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Securing important resources and protecting the climate

Direct or indirect access to natural resources is a prerequisite for human life and economic activity. Essentially, this involves vital resources such as air, water and food, along with an environment with moderate temperatures or with the wherewithal for protecting against hazardous weather.

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Direct or indirect access to natural resources is a prerequisite for human life and economic activity. Essentially, this involves vital resources such as air, water and food, along with an environment with moderate temperatures or with the wherewithal for protecting against hazardous weather. The supply of vital resources generally requires access to other natural resources (for example, fuels for heating or ores for tool manufacture). Economically developed societies have an increased demand for resources and raw materials in terms of quantity and number.

In today’s highly globalised world (as well as in the post-coronavirus future), where there is a rapidly growing population and dynamic technological and economic development, the demand for natural resources and raw materials has become very similar for most countries (e.g. through the worldwide use of electronic devices or other goods, such as cars), yet it has also undergone fundamental changes in recent years. One example applies to the mobility sector: for about the last one hundred years, the option of motorised mobility anywhere in the world has depended on access to petroleum-based fuels. Growing electromobility is now leading to new resource dependencies, for example in battery cell production, which will require metals such as lithium, cobalt and nickel for the foreseeable future.

The same applies for supplying energy to the electricity, building and industrial sectors. Here, fossil fuels (oil, natural gas and coal) have been shaping world markets since at least the middle of the 20th century. Here too, accelerated change has been evident since the turn of the millennium, because raw materials such as iron ore, bauxite, rare earths, silver, indium or copper play a central role in the production of wind turbines or solar cells. With regard to energy production, another factor comes into play for Germany as a very densely populated country: the areas required for renewable energies (resource land/coast), which have sufficiently favourable natural conditions (particularly relevant for wind power), are limited. Acceptance issues among certain sections of the population are already slowing down the expansion of renewable energies, and this is threatening to become worse in the coming years. For this reason alone, energy self-sufficiency in Germany, based on renewable energies, is an unrealistic prospect. Energy imports and the reciprocal supplying of partner countries inside and outside the EU remain indispensable.

With its pronounced industrial and export orientation, Germany is one of the world’s largest consumers of mineral resources, which are also of central importance for numerous future technologies. In terms of weight, ores (especially non-ferrous metals), fossil fuels (oil, natural gas, coal) and other mineral resources each account for just over a quarter of Germany’s raw materials imports, and biomass for about a fifth (90 percent of which comes from agriculture). Due to a lack of domestic reserves, Germany has to import almost all of these raw materials, for example from Peru (copper), Brazil (iron ore) or South Africa (platinum). There are risks associated with this import dependency, due to:

  • price fluctuations on the world markets,
  • a rapidly increasing overall demand for (critical) raw materials,
  • delivery interruptions due to various crises, such as the coronavirus;
  • concentrations of market power in a few countries and companies, in part along entire value chains (as in the case of China and Chinese companies, from the extraction and processing of rare earths to the manufacture of the end product),
  • trade disputes, protectionism, and distortions in international competition due to systematic state support measures for certain companies, particularly in the context of economic stimulus packages in the wake of the coronavirus crisis,
  • increased environmental, social and transparency standards in connection with the extraction and trading of raw materials as well as corresponding due diligence obligations along the supply chains

In order to reduce these risks, it is important for Germany to decouple raw material consumption from economic growth as much as possible. At the same time, the aim is to conserve finite natural resources and reduce greenhouse gas emissions to zero by the middle of the century, as there is a close link between resource consumption and climate change. Not only does the increasing worldwide extraction and consumption of raw materials and resources have a massive impact on the environment and climate, but, conversely, more frequent and severe extreme weather phenomena can sometimes cause water shortages, soil erosion or crop failures.

Last but not least, climate change is a potential crisis intensifier which carries with it, among other things, security risks and can also lead to migration movements. In this context, it is important to recognise that climate change does not just raise the question for German foreign policy of which partner countries offer the greatest potential for reducing emissions. From the point of view of many developing and emerging countries, the issue of adapting to climate change, which in some cases can no longer be avoided, has moved to the forefront because of their vulnerability. It is therefore in Germany’s interest to support strategic partner countries in coping with the effects of climate change.

With an internal focus (but with foreign and resource policy consequences), the EU Commission’s draft for a European climate law published in March 2020 is important for Germany. This stipulates legally binding CO2 neutrality for the EU by 2050. If the European Council decides on this target and backs it up with further interim targets and measures, Germany will have to convert more than 80 percent of its current energy mix from fossil to renewable energies in the next three decades. This means two things for Germany’s external energy policy: on the one hand, considerable, albeit continuously decreasing, quantities of fossil fuels will continue to be required for the transition period until 2050. Import dependence from third countries (i.e. neither EU nor NATO states), such as Russia, will thus remain for the foreseeable future. On the other hand, as already explained, Germany will depend to a much greater extent on the supply of additional raw materials for the increased use of green technologies.

