European competitiveness threatened by continued imports of volatile LNG

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Key points:

  • Europe is increasingly relying on imports of liquefied natural gas (LNG) as it seeks to shift away from a reliance on Russian fossil fuels. 
  • Rising imports of LNG have coincided with higher gas price volatility in Europe. In the last five years, the volatility in European gas prices has been double the historic average. 
  • Sudden spikes in gas prices have widespread economic and social impacts because they often set electricity prices in Europe. In 2022, a surge in gas prices pushed up electricity costs for households and businesses. 
  • European demand for LNG is predicted to fall over the long-term but LNG’s growing share of imports will remain an ongoing threat to the region’s competitiveness.
  • Geopolitical tensions surrounding an unpredictable second Trump presidency and intense competition with Asia for LNG might mean more price volatility in future. 
  • However, increased domestic solar and wind electricity generation could shield European countries from LNG price volatility.

Europe eyes increased imports of LNG

LNG markets are predicted to enter a “golden era” in the next few years as the inauguration of US President Donald Trump for his second term in office is expected to lead to a surge in production and exports of LNG from the US. The International Energy Agency (IEA) expects global LNG supply to grow by almost 6% in 2025, as several large LNG projects come online. Over the next decade, surging LNG supply is expected to exceed demand, a trend that will push down LNG prices. 

Some see rising LNG supply as an opportunity for Europe. The EU has said it aims to replace Russian gas flowing through Ukraine, following the end of a transit deal in December 2024, with imports of LNG. This is part of the EU’s wider plan to phase out Russian fossil fuels following the country’s invasion of Ukraine in February 2022. 

Joining the dots: Rising LNG imports and price volatility in Europe

The European benchmark for natural gas prices, the Title Transfer Facility (TTF), has experienced a rise in volatility. The average price volatility in the last five years has been two times higher than the historical average. Between 2019-2024, the average 30 day price volatility for the TTF was 85%, compared to 39% over the period 2005-2019 (Figure 1).

While energy analysts have speculated that the TTF volatility is partly structural, Europe’s increased dependence on LNG has also been cited as a driver. LNG became the new baseload source of European gas supply in 2022 (Figure 2), making the region increasingly sensitive to the liquidity and volatility of the global LNG market. Between 2005 and 2019, LNG made up 22% of European gas imports. This jumped to 44% between 2020 and 2023, with LNG overtaking pipeline imports for the first time in 2022. A report by ex-European Central Bank President Mario Draghi on EU competitiveness highlighted that: “LNG prices are typically higher than pipeline gas on spot markets owing to liquefaction and transportation costs.”

Figure 1: TTF price volatility 2005-2024
Figure 2: European gas imports 2005-2023

One of the drivers of TTF price volatility in Europe is intense competition with Asia for LNG. Price rises in Asia have reverberated back into European prices – a trend that is expected to become more prominent in future. In early 2024, rising demand in Asia, partly due to heatwaves, lower prices and lower domestic gas production, played a role in pushing up prices in Europe. “Gas prices in Europe are likely to remain volatile for some time as the EU has to compete with the more price-sensitive China and to a lesser extent India and Thailand for LNG cargoes. This dynamic introduces greater price unpredictability, as the reliability of LNG cargoes is not guaranteed in the very short term at the most optimal price,” said Stephen Ellis, an investment strategist at Morningstar.

Europe potentially faces even more intense competition with Asia and other regions for LNG if it follows through with a pledge to end gas imports from Russia by 2027 – something the new EU energy commissioner Dan Jørgensen says he intends to do. Russia still remains a key source of LNG for the EU, despite the bloc’s efforts to diversify. The end of the Russia-Ukraine transit deal already increased gas prices in Europe at the start of January, and is expected to do the same in Asia. Gas contracts in Europe are “trading at around triple pre-crisis levels so far in 2025,” according to Bloomberg. This could be made worse by colder weather in both regions. “If Europe also experiences a colder winter, buyers in Europe would have to compete for spot LNG cargoes, which in turn would raise prices at both European and Asian price hubs, especially if fuel switching is not possible,” said the US Energy Information Administration.

High energy prices weaken European competitiveness

Persistently high energy prices are restricting the competitiveness of European industry, according to the Draghi report, which noted that “even though energy prices have fallen considerably from their peaks, EU companies still face electricity prices that are 2-3 times those in the US”. A study by Goldman Sachs Research found that the higher cost of electricity is a key driver of Europe’s lower productivity relative to the US economy. 

One of the key factors in higher electricity prices has been Europe’s reliance on gas. An IMF working paper found that: “the recent spike in wholesale electricity prices in Europe has broadly been driven by the cost of production at natural-gas power plants.” In Germany at the time of Russia’s invasion of Ukraine in 2022, “electricity prices were extremely volatile and closely connected to gas price trends“. The rise in natural gas prices contributed to widespread high wholesale electricity prices in Q2 2022 when “the highest price was €500/ MWh and the average was €186.98/ MWh“. The high electricity prices hurt some key German industries such as the automotive sector. A survey of automotive companies at the time by lobby group VDA found that 10% had production restrictions and 85% considered Germany an “internationally uncompetitive location” in terms of energy prices and supply.

The impact of gas on electricity prices was felt throughout Europe – with households and businesses1Page 46. facing high energy costs, and vulnerable, low-income households being disproportionately impacted. The Draghi report found that “at the peak of the energy crisis, natural gas was the pricesetter 63% of the time, despite making up only 20% share of the EU’s electricity mix.”

Figure 3: Price-setting technology per member state and their generation mix
Source: The future of European competitiveness: Report by Mario Draghi, 2024.

Reducing Europe’s exposure to volatile LNG will enhance its competitiveness

Researchers and analysts predict that EU demand for imported LNG will potentially reduce from 2023, as climate and energy policies such as increasing energy efficiency and expanding renewable energy sources are expected to reduce gas demand by at least 40% through 2030. The EU may be better insulated against LNG volatility in the future due to this decreased demand. However, electricity prices are frequently set by the price of gas – even if used in smaller amounts. This represents an ongoing threat to stable and affordable electricity prices, and therefore the region’s competitiveness. This interlinkage is mainly driven by the design of the EU’s electricity market. “Market rules in the power sector do not fully de-couple the price of renewable and nuclear energy from higher and more volatile fossil fuel prices, preventing end users from capturing the full benefits of clean energy in their bills,” according to the Draghi report. 

The EU plans to increase its use of domestic renewable energy in order to achieve energy independence, reduce energy costs and strengthen the bloc’s competitiveness. The shift to an electrified, renewables-based and efficient energy system would reduce the “overall exposure to fossil fuel price volatility”, according to the IEA. The transition could have a “net positive effect on energy security,” provided that investments are aligned to “address new challenges posed by the increased reliance on renewables,” the IMF said. Electrification based on low cost renewable energy could also increase European competitiveness by narrowing the gap between energy costs paid by European businesses and their competitors in different regions, according to Goldman Sachs Research. 

The Draghi report finds that: “Decarbonisation could be an opportunity for Europe, both to take the lead in new clean technologies and circularity solutions, and to shift power generation towards secure, low-cost clean energy sources in which the EU has generous natural endowments.” 

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Do we need deep sea mining for the energy transition?

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Key points:

  • Deep sea mining companies and some states propose boosting supplies of minerals used to produce clean energy technologies such as batteries, solar panels and wind turbines. 
  • The International Seabed Authority aims to adopt rules on deep sea mining by 2025. 
  • On-land mining for these minerals has been taking place for years and there is no physical scarcity. However, as demand rises this decade, supply crunches are likely due to the sector’s lack of investment and recycling.
  • Given that the steepest growth in mineral demand will likely occur before 2035, deep sea mining is unlikely to ease short-term supply crunches as the sector does not yet have the technology to extract or process minerals commercially.
  • Copper, cobalt, and manganese are the minerals most available in the deep sea. However, some studies find these are not the minerals most threatened by supply crunches.
  • Solutions to short and medium-term bottlenecks for the on-land mining sector include investment, policy incentives and regulations for recycling, supply diversification, and research and development in sustainable mining.

What is deep sea mining and how would it work?

