Explainer: Critical minerals supply chains (lithium, cobalt, rare earths) — what it is, why it matters, and how to evaluate options

Global demand for lithium is projected to increase sixfold by 2030, cobalt demand is expected to double, and rare earth element consumption is set to rise by 40%, according to the International Energy Agency's 2025 Critical Minerals Outlook. These minerals underpin every major clean energy technology, from EV batteries and wind turbines to electrolyzers and grid storage systems. Yet supply chains remain concentrated in a handful of countries, creating vulnerabilities that sustainability professionals must understand and address.

Why It Matters

Critical minerals are the physical foundation of the energy transition. Without lithium, there are no lithium-ion batteries. Without cobalt, cathode chemistry performance drops. Without rare earths like neodymium and dysprosium, permanent magnets for wind turbines and EV motors lose efficiency. The EU Critical Raw Materials Act identifies 34 materials as strategically important, and the U.S. Inflation Reduction Act ties EV tax credits directly to mineral sourcing requirements.

Supply concentration poses systemic risks. The Democratic Republic of Congo produces roughly 70% of the world's cobalt, with artisanal mining operations linked to child labor and unsafe working conditions. China refines approximately 60% of global lithium and controls over 85% of rare earth processing. Australia and Chile dominate lithium extraction, while Myanmar has become a significant rare earth source with minimal environmental oversight.

For sustainability teams, this creates a dual challenge: ensuring supply security for decarbonization commitments while meeting due diligence obligations under regulations such as the EU Corporate Sustainability Due Diligence Directive (CSDDD) and the EU Battery Regulation, which mandates supply chain traceability for batteries placed on the European market starting in 2027.

Key Concepts

Lithium is extracted primarily through two methods: hard-rock mining (spodumene ore, concentrated in Australia) and brine evaporation (concentrated in the "lithium triangle" of Chile, Argentina, and Bolivia). Direct lithium extraction (DLE), an emerging technology, promises to reduce water consumption by up to 90% compared to brine evaporation and shorten production timelines from 18 months to days.

Cobalt is predominantly a byproduct of copper and nickel mining. Roughly 15-20% of DRC cobalt comes from artisanal and small-scale mining (ASM) operations, which present significant human rights risks. Battery chemistries are evolving to reduce cobalt dependency: lithium iron phosphate (LFP) batteries contain no cobalt and now represent over 40% of the global EV battery market.

Rare earth elements (REEs) include 17 metallic elements critical for permanent magnets, catalysts, and phosphors. Despite their name, rare earths are geologically common but economically concentrated because separation and refining are chemically complex and environmentally intensive. Neodymium-iron-boron (NdFeB) magnets are used in over 90% of EV motors and direct-drive wind turbines.

Supply chain tiers matter for evaluation. Tier 1 covers mining and extraction. Tier 2 covers refining and processing. Tier 3 covers component manufacturing (cathodes, magnets, alloys). Tier 4 covers final assembly. Most supply chain risks concentrate at Tiers 1 and 2, where geographic concentration is highest and transparency is lowest.

Circularity and recycling are increasingly important. Urban mining of spent batteries and electronic waste can recover over 95% of lithium, cobalt, and nickel. However, current recycling infrastructure processes less than 5% of spent lithium-ion batteries globally. The EU Battery Regulation sets mandatory recycled content targets: 16% cobalt, 6% lithium, and 6% nickel by 2031, rising to 26%, 12%, and 15% respectively by 2036.

What's Working

Supply diversification is accelerating. New lithium projects in Canada, Portugal, and the Czech Republic are advancing through permitting. The U.S. Department of Energy has allocated over $7 billion to domestic critical mineral processing through the Bipartisan Infrastructure Law and IRA. Australia's Lynas Rare Earths commissioned the only large-scale non-Chinese rare earth separation facility in Malaysia and is building a processing plant in Texas.

