The Battery Metals Association of Canada (“BMAC”) recently released its report entitled “Maximizing Canada’s Battery Metals Sector” addressing Canada’s ability to build a “mines to mobility” supply chain to contribute to the rapidly growing battery metals industry. The report follows a virtual workshop held in March 2021 during which representatives from the Canadian battery supply chain addressed roadblocks hindering Canada’s effective participation in the global battery market, and identified steps to overcome them.
Government Engagement on the Battery Metals Supply Chain
The Government of Canada has made it clear that its attention is on this emerging sector – this year, it released a list of 31 minerals considered to be critical for the sustainable economic success of Canada and its allies, and to position Canada as the leading mining nation.
BMAC says the federal government has been focusing on Canada’s strengths – leveraging mineral abundance and robust Environmental, Social and Governance (ESG) standards – to build the battery value chain in Canada. However, this is not without challenge. The report notes that while all the major battery minerals are found in Canada, most are not actively being produced. Lithium, for example, requires specialized extraction technology; Canada currently lacks the processing capacity for many battery minerals. To address this issue, significant research and development efforts are underway across the supply chain.
Meanwhile, in 2019, China processed 65% of the world’s nickel, 82% of the world’s cobalt, 93% of manganese supply and 59% of the world’s lithium and graphite supply.
The report recognizes the rapid rate at which the global market for electric vehicles is expanding – it is expected that the market for lithium-ion batteries will be $300 billion by 2030. According to Bloomberg, Canada currently holds a fourth place ranking worldwide in having the necessary elements to build a lithium-ion battery supply chain. The global drive to re-shore supply chains downstream of mining provides Canada with an opportunity to be a supplier of choice.
A Promising Future for Battery Production
The report notes various growth forecasts for the battery metals supply chain:
- the demand for lithium-ion batteries is expected to grow 14-fold by 2030;
- 54% of end-of-life batteries are expected to be recycled in 2030, requiring recycling capacities to be increased and adding 7% to the overall demand for raw materials; as a result, lithium supply will need to grow by a factor of six between 2018 and 2030;
- the need for high-purity class 1 nickel will increase by a factor of 24 in 2030 relative to 2018 levels;
- the demand for cobalt for use in batteries is expected to increase by a factor of four in 2030;
- the supply chain as a whole is expected to grow 14-fold until 2030 as more electric vehicles are sold; and
- the battery components market is expected to grow 15-fold, and cell-production is expected to grow 19-fold. To meet demand, it estimates an additional $140 billion of funding will be required between now and 2030.
Analysis of the Major Components of the Battery Metals Supply Chain
- Mining: Cobalt, graphite, lithium, manganese and nickel are all considered critical for lithium-ion batteries, and demand for these is expected to grow. Canada currently ranks fourth worldwide for cobalt and third for nickel and graphite, with lithium exploration currently occurring in a number of provinces. There are a number of barriers in mining, including: (1) long-lead times from exploration to production; (2) remote resources lead to higher costs for exploration, mine building and operational costs, generally 2-6 times higher off grid; (3) the industry needs a wider reach of investors to fund early-stage developments; (4) the lack of exploration, with nickel and cobalt end-of-life estimated at being 12 years away; (5) unproven alternative mineral sources; (6) regulatory issues that do not exist in other jurisdictions; and, (7) ESG standards and risks. The report suggests streamlining project approval, investing in power and transportation infrastructure, providing incentives to invest in early-stage exploration, the implementation of a made-in-Canada pricing system, incentives for explorers, increasing R&D spending, promoting the Canadian mining brand, and developing a standardized assessment framework and marketing program for ESG in mining.
- Chemical Production: Processing and refining battery metals involves a number of processes, and demand for processing is set to increase dramatically. BMAC identified the following barriers: (1) lack of capacity for refining and processing existing production; (2) the high cost of facilities; (3) lack of market intelligence to understand product specifications; (4) long project time frames; and (5) remote locations lead to logistical difficulties. Suggested solutions include direct government investment to build production capacity; a phased approach with intermediary steps; working with domestic component and cell manufacturers; streamlining project approval processes; and, providing incentives for domestic or on-site processing capacity to reduce transportation costs.
