Critical Raw Materials and Renewable Energy Transition: The Role of Domestic Supply

George Yunxiong Li and Simona Iammarino

No 2403, Papers in Evolutionary Economic Geography (PEEG) from Utrecht University, Department of Human Geography and Spatial Planning, Group Economic Geography

Abstract: Many critical raw materials (CRMs) – including rare metals and earth elements – are essential components in renewable energy products, and they work as an irreplaceable material basis for related technological innovation. However, global CRM supply chains are subject to significant risks, posing threats to the stability of the renewable energy industry. To address the challenges, a growing emphasis in both academic and policy circles is directed to de-risking supply chains through diversification and production reshoring. In this study, we investigate the relevance of domestic CRM production as a strategic measure to hedge against global supply shocks, providing competitive advantages for local renewable energy development and innovation. We explore this issue by focusing on two core renewable energy sectors: Wind and Solar energy. Analysing data from a panel of 128 countries spanning from 2007 to 2016, we examine the impact of domestic CRM supply capabilities on the competitiveness of the RE sectors and technological innovation, while controlling for various influencing factors. Our findings show that a stable CRM supply through domestic production significantly supports downstream RE product export and patent output, protecting local RE development from global material supply shocks. Using the case of renewable energy sector, this paper introduces the concept of "material-based technological regime" and underscores the critical importance of supply chain stability for key materials in bolstering national technological advantages. It provides valuable perspectives for both businesses and policymakers.

Date: 2024-01, Revised 2024-01
New Economics Papers: this item is included in nep-ene and nep-env
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Working Paper: Critical Raw Materials and Renewable Energy Transition: The Role of Domestic Supply (2024)
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