McKinsey Report Says: $4 Trillion Investment Required in Material Supply Chain for Decarbonization.
This week, global management and consulting firm, McKinsey & Company released a new report highlighting that a $4 trillion investment would be required to tackle the material shortages of key materials and achieve global decarbonization targets. This investment would be required to bridge the materials gap that is crucial to sustainability. McKinsey’s report titled, “The net-zero materials transition: Implications for global supply chains,” dives into the magnitude of the challenges we face in the global supply chain, specifically around shortages and the drivers of these shortages, as well as the implications of the decarbonization goals we have set and what investments in the future will be necessary to address things across the board.
Materials are Critical
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Ultimately, materials are a critical piece of the net-zero transition and global decarbonization goals. The transition to a net-zero emissions economy requires significant technological shifts across all industries. These technologies often demand more physical materials during the construction phase compared to conventional counterparts. A great example of this is battery electric vehicles (BEVs). BEVs typically require more materials and will drive increased demand in the coming decades. This demand for supplies will have implications around global decarbonization rates.
Shortages on the Horizon
Even with the current decarbonization trajectories, it’s very likely that there will be shortages of minerals and metals that are used in lower-carbon technologies by 2030. Some materials may experience modest shortages, while others may face severe deficits as much as up to 70% of demand. These shortages would impede decarbonization efforts, increase prices, and slow down adoption rates.
Concentrated Supplies and Regionalization
Partnered with shortages, there is the issue of concentration. Countries, such as China, the Democratic Republic of the Congo, and Indonesia, will continue to dominate the supply of minerals and metals. The concentrated supplies, combined with increasing regionalization, may impact regional access to materials, potentially affecting certain agreement areas. However, this concentration also presents opportunities for traditional mining countries to develop domestic refining activities.
Addressing These Challenges
In order to address the challenges we see around materials and the supply chain, McKinsey outlined four areas where action can be taken.
Supply: The quick expansion of announced projects is crucial and will mean that accelerated mining will be necessary along with increased exploration, and investments of $3 trillion to $4 trillion by 2030. This all requires additional specialized mining professionals, expanded low-carbon energy capacity, and streamlined permitting processes.
Demand: Downstream industries should shift demand patterns toward proven technologies that are less materials-intensive or that use alternative materials with fewer supply constraints.
Innovation: To address things here, there would need to be a boost in investments in materials innovation and breakthrough technologies. Exploring material substitution options and enhancing recycling practices to address long-term-constrained or regionally concentrated materials would be necessary.
Policy: Lastly, the implementation of policies that facilitate supply expansion, would streamline permitting procedures, can guarantee a level playing field for alternative technologies, and safeguard regional security of supply and industry competitiveness is also needed.
As the world progresses toward net-zero emissions, the materials supply chain must keep up with the speed of deployment and demand. Already, governments and companies need to understand the dynamics of the materials transition and develop resilient strategies to mitigate the challenges that will likely come. By mitigating risks and seizing opportunities, stakeholders can ensure the security of supply, safeguard long-term competitiveness, and position themselves as industry leaders in the net-zero future.
Sources:
https://www.esgtoday.com/up-to-4-trillion-investment-needed-to-address-materials-shortages-to-meet-decarbonization-goals-mckinsey/
https://www.mckinsey.com/industries/metals-and-mining/our-insights/the-net-zero-materials-transition-implications-for-global-supply-chains
