Assistant Secretary Fannon: Thank you for taking some time on your Friday to join us. I thought it would be a good time to share some views on the issue of energy minerals, supply chains, and in the context of the overall global energy transformation that’s happening.
I won’t go too far into the issues. I know you have all looked into the subject quite a lot over the last few years. I’ll just give a couple of highlights on why we’re focused on this issue.
As the demand for clean energy technology continues to increase it creates a considerable, really an exponential, demand increase for the minerals that supply the energy technologies that the world is starting to demand increasingly and certainly will continue to do so in the future.
I use the word exponential because that’s really what we’re going to see. A variety of fora have looked into this question to look at what are our clean energy projections and what are the, by inference, implications for demand.
It adds even groups with conservative projections, such as the World Bank, which has looked at this question and found that you can look at battery mineral technology for example, the battery minerals will increase demand 500 to 1000 percent in the next 20 or 30 years. So this creates a huge growth. And we started looking at where are these minerals, how are they being sourced, how are they being processed, where are they. And are they being done in a way that is built on historic transatlantic principles of good governance, around human rights, transparency, the inclusion of communities.
And, so sometimes they are and sometimes they’re not, but we’re really looking at how do we ensure that the supply chain is developed to actually meet with demand forecasts?
And so, we’ve looked into it and we found that unless we ensure that these jurisdictions have the appropriate governance conditions, I think most of them want[aren’t]. In order to do that the world will either not source from these countries because of perhaps reputational [clouds], some issues that we’ve identified and many of you have reported about over time. Or the world does source these minerals from these locations but the communities at issue are not included in the transition, the economic opportunity, they end up being targets of predatory investment practices and environmental harm as a result which creates a whole set of foreign policy challenges.
So most people, you know there’s been considerable reporting on some cases like the Congo. There’s issue about the considerable reporting as to the demand for renewables and how it continues to increase. But how do we square this question, what’s the solution?
So what we did is we formed an organization called Energy Resources Governance Initiative. The objective here is to work in partnership with other founding members — Australia, Canada, Botswana and Peru. A total of five countries spanning four continents with very diverse regulatory structures, histories, but all responsibly developed mineral sectors.
So what we’re seeking to do is in partnership together to identify what is a global best practice to how to do this on a government to government basis to allow countries to adopt best practice, to implement those practices and catalyze best in class, world class investors. That’s what ERGI is designed to do.
I’m calling you today after just returning from Portugal. I went to Portugal because Portugal is the only country in Europe that has a reasonably sized lithium deposit in the continent of Europe. We engaged Portugal to talk about how they can develop their resource. They have an aspiration to develop this resource which is great timing because Portugal also assumes the EU presidency next year and it’s also coming at a time when the EU has recently released a variety of policies and [tenets] to design a responsible mineral supply chain.
I say all that because we’re very pleased to see that the discussion that we’ve launched two years ago really around responsible minerals development for energy transition technologies, this concept has really taken hold. We’ve changed the level of awareness in the global community and we’re really seeing some really very positive steps moving forward.
I mentioned the EU and the recently announced European Raw Materials Alliance which we spoke to Portugal about and I’ve been in dialogue with the European Commission about it as well.
Also entities like the International Renewable Energy Agency has talked about this issue. I was pleased to help co-host a conference around the criticality of minerals to the energy transition.
The International Energy Agency has started to look into this question and has made some pretty remarkable conclusions which require further investigation relative to market concentration of these minerals and processing. And, we’ve launched a variety of bilateral arrangements with countries all around the world and have provided technical assistance to them to support the development of these sectors for a responsible supply chain.
And we’ve convened several technology companies, clean energy companies to talk about this issue. And. we’re convening a CEO roundtable around this discussion as well. So there’s been a lot happening. We’re very pleased that the State Department has helped to catalyze our global conversation and we’re seeing real policy outcomes and the initial stages of the development of a new supply chain that is based on shared principles, responsibility, human rights, environmental integrity to position the world to have the minerals it needs for the next decades to come.
With that, I’m pleased to answer any of your questions.
Reuters: Thanks, Frank, for holding this.
