Germany's interests - and those who can help realise them

Securing Essential Natural Resources and Protecting the Climate

Direct or indirect access to natural resources is a necessary condition for human life and economic activity. Essentially, this involves vital resources such as air, water and food, as well as an environment offering moderate temperatures or protection from 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 both in terms of quantity and number.

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Relevance

Status quo

Potential

In our world, which is still highly globalised despite the Covid pandemic, with its rapidly growing population and dynamic technological and economic development, the demand most countries have for natural resources and raw materials has become very similar (e.g. through the worldwide use of electronic devices or other goods, such as cars), but has also fundamentally changed in recent years. The mobility sector is one example: for roughly 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 creating 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 to energy supply in the electricity, building and industrial sectors. Here, fossil fuels (oil, natural gas and coal) have dominated world markets since at least the middle of the 20th century. In these sectors, too, we have witnessed an accelerated change 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 power generation in a densely populated country like Germany, an additional aspect needs to be considered: the availability of land areas (as a resource) that are required for using renewable energies, and that offer sufficiently favourable natural conditions (relevant mainly for wind power)is limited. Acceptance issues among certain sections of the population are already slowing down the expansion of renewable energies, and this trend 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 reciprocal supply models, including partner countries inside and outside the EU, remain indispensable. This is becoming even more relevant in view of the increasing importance of hydrogen, produced by renewable energies and in large volumes, which is designed to play a key role in the defossilisation of primarily manufacturing and certain transport modes in the future. For generating this “green” hydrogen, large amounts of renewable energy are required.

Due to its strong focus on manufacturing and exports, Germany is one of the world’s largest consumers of mineral resources, which are also of key importance for numerous future technologies. Based on 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 material imports, and biomass for about a fifth (90 percent of which comes from agriculture). Due to a lack of domestic deposits, 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, caused by:

price fluctuations on the world markets,
a rapidly increasing overall demand for (critical) raw materials,
supply disruptions due to various crises, such as Covid or armed conflicts
concentrations of market power in a few countries and companies, sometimes along entire value chains ( as exemplified by the massive dependency on energy imports from Russia, or Gazprom, especially in the case of pipeline-bound natural gas, as well as a dominant position of China and Chinese companies in the extraction and processing of rare earths, even including the manufacturing of the end product),
trade disputes, protectionism, and distortions in international competition caused by systematic state support programs for specific companies,
higher environmental, social and transparency standards in raw material extraction and trading as well as proper due diligence action along the supply chains.

In order to reduce these risks, raw material consumption is supposed to be decoupled from economic growth as much as possible. At the same time, this is how Germany intends to protect finite natural resources and reduce net greenhouse gas emissions to zero by 2045, in accordance with the national Climate Protection Act. Because 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 the reverse is true as well, as illustrated by water shortages, soil erosion or crop failures, caused by more frequent and severe extreme weather phenomena.

Last but not least, climate change is a potential crisis intensifier that poses security risks, among other things, and that 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 and for providing affordable, reliable and, wherever possible, low-carbon energy imports. From the perspective of many developing and emerging countries, the issue of adapting to climate change, which, to some extent, can no longer be prevented, has moved to the top of the agenda because of their vulnerability. It is, therefore, in Germany’s interest to support strategic partner countries in their efforts to cope with the effects of climate change.

In 2007, chaired by the Federal Ministry for Economic Affairs and Energy (BMWi), the Interministerial Committee (IMA) on Raw Materials was set up, thereby defining the securing of raw material supplies as a cross-cutting political issue. The German government’s first official raw materials strategy was published by the BMWi in 2010. It covers non-energetic mineral resources, i.e. it does not include crude oil, natural gas and coal or plant-based, especially agricultural, raw materials. The strategy was developed against the backdrop of sharply rising prices since 2003 and increasing supply risks in the international raw material trade. This development was accompanied by an increasing dependence on imports of raw materials in Germany and Europe. The 2010 raw materials strategy was drawn up on the premise that businesses themselves are primarily responsible for securing their own supply of raw materials. The government’s responsibility is to support companies politically through 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 reviews the sustainability aspects of supply chains.

