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Investing in energy: price, security, and the transition to net zero Contents

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Chapter 5: International cooperation

EU Common Purchase Platform

218.Uncertainty over the Russian supply of gas, following the Russian invasion of Ukraine, is causing high and volatile European gas and electricity prices. Some EU member states may struggle to replace Russian gas at reasonable prices.

219.On 8 April 2022, the European Commission announced it had hosted the first meeting of the voluntary ‘EU Energy Purchase Platform’ to secure supplies of gas (particularly LNG) and hydrogen. The Platform was created to secure the EU’s energy supply “at affordable prices in the current geopolitical context and to phase out dependency on Russian gas”. The EU intends to use the platform to mobilise “the collective political and market weight of the EU … in particular for the refilling of gas storage facilities in time for next winter”.276 The exact role of the platform is unclear. More work is required to decide how joint negotiations between member states and their energy companies might operate in practice, and whether there is appetite in the private sector for joint negotiations. It is unclear what effect EU competition rules will have on the venture.

220.The Energy Minister told us the European Commission had said the EU Energy Purchase Platform “should also benefit EU partners in its close neighbourhood, potentially including the UK”. The UK would “act in our national interest but working with our friends and partners.” It was too early to say whether the UK would be included or excluded from the platform.277

221.The EU has started to create the foundations for a Common Purchase Platform so that it can leverage its collective weight in negotiations with gas and hydrogen producers. While these plans are at an early stage, if the EU’s ambitions are realised, they may affect the UK’s energy supply. The UK could benefit from buying energy with the EU, but more detail is needed on how trade would operate in practice. It is important that the Government engages with the EU to increase the chance that the UK can benefit from working with the Common Purchase Platform in the event that there is some advantage in doing so. The Government should explain its assessment of the EU’s plans, what role it foresees for the UK, and how UK policymakers and the private sector could contribute to policy decisions.

Supply chains for the transition

222.The sharp increase in competition for gas supplies has led many governments, including the UK’s, to accelerate steps to become more self-sufficient in producing energy, particularly via low-carbon sources such as nuclear and renewables. However, we heard that greater reliance on these technologies would make the UK dependent on resources from other countries and that geopolitical competition in renewable energy generation and supply chains would be a factor.278

223.China has significant power over the international supply chain for certain renewable technologies.279 The European Commission said there are “major concerns” over the supply of rare earths in the manufacture of wind turbines and the supply of components for solar; the European Commission described China’s role in both as “quasi-monopolistic.” China supplies 66% of finished Lithium-ion batteries.280

224.The Government’s March 2021 Integrated Review of Security, Defence, Development and Foreign Policy warned how states could undermine the economic and security interests of rivals: “there will be increased competition for scarce natural resources, such as critical minerals including rare earth elements, and control of supply may be used as leverage on other issues.”281 Critical minerals include lithium, cobalt and rare earth elements such as neodymium, which are integral to low-carbon technologies such as batteries, electric vehicles, wind turbines and solar panels.

225.According to the US government, global demand for critical minerals will rise by 400–600% over the next few decades. For lithium and graphite, which are used in electric vehicle batteries, demand may increase by 4,000%.282 An April 2022 report by Euromateux, a European industry body, identified risks to supply from 2020 to 2050 as the deployment of renewable energy technologies increases, as set out in Figure 11.283

Figure 11: Global supply and demand per decade under IEA transition scenarios

Source: Eurometaux, Metals for Clean Energy: Pathways to solving Europe’s raw materials challenge (25 April 2022): https://eurometaux.eu/media/jmxf2qm0/metals-for-clean-energy.pdf [accessed 29 June 2022]. STEPS refers to the IEA’s Stated Policies Scenario and SDS refers to demand under the IEA’s Sustainable Development Scenario.

226.Mark Carney told us that China had “given a lot of thought and taken a lot of actions to secure supply, some of it domestically and some of it more broadly, whereas we in the G7 have done relatively little”.284 Simone Tagliapietra, a Senior Fellow at Bruegel, said reducing this dependency on China was “a major political challenge” for all the OECD countries.285 In response to heightened geopolitical tensions, the US and EU have launched strategies for securing reliable supplies of critical minerals.