I just wanted to ask what you thought about the future of U.S.-Greenland relations over minerals. After all, there was the $12.1 million aid package last April, economic development, and I guess that also had some U.S. specialist consultant work with it. But there as nothing on climate on that. I’m wondering as the U.S. continues to work with Greenland might there be more involvement with climate? And what do you think diplomatically in terms of just works that might go on from the U.S. with Greenland.
A/S Fannon: I think firstly, it’s correct to first recognize that Greenland is part of the Kingdom of Denmark and so there are some broad matters of foreign policy and global policy, I suspect, how they manage that relation, and how that’s worked within the context of Denmark.
You’re absolutely right. We do have ongoing technical assistance to support Greenland through its internal ministries relative to the home rule provisions of Greenland, provide the Greenlanders will manage their national resource as well as their energy potential, et cetera.
So our MOUs we have with Greenland are pursuant to that. Some of those do include minerals to help Greenland understand its resource endowment, to build technical capacity to manage it. We have a partnership to help the Greenland university or colleges to develop a minerals and geoscience capacity in partnership with the United States. And then we’re also helping them to develop a renewable energy resource with the utility there in Greenland. So we have a lot going on in Greenland in the context of clean energy for Greenland as well as their minerals that will be used for energy, clean energy technologies.
Washington Examiner: Thanks for doing the call Assistant Secretary Fannon. There’s been some recent action in this administration to kind of try to promote more domestic mineral mining. There was a DOE loan program that they’re going to make use of, basically trying to prioritize critical mining projects [inaudible]. How helpful do you think that is and when you think about all your efforts in this area. I know you are obviously internationally focused, but how important is it for [inaudible] the U.S. actually developing a domestic pipeline for minerals.
A/S Fannon: You’re absolutely right. The President issued an executive order that called for review of our critical minerals really right after he assume office, so there’s been a considerable amount of work and most of that, as you alluded, is focused on the domestic [context] and DOE’s work and some of the, there’s been some very compelling R&D programs around that we’re doing, which are critically important. As well as recycling programs . That’s another important point. All of those link to the domestic capacity to be more self-reliant in this way. And also working in partnership with other [friendly] countries.
What this is also seeking to do in the international context is ensuring there’s a global adoption of best practice. It’s important because it helps raise the global playing field up to more U.S., [inaudible], Australian kind of standards. And, that’s important so that the hidden costs that are taking place through predatory investment practices and other [policies] of the world, that the hidden costs are exposed and that we create a global, leveling, of the playing field.
We believe that once there is this leveling of the playing field that it will incent greater investment into our domestic resource development of some of these minerals both on the mining side as well as the processing side. And I’m pleased, as I said, Europe has just started to look into the same questions that we’ve been really pushing forward and advancing for two years plus now. Secretary Pompeo helped launch ERGI on the margins of the UN General Assembly last year and since then we’ve just had just rapid progress and getting both the global awareness I spoke of, the catalyzing of other efforts around the world, as well as the build-out of ERGI, the interests of other countries to participate, and our own technical assistance to implement the tool kit.
We’ve spent $10.5 million, in that ballpark, in the last year alone in countries to implement global best practices. So we’re really pleased with the momentum but it will have the benefit of increasing investment in the United States to have a more domestic supply chain of which some of these programs are a part of. Thanks.
Financial Times: Thanks for arranging this.
My question would be when you are looking for new members of the alliance. I mean, which kind of countries are you looking for? I mean for instance there’s a lot of attention on Indonesia now and the [inaudible] [inaudible] to invest and other [countries] to invest. Are you talking to them at all Thanks.
A/S Fannon: Thanks for the question. We have considerable interest from countries all around the world and what we’re going to do is, in terms of the participation. We have our founding members and we have MOUs that will frame out what we are attempting to do. And while our level of participation from other interested countries, it’s really based on their interest to responsibly develop their resource, their resource base of these metals and also to commit to implementing the principles that we include in the tool kit which is available to everyone free, on-line, at ERGI.tools.
So they’re free to do that and the mechanism to do that is very straightforward, I won’t be going through the entire MOU process.
I know that we’ve got multiple countries, we had over 20 countries last month participate in an ERGI discussion, a virtual discussion for some time and we were very pleased to see was a global representation.