Battery chemistry innovation is reducing dependency. LFP batteries eliminate cobalt entirely and are now cost-competitive with nickel-manganese-cobalt (NMC) chemistries for standard-range EVs. Sodium-ion batteries, which use no lithium, cobalt, or nickel, entered mass production through CATL in 2023 and are being deployed in energy storage and entry-level EVs. Toyota and Samsung SDI are advancing solid-state battery programs that could further shift mineral requirements.

Traceability platforms are maturing. The Global Battery Alliance's Battery Passport initiative, piloted with BMW and BASF, tracks provenance from mine to manufacturer. RCS Global's Better Mining program uses on-site monitors at over 30 ASM sites in the DRC to verify responsible sourcing in real time. Circulor, a supply chain traceability platform, uses blockchain and AI to map mineral flows for Volvo and Polestar.

Recycling capacity is scaling. Redwood Materials, founded by former Tesla CTO JB Straubel, processes battery scrap and produces cathode active materials at its Nevada facility. Li-Cycle operates spoke-and-hub recycling networks across North America and Europe, recovering battery-grade materials. The EU Battery Regulation's mandatory collection and recycling targets are driving investment across the European recycling value chain.

What's Not Working

Permitting timelines lag demand growth. Opening a new lithium mine in the U.S. or EU takes 7-15 years from discovery to production. The Thacker Pass lithium mine in Nevada faced years of legal challenges before breaking ground. In Portugal, a proposed lithium mine in Covas do Barroso has encountered sustained local opposition over water and biodiversity concerns.

Artisanal mining oversight remains insufficient. Despite industry initiatives, an estimated 40,000 children continue to work in DRC cobalt mines according to UNICEF estimates. Traceability systems cover only a fraction of ASM production, and the boundary between formal and informal supply chains remains porous. Cobalt laundering, where ASM-sourced material enters industrial supply chains without proper documentation, persists.

Rare earth processing alternatives are nascent. MP Materials operates the only active rare earth mine in the U.S. (Mountain Pass, California) but until recently shipped concentrate to China for separation. Building domestic separation and magnet manufacturing capacity requires years and billions in capital expenditure. The U.S. and EU remain over 90% dependent on Chinese rare earth processing for magnet-grade materials.

Recycling economics are challenging at current volumes. Battery recycling requires consistent feedstock, but the wave of end-of-life EV batteries is not expected to reach significant scale until the late 2020s. In the interim, recyclers depend on manufacturing scrap, which limits throughput and economic viability. Hydrometallurgical and pyrometallurgical processes each have trade-offs in recovery rates, energy intensity, and cost.

Key Players

Established Leaders

• Albemarle: World's largest lithium producer, operating brine operations in Chile and hard-rock mines in Australia. Revenue of $9.5 billion in 2023.
• Glencore: Largest cobalt producer globally, operating Mutanda and Katanga mines in the DRC. Active participant in Responsible Minerals Initiative.
• Lynas Rare Earths: Only significant non-Chinese rare earth processor, with mining in Australia and separation in Malaysia. Building U.S. processing capacity.
• CATL: World's largest battery manufacturer, driving demand signals across mineral supply chains. Investing directly in lithium and nickel mining operations.
• Umicore: Leading cathode materials producer and battery recycler headquartered in Belgium. Operates closed-loop recycling for cobalt and nickel.

Emerging Startups

• Redwood Materials: Battery recycling startup recovering cathode and anode materials from end-of-life batteries and manufacturing scrap. Raised over $1 billion in funding.
• Lilac Solutions: Developing ion exchange-based direct lithium extraction technology that reduces water use and speeds production from brine sources.
• Circulor: Supply chain traceability platform using AI and blockchain to track critical minerals from mine to product for automotive OEMs.
• Nth Cycle: Electro-extraction technology for recovering critical minerals from low-grade ores, recycling streams, and mine waste using electricity instead of chemicals.

