AGENDA
I. The Challenge
II. Analytical Framework
a) Economic Importance
b) Supply Risk
III. Static Findings
a) Sectors Affected
IV. Introducing Dynamics
a) Sectorial Changes
b) Production shifts
V. Policy efforts
I) THE CHALLENGE
Raw materials are economically important as sectors such as energy, transportation, and communications crucially rely upon them.
Three mega trends:
1) Increasing demand driven by emerging markets (see Krausmann, 2009)
2) New technologies require large amounts of rare materials (DERA, 2012)
3) A slowdown in high-grade deposits discoveries after 2000
The current and future criticality of individual materials will depend on their economic importance and how likely they are to face supply disruptions.
In order to inform effective policy we set out to map material criticality for 54 materials in the OECD countries up until 2030.
II) ANALYTICAL FRAMEWORK
Our methodology draws on the previous research: EU (“Critical Raw Materials” 2010, 2014), US (“Minerals, Critical Minerals, and the US Economy” 2007), UK (“Material Security” 2008), etc., focusing on a new scope of countries and adding dynamics.
Criticality is assessed across two dimensions:
• Economic Importance determined by:
• Use of materials across sectors
• Value added of these sectors
• Supply Risk determined by:
• Concentration of production
• Distribution of reserves
• Political stability of major producers/holders of reserves
• Recycling rates
• Substitutability
II-A) ECONOMIC IMPORTANCE
• 𝐴𝑖𝑠 - The share of consumption of material i in end–use sector s
• 𝑄𝑠 - GVA of sector s
A material that is used heavily in a sector that constitutes a large part
of the economy will have a relatively high Economic Importance index
value.
Index is calculated for 54 materials in 17 Megasectors (Q) with total
GVA of 20% GDP.
Data sources: share of consumption (EU 2014, USGS 2014, etc), GVA
(OECD).
𝐸𝑐𝑜𝑛𝑜𝑚𝑖𝑐 𝐼𝑚𝑝𝑜𝑟𝑡𝑎𝑛𝑐𝑒𝑖 =1
𝑄𝑠𝑠 𝐴𝑖𝑠𝑄𝑠𝑠
i – material
s – sector
II-B) SUPPLY RISK
• 𝜎𝑖 - Substitutability = 𝐴𝑖𝑠𝜎𝑖𝑠𝑠
• 𝜌𝑖 - Recycling rate
• 𝑆𝑖𝑐 - Production shares by countries
• 𝑃𝑜𝑙𝑆𝑡𝑎𝑏𝑐 - Political stability by countries
The Supply Risk index is high if a material has few substitutes, low
recycling rates, and production is concentrated in politically unstable
countries.
Data sources: substitutability and recycling (EU 2014, USGS 2014 etc),
production (BGS 2014, WMD 2014 etc), political stability (WGI 2014)
i – material
s – sector
c – country
𝑆𝑢𝑝𝑝𝑙𝑦 𝑅𝑖𝑠𝑘𝑖 = 𝜎𝑖 1 − 𝜌𝑖 (𝑆𝑖𝑐)2𝑃𝑜𝑙𝑆𝑡𝑎𝑏𝑐
𝑐
III) STATIC FINDINGS
*Natural Rubber
III-A) SECTORS AFFECTED
21 critical materials are:
Antimony, Barytes, Beryllium, Borate, Chromium, Cobalt, Fluorspar,
Gallium, Germanium, Indium, Magnesite, Magnesium, Natural
Graphite, Niobium, PGMs, Phosphate Rock, REE (Heavy), REE
(Light), Silicon Metal, Tungsten, Vanadium.
The following Megasectors are affected (number of critical
materials affecting each Megasector):
Metals (Basic, Fabricated & Recycling) (18), Other Final Consumer
Goods (16), Chemicals (12), Electronics & ICT (10) ,Electrical
Equipment (7), Road Transport (7), Plastic, Glass & Rubber (6),
Mechanical Equipment (5), Construction Material (4), Refining (2), Oil
and Gas Extraction (2), Aeronautics, Trains, Ships (1), Beverages (1)
IV) INTRODUCING DYNAMICS
The project entails making projections up until 2030.
To meet this requirement the framework should be modified to account for the underlying dynamics of material supply and demand.
The team suggests that:
• The dynamics of Economic Importance are captured by incorporating the OECD forecast of sectorial composition into the analysis.
• The dynamics of Supply Risk are incorporated by introducing three supply scenarios based on current production shares and reserves.
Other factors that can affect criticality in the future: exploration of land to increase reserves and lower concentration, new extracting technologies etc.
IV-A) SECTORIAL CHANGES
Tomorrow’s economy will be different from today’s, criticality of
materials will be affected by changes in sectorial composition
driven by:
1) Emerging technologies
• Thin layer photovoltaics (gallium, indium), fibre optic cable
(germanium), seawater desalination (palladium, titanium,
chromium), micro capacitors (niobium, antimony), etc
2) General economic trends
• Diminishing share of agriculture
3) Policy focus
• Green policies
IV-B) PRODUCTION SHIFTS
The producers of the materials currently used in the OECD are likely
to change over time as reserves are depleted.