Deep sea mining refers to a process of collecting minerals from a depth of over 200 metres underwater. Three types of deep sea mining are currently being tested: 

The third option is the most popular one for mining companies as they contain high levels of minerals.1Therefore, the present analysis will focus on those metals of the polymetallic nodules: manganese, nickel, copper and cobalt. Commercialisation would require overcoming technical challenges. It involves collecting the nodules from the sea floor with a type of underwater bulldozer and ploughing the top layers of sediment, with less invasive options still in development. The nodules are pumped up to a vessel at the surface and attached sediments and organic materials are then removed and pumped back into the water. Further processing is needed to use the metals from the nodules.

Fig 1: Composition of metals in polymetallic nodules with economic interest
Source: Polymetallic Nodules, International Seabed Authority.

Where are the deep sea minerals?

Most of the most attractive mineral deposits are on the ocean floor in international waters. The Clarion-Clipperton Zone, in the middle of the Pacific Ocean, is an area of particular interest to mining companies. The zone is divided into 16 exploration areas controlled by different countries and the International Seabed Authority (ISA). According to an ecologist at the Scripps Institution of Oceanography, “the largest coal mine in Germany is less than half the size of the area that would be mined for polymetallic nodules in the Clarion-Clipperton Zone in one year by one contractor”.

Individual countries can also mine the seabed in their own waters. Japan expects to begin large-scale extraction from its deep seabed in 2025. Norway’s parliament voted in favour of allowing mining in its national waters. In 2019, a deep sea mining project failed in Papua New Guinea, with the company behind the project, Nautilus, becoming insolvent and the government losing USD 101 million in investment.

Who regulates deep sea mining?

The International Seabed Authority (ISA), a United Nations-appointed body, regulates international waters. As of today, no official commercial mining operations have taken place in international waters. In 2023, the ISA failed to adopt a mining code that would regulate deep sea mining. It has set an indicative 2025 timeline to decide if and how countries may mine in international waters. 

Due to a two-year legal loophole, ISA can consider and provisionally approve mineral exploitation contracts submitted by mining companies, irrespective of whether rules are adopted and implemented. Canada-based The Metals Company announced it would submit a mining application before the end of 2024. However, ISA’s new secretary-general Leticia Carvalho stated that rules to regulate deep-sea mining will take time and that mining applications should not be approved until those rules are defined. “ISA has to find ways to compromise and reach consensus. Scientific evidence, broader participation and inclusive knowledge are the key basis of consensual decisions,” she said.

Is deep sea mining already happening?

The ISA has issued 31 exploration permits since 2001 to national agencies and private companies covering about one million square kilometres of exploration areas – roughly equivalent to the size of Egypt. However, the permits do not allow companies to undertake for-profit activities. An international law expert said that even if the ISA finalises the rules, it “does not have submersibles or ocean-going vessels at its disposal” to oversee activities properly and would need more financial resources to enforce regulations. In 2024, 32 countries oppose fast-tracking deep sea mining licences. This number has increased sharply over the past three years. Countries including China, Nauru, Norway, Russia and India remain in favour of a regulation that allows deep sea mining soon.

Environmental risks

Environmental organisations and scientists have warned that the deep sea is largely unknown, and comprehensive studies are needed to understand what role deep sea ecosystems play in carbon sequestration, global temperature cycles, biodiversity and food provision for animals and humans. Little evidence is available on the damages that such mining operations would have through wastewater release or noise pollution compared to on-land mining. One study found that after 77 years, the seabed had not recovered from a shipwreck sliding over the sea floor. It is also unclear who would be liable for environmental damages, and NGOs argue that monitoring companies’ activities would be highly challenging due to the remoteness of the offshore mining areas. 

A study published in 2024 found that polymetallic nodules produce oxygen without photosynthesis. The study raised questions about how oxygen is produced and what role it plays in the deep-sea ecosystem, increasing the need for a cautionary approach to deep sea mining.

Why are deep sea minerals such a hot topic?

Technologies such as wind turbines, solar panels, batteries, electric vehicles (EVs) and electricity networks play a crucial role in the global transition to clean energy. The production of these technologies requires different types and quantities of critical minerals. Currently, 40% of cobalt is used for manufacturing clean energy technologies.

Most minerals are used for a wide range of purposes. For instance, only 16% of mined nickel and 10% of neodymium are used for clean energy technologies. Rare earth elements are used in the production of military equipment and weapons, as well as smartphones, computer hard disks, LED lights, flat screen televisions and air transport. Cobalt and nickel are also used to manufacture consumer electronics.

Demand varies significantly depending on the mineral, and innovations such as cobalt-free batteries have reduced demand for some minerals. Table 1 shows the minerals found in polymetallic nodules which could be used to manufacture different clean energy technologies. Many other minerals are important for clean energy technologies but are not found in the deep sea. Mining companies and other business voices advocate that deep sea mining is crucial to meet the demand for clean energy technologies. 

Table 1: Minerals required for energy transition technology present in the polymetallic nodules2Nodules in the Clarion Clipperton Zone
Source: IEA, Deep-ocean polymetallic nodules as a resource for critical materials.

Do we have enough minerals for the green energy transition?

No physical scarcity

There is no physical scarcity in the earth’s crust for most critical minerals, and reserves of minerals are often geographically widespread. Demand for minerals is set to rise over the next 15 years as the transition to clean energy raises demand for solar PVs, wind turbines and batteries. According to a survey conducted by KPMG, almost 80% of executives in the metals and mining industry are confident or very confident that the industry will be able to meet the rising demand.

What causes supply crunches?

Short to medium-term supply shortages of minerals can occur due to geopolitical risks, such as:

  • External shocks (e.g. natural disasters, pandemics, wars)
  • Resource nationalism (e.g. tax disputes)
  • Export restrictions (e.g. export taxes)
  • Political instability and social unrest (e.g. corruption, labour strikes)
  • Market manipulation (e.g. market cornering, insider trading)

In the long term, a lack of investment in upstream activities can cause undersupply. Undersupply can also originate in “long lead times in opening new mines and processing of manufacturing plants, uncertainty regarding future demand, price volatility, a lack of downstream transparency, and local opposition”, according to the Intergovernmental agency IRENA. Policymakers can also impact supply by providing signals about a country’s energy transition. “If companies do not have confidence in countries’ energy and climate policies, they are likely to make investment decisions based on much more conservative expectations,” according to the IEA. 

Many minerals are currently extracted and processed in China. For instance, the country extracts 82% of global graphite, 62% of rare earths and processes more than 50% of the world’s processed manganese. According to the IEA, over the past decades, countries have “prioritised short-term profits over the importance of diversified supply chains”. Therefore, developing new refining and processing projects is challenging outside of China. Developing clean energy technologies today depends on trade relationships with China, which is considered risky by many countries, particularly by Europe and the US. The US offers production tax credits in the Inflation Reduction Act to diversify mineral processing. Similarly, the EU recently set domestic targets for extraction (10%), processing (40%), and recycling (15%).

Fig 2: IEA energy transition mineral price index, January 2020-April 2024
Source: IEA, IEA energy transition mineral price index, January 2020-April 2024, Licence: CC BY 4.0. Includes a basket price for copper, major battery metals and rare earth elements.
How dangerous are supply crunches?

Mineral supply crunches are expected to have less severe consequences than shortages of fossil fuels, and events similar to the 1970s oil crisis are improbable in a net-zero world. A lack of fossil fuels in a fossil fuel economy affects all consumers using fuels such as gas, gasoline and fossil-powered electricity. A shortage of minerals in a net zero scenario only affects the short-term production of technology such as solar panels, batteries and wind turbines or the construction of new energy assets. 

Negative consequences include higher prices for minerals, as was the case in 2022 and 2023 (see Fig. 2). Subsequently, the price for clean energy technology, which depends on the scarce mineral, can increase equally. If fossil fuels are used to compensate for such bottlenecks, the pace of the energy transition could slow down.

Recycling, investments that accelerate innovation, or high prices can reduce demand for minerals. For instance, the IEA had to reduce its projections for cobalt demand due to the development of lithium iron phosphate and high-nickel chemistries, which do not require cobalt. Strong demand can also drive production. For instance, global lithium production increased by 21% in 2022 compared to 2021 amid strong demand for lithium-ion batteries and increased prices of lithium.3Excludes US production.

