Material Criticality: an Overview for Decision-Makers

business

Material criticality: an overview for decision-makers

Brochure by the International Round Table on Materials Criticality, IRTC Glossary

BGS : British Geological Survey BRGM : French Geological Survey CRMs : Critical Raw Materials IRTC : The International Round Table on Materials Criticality PGMs : Platinum Group Metals REEs : Rare Earth Elements TMS : The Minerals, Metals and Materials Society USGS : United States Geological Survey

2 Table of contents

Introduction 4

Which materials are critical ? 6

How is a criticality method established ? 8

Which indicators are used in criticality methodologies ? 10

Criticality assessments throughout the world 12

How industry manages criticality 14

Criticality and the Circular Economy 16

Criticality in practice – the COVID-19 pandemic 18

Summary and Outlook 21

3 Introduction

Looking back at technological developments the uneven distribution of reserves in the world, mak- throughout the past centuries, we are living in an ex- ing many countries highly dependent on only a few citing era of technological innovation. Technological exporting countries. Furthermore, mining can be en- complexity has been increasing exponentially since ergy-intensive and can be associated with environ- the industrial evolution and is accelerating ever since. mental and social problems, such as deforestation This has provided us great wealth, but at the same and child labor. Recycling of materials - which could time has led to several societal challenges. contribute to a stable supply and less environmental and social burden – is often not taking place, due to High levels of pollution, losses of biodiversity, and, of the complex raw materials mixes within the products, course, climate change are consequences of contin- making them difficult to separate, and lacking eco- ued economic growth worldwide. The first challenge nomic incentives. Finally, certain technologies, such we face now lies in the prevention of further envi- as electric vehicles, wind turbines, and solar panels, ronmental detriment, while maintaining stable econ- have high expected growth rates. It is not guaran- omies and increased welfare globally. A key strategy teed that this increasing demand for raw materials to achieve this is to increase energy efficiency and can be met by an increased supply, considering that decrease dependency on fossil fuels. the development of new mines is a slow process and many minority metals do not provide sufficient reve- This brings us to the second challenge of this era. nue to drive mining operations. Technologies, including technologies that contribute to sustainable development, such as renewable Raw materials that play an important role in eco- energy and low-carbon mobility, rely increasingly nomic or technological development, while at the on raw materials. Materials are not only used in in- same time have precarious supply chains, are often creasing quantities, also a wider range of materials is called “critical”. The identification of these critical raw used, which are often combined, resulting in increas- materials (CRMs) and the mitigation of their critical- ingly complex products Figure 1 . Whereas some ity has become an important task of researchers, of these materials can be considered scarce, more companies, and policymakers in their pursuit of sus- pressing concerns about the use of raw materials is tainable economic well-being.

Figure 1

Pd Rh Ta Te U Ru

In K Li Nb P Re

Pt Si Th Ti V Pt Si Th Ti V Ge

Sn W Sn W Mg Mo Ni Sn W Mg Mo Ni Ga

Cu Mn Pb Cu Mn Pb Co Cr Cu Mn Pb Co Cr Cd

C Ca Fe C Ca Fe C Ca Fe AI REE C Ca Fe AI REE Ag 1700 1800 1900 2000

ELEMENTS WIDELY USED IN ENERGY PATHWAYS. NB. POSITION ON THE TIME AXIS IS INDICATIVE ONLY (ZEPF ET AL. 2011)

4 The US National Research Council was among the Figure 2 first institutes to publish a method for assessing Raw High A Material Criticality, with the aim of compiling a list of CRMs for the US economy (NRC 2008). Following the NRC methodology, a material is deemed critical when it has both a high supply risk and a high impact of supply restriction Figure 2 .

In the years that followed, many more criticality as- Medium sessments were conducted by governments, com- Mineral CriticalityB panies, and researchers. An overview of the most prominent methods (i.e. methods that are often cited Impact Supply of Restriction and have a large influence in method development and decision-making) is provided in Figure 3 . Low

Low Medium High Supply Risk

THE TWO-DIMENSIONAL CRITICALITY MATRIX AS DEVELOPED BY NRC (2008). MATERIALS ARE DEEMED CRITICAL WHEN BOTH THE SUPPLY RISK (ALSO CALLED “THE PROBABILITY OF A SUP- PLY DISRUPTION”) AND THE IMPACT OF A SUPPLY RESTRICTION (OR “VULNERABILITY TO A SUPPLY RESTRICTION”) ARE HIGH.

