Australia can become a potential supply chain partner for the global renewables sector and an alternative to China, a report by think tank Climate Energy Finance (CEF) has said.

Australia houses minerals critical to renewable energy technologies in abundance and is the leading producer of unprocessed lithium. The country produces 79% of the world’s hard rock lithium, with its mineral exports projected to reach $16 billion in 2023.

The country is the third largest exporter of cobalt and stands fourth in exporting mined copper, nickel, and rare earths.

Despite the massive critical mineral availability with one of the largest bulk minerals mining industries, Australia lags in adding domestic value to the energy transition materials sector, states the report.

But currently, Australia is pursuing the zero value-add dig-and-ship model under which most mineral excavated by the companies like Rio Tinto, BHP, and Woodside is exported to China for refining onshore.

China then uses these minerals in the supplies of its dominant downstream battery and electric vehicle manufacturing industries.

Figure 1: Australian Lithium Concentrate Exports to China as Share of Total Exports. Source: Australian Bureau of Statistics 2022

The World Bank Group has projected that the demand for key minerals used in clean energy technology is likely to grow almost 500% by 2050 to meet growing demand.

CEF estimates that the total investments in the global energy sector will increase up to $100 trillion by 2050.

China’s roots in mineral-rich markets

China has accelerated its steps to expand its reach in Australian lithium mines through partnerships and acquisitions.

For instance, Australia produced its first commercial battery-grade refined lithium hydroxide monohydrate (LHM) which is the precursor for battery cathodes, in 2022.

The country houses two prominent lithium mines, one being the lithium hydroxide mine being built at Kwinana, and the second mine in the Greenbushes lithium mine, both in Western Australia, which is the world’s largest lithium mine.

China’s Tianqi Lithium Corporation owns a 51% stake in Tianqi Lithium Energy Australia, a joint venture by that in turn owns a 51% stake in the Greenbushes mine. Tianqi also owns a controlling 51% stake in LHM mine which is Australia’s first onshore refinery of lithium hydroxide.

The report further highlights that Australia is currently building two more LHM refineries. For one of the additional refineries upcoming at Kwinana, Australia entered a 50:50 joint venture between ASX-listed Wesfarmers and SQM of Chile.

Figure 2: World and Australian Lithium Hydroxide Monohydrate. Source: BloombergNEF

In 2018, China’s Tianqi also acquired a 24% strategic stake in SQM for $4 billion.

Australia needs an IRA-like initiative

CFE recommends that Australia needs to implement strong policy agendas like the Inflation Reduction Act in the United States and the REPowerEU Plan in the European Union, to endorse proposals of strategic national interest around the export and critical mineral mines.

Australia must scale its trade relations with the U.S., Japan, South Korea, India, Singapore, and the EU to further improvise on joint ventured development projects which would help cut Scope 3 carbon emissions globally.

A report by the International Energy Agency last year suggested that robust mining and drilling measures will help the EV sector fulfill its metal needs to boost the transport electrification drive. The agency said China has been assigned 70% of battery production capacity until the end of the decade.