Which minerals could suffer from bottlenecks?

Organisations and countries have different assessments of the potential criticality or urgency of supplying certain minerals. Those differences are due to trade relationships, clean energy needs and targets, and domestic supply. Which minerals will suffer from bottlenecks also depends on the scenarios and underlying assumptions. 

Rare earths, graphite and lithium are likely to experience short-term supply crunches. However, polymetallic nodules only contain traces of those minerals. Of the deep sea minerals, most countries and regions name cobalt and nickel as the most important minerals needed for clean energy technology. According to the IEA, copper is the deep sea mineral with the greatest gap between current production and output in 2035. Anticipated mine supply from announced projects will meet 70% of copper demand by 2035. Nickel and cobalt supply could be balanced if prospective projects are considered along with confirmed projects. The European Academies’ Science Advisory Council, an association of science academies, highlights that “three of the main metals targeted in deep-sea mining (manganese, copper, and nickel) are considered to be of low supply risk while cobalt is moderate.”

When are those minerals most needed?

The IEA predicts an increased need for minerals in all its climate scenarios. When considering the deep sea minerals needed for clean energy technology, the projected demand increases by most in the present decade (see Figure 3). The five-year increase ranges from 191% to 442% between 2020 and 2025. After 2030, the rise in demand is much smaller.

Fig 3: Projected average demand increase for deep sea minerals used in clean energy technology
Source: IEA Critical Minerals Demand Datasets of 2021, 2023 and 2024.4Assumptions underpinning scenarios are often based on current conditions and then extrapolated to future demand.

This drop in demand is due to the fact that compared to fossil fuels, clean energy requires significantly less minerals. As explained in the IEA’s World Energy Outlook, in a net-zero world in 2050, every unit of energy would require two-thirds less materials, fossil fuels and minerals combined compared to 2023.

Understanding IEA Scenarios

Stated Policies Scenario (STEPS):

“A scenario which reflects current policy settings based on a sector-by-sector and country by country assessment of the specific policies that are in place, as well as those that have been announced by governments around the world.” STEPS does not include Nationally Determined Contributions (NDCs) – country action plans to cut emissions and adapt to climate impacts.

Announced Policies Scenario (APS):

“A scenario which assumes that all climate commitments made by governments around the world, including NDCs and longer-term net zero targets, as well as targets for access to electricity and clean cooking, will be met in full and on time.”

Net Zero Scenario (NZE):

“A scenario which sets out a pathway for the global energy sector to achieve net zero CO2 emissions by 2050. It doesn’t rely on emissions reductions from outside the energy sector to achieve its goals. Universal access to electricity and clean cooking are achieved by 2030.” 

Source: IEA: Global Energy and Climate Model, 2023.

Does deep sea mining make sense for the green transition?

The steepest growth in demand for minerals will take place in the present decade, according to the IEA’s predictions. After 2030, growth in demand for key minerals will continue at a lower rate in both ambitious and less ambitious scenarios. If bottlenecks arise, they will more likely occur during this decade and at latest until 2035 due to the steep growth in demand.

Since private or public companies have not yet extracted minerals from the deep sea on a large scale, and the technology to do so is not readily available on a large scale, it seems unlikely that this solution will ease potential bottlenecks which are already happening. Until now, deep sea mining is mainly being explored by start-up companies, some of which have lost important investments due to reputational risks. Most deep-sea mining companies say they won’t be able to start commercial operations until towards the end of the decade, provided they receive clear regulatory signals. The Metals Company plans to start small-scale commercial mining in 2026. This is unlikely to happen until at least 2025, when the ISA is supposed to set rules on mining in international waters. Given the new ISA’s secretary-general stance on the importance of regulation, the deadline is likely to be postponed further. Companies will likely only be ready to mine after the demand for critical minerals has peaked. Moreover, technology to process deep sea minerals is still being developed and would have to mature before 2030 to ease the bottlenecks.

It is also unclear if deep sea mining is cost-competitive compared to on-land mining. A report by think tank Planet Tracker shows that seafloor restoration would cost USD 5.3 million-5.7 million per square kilometre – which is more than the revenue a typical company would make from deep sea mining.

What are the alternatives to deep sea mining?

More sustainable land mining practices, battery recycling, substitution and demand reduction measures could reduce the likelihood of mineral supply crunches. This is especially important since minerals are used for a wide range of purposes outside of producing net zero technology. One study found that “without sufficient and adequate resource saving measures it will be difficult or impossible for a substantial part of the future world population to attain the service level of mineral resources prevailing in developed countries at this moment.”

Sustainable land mining 

Declining ore grades, long permit times and waste characterise the mining sector on land. A just transition needs more investment in research and development and commitments to sustainable mining practices.5Initiatives include Towards Sustainable Mining (TSM) and the Initiative for Responsible Mining Assurance (IRMA). Mining in line with a just transition is also highly dependent on meaningful stakeholder dialogue, increased local ownership and sanctioning reporting gaps by mining companies.

Diversifying supply

There is an urgent need to diversify the supply of minerals. Despite Western countries highlighting the threats of putting all their eggs in one basket, the concentration of processing plants has increased in the last years for nickel and cobalt. Currently, around 70% of critical mineral reserves are located in Africa, where they are extracted and shipped in their crude form to China, where the refining, processing and manufacturing take place. From there, they are shipped to the US and EU.

Many Global South countries could be vital in reshaping the mining and processing landscape. Indonesia is a good example of how an export ban on raw materials has successfully pushed for investments in the local manufacturing sector. Hopes are high for India, too, which has announced plans to auction around 20 blocks of critical minerals.

Recycling

Minerals and metals can be reused and recycled continuously if the right infrastructure and technologies are available – a significant advantage compared to fossil fuel infrastructure. The US has allocated a budget of about USD 6.33 billion for battery development, including recycling. The EU has set domestic targets for battery recycling in the EU Raw Materials Act of 15%. Similar and more ambitious measures such as extended producer responsibility, are necessary to ease medium to long-term bottlenecks.6Extended Producer Responsibility is a concept by which the producer has to take care of the product even after it isn’t used anymore. For instance, car producers would have to take back and recycle batteries of cars after their end of life.

Substitution

Sustained high prices for a material, pressures to reduce costs, geopolitical issues or environmental and social concerns can accelerate the search for alternative materials. “Perceptions that many metals are critical and scarce for renewable energy transitions appear exaggerated if a dynamic view on technological development is adopted,” one study found. Current lithium-ion batteries require cobalt or nickel, but new alternatives such as Svolt’s cobalt-free lithium-ion car battery or Tesla’s lithium-ion phosphate batteries reduce demand for those minerals. An IEA report showed that between 2005 and 2018, patenting for batteries and similar storage technologies grew at an average rate of 14% worldwide every year, four times faster than the average for all technology.

Demand reduction

In a world of scarcity and environmental fragility, reducing demand is necessary and increasingly plays a role in projections. Restricted lithium availability raises questions about the sustainable use of battery electric vehicles. Globally, 40% of battery electric vehicles are SUVs, and only roughly 20% are small-sized cars. In the US, SUVs account for 60%, and less than 10% are small cars. Similarly, 37% of households in the US possess two vehicles. These trends push up the size of the battery, the requirement of minerals and the prices, excluding many households from participating in sustainable practices. Nevertheless, if all announced manufacturing plans for EV batteries are implemented globally, there would be enough capacity to fulfil expected demand requirements in 2030 in the IEA’s NZE Scenario for EVs. 

Note: This is an updated version of a briefing originally published by Zero Carbon Analytics in November 2023.

  • 1
    Therefore, the present analysis will focus on those metals of the polymetallic nodules: manganese, nickel, copper and cobalt.
  • 2
    Nodules in the Clarion Clipperton Zone
  • 3
    Excludes US production.
  • 4
    Assumptions underpinning scenarios are often based on current conditions and then extrapolated to future demand.
  • 5
  • 6
    Extended Producer Responsibility is a concept by which the producer has to take care of the product even after it isn’t used anymore. For instance, car producers would have to take back and recycle batteries of cars after their end of life.

