China's dominance of critical minerals may be as dangerous for Europe as Russia's energy weapon

Europe’s leaders are increasingly worried that the EU will jump from the frying pan into the fire as it breaks dependence on Russian fossil fuels, becoming equally dependent on supplies of strategic minerals controlled by China.

Ursula von der Leyen, the European Commission’s president, said Brussels is scrambling to lock in a long-term supply of critical raw materials vitally needed to underpin its green deal and its vast expansion of renewable power, seeking accords with friendly countries as surging global demand for green-tech resources far exceeds existing supply from miners. It has already signed a deal with Canada.

“The economies of the future will no longer rely on coal and oil, but on lithium for batteries; on silicon metal for chips; on rare earth permanent magnets for electric vehicles and wind turbines,”  she told the World Economic Forum in Davos.

“The green and digital transitions will massively increase our need for these materials. However, access is not a given. For many of them, we rely on a handful of producers in the world. We must avoid falling into the same trap as with oil and gas,” she said.

It may already be too late to prevent a chronic supply crunch through the 2020s. The International Energy Agency says China controls half the world’s capacity for lithium refining and produces three quarters of all lithium-ion batteries. “Today it’s about oil, tomorrow it will be about lithium supplies,” said Fatih Birol of the IEA.

China already has a strategic lock hold over rare earth metals used across the spectrum of advanced technology, not just for green energy and artificial intelligence, but also for military lasers, missiles, and satellites. Beijing is fast acquiring dominance over global supply of cobalt and graphite. Over 98pc of permanent magnets - typically requiring neodymium - come from China.

Prices of lithium carbonate have risen almost tenfold this year. Cobalt is up by 150pc, and nickel futures have almost doubled. The IEA calculates that the "cathode materials" in battery packs for electric cars have jumped from 5pc to 20pc of the total cost in less than a decade.

Nato secretary general Jens Stoltenberg issued equally stark warnings in Davos over the risks of sleep walking into an invidious dependence on China, arguing that the invasion of Ukraine had exposed the pitfalls of naïve free trade with antagonistic powers that do not pull their punches. There must be no equivalent of the Nord Stream 2 pipeline debacle in dealings with Beijing.

“This is not just about Russia but also about China, another authoritarian regime that does not share our values, and that undermines the rules-based international order. We should not trade long-term security needs for short-term economic interests,” he said, implicitly signalling that Nato is evolving into a global military alliance aimed at containing Xi Jinping’s "wolf warrior" China.

“We all have learned a lesson: free trade has brought a lot of prosperity and wealth to all of us but it has a price. I am not arguing against trade with China, but the control of 5G networks is of vital security importance, and we can’t just say that in the interest of profits and free trade we open up the networks,” he said.

“Nato’s technological edge has always been fundamental for our security. Now we see new and destructive technologies - artificial intelligence, quantum computing - that are integrated into all the new weapons systems. If we just share that technology we may earn some money... but it’s dangerous,” he said.

The EU has hyper-ambitious goals for green energy as it seeks to replace all imports of Russian gas under its €200bn post-invasion energy plan, which raises its renewable target to 45pc of total energy supply by 2030. Planning permits will be rushed through in one year instead of an average of seven to eight years.

Frans Timmerman, the EU’s green deal chief, said in Davos that the Mediterranean region would ultimately become the centre of the world’s clean-energy system, with green hydrogen from extremely cheap solar and wind in North Africa providing green hydrogen at vast scale. “The energy is almost limitless,” he said.

Over the next eight years, Europe aims to double solar capacity to 600 gigawatts (GW) - much of it on home rooftops -  and double wind power to 480 GW, as well as putting 30m electric cars on the road.

This requires a staggering amount of critical minerals and a complex global supply chain that is almost entirely beyond the EU’s strategic reach. It must do this in competition with China, which is electrifying its economy at an even faster pace.

Zhigang Zhang, head of China’s state grid, said in Davos that his country is making an epic push for renewable expansion. It is the central thrust - along with nuclear power - in Xi Jinping’s plan to break dependence on seaborne energy imports and develop safer home-grown sources. “The scale is growing exponentially,” said Mr Zhigang.

Daniel Yergin, energy guru at IHS Markit, said the mystery is where the world will find the copper for so much electrification. “Electric vehicles need two-and-half to three times as much copper as a combustion engine car. There is a gap. How is it going to be closed?” he said.

Demand creates its own supply in the end, within limits, but Europe has woken up very late to the global scramble for critical materials. It will inevitably find itself down the pecking order as supply tightens. Brussels is issuing large plans and launching all kinds of alliances but may struggle to deliver on its green deal targets.

Some have likened its new penchant for collective purchases of supplies - first vaccines, then natural gas, and now minerals — to Soviet centralisation of the economy, akin to Gosplan methods of management, and all in the name of rational efficiency.

This may beat down the average price, but as became clear in the vaccine saga, the EU can all too easily lose sight of the main imperative in the process. The reflex has its own latent dangers.