Figure 3

2012 - 2015 2016 - 2017 Global YALE NSTC

2008 2012 - 2015 NRC YALE

2011 2014 2017 EU EU EU

2009 2010 - 2014 Economy NEDO KIRAM/KITECH

2010 - ongoing BRGM

2010 2012 2012 2015 BGS BGS BGS BGS

2010 - 2011 US DoE Technology 2010 2011 2013 Thomason JRC JRC

2010 2012 - 2015 2017 Company GE Yale EBP/Empa

2013 - ongoing Granta Product 2016 GeoPolRisk & ESSENZ

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

TIMELINE AND SCOPE (GLOBAL, ECONOMY, TECHNOLOGY, COMPANY, PRODUCT) OF PROMINENT CRITICALITY ASSESSMENT METHODS

5 Which materials are critical ?

Criticality assessments tend to focus on non-energy Many criticality assessments aggregate partic- minerals. In their review of 42 criticality assessments, ular groups of materials, as frequently seen in the Schrijvers et al. (2020) found that the materials most case of PGMs and REEs. However, Figure 5 a n d frequently included in the assessment are indium, Figure 6 illustrate that there can be differences in gallium, cobalt, lithium, nickel, tellurium, copper, plat- the criticality of specific materials within each group. inum group metals (PGMs) and rare earth elements For example, although osmium and samarium are (REEs). Only a few studies include other types of ma- often mined together with other PGMs and REEs, terials than metals, such as aggregates, carbon fiber, respectively, each of these elements have different chlorine, rubber, and wood. properties and therefore are used in different appli- cations – resulting in different criticality scores. As can be seen in Figure 4 , criticality studies do not provide a clear and consistent answer to the ques- Ideally, criticality studies should include all materials tion of “which raw materials are critical”. As further used by the system under study (e.g. the economy discussed in the review by Schrijvers et al. (2020), the or the company), at all points in the supply chain, diverging results of criticality assessments can be at- to highlight the supply bottlenecks. Even for a given tributed mainly to differences in the goal and scope material, varying material compositions should be of the study. For example, a material that is “criti- evaluated separately, as they may differ in supply cal” for the development of batteries used in electric pathways and/or importance to the evaluated sys- vehicles is not necessarily “critical” for the European tem. Given data gaps, however, materials are often economy as a whole , especially as long as the pro- evaluated only at the mining stage. duction of battery materials is widely taking place outside Europe. Therefore, criticality studies need to clearly describe the context in which materials are assessed for their criticality.

6 Figure 4 Indium Gallium Cobalt Lithium Nickel Tellurium Copper

0 5 10 15 20 25 30 Number of criticality studies

CRITICALITY DETERMINATION OF METALS THAT ARE MOST FREQUENTLY INCLUDED IN CRITICALITY STUDIES CONDUCTED DURING THE PERIOD OF 2008-2019.

Figure 5

Platinum Group Metals High criticality Iridium Osmium Medium criticality Palladium Low criticality Platinum Rhodium Ruthenium

0 3 6 9 12 15 Number of criticality studies

CRITICALITY DETERMINATION OF PLATINUM GROUP METALS, EVALUATED EITHER AS A GROUP OR AS INDIVIDUAL METALS, IN CRITICALITY STUDIES CONDUCTED DURING THE PERIOD OF 2008-2019.

Figure 6

Rare earth elements Light REEs Heavy REEs Cerium Dysprosium Erbium Europium Gadolinium Holmium Lanthanum Lutetium Neodymium Prasedymium Samarium Scandium Terbium Thulium Ytterbium Yttrium

0 2 4 6 8 10 12 14 16 18 Number of criticality studies

CRITICALITY DETERMINATION OF RARE EARTH ELEMENTS (REES), EVALUATED EITHER AS A GROUP, AS A SUB-GROUP (I.E., “HEAVY” OR “LIGHT” REES), OR AS INDIVIDUAL METALS, IN CRITICALITY STUDIES CONDUCTED DURING THE PERIOD OF 2008-2019.

7 How is a criticality method established ?

Criticality assessments have been published in var- tion of the “probability of a supply disruption” with ious forms and styles. To make the differences be- the “vulnerability to this disruption”, as in classical risk tween these assessments more explicit, and to make assessments (Frenzel et al. 2017). Aggregation can future assessments more rigorous, a general frame- mask the underlying indicator values, and therefore work for criticality assessment methodology could is not recommended for understanding sources of be applied Figure 7 . risk and identifying suitable mitigation options. An- other challenge in constructing CRM lists is in de- As can be seen in Figure 7 , criticality studies can, fining threshold values for criticality indicators (e.g., depending on the goal and scope of the assessment, what constitutes “high” probability of supply disrup- consider different types of risks, such as disrupted tion, or “high” vulnerability to disruption ?). trade flows, material scarcity, price fluctuations, or reputational risks. In practice, many assessments Criticality studies often rely on geological and trade consider some combination of these risks. The study data that approximate the flows of interest for the goal also influences the way the results are present- assessment. Limitations of data quality, in con- ed, such as a list of critical raw materials, or a two-di- sideration of the goal and scope of the study, can mensional matrix format (as in Figure 2 ), potential- introduce significant uncertainty to criticality as- ly including uncertainty ranges. sessments. Uncertainty can be expressed by constructing uncertainty ranges or “criticality clouds”, Constructing a list and/or ranking of CRMs raises the as suggested by Graedel et al. (2012). Alternatively, problem of aggregating different criticality indica- sensitivity analyses could demonstrate whether a tors. There is no “correct” way to aggregate indica- raw material is likely to pass the criticality threshold tors, although scholars have argued for a multiplica- value considering a range of datapoints.