Principles for just and equitable oil and gas phase out

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This paper was produced in collaboration with Strategic Perspectives.It intends to contribute to the next steps of the global debate of how to transition away from fossil fuels as agreed at COP28 by proposing scenarios, recommendations and reflections on targets for phasing out the extraction of oil and gas.

Upcoming meetings of the G7 and G20 can discuss what a fossil fuel phase out in “a just, orderly and equitable manner” means, building momentum for countries to include fossil fuel phase out commitments in their updated climate targets, ahead of the climate summit in Brazil in 2025.

Key points:

  • Feasible 1.5°C scenarios require both oil and gas production to decline by 65% by 2050 compared to 2020 levels, but current projected production is set to be 260% and 210%, respectively, above what would be required to keep warming below this.
  • Orderly transition plans for the sector are long overdue, but are the natural next step after the COP28 consensus to transition away from fossil fuels in Dubai.
  • Countries and companies aiming to fully use their oil and gas resources chase diminishing returns and risk USD 1.4 trillion in stranded assets.
  • By delaying a managed decline of fossil fuel production, countries are increasing the costs of achieving a just and equitable transition.
  • Instead of competing for the perceived benefits of oil and gas extraction, countries can collaborate to agree on principles for a just and equitable fossil fuel phase out that reduces the economic and social impacts of any delays.
  • Multilateral forums such as the G7 and G20 are best placed to provide the vision and leadership on how to phase out oil and gas production. COP30 can become a significant milestone to show what a just and equitable transition looks like at a global level.
  • Most approaches to achieve a fossil fuel phase out share significant commonalities around the principles of justice and alignment with the Paris climate agreement and climate science.
  • With USD 2.4 trillion green transition investment required annually through 2030 in emerging and developing economies (other than China), climate finance is the key enabler of phase out planning.
  • All countries should halt the opening of new oil and gas fields while a coordinated global phase out of fossil fuels is negotiated.

The scientific urgency to act

The scientific evidence is unequivocal, the next years are crucial to keep the 1.5°C temperature goal enshrined in the Paris Agreement within reach. The UN’s Intergovernmental Panel on Climate Change (IPCC) has stated clearly that global greenhouse gas emissions need to peak before 2025 and be reduced by 43% by 2030.

Fossil fuels are the major contributors to global warming, a fact finally recognised by all countries at COP28, which agreed to “Transitioning away from fossil fuels in energy systems, in a just, orderly and equitable manner, accelerating action in this critical decade, so as to achieve net zero by 2050 in keeping with the science”.1UNFCCC “Decision CMA.5, Outcome of the First Global Stocktake.” UNFCCC, 2023.

There is a clear urgency to set transition pathways to drastically reduce fossil fuels: Projected cumulative future CO2 emissions from existing fossil fuel infrastructure would already exceed the remaining 1.5°C carbon budget, unless they are abated.2IPPC, “Climate Change 2023: Synthesis Report: Summary for Policymakers.” IPCC, 2023.

Business as usual is thus not an option. To stay within a 1.5°C carbon budget, 40% of ‘developed’ reserves of coal, oil and gas would need to be left unextracted. Developed oil and gas fields alone account for more than four fifths of the 1.5°C budget.3Trout, K. et al. “Existing fossil fuel extraction would warm the world beyond 1.5°C.” Environmental Research Letters, 17, no. 6 (2022).

Oil and gas production should decline by 15% and 30%, respectively, by 2030 and 65% by 2050, compared to 2020 levels, according to analysis of feasible 1.5°C scenarios by the International Institute for Sustainable Development.4Bois von Kursk et al, “Navigating energy transitions: Mapping the road to 1.5°C.” IISD, 2022.

Fig. 1: Oil and gas production from new and existing fields vs a 1.5°C aligned pathway

Existing fossil fuel extraction projects are already sufficient to meet demand in scenarios where warming is limited to 1.5°C.5Green F.et al. “No new fossil fuel projects: The norm we need”, Science, May 2024. Any new oil and gas extraction projects would exceed this, putting the temperature goal of the Paris climate agreement at risk.

Unless meaningful policy measures and finance decisions are taken, governments could produce around 110% more fossil fuels in 2030 than would be consistent with limiting warming to 1.5°C.6SEI, Climate Analytics, E3G, IISD, and UNEP. “The Production Gap: Phasing down or phasing up? Top fossil fuel producers plan even more extraction despite climate promises.” UNEP, 2023. This makes it evident that current trajectories for oil and gas production are completely incompatible with the goals of the Paris Agreement. Instead, all countries can be encouraged to set out their plans to transition away from fossil fuels in their next round of updated Nationally Determined Contributions (NDCs), due in 2025.

Without action, oil and gas production is forecast to be 29% and 82% higher, respectively, than the median 1.5°C pathway in 2030. By 2050, the respective percentages will grow to 260% and 210%.

Fig. 2: Oil and gas production forecasts and scenarios

Defining just, orderly and equitable transition pathways is thus imperative. This discussion is happening at a time when extreme climate events are breaking records, making it evident to citizens and leaders that climate action is inevitable and urgent. These extreme climate events affect vulnerable communities the most and become a great obstacle in reducing inequalities.

The economics continue to be made to favour oil and gas production and consumption. Global fossil fuel subsidies amounted to USD 1.6 trillion in 2022, according to the OECD and IISD.7OECD & IISD “Fossil Fuel Subsidy Tracker.” Accessed June 2024. It is high time to implement the agreement at COP28 to “Phasing out inefficient fossil fuel subsidies that do not address energy poverty or just transitions, as soon as possible”.8UNFCCC “Decision CMA.5, Outcome of the First Global Stocktake.” UNFCCC, 2023.

A transition away from fossil fuels is still hindered by countries each trying to benefit from their resources the longest rather than working towards a collectively managed transition. But this approach is misguided as the economic benefits of fossil fuel production will be limited and diminishing as the energy transition accelerates. If all countries seek to maximise oil and gas production in the face of falling demand, the economic and social costs of the transition will increase.

Oil firms and investors also face significant risks from the energy transition, with the total value of stranded assets under a scenario where warming is limited to 2°C estimated at USD 1.4 trillion.9Semieniuk, G., Holden, P.B., Mercure, JF. et al. “Stranded fossil-fuel assets translate to major losses for investors in advanced economies.” Nat. Clim. Chang. 12, 532–538 (2022).

Instead of competing for the perceived benefits of oil and gas extraction, countries can collaborate to agree on principles for a just and equitable fossil fuel phase out that reduces the economic and social impacts of any delays. Without coordination and effective policies, these climate impacts will end up being disproportionately borne by the poorest, most marginalised and least able to transition. Some initiatives such as the Beyond Oil and Gas Alliance and the Fossil Fuel Non-Proliferation Treaty have proposed approaches to this end.

Multilateral forums such as the G7 and G20 can discuss what a fossil fuel phase out in “a just, orderly and equitable manner” means, building momentum for countries to include fossil fuel phase out commitments in their updated climate targets, ahead of the climate summit in Brazil in 2025. Following the scientific evidence would require immediately halting the opening of new oil and gas fields as a first step.

Methodologies to define a just and equitable transition

A variety of approaches have been identified to achieve a fossil fuel phase out, many of which share significant commonalities around the principles of justice, fairness and alignment with the Paris climate agreement and climate science.10While broad agreement on the importance of an equitable phase out between countries, different methodologies have been proposed for assessing the responsibilities and capabilities of individual countries. Proposed criteria include each country’s development according to the Human Development Index, accrued benefit from past fossil fuels production, historical cumulative per-capita production, GDP per capita, and share of GDP per capita derived from non-oil and gas sectors. See Calverley, C. & Anderson K. “Phaseout Pathways for Fossil Fuel Production Within Paris-compliant Carbon Budgets”, University of Manchester, 2022; Civil Society Equity Review, “An Equitable Phase Out of Fossil Fuel Extraction”, Civil Society Equity Review, 2023; Muttitt, G. and Kartha, S. “Equity, climate justice and fossil fuel extraction: principles for a managed phase out”, Climate Policy, vol 20 (2020); Pye, S. et al “An equitable redistribution of unburnable carbon”, Nature Communications, volume 11 (2020). The majority cite one of the foundational principles of the UNFCCC process – that of common but differentiated responsibilities and respective capabilities.

