War weighs on low-carbon shift: Fitch

The transition to a low-carbon economy is being challenged by the war in Ukraine, which is disrupting access to critical metals for batteries and other renewable technologies, says Fitch Ratings.

In a new report, the rating agency said that the conflict, and the resulting economic sanctions on Russia, are affecting the supply of metals essential to the construction of low-carbon technologies — such as nickel, aluminum, copper, platinum and palladium. Russia is one of the world’s leading suppliers of these materials.

According to Fitch, Russia accounted for 35% of global palladium production in 2021 and 10% of platinum, both of which are used in catalytic converters and hydrogen fuel cells. The country also supplied 7% of nickel (and 15% of class 1 nickel) that’s used in lithium-ion batteries; and 6% of aluminum, which is needed for batteries and power lines.

“Sanctions imposed on Russia and self-restrictions of buyers are disrupting metals exports from the country. This is exacerbating supply-chain pressures and market tightness,” the rating agency’s report said.

This, in turn, will affect users of renewable energy that rely on certain technologies, such as solar and wind energy, along with the transition to hybrid and electric vehicles (EVs) in the auto sector.

“Climbing manufacturing costs, coupled with the lingering autos chip shortage, could curb EV production capacity this year,” Fitch said, adding that rising costs could also curb demand for EVs, which are already more expensive than traditional internal combustion engine vehicles.

The report noted that renewable equipment manufacturing could also be affected, delaying the installation of green projects.

“Nearly a quarter of planned solar projects in Europe were cancelled in 2021 because of rising raw material costs,” Fitch reported.

At the same time, the report suggested that the rising cost of metals could provide support for investment in recycling initiatives, such as battery recycling. And, the situation could increase demand for alternative battery designs that don’t require nickel, such as lithium-iron-phosphate batteries, “which [have] been gaining popularity recently in China.”

Staff

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