8 Figure 7

WHAT IS AT RISK ? WHAT IS THE OBJECTIVE OF Global material access THE STUDY ? A national economy Identify hotspots in our material portfolio A specific (group of) technology/ies Establish a list of CRMs for prioritisation The revenue or reputation in R&D of a company Identify mitigation options DESCRIBE THE GOAL AND SCOPE WHAT TYPE OF RISK IS ANTICIPATED ? WHAT MATERIALS Disrupted trade flows ARE EVALUATED ? A shortage of a raw material Ideally all materials used Fluctuating material prices by the system at risk Legislation or a bad reputation Can be adapted based on available data due to environmental or social issues in the supply chain

SUPPLY-RISK INDICATORS VULNERABILITY INDICATORS SELECT INDICATORS AND DATA SOURCES MITIGATION INDICATORS CONDUCT THE STUDY

SELECT AGGREGATION METHOD SELECT LEVEL Establish a list of CRMs OF AGGREGATION Addition (HIGH TO LOW) Multiplication DEFINE Establish a list of CRMs AGGREGATION Evaluate CRM scoring per criticality dimension Evaluate scoring per criticality factor Evaluate scoring per indicator SELECT WEIGHTING FACTORS

SELECT THRESHOLD VALUE Highest 25% IDENTIFY NEED FOR Cluster analysis THRESHOLD VALUE Top 10 list DEFINE Material is critical or not ? Expert judgment A THRESHOLD Material has … VALUE high/medium/low criticality ? Material is more/less critical than others ? CONSIDER UNCERTAINTY RANGES AND/OR SENSITIVITY ANALYSES

GENERAL FRAMEWORK FOR CRITICALITY ASSESSMENT

9 Which indicators are used in criticality methodologies ?

Criticality studies use a wide range of indicators to producing countries. Greater diversity of supply al- evaluate the probability of a supply disruption (or lows supply chains to adapt more easily when the “supply risk”) and the vulnerability to this disruption. supply from one country is disrupted. Indicators re- These indicators cover geological, economic, envi- flecting the relative scarcity of a material are often ronmental, social, or political factors. used as well. Another factor is “co-production” (i.e., where supply of one material is tied to another, thus As can be seen in Figure 8 , “diversity of supply” creating potential imbalances in supply and demand (e.g., as measured by the geological distribution of that can result in physical shortages and/or price reserves between countries, the distribution of raw spikes). Environmental and social indicators are used material production shares between countries, or to capture the risk of supply constraints imposed by the distribution of raw material imports from various laws and regulations (e.g., by legal hurdles to devel- trade partner countries) is the most frequently used op new mining operations), or by efforts to man- indicator in criticality assessments. This indicator is age reputational risks from material sourcing (e.g., often used in combination with the Worldwide Gov- if material sources are tied to armed conflicts, child ernance Indicators to reflect the political stability of labour, or other human rights abuses).

Figure 8 exploitation conditions economic size substitutability of sector

price increase internal recyclability/ demand demand vs. recycled content diversity of mining/ world production supply/import market power regarding suppliers mining/prod. market price efficiency capacity revenue global to innovate investement demand growth impacted production population using in mining the material environ. impact exploitation use in emerging conditions technologies local natural materialization environ. price vs. capacity availability GDP depletion time/ trade restrictions of hedging domestic reserve/crustal production options demand growth content growth resource enviro./social efficiency apparent regulations potential import dependency consumption mining ability to pass techn. price vs. through cost natural profit increase disasters stockpiles by-product resource dependency competition political price vs. total strategic circularity stability price volatility material cost importance metrics procurement strategy degree of geological logistic exploration specificities restrictions

Product Compagny Technology/sector Economy Global + Others Supply risks indicators Vulnerability indicators size= frequency of occurance 05 01 ators ors