As an example, assessing countries by their ability to finance the transition – measured in GDP per capita and the extent to which government income comes from oil – shows that countries like the UK, US and Canada would face relatively low challenges to transition (according to these criteria) and have significant financial capacity for it. Whereas countries like Iraq, Congo and Equatorial Guinea face significant challenges and have little financial resources to mitigate the impacts of the transition (see Figure 3).

Fig. 3: Transition capacity of selected countries by GDP per capita and oil share of government revenue

A recent study, endorsed by over 200 organisations including Climate Action Network International and the International Trade Union Congress produced a comprehensive approach to assess which countries are least socially dependent on fossil fuel extraction. The study – the Civil Society Equity Review11Civil Society Equity Review, “An Equitable Phase Out of Fossil Fuel Extraction.” Civil Society Equity Review, 2023. – identifies three criteria:

  1. the share of primary energy consumption that is met from domestically extracted fossil fuels,
  2. the share of government revenues that comes from fossil fuel extraction, and
  3. the share of the workforce employed in fossil fuel extraction.

Underpinning this analysis is the principle that the pace of the phase out should be driven by reducing the social costs and maximising the social benefits of transition, rather than purely by a country’s stage of development or historic responsibility.

The two tables below highlight options of what just, orderly and equitable transition pathways could look like. They can form the basis for a discussion in multilateral forums such as the G7 and G20 and UNFCCC on what criteria should be used to assess a just phase out of fossil fuel production.


Table 1: Equitable oil and gas phase out assessed on country’s non-oil and gas GDP per capita
Table 2: Equitable oil and gas phase out using the Civil Society Equity review framework (selected countries)

The role of financing in the transition

As well as defining what just and equitable approaches mean, agreement on the financial support to get there would be critical to a successful implementation. Multilateral conversations can therefore focus on developing principles and pathways that are just and equitable, matched by financial support for those countries that need it. This would reflect countries’ capacities and constraints, the necessity to provide finance, as well as predictability for workers and communities.

A range of proposals are on the table on climate finance, among them the necessity for Developed Countries (defined as Annex I countries under the UNFCCC) to provide support and the suggestion that countries with the greatest ability to pay (defined as those with per capita capacity above the global average) contribute. More recently, there have been calls for the fossil fuel industry to pay for climate finance, as proposed by the EU, and the idea of a fossil fuel levy by incoming COP29 presidency Azerbaijan.12John Ainger, Jennifer A Dlouhy and Akshat Rathi, (2024, May 30) “COP29 Host Azerbaijan Working on Proposal to Levy Fossil Fuels.” Bloomberg News.

A broader reform of financial systems that includes the international financial institutions is also under way – and will be critical – but progress has been too slow given the resources needed. The economic and financial opportunities resulting from a transition to climate neutrality can only be unlocked in low-income countries with access to sufficient finance and if debt no longer stands in the way of sustainable development.

The scale of existing climate finance is estimated at USD 1.3 trillion annually, according to the Climate Policy Initiative.13Buchner, B. et al, “Global Landscape of Climate Finance 2023.” Climate Policy Initiative, 2023. This is still less than the USD 1.5 trillion paid in direct fossil fuel subsidies among 82 of the largest economies in 2022 (OECD).14OECD, “Cost of Support Measures for Fossil Fuels Almost Doubled in 2022 in Response to Soaring Energy Prices.” OECD, 2023. It is also just over half of the USD 2.4 trillion green transition investment required annually through 2030 in emerging and developing countries (other than China), according to the UN’s high level expert group on climate finance.15Independent High-Level Expert Group on Climate Finance, “Finance for climate action: Scaling up investment for climate and development.” LSE, 2022.

The G20 and G7 can play important roles in the process of creating financial mechanisms to allow low-income and vulnerable countries to decarbonise their energy systems and adapt to the impacts of an increasingly extreme climate. COP29 should result in a new collective quantified goal (NCQG) on climate finance that addresses mitigation, adaptation, and loss and damage.16UNFCCC, “From Billions to Trillions: Setting a New Goal on Climate Finance.” UNFCCC, 2024.

Timelines for planning the energy transition

Managing local needs and collective action requires a combined bottom-up and top-down approach to define a just, orderly and equitable transition away from fossil fuels. The run-up to COP30 is the time to make progress on setting out pathways to transition away from fossil fuels. The G7 and G20 summits in June and November 2024, respectively, offer key touchpoints to lay the foundations for global action on the transition away from fossil fuels. These summits offer the opportunity for major economies to signal their intent to phase out oil and gas production, and begin building international consensus around how to ensure that it is just and equitable.

Agreements at these summits could lay the groundwork for a bottom-up approach, where countries commit to end the expansion of oil and gas extraction, set fossil fuel phase out dates as well as demand reduction goals for 2035 in their next NDCs, to be submitted 9-12 months ahead of COP30.

The top-down approach can be guidance on what “just, orderly and equitable” means internationally, building on the progress made through countries’ individual commitments. It is vital that new, fossil-free economic models are established globally and alternative income sources found for fossil-dependent economies. This approach should also aim to address any shortcomings in bottom-up targets and ensure these are aligned with what is required to limit warming to 1.5°C and achieve a just transition.

The G7 and G20 have an opportunity to give an impetus to this debate, not least as the high-income countries among their members have a historic responsibility to lead on emissions reduction and provide financial support. Their leadership could pave the way for a broader debate and action in the UNFCCC context.

Leadership needed from the G7 and G20

Widespread support for immediate government action to address climate change exists in most countries, with 71% of people in G20 countries agreeing that action is necessary. Concerns about escalating weather extremes, care for future generations, and dissatisfaction with government inaction are significant elements of messages that drive support for climate action. Research indicates majority support for policies like ending fracking (61%) and phasing out fossil fuels (56%) across G20 countries.17Potential Energy “Later is Too Late.” Potential Energy, 2023.

With sufficient global leadership, societal support can be built on the imperative of phasing out fossil fuels to avert current and future climate impacts to protect people and nature. Progressing the debate will be facilitated by global leadership on:

  • Affirming the scientific finding that any new oil and gas projects are incompatible with and threatening the 1.5°C warming goal.
  • Highlighting that both supply-side and demand-side policies need to contribute to a transition away from fossil fuel use, in line with science.
  • Recognising the IEA Net Zero Emissions scenario findings that a number of higher-cost projects would need to be retired before the end of their commercial life due to falling demand in the 2030s.18IEA “Net Zero Roadmap: A Global Pathway to Keep the 1.5°C Goal in Reach.” IEA, 2023.
  • Acknowledging that the UNFCCC must play a vital role in agreeing on terms for a just, orderly and equitable transition away from fossil fuels, in line with climate science, based on principles of common but differentiated responsibilities and respective capabilities; supporting just transitions for workforce; reducing extraction fastest where social costs of transition are least and ensuring respect for human rights and biodiversity.

Furthermore, in terms of practical steps, the G7 and G20 can play a crucial leadership role by committing to:

  • Ending the licensing of new coal, gas and oil projects,
  • Setting clear end dates for coal, gas and oil use per sector,
  • Committing to phasing out coal by 2030 (G7) or 2035 (developing countries) and setting out how much demand and supply will be reduced for coal, gas and oil by 2035 in their upcoming NDCs,
  • Supporting other countries on their just and orderly transition away from fossil fuels,
  • Phasing out fossil fuel subsidies as soon as possible, as agreed at COP28,
  • Showing leadership as the G7 on the overall finance reform to accelerate a just energy transition in low-income countries, especially through access to renewable energy,
  • Using the G20 to set out concrete steps on the financial reforms and financing mechanisms required to share the costs of the transition fairly, committing to scaling up finance as a matter of urgency with tangible outcomes, including through innovative sources of finance such as a tax on fossil fuel companies’ revenues.

