CRITICAL

MATERIALS

IN THE OECD TO 2030

Renaud Coulomb, Post Doctoral Researcher

r.coulomb@lse.ac.uk

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