Finance and resource extraction for a just energy transition
The energy transition is causing a steep increase in mining of ‘critical minerals’ such as graphite, lithium, and cobalt, that are necessary in value chains for low-carbon technologies. The energy transition is thus also a mining transition in which China occupies an increasingly dominant position. The increasing demand for critical minerals potentially displaces negative effects of the energy transition to mineral-rich countries, where mining projects are often characterized by exploitation, environmental degradation, and dynamics of accumulation by dispossession. As such the energy and materials transition risks deepening global inequalities and racialized hierarchies and perpetuates mistakes from the fossil fuel era.
This poses two major, interconnected challenges:
- to secure the affordable and sustainable supply of critical raw materials for low-carbon technologies and
- to find alternatives to extractivism to replace current socially and environmentally unsustainable resource extraction practices.
- We have identified finance as a critical force within resource markets, capable of exerting significant influence over extractive activities ‘on the ground’. Financial institutions influence the nature, pace, and direction of economic investments, thereby shaping extractive processes by setting regulatory standards. For example, the Environmental and Social Performance Standards of the IFC that possibly supersede or contest those of national governance.
- We have identified the distribution of value (in the broadest sense) along new and existing value chains as a critical conjunction to prevent extractivism. Here we consider value chains to be the progression of activities that go into the creation of a finished product. By extractivism we understand the removal of raw materials for export with minimal processing that characterizes the unequal relations between regions where materials are extracted and regions where materials are processed.
Key question and approach:
The key question we aim to answer is: How can (development) finance institutions contribute to resource extraction for a just energy transition? To answer this question, we have developed 3 work packages:
- Work Package 1 will map the flows of critical materials and corporate and macro-level finance (inter-country and inter-organizational) for extraction of critical minerals and related value chains alongside “sustainable mining” initiatives (e.g., climate smart mining of the World Bank). This would allow us to determine critical points/bottlenecks, and hence opportunities for intervention. For feasibility, we will map the value chain of renewable energy technology (e.g., a lithium battery for an electric vehicle). Here the team will partner with TNO, development finance organizations (e.g., FMO), academics, and the ministries of economic and foreign affairs.
- Work Package 2 identifies the flows of finance and takes stock of social, environmental, and political impacts on different scales and locations along the value chain in the style of investigative journalism platform “Followthe-money” as a qualitative case study. We will conduct desk research and empirical research, including interviews with major stakeholders such as affected communities, businesses in the value chain, development finance organizations, commercial finance and commodity traders. A possible critical mineral could be graphite, extracted in Mozambique for lithium batteries.
- Work Package 3 comprises a synthesis and work with stakeholders through policy-academic roundtables at different levels of policy, resulting in the development of road map for financing resource extraction to support a just energy transition. A potential example includes supply chain due diligence to ensure a fair distribution of economic, social, and environmental value across regional centers.
- A multi-layered analytical model for visualizing resource dependencies and impacts of resource extraction for the energy transition (an example of the proposed approach can be found in Figure 1).
- Up to 2 scientific publications based on WP1 and 2.
- Road map for financing resource extraction (outcome WP3).
- A consolidated transdisciplinary network on finance and critical materials.