Green window of opportunity through global value chains of critical minerals

Jorge Valverde Carbonell and Alejandro Micco ()

No 2024-005, MERIT Working Papers from United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT)

Abstract: Minerals are critical for the current energy transition since new clean technologies intensively use a large variety of them. But at the same time, mineral production contributes to a large extent to CO2 world emissions. This dilemma constitutes one of the main challenges for the current techno-economic paradigm shift and, opens green windows of opportunity (GWO) for developing countries. One option to tackle this dilemma is pricing CO2 emissions to induce a restructuring of the mineral global value chains (GVCs) towards minimizing CO2 emissions. The new trade–environmental regulations, such as the cross-border adjustment mechanism of the European Union, point in this direction. In this context, countries with cleaner energy matrixes and the ability to vertically integrate the production of minerals (avoiding emissions) present a competitive advantage. This paper empirically assesses whether pricing CO2 emissions along the GVCs could open a GWO in the copper and lithium processing industries for latecomers. The methodology consists of accounting for the CO2 emissions along the GVCs of the Leader (China) and First-Follower (Chile) countries, pricing the CO2 emissions and incorporating them into each production cost vector. The catching-up process is evaluated by the production cost convergence once CO2 emissions are considered. The results show that a carbon price of US$96.3/tCO2e reduces the cash cost gap of copper processing between Chile and China from 232% to 25%. In turn, this price enlarges the cost competitiveness advantage of Chile at producing lithium carbonate and allows the convergence of Chile in the lithium hydroxide production. Once the CO2 emission value are incorporated into the cash cost vector, producing lithium carbonate and hydroxide in China vis á vis Chile is 69.5% and 5.4% more expensive respectively. Therefore, the study shows that GWOs in the mineral processing industries can be opened for developing countries conditional to favorable technology and endowments. The catching up result is very sensible to the carbon price level and the scope of priced CO2 emissions.

JEL-codes: F61 F64 F68 L72 O31 Q37 Q55 Q56 Q58 (search for similar items in EconPapers)
Date: 2024-02-28
New Economics Papers: this item is included in nep-cna, nep-ene, nep-env and nep-int
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Persistent link: https://EconPapers.repec.org/RePEc:unm:unumer:2024005

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