Lithium Supply Chains Face Test in Global Clean Energy Race
Lithium’s role in clean energy systems goes far beyond its use in electric vehicle batteries. It is central to any global attempt to shift away from fossil fuels, but while lithium is abundant in nature, getting it where it is needed most – and at the right time – is a different story.
The complexity of lithium supply chains now threatens the pace and affordability of the global net zero transition.
According to the International Energy Agency (IEA), demand for lithium will rise more than 40-fold by 2040 under the agency’s Sustainable Development Scenario – which aligns with the Paris Agreement’s climate targets.
Even less ambitious policy scenarios still point to at least a doubling of overall mineral needs.
This sharp increase in mineral input – particularly lithium – underscores how the world’s clean energy supply chains remain at risk. Current mining, refining and investment plans fall far short of projected needs.
Lithium’s essential supply chain role
Energy systems based on solar, wind and battery technologies rely on far more mineral input than traditional fossil fuel infrastructure.
One electric vehicle (EV) requires six times more mineral material than a petrol-powered car, while an onshore wind power plant requires nine times more than its gas-fired counterpart.
For EV batteries and energy storage, lithium is joined by key materials such as nickel, cobalt, manganese and graphite.
These determine battery longevity, performance and energy density. Copper and aluminium, meanwhile, underpin electricity grid expansion, while rare earth elements power the magnets in wind turbines and EV motors.
As demand grows, attention is shifting to where these materials come from, how they are transported and refined and whether supply chains can keep pace.
From 2010 to now, mineral requirements for new power generation capacity have already grown by 50%.
The IEA now warns that without rapid expansion and diversification of lithium production, shortages could delay or inflate the cost of clean energy deployment.
Jakob Stausholm, Chief Executive of mining company Rio Tinto, links lithium directly to Rio’s low-carbon business model.
Following the firm’s $6.7bn acquisition of Arcadium Lithium, Stausholm says the move will “create a world-class lithium business” and help position Rio as a key supplier for low-emission technologies.
Strategic moves to secure lithium
To respond to rising demand, countries and companies are scaling up lithium output. In Chile, the second-largest holder of lithium reserves, a major partnership has formed between state-owned Codelco and lithium producer SQM.
Their joint venture will extract and refine lithium from the Salar de Atacama from 2025, with Codelco assuming full operational control from 2031.
Máximo Pacheco, Chairman of Codelco, says: “Just as we have contributed to making Chile the world leader in copper production, we will now contribute to making our country a leader in the production of lithium.”
This is both a strategic industrial agreement and one built around environmental performance. Both companies commit to higher environmental standards, local stakeholder engagement and technological upgrades.
The goal is to meet growing global demand while also addressing the growing scrutiny around water use, waste management and emissions from lithium extraction – particularly in sensitive regions like the Atacama desert.
The Arcadium deal positions Rio Tinto alongside customers such as Tesla, General Motors and BMW.
By integrating lithium into its wider minerals portfolio – which includes copper, aluminium and iron ore – Rio aims to reduce customer exposure to price volatility and supply disruption.
Yet while moves by companies like Rio and Codelco are promising, they remain outpaced by demand.
Supply chain gaps and future risks
Lithium’s sharp demand trajectory exposes several structural risks. Mineral extraction is geographically concentrated.
More than 70% of cobalt and 60% of rare earths come from just one or two countries – mainly the Democratic Republic of the Congo and China. Lithium, while more widely distributed, still faces similar issues with refining and processing concentrated in a few regions.
Mining projects are slow to come online. The IEA reports an average lead time of 16.5 years between discovery and production.
Meanwhile, clean energy rollouts – especially EVs and grid-scale batteries – are accelerating much faster.
Even if all existing projects are delivered on schedule, only half of lithium and cobalt demand will be met by 2030 under climate-aligned scenarios.
This supply shortfall could raise costs and create bottlenecks. For lithium-ion batteries, raw materials now make up 50–70% of total costs.
A doubling in lithium or nickel prices could push battery prices up by 6% – cutting into cost reductions achieved through scale.
Recycling, seen as one way to ease pressure on primary supply, is unlikely to make a major dent before 2040. Only 10% of lithium demand is expected to be met through recycling in that timeframe.
Energy systems also face infrastructure risks. Copper and aluminium – vital for electricity transmission – face rising costs and potential project delays if mineral input becomes unaffordable.
To manage these risks, coordinated policy is essential.
Clear climate targets are needed to steer investment. Supply chain resilience can be supported through more robust geological surveys, streamlined permitting processes and technological innovation to improve extraction, reduce waste and cut material intensity.
Recycling systems must also scale up to reduce future pressure on mined supply.
Without urgent supply chain attention, the world’s EV fleets, renewable energy projects and grid storage targets will face headwinds.
Securing lithium is no longer just a mining issue. It is an energy security priority.