Developing Africa’s mineral resources: What needs to happen

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Key points:

  • Africa possesses a significant share of global mineral reserves – including 92% of platinum, 56% of cobalt, 54% of manganese and 36% of chromium. These minerals are used to produce green technologies such as electric vehicle (EV) batteries and wind turbines.
  • Currently, minerals are largely exported from Africa in their raw states to be refined abroad. Increasing processing capacity within Africa to export intermediate goods or final products, known as value addition, could help drive economic development on the continent by creating jobs and resulting in higher tax and income revenues.
  • African countries have huge energy, housing and transport needs and minerals could play a role in the sustainable development of these sectors. Minerals also present an opportunity for Africa to be a frontrunner in the global transition to renewable energy and to shift its position in global value chains.
  • Several African countries have already adopted policies aimed at developing their mineral value chains, such as export restrictions on raw minerals. Regional initiatives have also been launched to try and increase the benefits of mining for African communities.
  • To develop their mineral sectors, African countries need to attract investment, improve geological mapping and expand their skilled workforces. They also need to address challenges in their mining sectors such as infrastructure shortcomings and environmental and human rights issues.

Africa’s mineral reserves

Africa hosts a significant share of global reserves and production of raw minerals. The continent has more than 50% of global reserves and production of cobalt and manganese, and more than 20% of aluminium and copper. For the 15 most mineral-rich countries in sub-Saharan Africa, mining accounts for 8% of government revenue. Revenues from copper and other battery metals extracted in Africa reached USD 20 billion in 2020 – about 13% of the global market. However, African minerals are currently largely exported in their raw states and refined abroad. China dominates the market, accounting for 85% of global processing capacity and 60% of worldwide production for critical minerals. Meanwhile, the Democratic Republic of Congo (DRC) refines about 7% of all copper products produced locally, and Zambia refines 1.3%.

Since minerals such as copper and cobalt are key to manufacturing renewable energy technologies, rising demand for these minerals presents an opportunity for Africa to play a key role in the global transition to renewable energy, and to change its position in global value chains. Many African countries currently operate in the upstream segment, extracting minerals and exporting raw materials without substantial value addition (Box 1). This perpetuates the continent’s position at the lower rungs of global value chains, constraining economic benefits and its ability to negotiate favourable trade terms. By engaging in processes that add value to mineral resources and increasing processing capacity within Africa, countries could export intermediate goods or final products and shift their positions in value chains to the midstream or downstream segments. This could create jobs in the processing sector as well as result in higher tax revenues and increased income from exports. According to McKinsey, Africa could generate between USD 200 million and USD 2 billion of additional annual revenue by 2030 and create up to 3.8 million jobs by building a competitive, low-carbon manufacturing sector. Additionally, minerals could play a role in meeting African citizens’ huge housing and transport needs by driving the sustainable development of these sectors.

Box 1: Value chain for green minerals

A value chain is a series of activities that add value at each stage of producing and delivering a product to the market. The value chain for minerals consists of five stages:

  1. Geological mapping and exploration to identify and assess potential locations of minerals.
  2. Mineral extraction to obtain the minerals and metals.
  3. Intermediate processing to refine and prepare them for further use.
  4. Advanced manufacturing where the refined minerals are used in the production of advanced materials or components, such as electronics, batteries or renewable energy technologies.
  5. Recycling of minerals from end-of-life products or waste materials.

Fig. 1: The value chain for green minerals
Source: Government of Canada, The Canadian Critical Minerals Strategy, 2022.

Which minerals are important for Africa?

The factors that make a mineral important, or critical, change over time and vary by country. These can include the availability of a mineral within a country, how concentrated it is in the ground, the relationship of the country to trade partners who could sell it, whether it can be substituted by another mineral, as well as global economic importance and national demand drivers.

Minerals for green technologies

As the world moves away from fossil fuels, rising demand for minerals used to produce renewable energy technologies holds the potential to lift some of Africa’s poorest people out of poverty. According to the International Energy Agency (IEA), over the next two decades, renewable energy technologies could account for 40% of total demand for copper and rare earth elements, between 60-70% of total nickel and cobalt demand, and almost 90% of lithium demand.1Assuming the Paris Agreement goals are met. This is a major opportunity for Africa, which hosts 30% of the world’s green mineral reserves. Table 1 shows the minerals required for different renewable energy technologies, where they are available in Africa and the continent’s share of global reserves.

Table 1: Availability of green minerals in Africa
Sources: UNCTAD, Critical Minerals and Routes to Diversification in Africa, 2023; USGS, Mineral Commodity Summaries, 2023; UNEP, Environmental aspects of critical minerals in Africa in the clean energy transition, 2023; IRENA, Geopolitics of the Energy Transition: Critical Materials, 2023.
Box 2: China’s role in the global value chain for green minerals

China controls the manufacturing of renewable energy technologies and plays a key role in the processing of green minerals exported from the African continent.

Fig. 2: Share of processing volume by country for selected minerals
Source: IEA, Share of processing volume by country for selected minerals, 2019.

Between 2005 and 2015, Chinese investment in the African mining industry grew 25 times. China’s control over mines in Africa has also been growing, reaching almost 7% of the total value of mines in 2018 in countries like Gabon, Ghana, South Africa, Zambia and Zimbabwe. Chinese firms control almost 41% of cobalt extraction in the DRC and nearly 28% of copper in the DRC and Zambia.

Africa’s development needs

African countries have huge energy, housing and transport needs and minerals could provide the basis for developing these sectors in a sustainable way. In Africa, 120 million people do not have access to electricity, and 200 million people need modern, clean cooking solutions at home. “Africa needs to connect 90 million people annually to electricity in the next eight years and shift 130 million people from dirty cooking fuels every year” to ensure access to affordable, reliable, sustainable and modern energy for all citizens, according to the IEA.2Based on the United Nations’ sustainable development goals.

The expansion of renewables could help meet these energy needs, with demand for solar and wind power on the continent set to rise in the coming years. Fossil fuels constituted over 75% of Africa’s energy mix in 2020, with wind and solar accounting for about 3% in total. However, prices for renewable energy in Africa are nearing price parity with fossil fuels. In light of these market dynamics, by 2030, solar power could represent between 23% and 38% of the total installed capacity on the continent (Figure 3). The production of solar panels requires silicon and cobalt. Wind energy could account for between 14% and 23% of installed capacity and is set to grow by 900% based on projects announced to date. Wind turbine production requires copper, zinc, nickel, manganese and chromium, while offshore wind also requires rare earth elements. Hydroenergy accounts for 25% of current installed renewable capacity and requires platinum and zirconium.

An almost complete shift to renewable energy is feasible for the African continent by 2050 but would require increasing annual investments to between USD 40 billion-80 billion until 2030 and USD 80 billion-120 billion from 2030 to 2050. The lower estimate roughly corresponds to the nominal GDP of Uganda and the higher to the GDP of Côte d’Ivoire. Such a transition would result in many benefits: renewables emit considerably less greenhouse gas than fossil fuels, need fewer raw materials over their lifetime and could play a vital role in expanding electricity access in Africa. A case study in Kenya, Ethiopia and Rwanda also showed that off-grid solar systems had benefits for health, IT and micro-enterprises in rural areas.

Fig. 3: Projections for the share of hydro, solar and wind energy in Africa’s total installed capacity by 2030 in three scenarios
Source: IRENA, Renewable Energy Transition in Africa, 2021.32020 is the average estimate of installed capacity used across the three scenarios.

The development of mineral value chains could also play a role in building infrastructure such as housing and transport. Although significant regional disparities exist, the average share of the urban population living in inadequate housing in Africa is almost 40%. Additionally, only 28% of the African population has convenient access to public transport. Africa is also the least motorised region in the world, accounting for only 1% of cars sold globally. Despite this, traditional fossil fuel-powered transport bears high costs: an analysis by Carbon Tracker shows that African countries currently spend USD 80 billion a year on transport fuels, equivalent to 2.5% of the continent’s GDP. Minerals such as copper which is used in the manufacturing of EVs or iron which is used in housing construction could play a role in developing these sectors.

What needs to happen?

Governments in Africa are already recognising the transformative potential of their mineral reserves by taking steps to develop the sector. Some African countries have started to restrict exports of minerals in their raw states to promote local processing, such as the DRC. Ghana has approved a policy to manage the production and extraction of lithium, which “demands that not a single volume of lithium produced in this country will be allowed to be exported in its raw state”, according to Lands and Natural Resources Minister Samuel Jinapor. However, to reap the benefits of such policies, countries will need to expand their processing capabilities to produce intermediate goods or final products of higher value.

