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The 3 Pillars of a Global Battery-driven Just Energy Transition
Naphtal Haya & Priya Sreenivasan
June 20, 2024
This article was originally published by DNV here. This version includes a short writeup on the EU battery passport initiative.
Historical GHG Emissions
The world’s dependence on the combustion of fossil fuels for its energy needs has been growing since the industrial revolution. The outcome of the dependence is accumulation of high levels of greenhouse gasses (GHGs), primarily CO2, in the atmosphere resulting in climate change. Efforts are being made to mitigate climate change by switching to cleaner sources of energy. The shift from fossil fuels to cleaner energy sources is referred to as the energy transition.
The necessity and great intentions of the energy transition cannot be overemphasized. However, different parts of the world are having varying energy transition experiences. The injustices of the energy transition manifest through an unfair distribution of responsibility and reward from economic, social and environmental perspectives. The Global North has reaped the greatest economic benefits from industrialization and is almost entirely responsible for historical emission of GHGs. In contrast, the Global South did not benefit much from industrialization and has insignificant historical GHG emissions. This tension has underlined climate change talks, going back to the earliest Conferences of Parties (COPs).
The 1997 Kyoto Protocol, the first significant international agreement on limiting climate change which was ratified by 197 countries, was an acknowledgement of this disparity and the Clean Development Mechanism (CDM) was established. CDM facilitated a country with an emission reduction commitment to implement an emissions reduction project in a developing country, with the expectation that this mechanism would go some way to bridge the gap and address the historic culpability of the Global North in climate change. Over two decades later, the issue continues to be a point of contention in ongoing climate finance discussions.
The economic imbalance means the Global North is equipped to adapt to and mitigate the effects of climate change while the Global South is left at the mercy of the effects of the same. It is worth noting that the injustices of the energy transition are also experienced within national boundaries. Low-income, minority and indigenous communities tend to be more exposed to the impacts of climate change.
A microcosm of the inequities
The stark gap between countries powering the battery-led transition by supplying the critical minerals, and those benefiting from it, is most clearly exemplified by the EV market. In 2023, electric cars comprised 18% of all new vehicle sales globally and majority of those sales were in Norway, Sweden, the EU, the UK and China. No country in Africa comprises a significant market, with the exception of South Africa (which, at any rate, comprises under 1% of the total new EV sales), and certainly not Democratic Republic of the Congo (DRC), which produces most of the cobalt required, or Indonesia, which produces a large amount of the nickel.
Causes
The injustices in the energy transition are fueled by numerous factors. This paper explores three key challenges:
Over reliance on lithium-ion battery technology and the existing critical minerals supply chains.
Unequal consideration of environmental, social and governance (ESG) factors in the upstream part of critical minerals supply chains, with resource extraction in developing countries having little-to-no environmental and social due diligence - a particularly stark problem as the critical mineral upstream is primarily located in developing countries.
Absence of proper end-of-life management practices for battery energy storage technologies.
The sections below explore potential solutions to the mentioned barriers to a just sustainable energy transition.
Pillar 1: Diversification of energy storage technologies
The International Energy Agency (IEA) has shown that the projected global demand for lithium-ion battery (LIB) minerals by 2030 exceeds the projected global production of the critical minerals1 . Geopolitical considerations are driving the United States and her allies to embrace friendshoring i.e. locating their supply chains and material resource dependencies with allied countries, further constraining the supply of critical battery minerals2 . While there is renewed discovery and willingness to develop critical mineral mines in North America and Europe, the mines will take approximately 16 years to develop1 . Such lead times are expected to greatly strain the existing supply chain.
These factors point to an obvious conclusion: there is a need to reduce overreliance on LIB technology. Currently, LIBs serve 3 major markets: consumer electronics, electric vehicles and stationary energy storage markets. Traditionally, the consumer electronics segment drove LIB demand but that is changing with the increasing production of batteries for electric vehicles and stationary energy storage systems. With the 3 markets in mind, how can the LIB technology be channeled to serve its most optimal application or market?
The answer lies in diversifying our energy storage technologies portfolio. A well-known notion in the stationary battery energy storage system (BESS) industry is that no one technology fits all applications. This knowledge can be leveraged to reduce over dependence on LIBs in the following ways:
High energy density applications
Reserving LIBs for applications that require high energy densities only. The biggest competitive advantage of LIB technology is its higher energy density compared to alternatives. This means that LIBs are going to remain the prime contender for applications with volume constraints. Such applications include wearables and electric vehicles (EVs). This could change in the future when alternative battery technologies with comparable energy densities, such as sodium-ion batteries, achieve commercialization and mass production. Hydrogen fuel cells could also claim a share of the long-distance truck market.
