Net Zero & Water Security: 3 Bottlenecks in Future Tech

By Debra Tan, Ronald Leung 18 June, 2021

Achieving net-zero & water security is easier pledged than done. CWR's Tan & Leung share 3 bottlenecks

China supplies most CRMs for solar & wind yet it might not have enough for itself, let alone the world; trade wars could further happen supply so better to work with China
As CRM production can heavily pollute soil & water, China has already started cleaning up but a global responsible sourcing platform should be formed for actual clean tech
60% of energy used by Bitcoin came from non-renewables & China accounted for 80% of Bitcoin ops; need sensible strategies or will literally mine ourselves to an uninhabitable earth

The G7’s climate actions disappoint. Why is it still talking about pledging US$100bn first announced in 2009, to help poor nations cope with climate impacts? A 40% chance that at least one of the next five years (2021-2025) will reach 1.5°C. This is up from a 20% chance by 2030, meaning that impact deadlines will move up – the US$100bn is urgently needed yesterday.

G7’s ledge to fight climate change without China – biggest GHG emitter – at the table signaled a lack of sincerity

Pledging to fight climate change without China at the table also signaled a lack of sincerity. Not only is the nation the largest emitter of GHGs, it is also a significant producer of Critical Raw Materials (CRMs) which are required to make all things clean and hi-tech to help us get to net zero.

So although global net zero momentum is building, we see three key bottlenecks in future tech that could prevent us from achieving both net zero and water security. Obviously, we would like to see these resolved sooner rather than later to avoid a disorderly transition to a low carbon and water secure future:

1. Trade wars could hamper global net zero = best to work with China not against it

Reaching net zero faster will be better for water, as it is the resource most vulnerable to climate change. So commitments to net zero by countries and by companies are most welcomed; now, it’s about figuring out how to get there.

For China alone, its net zero commitment is estimated to create a US$16trn clean tech infrastructure investment opportunity by 2060. Most of this would end up in decarbonizing electrification with renewables. According to Goldman Sachs, this has the potential to de-carbonize around half of China’s carbon emissions. 

Wind and solar are expected to drive this push but is there enough rare earths/CRMs to deliver China’s net zero targets as well as everyone else’s commitments?

Dysprosium is needed in wind turbines and 86% of global dysprosium production is from China. As for solar – cadmium, gallium, germanium, indium, selenium, and tellurium – are all key to PV cell structures. According to the latest European Commission Study on their exposure to CRMs, China’s share of global production is 33% for cadmium, gallium (76%), germanium (80%), indium (48%), selenium (23%), and tellurium (54%) as per the chart below:

China dominates CRM production but already not sure if it has enough for it’s own use, let alone others…

…Dysprosium, needed in wind turbines, 86% comes from China

Many of these elements, such as dysprosium have no exemplary replacements; in short they are irreplaceable. So ensuring supply from China is key which means continued trade wars are not a good idea. Fiery anti-China rhetoric may actually hamper carbon transitions.

Besides, China may not have enough for its own transition … think about it, for China to deliver its current net zero commitment, it needs to factor up its 2019 solar power generation by 16x and wind by 9x. If not China, who will supply the rest of the world?

A 2020 European Commission CRM Foresight Study expects demand for different technologies for dysprosium to be 5x by 2030 and more than 10x than 2050 across the EU.  EU demand for cobalt, another key mineral, is expected to rise almost 15x by 2050 and while China does not mine cobalt itself, it is a key upstream player producing around 49% of global refined cobalt.

EU & US exposed without other CRM sources…

…plus, 100% of US’ Mountain Pass rare earth ores are sent to China for separation

The US is not free of China rare earth reliance either. The reopened Mountain Pass gives an illusion of US CRM security but the reality is that the rare earths ore extracted from Mountain Pass is only useful after processing in China  – 100% of the ore is sent to China for separation via Singapore.

