A new resource race threatens developing economies
4 min read . Updated: 02 Aug 2022, 01:11 AM IST
PremiumA new mineral security partnership may leave other economies short of key inputs for climate action
On 14 June 2022, the US government’s state department put out a press release on the formation of an international Mineral Security Partnership (MSP). The MSP countries are Australia, Canada, Finland, France, Germany, Japan, the Republic of Korea, Sweden, the UK, US and the European Commission. The partnership was announced at the world’s largest mining event, held in Toronto. The MSP’s stated goal is to ensure that critical minerals are produced, processed and recycled in a way that supports the ability of countries to realize the full economic development of their geological endowments. But, let us see how many global producers of critical minerals are part of the alliance.
According to a report released by the International Energy Agency in 2021 that was updated in March 2022, the major producers of critical minerals globally are Chile, Indonesia, Congo, China, Australia and South Africa. When it comes to processing, China dominates by a long stretch. Others are Indonesia, Chile and Japan. In the MSP, none of these countries, except Japan and Australia, are represented.
So, clearly, the MSP is not about the sustainable exploration, production and processing of critical minerals. It is more than that. It is about ensuring the availability of these minerals to MSP countries for their net-zero and energy transition goals. It is something for many developing countries, including India, to ponder over.
The catch-all phrase to represent ‘global warming’ is ‘climate change’. Whether or not a reduction in carbon emissions will help stop and reverse global warming is a big question. Damage to the global environment may have been done irreparably already, thanks to the burning of fossil fuels for centuries by today’s developed countries (bit.ly/3bpTt0a). Yet, the global community has set great store by reduction in carbon emissions as the ‘one-stop’ solution for all that ails the global climate. To reduce carbon emissions, the most favoured mechanism of the developed world is to price carbon emissions so that the externality of damage to the environment and climate is internalized by emitters. This is fine in theory, but complicated in practice.
Developing countries that have a cost advantage with low-wage production will find their competitiveness eliminated completely by this. But the burden of managing growth aspirations while contributing to the net reduction in global emissions is a heavy one. It will increase as their incomes rise and economies grow because emissions will rise. They must find ways to grow without recourse to the easier way of burning fossil fuels that developed countries had. Experts claim that it could be a win-win for today’s developing countries. In practice, there is no precedence for this.
However, pressure on developing countries to embrace carbon taxes (or carbon pricing) more than carbon trading keeps mounting. Should they balk or resist or go slow on this, they face the prospect of a Carbon Border Adjustment Mechanism (CBAM) in Europe. Stripped to its essentials, the CBAM is an import duty. It is a not-so-well disguised tariff barrier to eliminate the competitiveness that ostensibly arises from burning fossil fuels without having to ‘pay’ for it. But, it is hard to reconcile this proposed CBAM with the internationally accepted principle of Common But Differentiated Responsibilities (CBDR) towards carbon emission reduction.
The CBDR framework recognizes that countries will travel at different speeds towards net zero, balancing economic growth, energy security, the burden on citizens and emission reduction. But then, that may threaten the funding they need to become ‘responsible’ emitters. Just recently, the International Sustainability Standards Board closed the deadline for comments on the Exposure Draft IFRS S1: General Requirements for Disclosure of Sustainability-Related Financial Information. Informed observers in India point out that this standard posed several challenges and that it has the potential to restrict climate finance flows to the projects that need it most. In particular, this creates heavy compliance costs for smaller businesses, especially when they have limited capability for and expertise in modelling climate risk scenarios. A strict disclosure requirement to access funds from bodies such as the Green Climate Fund, apart from bilateral funding, etc, will go against the principles of CBDR and restrict already meagre climate finance flows to developing nations.
On top of these comes the launch of the MSP, which might ensure the availability of critical minerals for partner countries, leaving not much for others. In a recent interview with Project Syndicate, well-known energy expert Daniel Yergin said: “We are already entering a new era of resource competition… It is already evident that there will be new geopolitical tensions centred around the minerals needed to achieve net-zero emissions."
There are multiple dimensions to this resource competition that Yergin refers to, as this article has shown. It is a comprehensive chakravyuh. How developing countries respond to this will determine their individual and collective fates this century. Should they begin with formulating a Declaration of their Right to Economic Growth?
V. Anantha Nageswaran is chief economic advisor to the Government of India