In 2007, under the chairmanship of the Federal Ministry for Economic Affairs and Energy (BMWi), the Interministerial Committee (IMA) on Raw Materials was set up, thus defining the securing of raw material supplies as a cross-sectional task. The German Federal Government’s first official raw materials strategy was published by the BMWi in 2010. It refers to non-energetic mineral resources, i.e. it does not include crude oil, natural gas and coal or plant-based, in particular agricultural, raw materials. The background to the development of the strategy was the sharp rise in prices since 2003 and delivery risks in the international trade of raw materials. This development went hand in hand with an increasing dependence on the import of raw materials in Germany and Europe. The 2010 raw materials strategy was drawn up on the premise that the companies themselves are primarily responsible for securing their supply of raw materials. The state is responsible for supporting the companies politically via appropriate trade agreements and through advisory services. To this end, the German Raw Materials Agency (DERA) was founded, which analyses foreign raw material risks and potential and, increasingly, also the sustainability aspects of supply chains.

In response to the rising price of raw materials and increased trade restrictions (such as restrictions on the export of rare earths by China), the German Federal Government has concluded government agreements with Mongolia (2011), Kazakhstan (2012) and Peru (2014) – so-called raw material partnerships. In addition, a memorandum of understanding was signed with Australia in 2017 on closer institutionalised cooperation in the fields of raw materials and energy. Less binding raw material collaborations were initiated with Chile, Ghana and Canada. Against a background of recovery in the market, however, German companies have not had to rely on this form of political support in recent years. On the other hand, credit guarantees issued by the federal government are used for the long-term safeguarding of raw material purchase contracts for German companies. At the same time, companies have largely withdrawn from the extraction of raw materials themselves (despite support programmes, such as conditionally repayable loans).

There was a shift in focus in the update of the raw materials strategy adopted by the German government at the beginning of 2020: it is now primarily about the influence on raw material demand caused by disruptive technologies, trade disputes, concentrations of power in the market and sustainability requirements with regard to supply chains. The intention is to link implementation of the raw materials strategy with the goals of the German industrial strategy and the sustainability strategy (with its national and international focus) and with climate goals. Partner countries are to be supported in setting up stronger supervisory authorities for mining – and thus also in ensuring a more water and energy-efficient, environmentally friendly raw material extraction. A corresponding development policy programme has already been launched in the Andean region. The promotion of environmentally sound recultivation of mining sites in Mongolia is another example.

With regard to electromobility, the Federal Government (along with the EU Commission) has already issued a statement of intent to counteract dependency on the import of battery cells from the Far East and to promote battery cell production in Germany (and Europe). Regardless of this, the dependency on importing raw materials will remain, especially for lithium, cobalt, nickel, graphite and manganese. Large amounts of copper and rare earth continue to be required for electric drives (as well as for numerous other electrical products). While it is relatively unproblematic to obtain copper and nickel on the world market, the purchase of manganese and lithium, and especially cobalt, graphite and rare earths, is associated with greater risk. 70 percent of the world’s graphite and 85 percent of rare earths are mined in China; 61 percent of the cobalt comes from the Democratic Republic of the Congo. So, not only are there very few countries that can supply these raw materials, but the countries listed here are ones that are subject to political uncertainties. The coronavirus pandemic has once again demonstrated that import dependencies from supposedly safe supplier countries can also pose supply risks in the event of severe and suddenly occurring crises.

In the energy sector, the energy partnerships with important energy producing, energy transit and energy consumer countries are a key instrument in the BMWi’s energy foreign policy strategy. The primary goal of this cooperation is to promote the expansion of renewable energies and the use of efficient energy technologies. In addition to the resulting effect of climate protection, the aim is to reduce global competition for increasingly scarce energy resources and to increase the security of supply for Germany. At the same time, the federal government is hoping for improved export opportunities for German companies that offer energy-efficient products and innovative energy systems. Examples are the German-Norwegian energy collaboration, the German-Russian modernisation partnership (because of the focus on cooperation in the field of energy efficiency), and the energy partnerships with Turkey, Nigeria, Morocco, Tunisia and Algeria. Saudi Arabia is also showing interest in closer energy cooperation. Among the major energy-consuming countries, there are partnerships with India, China, South Africa, Mexico and Brazil, for example, against the background of these countries having a strong influence on global consumption and thus also on the prices of fossil fuels. In the case of Japan, the focus is on joint research and pilot projects, as well as on various types of cooperation to accelerate the energy revolution. A particular focus is on innovation and digitisation in the field of renewable energies, network development and hydrogen.