African governments have also tried to increase the benefits of mining for local communities by introducing local content policies, for example by requiring mining companies to employ a certain level of local workers. However, miners sometimes decide to open up operations elsewhere when these requirements are too stringent or constantly changing. Pan-African cooperation could prevent a potential ‘race to the bottom’ where countries try to attract investors by offering the least stringent requirements. Table 2 shows efforts by different African countries to develop their green mineral industries.

Table 2: African countries’ actions to develop green minerals4Source: African Ministerial Conference on the Environment, Environmental aspects of critical minerals in Africa in the clean energy transition, 2023.

While the growth in demand for green minerals presents a huge opportunity for Africa, more work is needed to develop the continent’s mineral value chains. The sector needs more regional cooperation, improved geological mapping, the development of a skilled workforce and higher levels of investment.

Regional cooperation

Establishing all segments of a mineral supply chain within a single country is often not feasible due to a lack of economies of scale.5Economies of scale refer to the cost advantages that an industry can achieve by increasing the scale of production, leading to lower average costs per unit. For this reason, regional cooperation is key to achieving value addition of minerals in Africa. Some progress has been made, with The African Green Minerals Strategy, to be launched in 2024, advocating for upstream value addition, expanding technical expertise, common external tariffs and tackling Africa’s energy deficit. It builds on previous agreements such as the Africa Mining Vision, a framework established by the African Union in 2009 for member nations to harness mining for equitable growth. Areas of focus included improving the quality of geological data, improving contract negotiation capacity, improving mineral sector governance, better management of mineral wealth, tackling infrastructure constraints and elevating small-scale mining. However, the implementation of the vision was criticised for being too slow and not including civil society actors.

The Africa Continental Free Trade Agreement, signed by 54 countries, also entered into force in 2021 and aims to increase economic integration, value addition and export diversification on the continent. The deal is projected to increase exports by 29%, including in green minerals and the manufacturing sector. Ghana, Kenya, Rwanda, Tanzania, Egypt, Mauritius, Cameroon and Tunisia have already started trading under the agreement. Despite this progress, intra-Africa trade currently accounts for less than 17% of the continent’s total trade, lower than Asia at 47% and Latin America at 27%. Further collaboration between African countries could “facilitate the emergence of regional value chains, attract investments, and increase the competitiveness of African countries in the mining sector,” according to The African Ministerial Conference on the Environment.

Geological mapping

Africa’s mineral resources remain under-explored and its total exploration budget has fallen since 2012, when the continent accounted for 18% of the global exploration budget. In 2022, Africa accounted for about 10% of global exploration spending. According to the IEA, improving surveys and mapping is the first major step to attracting investors as they can reduce geological risks such as landslides that would impede mining. However, transparency concerns can arise when mining companies carry out mapping instead of the government, as well as the risk of environmental damage. Competitive bidding, which has already been introduced in the DRC, Guinea, Sierra Leone, Nigeria and Zambia, could increase transparency, and governments could establish no-go environmental zones prior to mapping exercises to limit environmental damage. Progress has already been made: Kenya suspended the issuance of mining licences to conduct large-scale mapping of the country’s mineral deposits between 2019 and 2023.

Need for investment

Investment in Africa’s mining sector has been rising since 2020, with low production costs and an expanding workforce providing an attractive environment for mining operations. However, the continent’s share of global investment in minerals fell to 8% in 2023 from 15% in 2014. According to the IEA, increased investment hinges on improved geological surveys, robust governance, improved transport infrastructure and a strong focus on minimising the environmental and social impacts of mining operations. In 2018, West Africa received the largest share of mining investment on the continent, mainly in fossil fuels and gold rather than green minerals. Southern Africa followed, drawing investments primarily in gold, platinum, nickel and cobalt. Despite having some of the largest resources, Central Africa received the least investment, largely due to political instability and conflict which restrained exploration activities.

Fig. 4: Africa’s mining investment inflows in 2018 by region
Source: PwC, Investing in Africa, 2019.
Skills development

Regions with higher levels of foreign investment tend to have larger workforces, since employment is concentrated in regions with more skilled populations and better technological capabilities. The number of mining employees in Africa has shrunk since 2014, and direct employment accounts for between 1% and 4% of the formal workforce in countries with large mining sectors. Investment in education and skills development programs is key to developing minerals value chains. Governments could require mining companies to commit to up-skilling local residents, for instance through public-private partnerships.

Challenges in Africa’s mining sector

To develop its mineral value chain, Africa must address environmental, geopolitical and trade challenges in its mining sector. Ambitious mining projects have previously failed due to high costs, inadequate infrastructure, skill deficits and governance issues. An example is the Brazilian miner Vale’s plan to extract iron ore from the Simandou mine in Guinea, which fell through amid allegations of bribery.

Limited tax revenues

While some Sub-Saharan African countries have imposed royalties and corporation taxes on the mining sector, government revenue generated from mining in many resource-rich economies across the region remains limited. State revenue from taxing multinational enterprises is especially small, despite their large influence in the sector. This is because countries impose low tax rates on corporations with the aim of attracting investment, which has stoked regional competition to offer the lowest tax burden. Pan-African cooperation is key to prevent such tax dumping. In addition, the International Monetary Fund estimates that African countries are losing between USD 450 million and 730 million per year in corporate income tax on average from tax avoidance by multinational enterprises. Some countries have already taken steps to address tax vulnerabilities in the mining sector. South Africa and Nigeria have imposed restrictions on interest deductions, while Sierra Leone has stopped negotiating fiscal terms on a mine-by-mine basis.

Infrastructure shortcomings

Africa’s mining sector is burdened by logistics-related costs that are 250% higher than the global average. This is largely due to shortcomings in countries’ transport and energy networks, such as poor road conditions or an unreliable electricity grid. The mining sector is a major consumer of electricity, accounting for about 54% of consumption in the Central African Copper Belt.6The Central African Copper Belt is a geological zone rich in copper and cobalt, located between DRC and Zambia. Adding mineral processing activities could further strain supply to this sector. In order to make African countries competitive for mineral processing, significant investments need to be made in transport and energy networks. African governments could make mining licences conditional on company commitments that will benefit the local or national economy. In Guinea, the government required financing for a 670 km rail link from the iron ore deposits to the port to be included in any development agreement. The current government in Chile, the world’s second biggest lithium extractor, is seeking a bigger share of profits from mining to go towards funding schools and hospitals.

Environment and governance issues

Long before the rise in demand for renewable energy technology, many mining projects have had negative social, economic and environmental impacts on local communities. The IEA has listed several issues plaguing Africa’s mining sector, including human rights violations such as child labour. In the southern DRC province of Lualaba, where mining of copper and cobalt has expanded in recent years, local communities have been displaced for large-scale industrial mining projects, according to Amnesty International. Miners also face big health and safety risks, especially in small‐scale mining operations, where regulatory standards are weak, and healthcare or compensation in the event of an accident are often non‐existent.

Effective governance and regulation of the mining sector are needed to minimise negative impacts and ensure that local communities benefit from minerals extraction. At the same time, reducing corruption and boosting transparency in mining has the potential to create economic growth for local communities. Some attempts have been made, with 24 African countries signing up to the Extractive Industries Transparency Initiative (EITI) – a global scheme promoting transparency and accountability in the mining sector through the mandatory publication of detailed government and company reports on activities and revenues. However, there are concerns that countries and companies which are EITI members often disclose information that is insufficient or lacking in detail.

The extraction and production of green minerals also generate a substantial amount of waste, potentially carrying harmful chemicals that pose risks to ecosystems and water sources. Implementing effective waste management practices, including safe disposal and the adoption of advanced treatment technologies, is crucial to limit pollution and safeguard the environment and human health.

What does the IEA Net Zero Scenario say?