In response to the rise in raw material prices and increasing trade restrictions (such as restrictions on the export of rare earths by China), the German government 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. Raw material cooperation projects, which are less binding than raw material partnerships, were initiated with Chile, Ghana and Canada. But the most frequently used tools of cooperation are credit guarantees that are issued by the federal government and that provide long-term financial cover for raw material purchase contracts signed by German companies. . At the same time, German companies have largely withdrawn from the extraction of raw materials themselves (despite support programmes, such as conditionally repayable loans).

In the updated version of the raw materials strategy, which was adopted by the German government at the beginning of 2020, the focus has shifted: the primary concern is now the influence on raw material demand caused by disruptive technologies, trade disputes, concentrations of power in the market and sustainability requirements along the supply chains. The objective is to link the implementation of the raw materials strategy with the goals of German industrial strategy and 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 – thereby also ensuring a more water and energy-efficient, environmentally friendly raw material extraction. A development policy programme to this effect has already been launched in the Andean region. Financial support for 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 publicly emphasised the need to address the dependency on battery cell imports from the Far East and the plan to promote battery cell production in Germany (and Europe). After the Commission launched the European Battery Alliance in 2017, more than 100 battery projects are currently being developed in the EU, with total investment along the entire value chain amounting to almost 130 billion Euros. Given the expansion of production capacities in these technologies of the future (i.a. digitalisation, climate technology, e-mobility), this resource dependency is probably going to become even more severe, especially for lithium, cobalt, nickel, graphite and manganese. Large amounts of copper and rare earth will still be required for electric drivetrains (as well as for numerous other electrical products). While it is relatively easy to source copper and nickel on the world market, procuring manganese and lithium, and especially cobalt, graphite and rare earths, entails greater risk. 70 percent of the world’s graphite and 85 percent of rare earths are mined in China; 61 percent of cobalt comes from the Democratic Republic of the Congo. So there are not only very few countries that can supply these raw materials, but these countries are also plagued by political uncertainties. This prompted the EU as early as September 2020 to publish the fourth list of critical raw materials and the action plan on supporting resilient raw material supply chains. What’s more, the Covid pandemic and the war in Ukraine have once again highlighted the kinds of supply risks that emerge if there is too much dependence on imports from supposedly safe supplier countries in the event of severe and sudden crises.

In the energy sector, the so-called energy partnerships with important energy-producing, energy transit and energy consumer countries are a key instrument in the energy foreign policy strategy of the BMWi, or rather the BMWK, after the ministry was renamed to Ministry for Economic Affairs and Climate Action. 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 desired effect of climate protection, the objective 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 hopes that export opportunities for German companies offering energy-efficient products and innovative energy systems can be improved. Examples are the German-Norwegian energy cooperation, as well as the energy partnerships with Turkey, Nigeria, Morocco, Tunisia and Algeria. As far as the major energy-consuming countries are concerned, there are partnerships with India, China, South Africa, Mexico and Brazil, based on the assumption that these countries exert a strong influence on global consumption and thus also on fossil fuel prices. In the case of Japan, the focus is on joint research and pilot projects, as well as on various types of cooperation for accelerating the energy transition. A particular priority is innovation and digitalisation in the field of renewable energies, power grid development and hydrogen.