- Battery Components: The four primary components of battery design (two electrodes, a separator, and an electrolyte to transfer charge between electrodes) are expected to see a 15-fold increase in demand by 2030. There are two barriers to battery components: (1) the market is currently dominated by Asia and the EU; and, (2) market intelligence should address different battery designs used by end users. The report suggests strategic partnerships and government support to attract domestic manufacturers, as well as a focus on upstream and chemical production and the creation of a national strategy with anticipated timelines for different battery types.
- Lithium-Ion Cell Manufacturing: Asia primarily dominates this space, with Europe close behind. Lion Electric, a Canadian company, is currently building a $185 million battery manufacturing plant in Quebec to allow the electrification of 14,000 medium and heavy-duty vehicles annually. However, more needs to be done and a number of barriers remain: (1) the high cost to build giga-factories; (2) auto manufacturers create their own unique batteries that are challenging to anticipate and meet demand for; (3) the Canadian market is not large enough; and, (4) there is a need to work with multinational end users to develop a Canadian market for battery cell supply. Suggested responses include the use of incentives; tax intellectual property exclusivity use in Canada; leveraging the government to engage with end users; focusing domestically and then exporting excess capacity; and, focusing on being a low cost, politically stable, socially responsible and environmentally friendly supplier.
- End User Applications: There are a number of barriers to increasing battery usage in Canada: (1) Canada’s small domestic market; (2) global supply chains are tied to regions with the lowest production costs; (3) automotive and utility markets have low profitability; (4) the Canadian supply chain has to fit within the automotive industry’s procurement processes; and, (5) difficulties associated with changing battery technology. The report suggests building out specific end use applications domestically before entering the export market; lowering production costs while leveraging ESG performance; using a phased approach; horizontal integration with the supply chain in low margin segments; and, continuing to study and research changing battery chemistries.
- Recycling: North America and other regions are likely to soon see the imposition of requirements to disclose on carbon footprint and the content of recycled raw materials, similar to the EU requirements. Barriers include: (1) there is currently no technology to recycle all battery parts; (2) the cost of recycling is higher than new production; (3) low numbers of batteries are currently at end-of-life; (4) transportation concerns with bringing batteries to centralized recycling locations; and, (5) end products must fit into the supply chain and be moved from recycling back in to the supply chain. The report suggests government support and incentives for R&D; mandated minimum amounts of recycled content in batteries; ensuring Canadian electric vehicles are recycled in Canada; building out a network of battery storage hubs connected with scrap yards; and, mandating designs with recycling in mind.
Challenges and Solutions
In identifying the key steps needed to move the Canadian battery metal sector forward, the report suggested that Canada emphasize R&D and financial incentives, and prioritize certain segments of the supply chain to build the chain in a phased approach.
In addition, the report recommends that Canada and the US – both lagging behind in the battery metals supply chain – integrate their efforts. Measures currently being undertaken to formalize a North American critical minerals strategy should be applied across the entire battery metals supply chain. The combined effort between Canada and the US would assist Canada in gaining the economies of scale necessary to grow existing startup companies, meet domestic demand, and, over time, compete against other global battery producers. A North American partnership would provide Canadian end-use battery suppliers with a large enough market to compete globally, while ensuring access to key battery minerals that will enable both Canada and the US to develop downstream.
According to BMAC, regulatory barriers to Canada’s advancement in the battery metals industry such as high labour, energy, project development and transportation costs, should be addressed by providing tax incentives. Providing tax incentives for alternative extraction methods and early-stage exploration, as well as lower royalties, tax credits, lower rates and the imposition of a higher tax rate only after production has started, are necessary to expand the battery metals sector. The battery metals supply chain industry should also work with provincial and federal governments to reduce or eliminate regulatory hurdles and streamline the approval process to accelerate development times and lower project costs.
While Canada has the opportunity to be a leader in the battery metals market, BMAC notes that it faces a number of challenges, including stiff competition from other advanced markets. According to the report, to successfully build a new supply chain, Canada will need to develop a national battery metals industrial framework that recognizes the specified challenges and includes initiatives to address them. According to BMAC, Canada has a tremendous opportunity; if it can implement a successful framework, it has the opportunity to be a key supplier of battery minerals and provide each region of the country with some portion of the supply chain.