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The Impact of the Global Energy Transition on Mineral-Rich Countries

The Impact of the Global Energy Transition on Mineral-Rich Countries

Renewable energies and battery technologies are regarded as the future of the energy sector and bear the global expectation of delivering a decarbonised and more sustainable economy. However, while such an energy transition is the best way we have to switch to low carbon economies, it also compromises the stability of mineral-rich countries, widening global inequalities. 

Globally, intensive mining for mineral resources is creating irreversible damage to the environment and socio-economic stability in mineral-rich countries. While the international community is planning to expand the scale of renewable infrastructure and battery manufacture, by doing so, they are increasing future risks for mineral-rich countries. What are the environmental impacts of mineral extraction and how does this affect the economy of mineral-rich countries? What are possible solutions to shift to low carbon economies without compromising the stability of the latter?

Sustainability in the Global Energy Transition

The signature of the Paris Agreement and the Glasgow Climate Pact set clear goals and time frames for the world to achieve net-zero emissions, pushing the world to reconsider its energy composition and policies. Developed countries, such as Japan, the USA, the UK, and the EU, are transitioning their energy sector to renewable energies and battery technologies to lower their GHGs emission and reach their net-zero emission targets. 

Despite the fact that the current global energy transition can lead to a low-carbon economy that balances the needs between economic development and environmental well-being, it cannot deliver sustainability at the global level. Globally, the expansion of renewable energies and electrification of the transportation sector only focus on the effectiveness of climate change mitigation. Yet, the global rush to adopt renewable energies and battery technologies is creating paradoxical socio-economical and environmental impacts that undermine the sustainability of mineral-rich countries, such as Mongolia, Peru, and Chile. To put it in another way, the plans for decarbonisation are benefiting the sustainability of developed countries at the expense of mineral-rich countries’ sustainability.

Sustainability, according to the definition by the Brundtland Commission, refers to the mode of development that satisfies the needs of the current generation without sacrificing future generations’ needs for growth. The principle of intra- and inter-generational equality plays a central role in sustainable development. Sustainability has a social, economic, and environmental dimension. While environmental sustainability plays the most critical role in achieving sustainable development due to the embeddedness of the economic and social dimensions into environmental well-being, only the balance between the three dimensions can be considered sustainable.

The infrastructures for renewable energies are heavily dependent on non-renewable mineral resources like copper, lithium, graphite, nickel, etc. For instance, the average copper consumption by non-renewable sources is five times lower than renewable energy systems. 

The global rush to adopt renewable energies requires a significant amount of mineral resources. According to the International Energy Agency (IEA), now that countries are racing to reach net-zero emission by 2050, the demand for minerals from renewable energies is expected to increase up to six times more than the mineral requirement of the year 2020. The global area influenced by renewable energies-related mining activities is certainly going to increase in the near future as mineral-rich countries have prepared to expand their mineral production. 

For instance, Mongolia started to develop the Oyu Tolgoi copper and gold mine, one of the biggest copper mines in the world, in the early 2010s; and the Peruvian expansion plan for the Las Bambas copper mine. Without strategic management and regulation, the rush for mineral resources will have ripple effects on the environment and socio-economic well-being of those mineral-rich countries and seizing their opportunities for a sustainable future.  

Environmental Insecurity

According to World Bank, globally, around 1,500 large-scale mines are located in tropical forests, and 1,800 additional large-scale mines are under development or presently non-operational. 

In a study on the potential ecological impacts of renewable energy-related mining activities, Sonter and colleagues discovered that mining activities attributed to renewable energy production would worsen the biodiversity in mineral-rich areas. According to the study, mining activities will affect 50 million square kilometres of the land surface, with 8% overlapping with protected areas, 16% overlapping with remaining wilderness, and 7% overlapping with key biodiversity areas. For instance, the nickel mining sites in Indonesia are surrounded by forest areas, and the expansion of the extractive sector is responsible for the ongoing large-scale deforestation in the Celebes region. Also, the Atacama Desert region, one of the most vital mining regions in Chile and one of the driest regions on the earth, is the habitat of many vulnerable and endemic species, including the Andean Flamingo, Chilean woodstar, and the tamarugo conebill.

In addition, the potential environmental impacts of deforestation could be a global level threat. The destruction of the remaining wilderness will destroy the world’s most important natural carbon sinks. The destruction of forest areas and wilderness not only undermines the carbon sequestration of terrestrial environments but also unleashes tonnes of carbon dioxide (CO2) stored in the plants and soil into the atmosphere. Depending on the amount of CO2 released into the atmosphere and the scale of the natural environments being destroyed, the mining industry can mitigate the effort of global decarbonisation.

One of the common environmental impacts of the extractive industry is related to water sources. In Mongolia, the aforementioned large-scale Oyu Tolgoi copper mine is located in the South Gobi desert region, which is considered one of the driest areas in Mongolia. The operation of the mine has led to groundwater mineralisation in the region and degraded the water quality to beneath the minimum drinking standard. Chile also faced a similar mining-related water issue. Due to the overexploitation of the water resources for copper and lithium mining in Northern Chile, water tables in the region are facing huge pressure, and the size of wetlands like the  Laguna Santa Rosa wetland is diminishing. Worryingly, lakes in the Atacama desert are being dried up, threatening the Andean flamingo’s reproduction. 

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Combined with the impacts of climate change, the expansion of mining will further increase the water and environmental degradation, water scarcity, and biodiversity loss surrounding the mining areas, endangering both human and environmental security in the region.

Socio-economic Insecurity

The embeddedness of the social and economic dimensions into the environmental dimension indicated that the mining-related environmental issues would spill over to social and economic issues. While “no poverty” and “zero hunger” are listed as the first two Sustainable Development Goals (SDGs), the development of the mining industry is creating an opposite effect in poverty reduction. 

