Green technologies and geopolitics are on a collision course

The Collision of Green Technologies and Geopolitics: Implications for Canada

Green technologies, such as wind power, solar power, and electric vehicles (EVs), are crucial in transitioning to a low-carbon economy. However, these technologies are becoming entangled in geopolitical competition between China and the United States. Canada, with its abundance of natural resources, including critical minerals essential for EV batteries, wind turbines, and solar systems, is also now looking at the sector from a geopolitical perspective, which will create both risks and opportunities for Canadian firms and investors.

The Canadian government’s recent move to order three Chinese companies to divest their stakes in Canadian mining companies was based on national security concerns. The companies are a Vancouver-based firm exploring for rare earth minerals in Ontario and two lithium mining companies with assets in Canada and Latin America. The Canadian government has also pledged to act decisively when foreign entities threaten their national security, including their critical minerals supply chains.

Critical minerals have become a geopolitical issue due to their importance in the green transition and China’s role in this emerging technology ecosystem. Domestic policies aimed at electrifying China’s vehicle fleet have increased demand for EVs and EV batteries, leading to Chinese companies’ dominance in lithium-ion batteries, rare earth minerals, and other critical materials for green technologies.

China’s so-called “mask diplomacy” during the Covid-19 pandemic and its dominance of critical minerals have raised concerns that it could use its control over strategic supply chains as an economic tool or withhold supplies during a political dispute. This has fueled worries among some observers that China might choose to retaliate via critical mineral exports.

While changing the footprint of the green-tech supply chain and meeting soaring global demand for critical minerals will be challenging, it is essential to reduce reliance on Chinese-origin inputs. The Canadian mining sector can play a vital role in promoting geographical and supply chain diversity while urging governments to avoid unintended consequences.

Geopolitical shifts can create new costs, regulatory complexity, compliance burdens, and reputational issues for companies. The stakes for the planet are high, and careful management is crucial to avoid creating significant fissures across the supply chain.

The collision of green technologies and geopolitics poses a significant challenge, but it also presents opportunities for Canada to promote supply chain diversity and become a leader in the critical minerals sector. As we continue to transition to a low-carbon economy, it is crucial to maintain a clear-eyed perspective on the risks and opportunities that arise.