Key Investors and Funders

• U.S. Department of Energy Loan Programs Office: Providing billions in loans and grants for domestic critical mineral processing and battery manufacturing.
• European Investment Bank: Financing critical raw material projects under the EU Critical Raw Materials Act.
• Breakthrough Energy Ventures: Investing in mining technology, battery recycling, and alternative chemistries through its climate fund.

Action Checklist

1. Map your organization's critical mineral exposure across products, components, and suppliers at Tiers 1-4.
2. Assess compliance readiness for the EU Battery Regulation's due diligence and traceability requirements effective 2027.
3. Evaluate supplier sourcing policies for cobalt, lithium, and rare earths against recognized frameworks such as the OECD Due Diligence Guidance for Responsible Supply Chains.
4. Identify opportunities to specify LFP or cobalt-free battery chemistries where performance requirements allow.
5. Engage with battery passport and traceability initiatives to build data infrastructure ahead of regulatory deadlines.
6. Evaluate recycled content procurement options and establish relationships with battery recyclers to meet future recycled content mandates.
7. Conduct scenario planning for supply disruption, modeling price volatility and geographic concentration risks for key minerals.

FAQ

What are critical minerals and why are they called "critical"? Critical minerals are raw materials deemed essential for economic and national security due to their role in strategic technologies and the risk of supply disruption. The EU, U.S., and other jurisdictions maintain formal lists. Criticality is determined by both economic importance and supply risk, not geological scarcity. Lithium, cobalt, and rare earths qualify because clean energy technologies depend on them and supply is concentrated in few countries.

How does the EU Battery Regulation affect critical mineral sourcing? The regulation requires companies placing batteries on the EU market to conduct supply chain due diligence aligned with OECD guidelines, establish battery passports with provenance data, and meet minimum recycled content thresholds starting in 2031. It applies to EV batteries, industrial batteries, and portable batteries above 2 kWh. Non-compliance can result in market access restrictions.

Can recycling replace mining for critical minerals? Not in the near term. Current recycling covers less than 5% of lithium-ion battery materials globally, and the stock of end-of-life batteries is still small relative to demand growth. By 2040, recycled materials could supply 10-20% of lithium and cobalt demand, according to IEA projections. Recycling is essential for long-term circularity but cannot eliminate the need for primary extraction during the current demand surge.

What is direct lithium extraction and why does it matter? Direct lithium extraction (DLE) uses chemical or physical processes to selectively remove lithium from brine without large evaporation ponds. It can reduce water consumption by up to 90%, shrink production timelines from over a year to hours or days, and unlock lower-concentration brine resources that are uneconomic with evaporation. Companies such as Lilac Solutions, EnergyX, and Summit Nanotech are commercializing DLE technologies, with pilot plants operating in Argentina and the U.S.

How should companies manage cobalt supply chain risks? Start by mapping cobalt use across product lines and identifying which suppliers source from the DRC. Adopt the OECD Due Diligence Guidance and participate in industry programs such as the Responsible Minerals Initiative or the Fair Cobalt Alliance. Where technically feasible, transition to cobalt-free battery chemistries like LFP. For remaining cobalt needs, prioritize suppliers with third-party audited responsible sourcing programs and on-the-ground monitoring at mine sites.

Sources

1. International Energy Agency. "Critical Minerals Market Review 2025." IEA, 2025.
2. European Commission. "EU Critical Raw Materials Act: Regulation (EU) 2024/1252." Official Journal of the European Union, 2024.
3. European Parliament and Council. "EU Battery Regulation (EU) 2023/1542." Official Journal of the European Union, 2023.
4. U.S. Geological Survey. "Mineral Commodity Summaries 2025." USGS, 2025.
5. OECD. "Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas." 3rd Edition, OECD Publishing.
6. BloombergNEF. "Lithium-Ion Battery Supply Chain Outlook 2025." BNEF, 2025.
7. Global Battery Alliance. "Battery Passport: Pilot Results and Implementation Roadmap." GBA, 2025.