INDICATORS FOR SUPPLY RISK AND FOR THE VULNERABILITY OF A SUPPLY DISRUPTION AS USED IN 42 REVIEWED CRITICALITY STUDIES (SCHRIJVERS ET AL. 2020). COLOURS REFLECT WHETHER THE INDICATORS HAVE BEEN USED IN STUDIES WITH A PRO- DUCT, COMPANY, TECHNOLOGY, ECONOMY, OR GLOBAL SCOPE. CIRCLE SIZES REFLECT HOW OFTEN THE INDICATOR HAS BEEN USED. THE MIDDLE PANEL SHOWS INDICATORS THAT ARE SOMETIMES USED TO EVALUATE SUPPLY RISK AND SOMETIMES TO EVA- LUATE VULNERABILITY. 10 The vulnerability to a supply disruption is more within criticality assessments, such as the degree of scope-dependent than the probability of the dis- exploration, stockpiling, recyclability, and access to ruption. Studies with an economy-wide scope often recycled materials. evaluate vulnerability based on the economic size of a sector affected by the supply disruption. Compa- Indicator selection is limited by data availability. As nies evaluate their vulnerability based on the share seen in Figure 9 , most studies rely on data from geo- of their revenue impacted by a supply disruption, logical surveys, such as the annual reports of the US and their ability to pass on cost increases to their Geological Survey (USGS), the British Geological Sur- customers. The substitutability of a raw material can vey (BGS), and the French Geological Survey (BRGM). be considered an indicator of supply risk or vulner- Data from the World Bank and the Fraser Institute ability. A low substitutability within the market could are used to evaluate the political stability of supplying affect the overall accessibility of a raw material, for countries. Many studies also turn to industry reports example when the demand of technologies using the (e.g. from Roskill) and judgement of experts in the field. material is growing. On the other hand, companies Whereas some studies aim to minimize their reliance that can use substitutes are less vulnerable to sup- on expert judgment, the opinion of experts is often ply disruptions or price spikes. Other indicators that necessary to interpret the value of generic (trade) data have a mitigating effect on criticality are also used to evaluate specific materials and products.

Figure 9

OVERVIEW OF DATA SOURCES USED BY CRITICALITY STUDIES (SCHRIJVERS ET AL. 2020). BLUE NODES INDICATE DATA SOURCES, AND RED NODES REPRESENT CRITICALITY ASSESSMENT METHODS.

11 Criticality assessments throughout the world

USA The United States is both a producer and user of critical raw materials. Its import dependence has grown over the last several decades. In 2008, the National EUROPE Research Council published one of the first critical- The list of CRMs for the EU and the underlying criti- ity assessments (NRC, 2008). In 2010 and 2011, the cality methodology are key instruments in the con- Department of Energy published assessments of text of the EU raw materials policy, a precise com- criticality from the perspective of what is critical for mitment of the Raw Material Initiative (2008). Since clean energy (US DoE, 2011). In 2018 the US govern- the publication of the first list in 2011 and subsequent ment published its first comprehensive list of critical updates (European Commission 2010, 2014, 2017), minerals, leading in 2019 to the release of a national the EC criticality methodology has responded to strategy to ensure secure and reliable supplies of the needs of governments and industry to better critical minerals (US DoC, 2019). monitor raw materials and inform decision makers on how security of supply can be achieved through diversification of supply, resource efficiency, recycling and substitution. In order to prioritise needs and actions at the EU level, the list supports in ne- gotiating trade agreements, challenging trade dis- tortions and in programming the research and innovation funding under the Horizon 2020 and Horizon Europe schemes. The New Circular Economy Action Plan and the New Industrial Strategy for Europe, two of the main building blocks of the European Green BRAZIL Deal, have announced an upcoming Action Plan on Critical Raw Materials (2020 list), as well as stressed Brazil is a large mining and trading country. The Na- on the role of CRMs to achieve a climate-neutral, cir- tional Mining Plan 2030 (MME, 2010), supported by a cular and competitive economy. nationwide multi-stakeholder consultation, identified three groups of strategic minerals : 1) minerals for which domestic mining is not sufficient for the supply to important economic sectors, such as minerals for AFRICA fertilizers (K and P), metallurgical coal for the steel industry and uranium, 2) minerals with a growing There are no official material criticality assess- consumption by high technology-driven sectors, for ments for African countries. However, reports from instance renewable energies technologies, and 3) the United Nations, the World Bank and the African minerals of which Brazil has a global leading role as Development Bank highlight severe limitations on producer, such as iron ore and niobium. The Brazil- the provision of minerals required for domestic eco- ian Centre for Mineral Technology (CETEM) and the nomic growth, such as limestone, clays, aggregates, Joint Research Centre of the European Commission gypsum, phosphates, nitrates and potash, which is- with the support of the bilateral program “EU-Bra- essential for agriculture and for the manufacture of zil Sectoral Dialogues” are studying the circularity, industrial products such as ceramics, plastics, glass, environmental and social impacts, and innovation paper or detergents (Calderón and Servén 2008 ; trends of niobium as a critical (for the EU) and stra- UNDP 2020). For example, Nigeria, the most pop- tegic (for Brazil) material. Furthermore, in 2019, the ulous African country, imports all the limestone it Ministry for Mines and Energy established a broad needs to treat drinking water, and all the gypsum to value-chain perspective on selected minerals via produce cement (Correia, 2018). workshops and consultations with other govern- mental institutions, producers and consumers, in order to update information and build public policies.