The mining industry competes for water resources with traditional livelihoods surrounding mining areas. In Mongolia, nomadic herding still consists of over one-third of the Mongolian labour force. The construction of the Oyu Tolgoi blocked corridors that were traditionally used by herders and blocked a natural spring that herders had used for generations. In addition, many herders reported diminished water availability since the operation of the Oyu Tolgoi, and some herders were forced to shrink their herd sizes. Likewise, in Chile, due to the privatisation of water, the mining expansion deprived the water rights of indigenous communities that utilised it for the irrigation of crops. Agriculture plays a significant role in providing food and a source of income for many local and indigenous communities in mineral-rich countries. The agricultural sector is already vulnerable to the impacts of climate change; the conflict for water between mining and the traditional way of life further diminishes the productivity of the communities. It exposes them to a higher risk of unemployment and loss of livelihood, which contradicts the SDGs by increasing food and economic insecurity and undermining cultural sustainability. 

Economically, the growing dependency on resource rent will expose the economy of mineral-rich countries to higher vulnerability to the price and market volatility of mineral goods. 

The high volatility and low resilience nature of mineral goods and the impacts on the economy were demonstrated by the Chilean and the Mongolian economy in the mid-2010s. The contraction of copper and coal prices between 2013-2014 played a decisive role in the creation of the Mongolian economic and currency crisis in 2016. Decreasing copper price continued to haunt the Mongolian economy from recovery until 2017. Similarly, in Chile, the low copper prices and weak global demand led to a 17% decrease in mining exports in 2015 and large-scale unemployment in the mining sector. 

The cases of Chile and Mongolia show that the boom-bust cycle can easily disrupt the fiscal stability of the government. In addition, the mineral price usually takes years to rise to the initial level, indicating the low economic resilience of the mineral economy. Economic volatility has a detrimental effect on social and economic security. For instance, the Mongolian economic crisis resulted in social welfare reduction, inflation in food and fuel price, and a severe fiscal deficit for the Mongolian government. 

Dutch disease

Dutch disease describes the causality between the boom in a specific economic sector and the decline in other sectors, which is contributed by the appreciation of the country’s currency. As a result of the currency appreciation, imports increase while the price competitiveness of domestic non-booming tradable sectors like manufacturing decreases. 

Dutch disease is a common occurrence in resource-rich countries after the boom in the natural resources sector. Furthermore, the decreasing competitiveness of non-booming tradable sectors lowers the return rate in those sectors and creates a vicious cycle of decreasing capital inputs and de-industrialisation. Therefore, Dutch disease will further increase resource-rich countries’ economic dependency on resources and lower their economic diversification, which further shrinks resource-rich countries’ economic resilience and sustainability.

The Mongolian economy has shown symptoms of Dutch disease after two decades of the mining boom, such as the shrunken importance of the manufacturing and agricultural sectors in the national economy and the import-dependency of the Mongolian economy. Likewise, Dutch disease is visible in other mineral economies like Angola, Congo, and Equatorial Guinea. 

The spread of Dutch disease in mineral-rich countries threatens their economic sustainability. Firstly, the diminishing non-mining sectors increase the unemployment rate and associate social welfare. Secondly, de-industrialisation will prevent mineral-rich countries from developing a value-added and innovative economy, making them fall into the middle-income trap and fail to lift their citizens out of poverty.

Obstacle of the Energy Transition and Potential Solutions

In a nutshell, the current energy transition is just shifting the environmental burden of the energy sector from developed countries to developing mineral-rich countries. While the first are enjoying the benefits of renewable energies and battery technologies, environmental injustice clearly violated the inter-generational and intra-generation equality principle of sustainability aforementioned by depriving communities of mineral-rich countries of pursuing their way of life and exposing them to high vulnerabilities. 

The higher mineral consumption and market expansion of renewable energies will certainly intensify the environmental and socio-economic problems related to mineral extraction. While mineral-rich countries need to strengthen their environmental regulations, many vital mineral reserves are located in developing countries that lack the regulatory capacity or willingness to adopt strict environmental regulations. For example, the privatisation of water infrastructures in Mongolia restricted the abilities of state apparatus to monitor the environmental impacts of mining. The boom-bust cycle of mineral rent and the corresponding economic stagnation can also significantly impact the regulatory capacity of mineral-rich economies. The Asian financial crisis in 1997 resulted in the deterioration of environmental law enforcement and led to the notable losses of forests and biodiversity in Indonesia

Therefore, developed countries shall take responsibility for mitigating the impacts in mineral-rich countries. From an environmental perspective, industrialised nations can enforce universal jurisdiction on mining corporations to regulate their overseas environmental impacts. Many corporations from developed economies are responsible for the mining operation in mineral-rich countries. For instance, the Canadian mining company Ivanhoe Mines and Turquoise Hill Resources are responsible for operating the Kamoa-Kakula copper mine in Congo and the Oyu Tolgoi copper mine in Mongolia, respectively. Universal jurisdiction can enforce the stricter and more comprehensive environmental regulations of developed economies globally that complement the regulatory deficiency in mineral-rich countries. Strong institutions and human capital are essential for mitigating the social and economic impacts of mining. Developed-resource-rich countries, like Canada and Australia, can offer economic and policy experts or training for developing mineral-rich nations to reduce poor economic prediction and unsustainable fiscal practices.

The lack of global thinking and narrow focus of the energy transition plan is putting the environmental well-being, economic stability and resilience, and social security of mineral-rich countries at risk. A sustainable energy transition should be inclusive and just; the current direction toward sustainable development is clearly paradoxically to the UN agenda of “Leaving No One Behind” and sacrificing the current and future development of mineral-rich countries.

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