What is on the agenda for this year’s COP and what does it mean for the lithium ion battery supply chain?

The countdown is almost over for the much-awaited COP26 which is being held in Glasgow over the first two weeks of November. The international event, which attracts over 190 world leaders, was postponed like so many other events last year due to Covid.

With climate change and the reversal of biodiversity loss at the heart of the multilateral agenda, does this COP have more urgency than most?

It has been 6 years since the breakthrough COP21 in Paris where countries signed up to establishing their individual pledges in the form of nationally determined contributions (NDCs) for reducing GHG emissions. It is now, at COP26, where countries will return with their national plans in place. The sum of these NDCs should add up to the level of decarbonisation needed globally. Looking at the published NDCs so far, there is a gap in ambition which must be bridged in Glasgow. As stated by COP26 President, Alok Sharma, in UNESCO speech, “Paris promised. Glasgow must deliver”.

At COP25 in Madrid 2019, world leaders failed to reach consensus, and its results have been cited as being “disappoint[ing]” by UN secretary general António Guterres, who said the “international community lost an important opportunity to show increased ambition on mitigation, adaptation & finance to tackle the climate crisis”. In the same way that Paris (COP21) redeemed some of the mistakes of Copenhagen (COP15), Glasgow needs to do the same.

Given that transportation accounts for 23% of global emissions, it hardly comes as a surprise that the first of COP26’s four goals is to secure global net zero by 2050 and keep 1.5 degrees within reach.

Essential to reaching these targets is an acceleration in the widespread adoption of electric vehicles (EVs), with Benchmark forecasting battery demand from the auto sector to increase 40x between 2020 and the 2040s.

With this demand for batteries, and the raw materials needed, there is increasing attention being paid to the supply chain which COP26 is only intensifying.

Critically, the industry must demonstrate that it can manage and navigate this scale up and demonstrate that environmental and social responsibility is at the heart of what it does – hence the necessity of ESG (Environmental, Social, and Governance). As Benchmark’s Lithium ESG Report demonstrates, current levels of active engagement with ESG in the upstream lithium supply chain is relatively low: 37% of active lithium miners, and 20% of active lithium converters published ESG reports in 2021. For this supply chain to step up and be transparent this must change.

New bodies and organisations have been founded to address this, including the Zero Emission Vehicle Transition Council, composed of ministers and representatives from some the world’s largest and most progressive car markets. The Council aims to ensure the production of these zero emission vehicles is “sustainable and inclusive” across their life cycle.

Alongside the formation of this Council, we have seen regulatory developments that will mandate companies into declaring carbon footprints: the EC’s 2020 proposal will enforce the declaration of carbon footprints (and soon specific thresholds) for all batteries placed on the EU market. Further data from Benchmark’s Lithium ESG Report shows that 50% of operating lithium mining companies, and just 9% of lithium mining companies in development, have completed a carbon footprint assessment to date. We can expect these figures to grow soon out of necessity.

Beyond encouraging carbon footprint assessments, and considering the ESG space, a key goal of this COP is to mobilise sustainable financing in the pursuit of contributing to the delivery of the sustainable development goals. The continued growth of the green bond market is key to this, and therefore climate-related disclosures are tipped to be a key discussion point around the COP table next week.

Looking at the current lithium ion supply chain, China is one of the regions dominating the industry from raw material processing, cathode and anode production and cell manufacturing. As the world’s largest battery manufacturer, and fastest growing renewable power producer, it sees a business opportunity at the same time as it sees a route to clean-up its environment and tackle health impacts of its rapid industrialisation.

China’s control of not only many of the resources needed for this green transition, but also the processing and manufacturing, means it is well placed to benefit economically from action on net zero. At present, President Xi Jinping’s attendance at COP26 hangs in the balance, and as previous COPs have shown us: as the world’s largest carbon emitter and a country setting ambitious targets to reach carbon neutrality, China’s presence – or absence – could be influential at COP26.

Australia has an opportunity to become the linchpin provider of critical minerals which underpin this energy transition, as shown in 2020 when Australia represented 48% of global lithium supply according to Benchmark’s Lithium Forecast. However, as things stand, the country finds itself caught in the past and as a major coal producer continues to have significant economic interests in the fossil fuel industry.

Of course, a successful COP26 will cement this transition from coal to clean. This shift from an old-style high carbon economy based to a low carbon one underpinned by renewable electricity, hydrogen, electric vehicles, and responsibly sourced critical minerals like lithium.

If COP26 does not deliver as hoped, there will be a sense of disappointment which will potentially undermine efforts in governments and large corporates. However, in the US, Europe and increasingly across Southeast Asia, commitment to climate action should remain strong. Meaning that without a successful COP, we will see continued momentum in many countries, which will drive growth in battery technologies and the demand for mineral resources. However, such growth will be patchy and certainly bumpier for the foreseeable future, leaving great disparities between countries taking decisive action versus those potentially neglecting the net zero goal.

There is a growing consensus in the market that low carbon options are better value, better performing, and lower cost. The growth of renewables like solar and wind is driven by their low cost as much as their carbon credentials. The investors and corporates with an eye on the future, and governments looking to “build back better” will likely choose local carbon technologies over traditional outdated variants whatever the outcome of COP.

The best example of this can be seen how electric vehicles are rapidly transforming the auto market. While government incentives and duties have played a role, a bigger driver behind mass adoption is better consumer experience, and irrespective of COP, this technology and consumer shift cannot easily be stifled.