12 CHINA China has not conducted official material criticality assessments, but around 24 types of fossil energy and mineral resources were listed as “strategic minerals” by the Ministry of Land and Resources (2016). China’s supply of various critical materials is not only facilitated by its rich endowment but also by its large metallurgical and refining industries. As the largest JAPAN supplier and consumer of many critical materials, Since 2016, the Ministry of Economy, Trade and In- China values the cooperation between domestic dustry (METI) has started criticality assessments and international markets for secure minerals sup- of metals importantly used in Japanese industries ply and sustainable materials use. such as automobiles and precision machinery by applying the approaches employed in the US and the EU (METI 2019). METI is preparing a guideline to KOREA support criticality assessments conducted by companies. For example, in 2017, rare earth elements, in 2009, the policy on CRMs of Korea was initiated by such as neodymium have been playing a critical role the Korean government through a demand-supply in those industries’ products, as China still accounts analysis of criticality, which distinguishes five factors for 60% of the share of the importing countries of of either growth or decline regarding instabilities in the elements, although efforts are done to diversify price, stockpiles, demand growth rate, supply risk, (JOGMEC 2018). Supply-chain management of CRMs and urgency (Bae 2010 ; Hurd et al. 2012). In line with at the corporate level will be increasingly important, other methods that consider economic importance, and the guideline is expected to promote more com- criticality is relevant for private companies within panies to evaluate raw material criticality. each sector and level in the value chain, i.e., securing raw materials, producing intermediate materials, and recycling. Moreover, due to the recent conflict with Japan in 2019 regarding raw materials supply for the semiconductor industry, which had an im- mediate impact on the Korean economy by a disruption of supply, these economic-political decisions of securing CRMs become more important in Korea (Lee 2019)

INDIA AUSTRALIA In 2011, Indian policymakers noted the need of un- Australia is a strong mining nation. As its manufac- derstanding critical and strategic minerals, including turing sector has been in decline, Australia’s inter- the use of rare earths in the energy sector. Over time, ests in criticality are as a supplier. Recently, Australia a handful of studies were published by think tanks, began facilitating research into its own potential re- associations and other non-government establish- sources of CRMs. For REEs, cobalt, and lithium, Aus- ments to understand the strategic requirement of tralia is an important global supplier. Other CRMs minerals. In 2016, the Council on Energy, Environ- are supplied in base metal concentrates exported ment and Water (CEEW) developed a comprehen- to smelters and refineries capable of extracting sive framework (Gupta et al. 2016), which caught these (e.g. indium, tellurium). For many CRMs large attention of policymakers and relevant agencies resources exist and new mines could be developed as it presented the 12 most critical minerals for the (e.g. tantalum, scandium). Recent research has been Indian manufacturing sector. This framework forms supported through Geoscience Australia, with a the basis of a long-term decision support tool which landmark report released in March 2019 (Mudd et is being developed through active support from al. 2018). In March 2020, the Australian Government the Government. Furthermore, in 2019, India set up launched the Critical Minerals Facilitation Office to a joint venture called Khanij Bidesh Limited (KABIL) support Australia’s potential as a critical minerals to ensure consistent supply of critical and strategic supplier, with a key focus to work on investment and minerals through overseas acquisition. trade opportunities with key trading partners (e.g. USA, Japan, Canada, China).

13 How industry manages criticality

Raw material criticality is becoming increasingly im- ment of their markets. It is challenging to anticipate portant for industries, especially in sectors with high supply disruption in these rapidly evolving markets. growth rates, such as electronics, transport and spe- This section presents an overview of industrial prac- cifically electro-mobility, aerospace, and computer tices and challenges in managing raw material criti- systems. Particularly in these sectors, material use cality, as discussed at the IRTC Round Table on “How has become ever more complex. Some raw materi- Does Industry Manage Criticality ?” at the The Miner- als have only recently begun to be used, and hence als, Metals and Materials Society (TMS) 2019 Annual there is little historical knowledge of the develop- Meeting and Exhibition on March 14, 2019.