This should be accounted for in Supply Risk estimates and the team
therefore suggests evaluating three scenarios of future production:
1) production sources are assumed constant at current levels
(i.e. the countries of origins and their respective share of total supply
does not change over time)
2) production converges towards reserves distribution as stocks
deplete (i.e. the countries with abundant reserves become more
important for global supply in the future)
3) reserves distribution only matters (i.e. supply risk depends on the
origins of reserves NOT where current production occurs)
V) POLICY EFFORTS
To mitigate supply risk either recycling efforts need to increase
or new substitutes will have to be found.
The following changes will suffice to make materials non-critical:
*S – substitutability, higher S -> higher risk
*R – recycling, higher R -> lower risk
A1. PRODUCTION CONCENTRATION
S = 0.77
R = 0
S = 0.93
R = 0
A2. SUBSTITUTES AND RECYCLING
Potash
S = 0.32
R = 0
HHI = 2300
Barytes
S = 0.98
R = 0
HHI = 2603
Natural Graphite
S = 0.72
R = 0
HHI = 7300
Cobalt
S = 0.71
R = 0.16
HHI = 4600
A3. POLITICAL STABILITY INDEX
The main index used for Political Stability is the Worldwide
Governance Indicators (WGI) calculated by WB in 2014.
The index consists of six dimensions of governance:
• Voice and Accountability
• Political Stability and Absence of Violence
• Government Effectiveness
• Regulatory Quality
• Rule of Law
• Control of Corruption
A4. POLITICAL STABILITY VS WGI
A5. RULE OF LAW VS WGI
A6. POLITICAL RISK AND
CONCENTRATION IN OECD
• Average WGI among OECD countries – 2,7, among the rest
– 5.3.
Mexico
Fluorspar 18%
Silver 21%
Greece
Perlite 19%
Turkey
Borate 45%
Feldspar 21%
Perlite 18%
Share of production
0 1 2 3 4 5WGI_final
MEXICOTURKEYGREECE
ITALYISRAEL
HUNGARYS. KOREASLOVAKia
POLANDSPAIN
CZECH REPUBLICSLOVENIA
PORTUGALESTONIAFRANCE
CHILEJAPAN
United StatesBELGIUM
UNITED KINGDOMIRELAND
GERMANYAUSTRIA
AUSTRALIACANADA
LUXEMBOURGNETHERLANDSSWITZERLAND
DENMARKNORWAY
NEW ZEALANDSWEDENFINLAND
A7. SUBSTITUTABILITY
VS RECYCLING
A8. SUBSTITUTABILITY
VS CONCENTRATION
A9. RECYCLING VS
CONCENTRATION
A10. SUPPLY RISK FOR RESERVES
A11. ECONOMIC IMPORTANCE
USA VS OECD
A12. ECONOMIC IMPORTANCE
JAPAN VS OECD
A13. ECONOMIC IMPORTANCE
EU VS OECD
A14. STATISTICAL APPENDIX
Variable Mean Std.
Dev. Min Max Supply
Risk Subst. Recycling HHI HHI_wgi EI
Supply risk 1.11 1.04 0.1 4.61 1
Substitutability 0.69 0.18 0.32 0.98 0.27 1
Recycling 0.09 0.12 0 0.51 -0.16 0.25 1
HHI 3327 2344 629 9801 0.88 0.07 -0.14 1
HHI_wgi 1.73 1.51 0.22 5.99 0.95 0.09 -0.08 0.91 1
Economic
Importance 0.07 0.02 0.03 0.11 0.14 0.13 -0.04 0.14 0.14 1
Correlation matrix
A15. DATA ISSUES
• Economic importance index
• Sectorial composition (GVA of Megasectors)
• Data is currently available in GTAP breakdown
• Higher level of disaggregation is desirable for more accurate results (ISIC up to 4 digits)
• Breakdown of end-uses of materials can differ by countries and for OECD
• Data used currently is based on data in EU report (2014), USGS (2014)
• Supply risk index
• Input data may differ for the OECD countries: breakdown of end-uses, substitutability, recycling rates
• Alternative measures can be used: political risk (WGI vs PRS)
A.16 REFERENCES
DERA Rohstoffinformationen, 2012, Energy Study 2012, Reserves,
Resources and Availability of Energy Resources, Germany.
Krausmann, 2009, Growth in global materials use, GDP and population
during the 20th century
EU, 2010, Critical Raw Materials for the EU, Report of the Ad-hoc
Working Group on defining critical raw materials, 30 July
EU, 2014, Report on Critical Raw Materials for the EU
NRC, National Research Council, 2008, Minerals, Critical Minerals, and
the U.S. Economy, National Research Council of the National Academies
UK, 2008, Material Security Board Ensuring Resource availability for the
UK economy
U.S. Geological Survey, 2014, Minerals Yearbook 2010
World Mining Congress, 2014 World Mining Data
World Bank, 2014, World Governance Indicators