Australia and Japan have signed an agreement to build a supply chain for critical minerals. As countries increasingly recognise the importance of critical minerals for the energy transition, it could have implications for geopolitical relationships.
- Australia and Japan have signed a bilateral agreement to build a secure supply chain for critical minerals.
- The agreement gives Japan’s industrial base access to minerals that are not produced domestically, and which could be in short supply globally.
- The shift in demand towards critical minerals and away from fossil fuels is starting to shape international relations.
Japan’s agreement with Australia over the supply of minerals used in clean energy technologies appears to follow a global trend. Many of the major economies of the world have formed alliances to secure the supply of these minerals. This is reminiscent of the international agreements for fossil fuel energy.
These alliances, however, could threaten to widen the gap between the global north and south. In securing the supply of minerals, many of which are in abundance in low-income countries, the global north cannot ignore the proportionately higher burden faced by low-income countries.
This is especially pertinent in the run up to COP27 where the imbalance of climate impact, where the most vulnerable countries are those who have contributed least to the problem of climate change, is going to play an increasingly important role in negotiations.
The technologies and solutions to deal with the impacts of climate change, from mitigation to adaptation, need to be made available globally.
Australia-Japan critical minerals pact extends existing free-trade agreement
An agreement between Australia and Japan for the supply of critical minerals adds to its existing free-trade deal, the Japan-Australia Economic Partnership Agreement. It came into force in 2015, establishing preferential access for Australian exporters. It also gave Japan, Australia’s fourth largest investor, the opportunity to expand its investments in the country.
Australia currently enjoys a trade surplus with Japan. Based on Australian government data, it exported AU$65.1 billion to Japan in 2021, which was dominated by coal, accounting for 75%, followed by natural gas, and iron ore. Imports from Japan into Australia in the same period totalled Au$22.2 billion, and consisted largely of finished goods like cars and transport vehicles.
The critical minerals agreement will help Japan secure a supply of metals and rare earths. Australia has some of the world’s largest reserves of lithium and cobalt, according to the US Geological Survey, which are integral to the production of batteries for electric vehicles (EVs) and for energy storage.
There is scarce supply of materials vital to net zero transition
Five minerals are vital to making batteries: lithium, nickel, cobalt, manganese and graphite. They form the basic building blocks of lithium-ion batteries, which are the most popular type of battery technology being used in EVs.
According to the International Energy Agency (IEA), the clean energy transition necessary to meet global 2050 net zero targets would require six times more mineral supply in 2040 compared to the current level. Of these, lithium is expected to see the fastest growth, up to 40 times, followed by graphite, nickel and cobalt, of around 20-25 times.
The report identifies two areas of risk in the critical mineral value chain: mineral supply and investment plans. In the medium term, supply availability will be constrained by investments, which the IEA believes are currently not focused on accelerating the energy transition. It currently takes 16 years, on average, for a mining project to go from discovery to production.
In the long term, declining ore quality will likely become a bigger constraint on supplies. Securing supplies of critical minerals and rare earth elements (REEs) has therefore become a strategic imperative for many countries.
Critical minerals supply chains may widen global north-south divide
The formation of agreements to secure the supply of critical minerals appears to be concentrated in the global north. With the exception of global south countries in South America and Africa, that have large mineral deposits, the rest of the world will have little to depend on to enable their own clean energy transition.
The global north-south divide refers to the world being split into relatively richer and poorer countries. Most of the industrialised countries in the global north (with the exception of Australia and New Zealand) have larger economies, with better access to healthcare and education. It also has institutions and governments that are considered ‘stronger’ or relatively more stable.
The north is also responsible for more of the historical greenhouse gas (GHG) emissions in the atmosphere today. Based on their financial power and access to technology, however, global north countries will likely be better able to deal with the impacts of climate change. The global south will likely be left dealing with a heavier burden in adapting to current and future impacts from climate-related risks.
Potential shifts in international relations similar to fossil fuel era
Several countries have entered into bilateral and multilateral agreements to secure their supply of critical minerals. In addition to their bilateral agreement, Australia and Japan are also part of the Mineral Security Partnership.
Announced by the US government in June 2022, this is part of the Biden administration’s plan to secure the supply of critical minerals for its own battery manufacturing value chain.
Australia, Chile and China together account for over 85% of global lithium deposits, according to the US Geological Survey. Australia is also the largest current supplier of lithium, and has the second highest reserves, after Chile. The Democratic Republic of Congo and China are responsible for most of the cobalt and REEs produced globally.
Access to sources of energy, largely related to fossil fuels, have determined international relations and geopolitical events for over 150 years. These events have included economic upheaval, conflicts and wars, and have shaped the alliances between the countries. New resources and minerals needed to power the green energy transition to net zero appear to be driving new alliances, although it is too early to tell how they will pan out.