Transition to LFP
The two leading LIB chemistries are lithium iron phosphate (LFP) and lithium - nickel manganese cobalt (NMC). NMC offers higher energy density but requires cobalt and nickel - two critical minerals of great interest and controversy. The major producer of cobalt is the DRC while nickel’s leading producer is Indonesia. Mining in both countries is linked to human rights abuse and environmental degradation. LFP eliminates nickel, manganese and cobalt from the chemistry which results in a lower energy density. Majority of EV manufacturers utilize NMC cells.
However, industry leaders such as BYD have been innovating around increasing the energy density of LFP battery packs to enable their use in EVs. BYD has developed unique battery architectures such as blade cells and cell-to-pack structures 3 which improve the energy density of a battery pack by maximizing space utilization. Other than critical minerals requirements, the switch to LFP is also driven by fire safety risks which are inherently higher in NMC. A complete switch to LFP for all applications would present a significant cut in the demand for LIB critical minerals.
Alternative technologies for stationary storage
The stationary storage segment is where lower energy density is acceptable due to the existence of competing factors. For instance, fire safety, cycle life and marginal storage cost are very crucial. Energy density is more significant if installation occurs in areas with limited real estate such as urban settings or residential premises. The stationary storage market is divided into 3 segments: residential, commercial & industrial and utility-scale.
Utility-scale BESS are high energy capacity assets connected to the grid. All 3 sectors currently compete for lithium-ion battery supply. Several energy storage technologies that boast lower marginal cost of storage, longer cycle life and lower fire risks are well positioned to replace/augment lithium-ion batteries in stationary storage. In fact, redox flow battery technology has a global deployed capacity exceeding 1 GWh. Other alternative technologies are metal-air batteries, high temperature batteries, compressed air energy storage, pumped hydro storage and thermal energy storage. These alternative technologies not only offer a ticket out of LIB captivity but also have their competitive advantages against LIBs. The utility-scale segment offers the best opportunity to replace LIBs given the often larger footprint of alternative ESS for the same energy rating. Some manufacturers of alternative technologies are developing smaller modular systems which might claim significant shares of the residential and C&I energy storage markets, if successful.
Key take-away
The increasing demand for LIB minerals is causing greater exploitation of the people and environments of the key producers of critical minerals in the Global South. Reducing overreliance offers a path to an equitable transition by sharing the environmental and social cost of the increasing demand for LIBs. This might lead to better global labor and market practices as supply chains become less centralized.
Pillar 2: Supply chain Risk Management
Upstream activities of critical mineral supply chains in developing countries is the grim flipside to the climate transition that is symbolized by solar PV, wind and battery energy storage projects. Upstream activities are riddled with environmental and social challenges including environmental degradation, poor labor conditions, child labor, corporate corruption, and acquisition and use of land and resources that lead to displacement of local and indigenous communities. The DRC has seen significant reportage of human rights violations, including violence, sexual assault and child labor prevalent in the sites. Nickel mines in Indonesia were also under recent scrutiny for violations of workers rights and unsafe working conditions4 .
The issues around climate justice and land use, where critical minerals are concerned, is not limited to developing nations. In the last year, indigenous and local communities in Canada have protested various mining developments. In the province of Ontario, renewed interest in a 5000-km2 wetlands that contain vast deposits of cobalt, chromite, nickel and platinum dubbed the “Ring of Fire” led to a surge of online staking claims, much to the dismay of some indigenous communities, which are protesting demanding a moratorium5 .
As such, involvement in upstream supply chain activities not only pose operational risks to North American and European companies involved, but can also have significant regulatory, reputational and financial risks. This risk is particularly stark in the critical minerals mining sector - In 2022, Glencore, one of the largest commodities and mining companies in the world, had to pay out GBP 1.6 billion in fines related to corruption, of which $180 million was to be paid to the DRC government to settle corruption allegations6 . Aside from environmental and social considerations, the supply chain due diligence should necessarily consider governance structures in place, particularly in the context of business ethics and corruption.