Perhaps it is time to seriously step up the recycling of CRMs and kill built-in obsolescence. There is a lot of talk about these efforts but we are still far from delivering meaningful large scale solutions. In the meantime, instead of isolating China, wouldn’t it be better to all sit down together and have an adult discussion about how we can ensure a smooth transition as a global unit?

Wishful thinking? The more likely avenue is the opening of new mines. Rising CRM prices due to demand would make this economically viable, but this brings us to another problem … the current disregard of pollution in the mining and processing of these minerals.

2. Toxic water pollution concerns = urgent need for responsible sourcing platform for CRMs

Greenland’s Ataqatigiit party won the elections this April and rare earths supply anxieties have resurfaced. The new government opposes the mining of rare earths in Greenland; they are worried about toxic pollution. Since this is touted as an alternate source to China, it appears that all things clean and future tech will continue to rely on rare earths sourced from China.

CRM mining & processing can heavily pollute soil & water…

Greenland is rightly concerned as CRM mining and processing can heavily pollute soil and water. In China, many mines are located near rivers and improper treatment of tailings in the past as well as a rare earth black market have impacted local water sources.

But now with China’s push toward an ecological civilization, billions have been set aside for soil remediation – RMB30bn in the 12FYP and RMB28.5 in the 13FYP. China’s rare earth industry itself spent over RMB8bn in environmental protection in the 12FYP.

…we expect China’s “war on pollution” on CRM mining & processing to continue

We expect the “war on pollution” on the mining and processing of CRMs to continue. Jiangxi province (where Ganzhou lies) is part of the YREB. Plus in the 14FYP, the focus on greening the Yellow River will cast a spotlight on environmental performance of light rare earth mines in the basin.

Beyond mining and processing, factories along the supply chain can also be polluting.

Recently, China’s top pollution watchdog IPE said it suspects that Tesla sources from 14 companies in China which are known to have breached a number of environmental laws and regulations on both air & water fronts.

This plainly puts “sustainable energy” Tesla under a dirty cloud.

Surely all these supposedly sustainable companies should ensure that their supply chain is clean – it is the least they can do to warrant a clean & green label.

A clean tech supply chain should start at the source minerals. It boggles the mind that besides the conflict minerals of tin, tantalum, tungsten and gold (3TG), there is no responsible sourcing platform for all things hi-tech and clean tech from electronics to EVs and renewables.

It’s more than time for a responsible sourcing platform for CRMs

The European commission advised The realisation of a climate-neutral, digital economy, and ‘a stronger Europe’ depends on available, affordable and re­sponsibly sourced raw materials.We have a responsible sourcing platform for palm oil, surely we can build one for CRMs – it is the right thing to do especially in the face of a green tech boom, otherwise, it is all greenwashing.

Now, moving on to a different type of mining …

3. Dirty & thirsty cryptocurrencies = tighter regulations ahead or redesign?

Bitcoin has been on a wild ride no thanks to Elon Musk’s comments and concerns over “rapidly increasing use of fossil fuels for Bitcoin mining and transactions. It has since recovered as Musk said Tesla will re-accept Bitcoin transactions when there is reasonable (~50%) clean energy usage by miners.

Annual electricity consumed for bitcoin mining = Philippines’ consumption in 2019…

…>60% of total energy used came from non-renewables

A sensible move for the planet as bitcoin mining is energy intensive. According to the Cambridge Bitcoin Electricity Consumption Index, the estimated annualized consumption (at the time of writing) was 93+TWh – this is similar to the electricity consumption of the Philippines in 2019; most of this is non-renewable energy.

According to the 3rd Global Cryptoasset Benchmarking Study which surveyed 280 entities from 59 countries across four main market segments (exchange, payments, custody, and mining), although over three-quarters of miners say they are using renewable energy over 60% of total energy consumption for mining came from non-renewables. This puts cryptocurrencies at odds with net zero.

China accounts for ~80% of the global Bitcoin blockchain operations

Again, China plays a key role as it dominates the bitcoin blockchain space. According to a Nature article published this April, China accounts for almost 80% of the global Bitcoin blockchain operation with 40% of miners located in coal-based areas.