THREE TYPES OF RISKS HAVE APPEARED RELEVANT FOR INDUSTRIES Physical supply shortages of a material A material fluctuates heavily in price Reputational damage due to environmental or social impacts in the company’s value chain

KEY INSIGHTS FROM A COMPANY PERSPECTIVE While supply disruptions often occur further upstream in the supply-chain, companies usually often know only their first-tier suppliers. In product design, performance generally has priority over supply risk considerations. Supply risks might be managed by the procurement, supply-chain management, research and development, or financial department, or responsibility could be shared between multiple functions within the company. Reputational risks are most relevant for Original Equipment Manufacturers (OEMs), who generally have more funds to investigate their supply-chains, and who have valuable consumer brands to protect.

14 CHALLENGES REGARDING DATA ACCESSIBILITY AND DATA SHARING Public data have high uncertainties, while private data are expensive or only accessible to few specialized companies. Public data need to be updated more frequently to reflect changes in the market. More data, of higher quality, are needed on trade flows. Data need to be sufficiently precise to provide at least an order-of-magnitude estimate and to highlight trends. To facilitate data sharing, transparency needs to be balanced with confidentiality. Companies need guidance to select the “right” assessment methodologies. The dynamic nature of trade flows and the delayed availability of data requires approaches to evaluate supply risks qualitatively rather than quantitatively.

COMPANIES CAN MITIGATE SUPPLY RISKS VIA THE FOLLOWING STRATEGIES Stockpiling Find or develop substitutes Establish long-term agreements with suppliers Increase flexibility by relaxing material requirements Vertical integration of the supply chain Engage with multiple suppliers of each material Establish contractual agreements that price increases are passed on to customers (escalation clauses) Establish closed loop strategies to get access to (own) end-of-life products and reuse/recycle components with essential materials for the company Screen potential suppliers, e.g. regarding sustainability

GOVERNMENTS CAN SUPPORT INDUSTRIES IN SECURING THEIR SUPPLY Development of national stockpiles Funding of high-risk and capital-intensive research project, e.g. for the development of substitutes or computational metallurgy Provide data, e.g. trade data and geological data Keep policies predictable Enable and support trade between different regions in the world Put policies in place that support and facilitate recycling Consider innovative global solutions, such as developing an international leasing system

15 Criticality and the Circular Economy

The transition towards a “circular economy” is often achieved through “looping” strategies, like product suggested as a means of managing supply secu- repair and reuse, shared ownership, product refur- rity of critical raw materials. According to the Ellen bishment or remanufacturing, and recycling of ma- MacArthur Foundation, the circular economy “is one terials from end-of-life products. In this section, the that is restorative and regenerative by design and potential of circularity strategies to manage supply aims to keep products, components, and materials security of critical raw materials is discussed via four at their highest utility and value at all times” (Ellen perspectives, as illustrated in Figure 10 (Tercero MacArthur Foundation 2015). “Circularity” can be Espinoza et al. 2020).

Figure 10

Primary Stable & diverse supplier base raw materials Materials processing Stable & diverse manufacturing base

Recycling D Material E & technology S flexibility I G

N Contribution to secure supply Product

manufacturing

T Recycling of

C manufacturing scrap

L Remanufacturing

O D

Use T

T I O N

Repair Reuse

FRAMEWORK FOR CONNECTING CIRCULAR ECONOMY STRATEGIES TO RAW MATERIALS CRITICALITY. MATERIAL LOSSES, WHICH OCCUR AT ALL STAGES OF THE MATERIALS CYCLE, ARE OMITTED FOR CLARITY (TERCERO ESPINOZA ET AL. 2020).