We have other countries. I was recently in Brazil and recently in Ecuador. In Brazil we signed [inaudible] MOU focused on these same concepts which is complementary efforts to ERGI. In Ecuador they’re extremely interested. The Minister there [inaudible] we spoken about this multiple times.
In Indonesia we are engaging with Indonesia to walk them through.
The idea here is that the world as you see the relative ESG and activist pressures on corporate and countries. We believe, are confident that there will be the application of a market premium for the recognition of those countries that are responsibly — countries and projects in countries that are responsibly sourcing minerals and processing them in proper ways. We will give a premium to those projects and countries.
And, because of that we know more countries and more companies are interested in being recognized as a premier producer. Because, many current technology companies, as you know, are mission driven. They are intent to improve the world, make it more sustainable, make it more responsible. And as such they will increasingly be held to account if their supply chain does not meet their levels of ambition. So it’s in their interest to [inaudible] the premium and do things the right way. It’s in countries’ interests to attract the best in class investors. So we very much see ERGI as an important single step on the responsible supply going forward.
Bloomberg: Can you talk a little bit about, or can you point to ways in which supply chains have been strengthened so far? I know you’ve talked initially about, some of the press were saying this was not a counter-China initiative but obviously there are concerns about the way that China dominates in rare earths and so obviously the focus on China recently has brought the risk to the supply chain.
Have you seen, since you guys announced this initiative at the General Assembly a year ago, have there been specific ways in which supply chains have actually been strengthened? Do you feel more secure? Or are we still very much at the beginning of this process? Thank you.
A/S Fannon: I feel, what we’re talking about is creating a [new] supply chain that doesn’t exist, and built for the future. What we see, given the growth of just ERGI alone, and there’s a lot of other complementary efforts that I would argue are helping to catalyze . I mentioned what’s happened in Europe. I mentioned how the International Renewable Energy Agency is looking into this issue. Why? Because they see an unethical supply chain as a material vulnerability to the deployment of renewable technology of that scale.
IEA, International Energy Agency, Dr. Birol noted that the IEA was created to ensure greater market resilience in the context of the oil markets because of the concentration in the 1970s of the oil market was controlled in the hands of a discreet number of players so we created buffers around that.
We also know that recently, relatively recently, that these energy minerals are far more concentrated than oil ever was. So we have to implement and grow renewables and clean energy technologies the way we think they should be and the way the market participants are demanding. We have to create the supply chain.
China is an important actor in all of this given that so much of the current supply chain tends to go through China in one way or another, either through their long term contracts, agreements, certain commodity producers, their processing capabilities or their state funding of [exploitation] around the world.
We view that as a bottleneck. It’s a material bottleneck to the system. And if you have 90 percent of all of them go through one point in the world, and you’re going to increase processing 500 to 1000 percent, that’s a material vulnerability in the supply chain. If you have 85, 70 percent of global cobalt coming from one location and the government decides overnight to change its [inaudible] [policy], that’s a material event on the integrity of the supply chain.
So, it’s the issues that can play out in a variety of contexts, a lot of it is China related, but that’s why I say this wasn’t constructed around China. If China were to adopt the same kind of transparency conditions with respect to human rights, environmental protection, the actual inclusion of communities are in development, that would be great. If they held their companies to account like are western companies are held to account. I think that would be a wonderful improvement where you [inaudible] the level of reform.
In terms of what ERGI has done, making material improvements, I think part of it is the awareness, part of it is the momentum we’re building, and some of these countries we’re talking about, they may have the geologic resources but they lack the capacity to actually do what they think they should be doing. So that’s some of the work we’re doing what we have are sending experts in to accomplish their own ambitions.
We’re pleased with the momentum, given a couple of international organizations that have focused on this issue and we think these are really going to continue.
In terms of specifics, technical work, [bilateral] work going into in Brazil, Peru, Argentina, Greenland, Colombia, we did some work with Chile, these are the places — that we work based on country requests and how they want to plan their future, and these are all countries that [inaudible] since the launch of ERGI. Thanks
Reuters: Something slightly off topic. How concerned are you about the cyber espionage events [inaudible] SolarWinds getting into software systems dealing with U.S. sanctions on Russia or Iran?