227.In June 2021, the US government published an assessment of supply chain dependencies, which made recommendations on how it will reduce reliance on “adversarial nations” for critical minerals and materials. These recommendations included raising international standards in commodities trade and governance, expanding domestic production and incentivising sustainable production by US allies.286 In April 2022, Janet Yellen, US Treasury Secretary, outlined a vision to foster new supply chains in raw materials with trusted allies through an “extension of market access”, which presumably entails new trade agreements.287

228.In September 2020, the European Commission published an action plan on critical raw materials and an accompanying “foresight study” for strategic technologies and sectors.288 The Commission announced the establishment of a European Raw Materials Alliance to increase resilience in EU supply chains, increase mining and processing projects in the EU by 2025, increase research and development spending on mining and processing technologies and develop sustainable financing criteria for mining and extractive sectors. The Commission will develop international partnerships to secure the supply of critical raw materials not found in Europe while introducing high-sustainability standards. In November 2019, the European Investment Bank introduced an “energy lending policy”, under which it will support projects relating to the supply of critical raw materials needed for low-carbon technologies in the EU.289

229.In the UK, the British Geological Survey has long had a role in assessing the security of supply of critical minerals.290 More recently, the Government established a Critical Minerals Expert Committee to provide independent advice. The Government has announced the establishment of a Critical Minerals Intelligence Centre to provide analysis on stocks and flows of critical minerals and will publish a critical minerals strategy in 2022.291

230.Simone Tagliapietra explained several steps that he thought the Government should take to diversify supply away from China. First, there should be a more active industrial policy to oversee the development of technologies which are less dependent on such materials. Second, new supply chains based in the UK and among close allies should be developed, which could build on the EU’s recent work exploring the availability of critical minerals in Europe. Third, more critical minerals should be recycled, reducing the need for imports and reducing carbon emissions during manufacture.292

231.Dr Jack Sharples, a Research Fellow at the Oxford Institute for Energy Studies, said that dependence on potentially adversarial countries for critical minerals was different to dependence on them for fossil fuels:

“If you have a gas-fired power plant you need a continuous supply of gas in order to continue generating electricity from that plant. [However] if you build an offshore wind farm, once it is in place then that will keep—you might not be able to build any more if your supply of raw materials is interrupted but the infrastructure that you have will continue generating electricity.”293

232.Jason Bordoff agreed that the risk profile for critical mineral dependency was different to fuel dependency but said national security policy should aim to reduce such dependencies anyway.294 He said that governments should encourage diversity of supply by supporting resource extraction, particularly in “friendly” countries:

“The greatest resilience for supply of imported raw materials will come … from diversification of supply sources and encouraging competition between them. I think that geopolitical means can be deployed to ensure resilience of such supply sources, including trade deals that satisfy reciprocal needs”.

233.He said China’s dominance in processing critical minerals was a “national security concern” and incentives should be provided to establish environmentally responsible domestic processing. He said sustainability standards should be negotiated with like-minded international partners.295

234.The Rt Hon. Greg Hands MP, the Energy Minister, told us that the Government’s critical minerals strategy would include “steps to improve the security of supply of critical minerals, boosting domestic capabilities and showing leadership internationally.”296

235.Increasing the UK’s reliance on renewable energy sources will create new dependencies on foreign countries, particularly in terms of manufacturing renewable technologies and accessing critical minerals and components which are used in the production of those technologies. This could create new risks in supply chains. To mitigate this, the Government should work with allies to ensure that the UK does not become reliant on strategic competitors, notably China, for critical minerals and components, and identify what investment is needed to achieve this. The Government will need to ensure that its foreign and trade policies (on both critical minerals and oil and gas) and its policy on net zero are aligned.

236.The Government’s critical minerals strategy, which is due to be published later in 2022, should examine supply chain vulnerabilities and policies to mitigate them. Ahead of its publication, the Government should engage with the financial and industrial sectors to assess the viability of preferential supply chains, the timeframes in which they could be created and how they might affect the cost of capital over time for developing renewable technologies. It should publish its conclusions in the upcoming strategy.

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