Critical Raw Materials used in clean energy technologies and their externalities: how they will affect investment prices in light of the EU taxonomy

Critical Raw Materials (CRM) will play a crucial role for the energy transition in the coming decades. Indeed, an energy system primarily powered by wind farms, solar PV plants and storage batteries will be more material intensive in respect to technologies based on fossil fuel sources. Therefore, integrating renewable energy sources (RES) will drive up the demand for many critical raw materials, making the energy sector one of the major suppliers in the mineral market. Moreover, the use of such materials in clean technologies is of interest because it comprehends negative externalities in an energy source that is commonly considered “green”. This is important given that the current policies on financing activities present in the European union, in particular the EU taxonomy, are trying to incentivise investments in green technologies that are considered to be the ones without environmental externalities. Therefore, the objective of this thesis is to understand if and by how much externalities caused by the use of CRMs will be reflected on the financing prices of renewable energy sources, and if this difference will be high enough to disincentivise sourcing materials from specific sites which have more negative impacts than others. The thesis is structured as follows. The first chapter analyses what is the material intensity of solar PV, wind and storage batteries and how many of these CRMs will be needed to meet the target for a net-zero emission economy by the middle of this century. It is also analysed what is the action plan at the European level to address the supply challenges of these materials. In the second chapter the existing literature on the externalities associated with the mining and the refining of these materials is studied. In particular, the focus has been put on geopolitical implications, due to the fact that China controls the majority of the mining and refining facilities, and how the EU is addressing the risks of supply chain bottlenecks; socio-economic externalities, deriving from health risks and human rights abuses; and environmental impacts, specifically GHG emissions, water pollution and soil contamination. Finally, in the third chapter, it is examined how the European taxonomy on clean financial investments affects the financing prices of RES and what the difference of price would be between renewables manufactured with materials sourced in “green” or “brown” sites. Three different scenarios were simulated, based on the share of clean technologies that have a polluting component in their value chain and that would therefore face a higher weighted average cost of capital (WACC). These cases were compared to a baseline scenario, where the RES market is considered 100% taxonomy aligned. The results show that approximately an additional 100 billion dollars would be needed in the worst-case scenario, where 80% of RES were considered brown.