In view of the various strategy papers (sustainability, industry, raw materials and hydrogen strategy, climate protection plan) that the German Federal Government has recently developed or updated, it can at least be said that the need for its policies to have a more strategic orientation has been recognised and that this has been translated into appropriate goals and guidelines. In terms of practical implementation, however, it remains to be seen to what extent real coordination will be achieved between, on the one hand, the ministries concerned and, on the other, between the various strategy papers. Different approaches, responsibilities and interests must be reconciled, at least in broad outline. However, it is not yet clear whether, for example, the potential for climate policy cooperation is being considered together with geostrategic and security policy concerns. Why should Germany, for example, not focus its offers of climate policy support more on those countries that would make good, close partners in other areas, starting with the question of raw materials?

Meanwhile, approaches of this kind can be seen in individual cases. For example, Germany is promoting, in various ways, the expansion of renewable energies in Morocco, thereby supporting a country in the immediate vicinity of Europe, in a very fragile region. This focus also makes sense in terms of security policy. There is also a new motive for doing this: because of its enormous renewable potential and geographical proximity, Morocco is now also considered a possible partner for what is regarded as the necessary, long-term import of hydrogen and hydrogen-based products that are CO2-neutral, having been produced with renewable energies for use in a variety of ways. Similar approaches can also be seen with regard to other African countries, where positive dependencies could be achieved for both sides without creating excessive, one-sided risks.

Such risks tend to be related more to the import of fossil fuels. Germany has to import almost all of its oil and 90 percent of its natural gas. While the dependency on individual supplier countries is less significant in the case of crude oil, since worldwide delivery by tanker is carried out flexibly from a large number of countries, the situation is different for natural gas imports, which are usually dependent on pipelines. These imports come mainly from Russia, the Netherlands and Norway. Nevertheless, the supply of gas to Germany is highly diversified compared to other European countries. Further significant diversification and balancing of supplier countries is not really possible due to limited capacities on the part of supplier countries and limited infrastructure (natural gas pipelines). Nor has this been a political priority for Germany to date, as shown by the German government’s position on the construction of the second Nord Stream 2 gas pipeline from Russia through the Baltic Sea to Germany – despite protests from Brussels and several Eastern European countries about the high level of dependence on Russia as a political rival of the EU. This potential for conflict (even within Europe) is likely to persist for years to come and Germany should keep a watchful eye on this.

Jasper Eitze is Policy Advisor for Energy and Resources in the Analysis and Consulting department.

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RUSSIA

As a partner for the securing important resources and protecting the climate

Economic growth and employment in Germany largely depend on key, energy-intensive industries, such as chemical or metal production. Despite the increasing importance of renewable energies, petroleum and natural gas – the first and second most important energy sources in Germany – play an important role for these industries.

IRAQ

As a partner for the securing important resources and protecting the climate

Iraq has the world’s fifth largest oil and twelfth largest natural gas reserves. The country is a founding member of the Organisation of Petroleum Exporting Countries (OPEC) and, in recent years, has become its second largest producer. The Iraqi government plans to further expand the oil and gas sector in the coming years, thereby increasing production capacities even more.

SOUTH AFRICA

As a partner for the securing important resources and protecting the climate

According to Federal Minister Müller, Africa is to become the “green continent of renewable energies”. South Africa, the continent’s most developed economy, is pursuing ambitious goals in this area, similar to those being debated in Germany, for example, drastically reducing CO2 emissions, reducing the massive dependence on coal and introducing a carbon tax.

PERU

As a partner for the securing important resources and protecting the climate

Peru is an exception in Latin America in terms of its enormous wealth of resources and biodiversity. The country has three large landscape zones: the coast, most of which is covered by desert, the Andes and the jungle region. According to the World Resource Institute, Peru is one of only eight megadiverse countries in the world, possessing 84 of the 104 existing life zones. 76 percent of the country is occupied by rainforest, which means that the country has the largest share of the Amazon rainforest after Brazil.

JAPAN

As a partner for the securing important resources and protecting the climate

For Germany, Japan is one of the most important economic and value partners in Asia. In addition to the desire to jointly maintain and further develop the multilateral order, there is also the desire for closer cooperation in future technologies. Japan and Germany face very similar challenges, particularly with regard to the future of industrial production and the demographic development of their societies.