The Role of European Cobalt Mining in the Green Energy Transition… How can insurance assist in a smooth transition?
Introduction
It is widely acknowledged that there must be an orderly transition towards greener forms of energy in order to avoid the worst effects of climate change, and meet national commitments made under the auspices of the United Nations Framework Convention on Climate Change (UNFCCC).
Electric Vehicles (EV) are part of this transition, however the rapid growth of this market and that of Lithium-Ion batteries, has caused an explosion in demand for the raw materials, such as lithium and cobalt, used in their manufacture. This has created its own set of ethical and environmental issues.
The Need for Battery Metal Mining
Road transport accounts for approximately 50% of oil consumption globally, so the electrification of road transport, with power supplied from green energy sources such as solar and wind, could dramatically reduce our dependence on fossil fuels.
This transition is already well underway with the demand for EV’s increasing from 1 million to 10 million units between 2017 and 2022(1). However, a key element of the batteries used in these vehicles, is cobalt, which can account for up to 15% of a Lithium Nickel Manganese Cobalt Oxide (NMC) battery typically used in an EV. In 2022, the EV market accounted for 40% of the world’s cobalt demand (2) and 73% of the world’s cobalt (3) was produced from mines in the Democratic Republic of Congo (DRC).
Cobalt Mining in the DRC, and the risks involved.
In 2022, Cobalt mines in the DRC produced a total of 130,000 metric tons(4) of the metal. However, the artisanal mines that are used to produce this volume of cobalt have many ethical and environmental challenges. Among these are the use of child and slave labour, poor pay, and a lack of basic safety standards that all contribute to the estimated 2,000 deaths each year(5). In addition to this there is the toxic pollution emanating from the unregulated mines which inevitably effects crops, lakes, animals and people in the surrounding areas.
How can European Mining Operations and Their Insurers Make This “Green Transition” Greener?
Finland’s Hautalampi Project, run and operated by FinnCobalt Oy, could be the turning point for cobalt production in Europe allowing the European EV industry to begin reducing its dependence on production in the DRC.
With a nominal output of 500 ktons of concentrate per annum, the project started operations in 2020 after a 1-year construction period and is expected to operate for the next 12 years. The mine uses the underground Long Hole Stroping (LHS) mining method, a highly efficient form of underground mining. The project employs European standards of environmental care and safety, and thus avoids the ethical issues faced when sourcing cobalt sourced from the DRC.
The Future Outlook
Demand for critical raw materials, such as cobalt, is projected to increase dramatically in the European Union, and the need to mitigate the risks to supply chains related to strategic dependencies, such as cobalt from the DRC, has been highlighted by shortages in the aftermath of the Covid-19 and the energy crisis following Russia’s invasion of Ukraine. Added to this is the increased scrutiny of the ethical and environmental issues of artisanal mining in the DRC. As a result, more mines similar to the Finland’s Hautalampi project are being planned across Europe, each requiring careful consideration of its financial, operating, and environmental risks.
UIB’s insurance experts are on hand to provide advice and bespoke insurance solutions to ensure successful execution of these projects from the inception to success. The team have a wealth of specialised experience in supporting global clients in the construction of large projects around the world, as well as the mining of raw materials. With 35 years of experience in the Natural Resources insurance industry, Mikael Ardell, CEO of UIB Nordic AB shares the importance of how good risk management can help to ensure the successful execution of a large-scale project.
“UIB Nordic has direct and highly relevant experience in risk-mitigation and transfer regarding cobalt exploration and mining in the Nordic region. Taking the expected growth of global cobalt demand into consideration, risk management and innovative insurance solutions have never been more crucial in this industry. We expect to see significant growth in this sector in the coming years. UIB Nordic stands ready to assist.”
Conclusion
To assist in the transition to the green economy, there will need to be increased investment in European projects like that of Finland’s Hautalampi Project. This will ultimately reduce supply chain risks and minimise the need for artisanal mining and its accompanying ethical and environmental risks. Good risk management practice and efficient insurance buying have an essential role to play in this transition and the success of these projects.
(1) The demand for Electric Vehicles (EV’s) has skyrocketed in the last 5 years with sales increasing from 1 million to 10 million between 2017 and 2022
(2) In 2022, the EV market accounted for 40% of the world’s Cobalt production
(3) 73% of the world’s Cobalt production occurs in the Democratic Republic of Congo
(4) Cobalt mines in the DRC produced a total of 130,000 metric tons
(5) The DRC Artisanal mines cause up to 2,000 to die each year
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