A/S Fannon: I don’t handle that file but I think we’re all concerned about cyber espionage and the appropriate measures that we take and countermeasures as a matter of course.
I think what it really does to though is underscores the potential new vulnerability which as you see the digitalization of these energy systems around the world, the growth of scaled renewable technology, battery technology, all of the development of autonomous driving, of artificial intelligence, all of these create potential new vulnerabilities to our systems and as such it’s critically important that we use trusted vendors, suppliers rather than SOEs from competitor nations or nations that are hostile to our way of life. It’s critically important that we do that.
I spoke at an event two months ago and this subject came up. My point was the best way to mitigate against a threat was not to create one which is why the issues of digital security is something the Secretary’s been pushing in the context of the clean network and other areas because we’ve moved from the digitalization of these energy systems. So that is a key concern and I think we’ve been also transformative in growing global awareness of that issue in countries that [inaudible].
Reuters: Do you know if the risk was the critical minerals, the supply chains there?
A/S Fannon: I think it’s a risk everywhere in terms of this bottleneck concept, this chokepoint and the concept of building the supply chain for the future growth that we anticipate. And not just we, the U.S. government, but technology companies. So we need to make sure that, and it’s incumbent on all of us, to work with these trusted vendors go forward.
Washington Examiner: I know I asked something similar on a recent call , but I just wanted to finalize [inaudible] the incoming administration. I was wondering if ERGI, if this is something that you discussed, I don’t know you’ve participated in transition conversations. Your level of confidence that there will be continuity with this program that would be continued going forward.
A/S Fannon: Thanks. Transition conversations are underway. And this is a key initiative that I have every confidence will continue. Now maybe on the margins things might be a bit different, but this is an initiative [inaudible] crucial founding countries. It’s not just the U.S. doing it. It’s not just a U.S. alone policy. And it has strong support from the founding members that I mentioned, particularly Canadian and the Australians but also Botswana and Peru. They would like to see this continue as well.
So I believe on that there will be a degree of continuity.
Secondly, I haven’t spoken with the team about, in particular from what I’ve ready in the media, they have very ambitious clean energy targets and net zero targets and things of that nature and you cannot achieve the clean energy targets without having a responsible supply chain for the future. So I anticipate there will be a degree and continuity of ERGI and like efforts.
Financial Times: Just to clarify, you think this will keep going with the new administration, right?
A/S Fannon: I have every expectation that it would continue in some form. Yes, I do.
Thank you all for joining. I guess I’d like to just say that we’ve built an incredible degree of momentum. I’ve raised this issue of responsible sourcing from a variety of partners, parties, around the world, and I’m really pleased to see ERGI moving forward. It’s created a great degree of greater awareness. Other entities such as the EU are meaningfully stepping into place.
The EU has been issuing a critical minerals list for decades, but recently they put together their action plan on how to proceed.
So we are ahead on calling for this development of a responsible supply chain.
I think where we are now is we have created considerable momentum with a responsible supply component. What we’re going to need is for there to be the corresponding market signal on the demand side. We would encourage the global clean energy technology leaders who are dependent on those mineral supply chains, we would call on them to increase their work on encouraging mineral supply chains that we all deserve and that the world will require in the future. A current supply chain may be okay for now but given the extensive growth it’s wholly insufficient and it’s insufficient to their own bottom line, their own businesses. So we would call on them to encourage the level of investment needed for the people, the investors both on the mining side but also on the prospecting, to innovate and create this alternative resilient secure and reliable supply chain to avoid the checkpoint some of which we’ve described today.
So that is what I’d like to see as the next step as ERGI continues, as the EU continues, the dialogues that we have in the bilateral context continue whether it’s with the Canadians and Australians or the Japanese for that matter. That we get the private sector response, that they really take into account the entirety and live up to many of the missions to encourage this because what we, the idea of the energy transformation, it should not just stop at the power source, [inaudible]. But it should also be inclusive of the entirety of the supply chain and that inclusivity of the energy transition should be based on our shared principles around support for human rights, environmental integrity and the inclusion communities.
With that, thank you again for your time. I look forward to speaking to you again, and happy holidays everyone.