The Chinese authors of the journal warn that “The growing energy consumption and associated carbon emission of Bitcoin mining could potentially undermine global sustainable efforts.” Their calculations show that without any policy interventions, Bitcoin blockchain’s annual energy consumption could peak at 296.59Twh by 2024, generating 130.5 million metric tons of carbon emission correspondingly.

Evidently, bitcoin mining should not be left to grow unchecked. Scenario analysis in the study showed that moving away from the current punitive carbon tax policy to a site regulation policy which induces changes in the energy consumption structure of mining activities as more effective.

China is acting – State Council announced a crackdown on bitcoin mining

The good news is that China is acting. This May, the State Council announced a crackdown on bitcoin mining, adding fuel to crypto’s wild ride. Following this, top 3 mining provinces accounting for over 80% of bitcoin mining have announced action – coal-rich Inner Mongolia and Xinjiang started to make moves to ban mining in May and June; Sichuan has held a meeting with various stakeholders but has yet to issue a policy*.

Such moves are not surprising as both Xinjiang and Inner Mongolia are arid and water stressed and both generating electricity with coal and cooling mining computers use a significant amount of water (see water-energy-climate nexus); Sichuan on the other hand is water-rich.

Basically, for bitcoin mining in China, both energy and water must be considered. There’s little choice, China’s tight liquidity constraint in the water & energy nexus means that runaway bitcoin mining will not just undermine China’s net zero targets but threaten water security.

So dirty thirsty crypto is going green in China which is great for China but as a global unit, there may be no benefit as miners could be moving from coal-rich China to oil-rich Texas.

Bitcoin mining from 2010-2019 negated all carbon savings from solar power production to date globally

Cryptocurrencies are here to stay. We must find a way to regulate the mining of these so that they do not put the world in harm’s way by negating our carbon transition efforts. David Wallace-Wells, in his best-seller The Uninhabitable Earth: Life After Warming noted that bitcoin mining from 2010 to 2019 negated all the carbon savings from solar power production to date globally. If you have not read his book, we highly recommend it; albeit a depressing read.

Nevertheless, it is worth noting here that moving away from coal does not mean that there are no water risks – just a different kind as the key renewable energy behind crypto is hydropower. Going forward, hydropower generation will likely be more variable due to climate change as we deal with changing rainfall/snowfall patterns, varying river runoffs, droughts and floods.

Something has to give on this front. Even a Bank of America research report slams Bitcoin as riddled with major environmental risks”. Aside from regulations, some have called for the current Proof-of-Work consensus algorithm used in the bitcoin blockchain to be redesigned to be more environmentally friendly. But wait that’s just the power behind crypto, we haven’t even dived into the amount of hardware nor the CRMs we will need to dig up to make them.

We must have sensible strategies or will literally mine ourselves to an uninhabitable earth in the name of saving the planet

So to wrap whether mining for virtual coin or mining the earth for real resources, we have to start thinking holistically. To deliver net zero and water security, we must have strategies that make sense, not ones that shoot ourselves in the foot. Otherwise, we will literally mine ourselves to an uninhabitable earth in the name of saving the planet.

*After the publication of this article, the Sichuan Provincial Development and Reform Commission and the Sichuan Energy Bureau issued a joint notice to order 26 potential cryptocurrency mining enterprises to close down.   