16 1. Stable and diverse supply 3. Decreased demand growth Materials for which production is concentrated Demand growth is one of the supply risk factors among a few suppliers are often assessed as “crit- commonly considered in criticality studies. If the de- ical”. As illustrated in Figure 10 , recycling can help mand for a resource is growing in a slower pace, the offset primary raw material supply, and thereby re- dependency on primary raw materials can be de- duce by-product dependency while increasing the creased. Circular economy strategies can reduce de- diversity of supply. However, the economic feasibil- mand growth through increased resource efficiency, ity of recycling depends on the price of the primary also via the “shorter loops” of the circular economy material, which can be, especially for CRMs, highly concept (e.g. increased longevity via repair and re- volatile. Furthermore, recycling does not necessarily use, and shared ownership). However, compared to eliminate all supply risks, particularly if the supply of recycling, these shorter loops are often overlooked recycled materials is itself highly concentrated. in the criticality discourse. Furthermore, new technologies might be needed to enable them, and these technologies could themselves require CRMs as well. To facilitate increased resource efficiency, circularity 2. Contribution of recycling to strategies should be considered in the design phase supply of products, focusing on optimizing the efficient use of CRMs. For materials deemed critical due to their geological scarcity, recycling can provide an additional and locally accessible raw material source and contribute to an increased production growth potential. 4. Material and technology This is especially important for materials for which demand is expected to increase, such as materials flexibility and diversity used in low-carbon energy or mobility technologies. The transition towards a circular economy encour- A caveat here is that the growth potential of recy- ages substitution of primary resources to renewable cled materials may be limited, due to challenges in and recoverable resources. Substitution is also an the collection of end-of-life products and channeling important strategy for managing supply security them to appropriate recycling facilities. Some met- of critical raw materials. One potential pitfall could als are thermodynamically incompatible : if they are be that critical materials are substituted with equal- mixed in alloys it can be nearly impossible to sepa- ly critical materials, or that the substitute materials rate them. Furthermore, as current recycling targets come with trade-offs, such as increased environ- are often mass-based, they favor materials used mental impacts. To facilitate substitution, manufac- in large quantities, such as cement, paper, plastics, turers should consider “design for flexibility”, e.g. by iron and copper. CRMs used in smaller amounts are relaxing certain performance requirements. Material dissipated within the recycling routes of these base and technological flexibility and diversity can also materials. To stimulate increased recycling rates of be applied to the productivity of a company. Sud- CRMs, recycling must be considered in the product den changes in demand, as for example experienced design phase, and appropriate recycling targets and during the COVID-19 pandemic, could be absorbed indicators must be developed. by flexible product lines.

17 Criticality in practice – the COVID-19 pandemic

The spread of COVID-19 over the globe has made more critical, and/or R&D for substituting or recy- the year of 2020 remarkable from the perspective of cling certain materials might be intensified. global trade, supply chains, and economic stability. This section provides an overview of observations of What high-risk factors became recent developments worldwide, which provide valu- apparent ? able lessons for the future evaluation of CRM and the development of resilient supply chains. • Many European companies are dependent on the supply of intermediate goods from China. With Which systems should evaluate Chinese suppliers being shut down during the out- break of COVID-19 in China, some downstream Eu- their material criticality ? ropean manufacturers experienced costly delays • The scope of national criticality assessments is of- of a few weeks. Supply disruptions of intermediate ten defense, energy supply, or the (macro) econ- goods are not often evaluated in current criticality omy. However, as demonstrated by the COVID-19 studies, which usually focus on raw materials at pandemic, policymakers should also be con- the mining stage. cerned about which materials and products are critical for the national health care sector in case • Monopolistic positions of the supply of medical of pandemics, but also natural disaster and other equipment led to shortages of testing capacity, incidents surging the demand for specific health due to lack of compatible ancillary materials (sol- related equipment. In the COVID-19 case, short- vents, pipettes, etc) which were not substitutable ages concerned among others respiration equip- by products from other suppliers. This illustrates ment and face masks, and the availability and that criticality studies should evaluate a broad potential supply disruption of drugs has received range of materials and intermediate goods, and attention as well, with some countries rationing e.g. not only focus on metals or energy carriers, which painkillers. Lessons learned from supply risk eval- is also important to consider in other sectors. Fur- uations in the health care sector could contribute thermore, product recalls of masks that did not to further development of criticality assessments fulfill quality requirements for use in hospitals for other sectors. Furthermore, certain materials demonstrate that not only the availability of prod- that appeared critical during the pandemic will be ucts in certain quantities must be safeguarded, increasingly stockpiled, possibly affecting other but their quality as well. markets that rely on the same materials as well, • Geopolitical and logistic supply risks do not only e.g. by behavior of speculators. relate to countries that produce materials and • The material basis for Information and Communica- products, as supply disruptions can appear at tion Technology (ICT) is an area that has increasing- different spots in the international logistic chains, ly come into the spotlight over the last years. With for example, due to closed harbors and borders COVID-19 restricting travel and direct meetings, ICT or delayed departures of trains and planes. This – e.g. in the form of hardware, cloud storage, com- can emerge at all levels of the supply chains and munication software, digital infrastructure, or data encourages again an increased focus on interme- collection – has experienced an unexpected push diate products. that will accelerate the digital transformation even • Resource nationalism plays a very important faster than expected. Materials that are crucial for role in cases of emergencies and fear for nation- these technologies thus might become suddenly

18 al security and supply. For example, the case of How can we act to decrease the nations stopping the export of health care products at borders has been a recurring topic in the impacts of supply disruptions ? COVID-19 discussion. Government intervention in • Companies are generally concerned with main- markets – such as obliging firms to adapt their taining their operation in relatively short time product lines, and/or sell products only on nation- frames, as illustrated by the fact that several al markets – increases in times of national and companies experienced financial damages after global emergencies; this trend could be persisting the Chinese lockdown of a few weeks. There is a in the years to come. role of both companies and policymakers to find solutions to mitigate supply disruptions in mid or How does COVID-19 influence long-term time frames to limit economic (and in future criticality assessments ? this case also health) damages within a country.

