments, and scientific groups to strike a balance that benefits everyone with as little risk as possible. Reaching our aggressive goals requires innovation, growth, and technological advancements to keep pace with growing demand for the next 15 years.
Unfortunately, failing to adapt isn’t an option anymore.