Further Reading

  • Asia, Why On Earth Would We Leave Our Future To The G7? – With G7’s absent leadership & inability to plan for pandemics, CWR’s Tan calls for Asia to step-up and lead the global fight against our climate crises
  • Can We Build A Clean & Smart Future On Toxic Rare Earths? – Almost all smart, green & clean tech need rare earths to work, but mining & processing these are highly polluting. Lead author Liu of China Water Risk’s new report:  “Rare Earths: Shades Of Grey” explores this paradox. It is time to rethink our clean & smart future
  • Rare Earth Black Market: An Open Dirty Secret – The black market exacerbates environmental pollution from rare earth mining in China. With low prices, depleted reserves and contaminated drinking water, find out if your smartphone, tablet or electric car is party to this. Hongqiao Liu expands
  • E-Waste: Downside to the Tech Revolution – China is one of the largest producers of e-waste globally. Faced with mountains of toxic e-waste, Green Initiatives launched the [WE] Project in Shanghai. Co-founder, Nitin Dani on this easy, safe & scalable way to recycle phones, home appliances & more
  • Electronic Brands: Sustainable Or Not? – The new CLSA U® report cautions that current brand strategies only focus on short-term profits despite looming risks. Is this sustainable? China Water Risk’s Woody Chan looks at what leaders like Apple & Samsung are doing across greening supply chains, recycling and more
  • Toxic Phones: China Controls the Core – We review CLSA U®’s report which warns that transitional risks are abound as China says no to pollution and yes to a high tech future. What are the top-5 ‘bewares’? China Water Risk’s Debra Tan expands

More on Latest

  • 2020 State Of Ecology And Environment Report Review – Has groundwater quality improved? Can the major rivers meet their Water Ten targets? Read our review of the latest 2020 report to catch up on China’s water quality
  • 2020 China Marine Ecology & Environment Status Review – Ocean has become a new driving force of economic development in China. How did ocean do in terms of pollution? Check out more from our review on the status of China’s ocean
  • Tesla: Pollution Under A Low Carbon Halo – Tesla appears to be the world’s choice to go net-zero. Yet is it truly green? IPE’s Linda Greer & DING Shanshan share the latest report findings on how it is polluting China under a low carbon halo
  • HK Businesses Go Circular Via A Digital Marketplace – HK produces >5.5mn tons of waste per year yet the majority of them are not recycled or recovered. Find out from Tamanna Wadhwani how an online platform like Aspire can help businesses to go circular
  • Governance Is Still At Low Tide – How are APAC executives’ performances in handling material climate & sustainability issues? Which countries are doing better? Jane Moir & Vivian Yau from ACGA share the latest report findings & offer 6 suggestions
Debra Tan
Author: Debra Tan
Debra heads the CWR team and has steered the CWR brand from idea to a leader in the water risk conversation globally. Reports she has written for and with financial institutions analyzing the impact of water risks on the Power, Mining, Agricultural and Textiles industries have been considered groundbreaking and instrumental in understanding not just China’s but future global water challenges. One of these led the fashion industry to nominate CWR as a finalist for the Global Leadership Awards in Sustainable Apparel; another is helping to build consensus toward water risk valuation. Debra is a prolific speaker on water risk delivering keynotes, participating in panel discussions at water prize seminars, numerous investor & industry conferences as well as G2G and academic forums. Before venturing into “water”, she worked in finance, spending over a decade as a chartered accountant and investment banker specializing in M&A and strategic advisory. Debra left banking to pursue her interest in photography and also ran and organized philanthropic and luxury holidays for a small but global private members travel network She has lived and worked in Beijing, HK, KL, London, New York and Singapore and spends her spare time exploring glaciers in Asia.
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Ronald Leung
Author: Ronald Leung
Hailing from Hong Kong, Ronald’s interest in geopolitical and economic issues led him to understand that climate change is one of the most pressing challenges of our times, yet politically, the topic lacked urgency and societal attention. This motivated him to join CWR upon graduation from the Master of Global Political Economy at The Chinese University of Hong Kong. He assists the team in research across various focus areas and sectors that CWR covers and works on the publication of CWR’s monthly newsletter. He also helps manage and expand our network of contributors plus keeps the content on our website updated. Prior to CWR, Ronald focused on market and competitor research in a property conglomerate and a travel tech start-up. Besides, he conducted country analysis and co-published geopolitical articles with his professor in CUHK. He hopes to use his experiences as a debate team captain in the University of Hong Kong (where he obtained a Bachelor in Accounting & Finance) to raise public awareness towards climate change in Hong Kong.
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