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Three inputs often overlooked in the energy transition process


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Recent legislation in the U.S. and Europe (and a war in Ukraine) is accelerating energy transition. Yet, the overhaul of policy requires significant change in other aspects of the economic system and individual livelihoods.

Below are three inputs to the energy transition process that will test more than the world’s ability to legislate carbon emissions out of the equation.

Metals and rare earth elements

The transition to renewable energy (and ultimately net-zero) creates a significant demand on the metals and mining sector. Cobalt, copper, lithium, nickel and rare earth elements are fundamental to producing solar power and wind energy and manufacturing electric vehicles and the batteries that power them. The supply of these metals, however, is dependent on a limited number of countries. Some of those countries — such as the Democratic Republic of Congo (DRC), which produces 60% of the world’s cobalt — have unstable political environments, while other countries, such as China — which controls 80% of the world’s lithium and 60% of the world’s rare earth elements used in EV batteries — can cut off the global supply when they deem necessary. Russia controls 22% of the world’s rare earth metal reserves, and we have already seen how the West’s interaction with Russia has changed in the last 12 months.

Beyond the politics of the metal- and mineral-rich countries, the extraction process is also energy-intensive and creates significant emissions in the process. ESG (environmental, social and governance) advocates also find an issue with increased extraction of these necessary resources. Prices will rise with increased demand as supply chains take time to match the demand. In due time, innovation should create products that are less mineral-intensive. Until then, the hunt for metals and rare earth elements will force the mining sector to ramp up to levels not exactly imagined only a few years ago.


Water is a limited resource. Although it covers 70% of the earth, only 3% of that water is freshwater, of which two-thirds are trapped as frozen glaciers or otherwise unavailable for use. Consequently, it is estimated that 1.1 billion people lack access to water, with a total of 2.7 billion finding water scarce for, at least, one month of the year. How could this water reality become a bigger problem?

Water is one of the more forgotten inputs in energy. Approximately 10% of the freshwater is used in energy production. In some estimates, that number could grow to 60% by 2040. Thermal power plants running on gas or even coal plants already consume huge amounts of water today. And, while some renewable-energy options such as solar and wind require less water, many other low-carbon technologies, such as biofuel, carbon capture, nuclear power and hydropower, are water-intensive.

Yet warmer temperatures and drought today could ultimately be a limiting factor with water deficits in the future. Droughts in Spain, which are becoming increasingly normal, are forcing the Spanish utility Endesa to consider shutting down plants. Similarly, in France, where nuclear power accounts for about 70% of power, dryer summers and lower water levels force reactors offline and reduce electricity output. Lithium mining in the Chilean salt flat Salar de Atacama uses 60% of the local area’s water. Reducing climate change, at some level, helps to reduce water insecurity — but how much water is required in the process remains an open question.


Land is also a limiting resource. Large solar and wind farms require nearly 9 to 10 times as much land per unit of energy as natural gas or coal power plants, according to a McKinsey report, such that replacing a one-gigawatt gas plant with a one-gigawatt solar farm would increase land use from 350 to 40,000 acres. That number can range from 30,000 to 250,000 for wind turbines. Finding sufficient land for these type of power sources ultimately competes against society’s need for housing, farming and nature preservation.

The U.S. may be the perfect microcosm of these competing interests. The Infrastructure Investment and Jobs Act of 2021 made $1.2 trillion available over 10 years for bridges, roads and cables for a new green grid, while the Inflation Reduction Act of 2022 contained $400 billion in subsidies for green tech over 10 years. Yet, the permitting and authorization processes at a local level can be very long. The permitting process for the Boardman-to-Hemingway Project, which is a project by Idaho Power to build a 290-mile transmission line to carry power produced by hydro dams in Idaho and Oregon, is an example of how a process can take 15 years with environmentalists and power producers at crossroads and various regulatory bodies in the middle.

In Europe, policy can be even less synchronized across different countries. Only 51% of the land in Germany is suitable for onshore wind farms, according to a McKinsey report, with 91% of that 51% off the table due to environmental, regulatory and technical constraints. Military sites and flight paths are the big barrier in France. Rising land values in a scarce market in Europe (and the U.S.) also creates a challenge for project development. Lastly, studies also suggest that agricultural land has been the most attractive for wind energy — Denmark, Germany and Netherlands are examples in Europe. That reality, however, creates issues in Asia where wind (and solar) farms alongside hydroelectric projects compete with the agricultural livelihoods of local Asian communities. As populations grow and energy needs increase, societies will have to become increasingly more efficient with land use.

Kurt Davis Jr. is an investment banker focused on developed and emerging markets. He’s a member of the Council on Foreign Relations. He’s at kurt.davis.jr@gmail.com.

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