The malpractices in the upstream supply chain have led to the creation of organizations aiming to ensure responsible sourcing of critical minerals. The most notable of these organizations are Global Battery Alliance (GBA), Responsible Minerals Initiatives (RMI) and Responsible Minerals Assurance Process (RMAP). These organizations have developed comprehensive standards which if implemented would possibly lead to responsible sourcing practices. However, as good as it sounds, the main challenge is ensuring that these standards are implemented on the ground, and enforced. Little, if any, change occurs upstream. The same year that Glencore was fined, it was reported that workers in the company’s mines in DRC, Peru and Columbia were subject to long working hours, under unsafe conditions7 . To address the energy transition injustice, the industry must switch from cosmetic to impactful approaches. One major way to achieve that is through third-party due diligence. The two main elements of third-party due diligence are traceability and monitoring. The due diligence process comprises two steps:
Desktop review
This phase involves the submission of documentation for review to confirm conformity to responsible mining standards. It is the responsibility of the company in question to coordinate its suppliers to support traceability. Notably, the requirement of a supplier code of conduct which is comprehensive (covering workers rights, fair wages, anti-discrimination and harassment, anti-bribery and corruption, whistleblower mechanisms, commitment to safety and protecting the environment) is a bare minimum. The oversight on the supply chain should extend beyond a well written code of conduct. It should also include contractual obligations to comply with the same, and having inspection and site visit records either undertaken by the company or by third parties. As a colleague says, ‘trust but verify’ is the way to go about this matter.
On-ground inspection
This phase bolsters the monitoring element. Visits of the mines and processing facilities are conducted by independent inspectors to ensure on-ground operations follow prescribed standards.
Key take-away
Independent due diligence is the only way to ensure standards aimed at promoting energy transition justice are implemented as designed.
Pillar 3: Circular / regenerative economy
The third form of injustice arises from the lack of proper end-of-life management of LIBs. In the Global North, disposal of electronic waste occurs in two main ways:
Shipping to the Global South where crude methods of ‘recycling’ are employed to try to recover valuable parts. The non-valuable parts inevitably end up in landfills or open-air dump sites.
Burying in landfills often located close to low-income neighborhoods within the country.
Both disposal methods are harmful to the health and safety of local populations and the environment. Three possible solutions to this problem are:
Promoting the 3Rs
Reusing, repurposing and recycling. Reusing involves redeploying a device or a component in its original use. Consumer electronics, electric vehicles and even standalone batteries can be reused until they reach the end of their useful life.
Repurposing involves using a second hand component for a different application. Often, different applications demand batteries at different points in their degradation curve. For example, EVs require healthier batteries than some standalone energy storage systems. As such, battery packs that have reached their end of useful life in EVs can be used to manufacture standalone energy storage systems.
Recycling involves retrieving the materials that compose a battery. The retrieved material can be used to make brand new batteries. A few industry-scale LIB recycling companies have come up in anticipation of the large battery volumes that will become available as the first major batches of EV batteries reach their end of useful life.
Innovative business models
It is known that the selected business model can spell either prosperity or doom to a product line / company. Battery and battery-powered consumer electronics manufacturers could employ the product-as-a-service model in which a consumer pays for the use of an equipment without owning the equipment. This essentially closes the loop and original equipment manufacturers (OEMs) become solely responsible for the end-of-life management of their products. This can be a hard sell in a culture in which ownership is glorified. However, remember that we pay for electricity without owning the generation, transmission and distribution equipment. Additionally, research shows that Americans replace their phones every 2 years, often through trade-ins. Also, most people finance their consumer electronics and they tend to need an update before the end of the repayment term. Why not just pay for the service? I would say we are well on our way there.
Legislation against planned obsolescence
Planned obsolescence is a tactic employed by device manufacturers to nudge consumers to upgrade. Planned obsolescence can be reduced by leaving device ownership to the OEM and just paying for the service. Doing so would transfer a majority of the cost of planned obsolescence from the consumer to the OEM. In return, the OEM would have fewer incentives to offer too frequent (often low impact) upgrades.
Battery Passport8
The embodiment of the circular/regenerative economy in the battery industry is EU’s digital battery passport. The passport was introduced following the passage of the new EU Battery Regulation in August 2023. The battery passport is part of the wider digital product passports initiative that the EU aims to establish in its quest for a twin transition: green and digital. The battery passport is critical to EU’s goal of implementing a circular economy based on sustainable products. The battery passport will be implemented as a QR code on the battery (cell, module or pack) that can be scanned for access to a data repository that holds the pertinent information. Access rights to the data repository will vary by user designation. The battery passport will come into effect in February 2027.
The battery passport will provide full battery lifecycle information including miner of battery minerals, refiner of battery minerals, manufacturers/manufacturing location of components, battery assembly location/supplier, battery performance and durability, battery carbon footprint and battery supply chain due diligence report.
Key take-away
As a society we need to change our attitudes and approaches to procuring goods and services. Our approaches affect the end-of-life management of a product thus the health and quality of lives of billions.
Conclusion
This article presents diversification of energy storage technologies, adopting supply chain due diligence and embracing circular economies as the 3 pillars required to drive a just sustainable energy transition. The technological know-how and commercial incentives suitable for the 3 pillars already exist. We just need to implement them for the wellbeing of the current generation and the survival of the future generations.