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Key points

  • The IEA is ambitious on renewables and EV uptake for the first time, projecting a huge build out of wind and solar energy by 2030. The Net Zero Scenario says clean energy technologies dominate in the future, displacing fossil fuel use substantially.  
  • Shrinking fossil fuel demand means no new oil and gas fields beyond those that are approved in 2021. Oil demand peaks in 2019, and declines 275% from 2020 to 2050. Over 60% of LNG and piped-gas demand is wiped out by 2050. Some producing oil and gas fields close prematurely in the 2030s. Only low-cost producers and producers able to transform their operational models survive low oil and gas prices, but their revenues shrink massively.
  • Over half of coal demand is destroyed by 2030, registering a 90% decline by 2050. There is no need for new coal mines or unabated coal power plants beyond 2021. All subcritical coal plants need to be phased-out by 2030.  
  • The IEA projects a slower gas phase-out in this decade. Although gas demand destruction accelerates in the 2030s, half of remaining gas is used to produce hydrogen with CCUS in 2050. 
  • The IEA puts too much faith in building up hydrogen, bioenergy, NETs and CCUS to achieve net zero by 2050, despite the uncertainty over commercial viability of these technologies. The IEA also carves a critical role for oil and gas expertise in captured CO2 and low-carbon fuels.  

Clean energy soars:

  • The scenario sees a massive expansion of solar and wind in the 2020s. Solar and wind annual additions quadruple in this decade, reaching 630 GW and 390 GW by 2030, respectively. Solar is the king of the energy sector by 2050, responsible for 20% of total energy supply. Between now and 2050, solar PV capacity increases twentyfold, and wind elevenfold. Solar and wind dominate the global electricity generation in 2050, together responsible for almost 70%. 
  • Electric vehicle (EV) sales ramp up rapidly from 5% of global car sales today to 60% in 2030. The IEA recommends all governments end all new internal combustion (ICE) vehicles that run on gasoline or diesel by 2035. From this date onwards, all new cars should be either electrified or hydrogen-powered. Annual battery production surges from 160GWh today to 6600GWh in 2030, equivalent to adding 20 gigafactories every year until 2030. EV public charging infrastructure goes up from one million stations today to 40 million 2030, requiring a USD 90 billion investment by 2030. 

A shrinking role for fossil fuels:

  • There is no need for investing in new oil and gas fields, says the scenario. As fossil fuels decline from 80% of total energy supply today to 20% in 2050, investments in new oil and gas fields as well as LNG terminals, beyond current commitments, is unnecessary. This means only a small number of low-cost oil and gas producers would be able to survive, but their revenues would shrink by 75% from 2030 onwards.
  • Oil demand peaked in 2019. Oil demand never goes back to previous levels, shrinking 20% from 90 mb/d in 2020 to 72 mb/d in 2030. By 2050, oil use is 24 mb/d, registering a 275% decline over a 30-year period. Oil prices would fall to USD 25/bbl in 2050, making it hard to justify new investments, even for low-cost producers. If all investments in producing oil fields stop now, oil output would decline by 8% annually. But the IEA’s Net Zero Scenario calls for continued investments in producing oil fields, registering a 4.5% annual decline in oil output until 2050. 
  • The IEA sees a slow gas phase-out. Gas demand declines by 55% from 3,900 bcm in 2020 to 1,750 bcm in 2050. LNG and piped gas volumes would fall by 60% and 65% respectively from now to 2050. But gas use only declines by 5% to 3700 bcm in 2030, much slower than the UN Production Gap report says. After 2030, some of the existing gas fields may be closed prematurely or shut-in temporarily, risking stranded assets. By 2050, half of remaining gas use is dedicated to hydrogen production with CCUS (see section below). 
  • No investments are needed in new coal mines or expanding existing mines, and no new unabated coal plants should be approved. Coal demand falls by 90% in the next thirty years. Coal is responsible for only 1% of total energy demand in 2050. By 2030, over half of coal use is destroyed. In coal power development, the IEA identifies several milestones to reach net-zero: Starting immediately, governments should stop approval of new unabated coal power plants and phase out all (870 GW) subcritical coal-fired power plants by 2030. Coal use in power generation sharply decreases – unabated coal-fired generation is cut by 70% in 2030 – and would be partly replaced by solid biomass to allow existing assets to continue operating. In 2050, CCUS is applied to around 80% of coal produced.

The IEA NZ transition depends in the medium term on technologies that have yet to be proven at scale – Hydrogen, CCUS and NETs. However, deployment of CCUS, NETs and biomass is in the low range of other 1.5oC scenarios. 

  • Almost 50% of the emissions reductions needed between 2030 and 2050 depend on technologies that are not commercially viable yet.
  • The IEA envisages a 3,900% increase in how much carbon we capture between 2020 and 2030, or 18,900% from 2020 to 2050. The new report expects the amount of carbon we capture each year to grow from 40 million tonnes in 2020 to 1.6 billion tonnes in 2030, increasing to 7.6 billion tonnes in 2050. This means:
    • A large role for carbon capture utilisation and storage (CCUS). By 2050, of the total carbon captured, the IEA sees about 5.2 billion tonnes of carbon being captured via CCUS each year. In real terms, this means installing CCUS facilities on 10 heavy industry plants each month from 2030 onwards. However the report is more conservative on CCUS than relevant IPCC scenarios.
    • Negative emission technologies (NETs) are needed. By 2050, the remaining 2.4 billion tonnes of carbon is captured by so-called negative emissions technologies. Of this, direct air capture (DAC) soaks up about one billion tonnes and bioenergy carbon capture and storage (BECCS) about 1.4 billion tonnes. NETs should theoretically lead to an overall subtraction of carbon from the atmosphere, and are used in the IEA scenario to ‘offset’ residual emissions. The amount of negative emissions is relatively small compared to IPCC and other 1.5oC scenarios.
  • By 2050, hydrogen grows by over 500%, with a third produced from gas with CCUS. Hydrogen production grows from less than 90 million tonnes (Mt) in 2020, to more than 200 Mt by 2030, to 530 Mt by 2050. In 2030, about half of the hydrogen is sourced from coal and natural gas with CCUS. By 2050, the amount of hydrogen produced through renewables grows to 60%, still leaving a significant role for gas in hydrogen production. The IEA acknowledges that rolling out the electrolysis capacity to make ‘green’ hydrogen is a significant challenge, as there is a lack of manufacturing capacity. 
  • The IEA advocates for scaling up infrastructure investments to carry hydrogen and captured CO2 emissions. It says that annual investments for CO2 pipelines and hydrogen-enabling infrastructure have to ramp up from USD 1 billion today to USD 40 billion in 2030. This means repurposing existing gas pipelines and ships to transport hydrogen and captured CO2, which the report highlights are well matched with the oil and gas industry’s experience and skills. 
  • CCUS, in particular, is the achilles heel of the Net Zero Scenario. Hydrogen, bioenergy and continued use of fossil fuels for power sector and heavy industries all hinge on the successful and dramatic scaling up of CCUS. The IEA admits that CCUS deployment is “very uncertain for economic, political and technical reasons”. It calculates that failure to develop CCUS for fossil fuel would mean the transition would need to lean more heavily on wind, solar and electrolyser capacity to achieve the same level of emission reductions, requiring USD 15 trillion of additional investment.

Bioenergy: 

  • Bioenergy use increases by ~60% between 2020 and 2050. To address the concerns about land use, the IEA advocates shifting toward using “advanced bioenergy feedstocks”, including waste streams, short-rotation woody crops and feedstocks that do not require the use of arable land. Bioenergy is not a renewable source as it still drives land use change and greenhouse gas emissions, unless attached to CCUS.
  • Bioenergy use rises 3% a year on average to 100 EJ in 2050, meeting almost 20% of total energy needs. Most comes from solid biomass, followed by liquid biofuels and biogases. Solid bioenergy replaces coal in the power, industry and building sectors, reaching 60 EJ in 2050.
  • The total land area dedicated to bioenergy production increases from 330 million hectares (Mha) in 2020 to 410 Mha in 2050. In 2050, around 270 Mha is forest, representing 25% of the total area of global managed forests (or ~5% of total forest area).
  • Is it possible to deliver net-zero by 2050 without expanding land use for bioenergy? Yes, but it would require a combination of wind, solar, hydrogen and synthetic methane. However, the IEA believes this would make the energy transition significantly more expensive. The additional wind, solar, battery and electrolyser capacity, together with the electricity networks and storage needed to support this higher level of deployment, would cost more than USD 5 trillion by 2050.

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