The Russian invasion of Ukraine does not only mark a historic shift for European security and defense policy, but also basically requires a complete reconceptualisation of energy policy, driven by the need for supply security. In response to the aggression against Ukraine, the EU has adopted far-reaching sanctions against Russia. At the same time, Germany and other European countries are intensifying their efforts to reduce their dependency on fossil fuels from Russia and to diversify their energy supply, for example by switching to liquefied natural gas imports and by accelerating the development of renewable energies. The federal government is taking the necessary action, as quickly as possible, to ensure that Russian natural gas can be replaced in the medium and long term. In order to prevent a potential supply shortfall in the winter of 2022/23, the competent minister already travelled to Norway and Qatar, looking for LNG alternatives. A long-term energy partnership was concluded with the emirate, which is designed to ensure that the agreed first German LNG terminals in Brunsbüttel and Wilhelmshaven will be supplied, once construction has been completed in approximately three to five years. Germany and the EU have also planned to import, in the long term, significantly larger volumes of LNG – 50 billion cubic meters per year – from the US.

In June 2020 already, the BMWi had published a national hydrogen strategy, including an international cooperation roadmap, in order to respond to the expected future significance of this energy source. By the same token, a memorandum of understanding was signed with Saudi Arabia, in March 2021, on a cooperation on generating, processing, using and transporting green hydrogen. The “Atlas of Green Hydrogen Generation Potentials in Africa“ that was published in May 2021 analyses the potential for the generation and export of green hydrogen in Western and Southern Africa. In December 2021, the BMWK approved 900 million Euros for the innovative funding instrument H2Global. The purpose of this project is to support the international market ramp-up of green hydrogen, for which a so-called double auction mechanism is used. Hydrogen is purchased on the world market at the lowest possible cost and sold within the EU to the highest bidder – the resulting price differences will be compensated for a maximum of ten years through grants provided by the German federal government. In addition, Germany is establishing “hydrogen diplomacy offices” in strategically important partner countries. The first office opened in Nigeria, the second in Saudi Arabia in February 2022.

In view of the various strategy papers (sustainability, industry, raw materials and hydrogen strategy, climate protection plan) that the German government has recently developed or updated, it can at least be said that the need for a more strategic approach in its policy-making has been recognised and has been translated into appropriate goals and guidelines. As far as practical implementation is concerned, however, it remains to be seen to what extent real coordination will be achieved between the ministries concerned and the various strategy papers. Different approaches, the re-organisation of ministries involving re-allocation of responsibilities after the change in government and the interests of various actors must be reconciled, at least broadly. Also, given the current energy (price) crisis, supply security is the top priority right now. What is certain, however, is that the energy and raw material supply of the future needs to be both sustainable and secure.

What was not often clearly visible in the past , however, was an effort to think about the potential for climate policy cooperation in the context of geostrategic and security policy considerations. Why should Germany, for example, not offer those countries more climate policy support that would make good, close partners in other areas as well, starting with raw materials?

There are some indications that this approach is now being tried in individual cases. Germany promotes the expansion of renewable energies in Morocco, for example, thereby supporting a country that is in a very fragile region, but in the immediate European neighbourhood. This focus makes sense, in terms of security policy as well. Because of its enormous renewables potential and its geographical proximity, Morocco has lately been considered to be a possible partner for what is regarded as the necessary, long-term import of carbon-neutral hydrogen and hydrogen-based products, generated by renewables and offering a range of possible use cases. Positive dependencies could thus be created for both sides without producing excessive, one-sided risks.

Due to the current gas supply crisis and massive price hikes, green hydrogen as an energy source designed to de-carbonise industries that are hard to electrify, such as the steel or chemical industry, is set to play an important role, much earlier than originally assumed, on the path towards climate neutrality by 2045. When it comes to diversifying partnerships, for example, it therefore makes sense to shift the focus to global regions that have been largely irrelevant for energy supply issues so far, but that have a large potential for renewable energies, like Central and South America as well as Sub-Saharan Africa. Costa Rica, for example, has actively pursued initiatives on the generation and use of green hydrogen for quite some time. Given its low-cost renewable energy sources and sufficient water reserves, the country is well equipped to play a role as a hydrogen exporter, among many others.

Jasper Eitze was policy advisor on “Energy and Resources” in the Division Analysis and Consulting.

Kevin Oswald is policy advisor on “Energy and Resources” in the Division Analysis and Consulting.

Updated on: April 8, 2022

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