• Situations can change rapidly and unpredictably. • Certain medical products are highly needed in The dynamic nature of criticality is evaluated by situations of pandemics or other crises, while several studies and graphically represented in their demand under normal circumstances is low. Figure 11 . The cases of disruptive technologies, Companies need to become increasingly flexi- natural disasters, and pandemics must therefore ble to adapt to changing market circumstances. be considered in criticality assessments, to avoid COVID-19 illustrated this by numerous companies a potentially misplaced perception of supply se- that started producing respiratory equipment, curity. hand gels, or face masks, while the demand for their regular products was put on hold. The speed • Trade data of 2020 should be handled with care, in which the product line can be adapted is key as the data will be biased by locked-down facto- and can decrease the impact crises have on eco- ries on the one hand, and increased trade of ma- nomic activities. terials for the health care sector on the other hand. This should be considered if these data are used • The probability of a supply disruption is difficult to evaluate trends or predict future supply risks. to predict due to its dynamic nature and the wide range of potentially relevant supply risk factors. However, the study of supply risk factors could greatly help rising the awareness for shortcom- ings of the current socio-economic system. In order to mitigate potential risks, it can be helpful to focus on the development of more resilient supply chains, that have a lower vulnerability to such a disruption.

19 Figure 11

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Li Be B C NO F Ne

Na Mg Al Si P S Cl Ar

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Rb Sr YZ rN bM oR Tc uR hP dA gC dI nS nS bT e I Xe

NA Cs Ba La-Lu Hf Ta WR eO sI rP tA uH gT lP bB i Po At Rn

Fr Ra Ac-Lr Rf Db Sg Bh Hs Mt Ds Rg Cn Nh Fl Mc Lv Ts Og

Feldspar La Ce Pr Nd Pm Sm Eu GdT bD yH oE rT mY bL u

NA NA NA NA Mica Ac Th Pa U Np Pu Am Cm Bk Cf Es Fm Md No Lr

AGGREGATED SUPPLY RISK FACTORS OVER THE RANGE OF YEARS FROM 2007 TO 2016. FOR EACH BOX, THE VERTICAL AXIS REPRE- SENTS SCORES RANGING FROM 0 TO 1, WHILE THE HORIZONTAL AXIS REPRESENTS THE YEARS 2007–2016 (NASSAR ET AL. 2020).

20 Summary and Outlook

Material criticality has become a widely-known Companies should make use of the criticality assess- concept only little more than a decade ago, and its ments conducted by governments, but should also global topicality since then has not decreased – on investigate their individual exposure to criticality in the contrary. With an increasing number of coun- their specific sectors, and react with individual miti- tries committing to climate mitigation goals, and a gation measures. Stakeholders interested in the eval- rapid transition to electric mobility and digitalization uation of raw material criticality would benefit from world-wide, demand for technology metals is grow- the availability of clear guidance in the formulation ing and changes often appear quickly and unex- of their goals and scopes, the selection of potentially pectedly. Critical factors on the supply side, such as useful indicators and aggregation methods, and the dependency on supplying countries, lacking access interpretation of the outcomes. Such guidance could to recycled materials and ecological and social risks be a first step in improving the quality of criticality are also persisting. Trends towards increasing (re- assessments, and fostering more standardized ap- source) nationalism, culminating in so-called “trade proaches also on a global level. A decision model to wars”, and an international health emergency have assist decision-makers in assessing risks in their ma- not helped to relax the situation recently. terial supply chains is currently developed in IRTC’s follow-up project IRTC-Business. From the research and discussions in IRTC, we were able to derive several lessons regarding the future Regarding the transition to a more circular economy development and implementation of criticality as- of critical raw materials, we are only in the begin- sessments. First, criticality assessments need a clear ning of the process that will be needed for keeping description of their goal and scope, including a de- CRMs in the economic cycle. Closing loops in today’s scription of the anticipated risks that are considered complex global supply chains will only be possible within the study. Second, communication on critical through sustained international collaboration. The raw materials should be more transparent regarding COVID-19 pandemic offers us the opportunity to the used methodology, data sources, and uncertain- evaluate and rethink the current (socio-)econom- ty ranges, especially when criticality determinations ic system, of which measures to tackle the ongoing have consequences on public decision-making. Third, ecological crises should profit as well. Continued further efforts should be put in the identification of work of policymakers, companies and researchers best practices regarding data sources, indicator se- will be required to provide both the societal basis and lection, aggregation methods, and presentation and the technical infrastructure for a sustainable future communication formats. and to ensure a reliable long-term supply of the raw materials needed by society.

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