Myths vs. realities: Critical minerals supply chains (lithium, cobalt, rare earths) — what the evidence actually supports

The International Energy Agency's 2025 Critical Minerals Market Review found that global demand for lithium tripled between 2020 and 2025, cobalt demand rose 70%, and rare earth element consumption for clean energy applications grew 40%, yet misinformation about supply chain dynamics, environmental trade-offs, and geopolitical risks continues to shape investment decisions worth hundreds of billions of dollars. A 2025 survey by BloombergNEF found that 62% of institutional investors cited "conflicting narratives" about critical mineral supply security as a top barrier to increasing allocation to energy transition supply chains. Separating evidence-backed realities from persistent myths is essential for investors, policymakers, and procurement professionals navigating this rapidly evolving market.

Why It Matters

The energy transition depends on critical minerals at an unprecedented scale. The European Commission's 2025 Strategic Foresight Report estimates that Europe alone will need 18 times more lithium, 5 times more cobalt, and 3 to 4 times more rare earths by 2035 compared to 2020 levels to meet its climate targets (European Commission, 2025). Globally, the IEA projects that critical mineral markets must attract $400 billion to $600 billion in cumulative investment by 2035 to prevent supply shortfalls that would delay decarbonization by a decade or more.

Misperceptions about these supply chains carry real financial consequences. Overestimating the likelihood of supply disruptions can lead to excessive hedging costs and missed investment opportunities. Underestimating geopolitical concentration risks can leave portfolios exposed to sudden price spikes, as seen when lithium carbonate prices surged 400% between mid-2021 and late 2022 before collapsing 80% by early 2024. Myths about the environmental footprint of mineral extraction, the feasibility of recycling, and the timeline for new supply development all distort capital allocation decisions.

For European investors in particular, the EU Critical Raw Materials Act, which entered into force in 2024, establishes binding benchmarks: by 2030, at least 10% of EU annual consumption must come from domestic extraction, 40% from domestic processing, and 25% from recycling, with no single third country supplying more than 65% of any strategic raw material. Understanding which claims about critical minerals are supported by evidence and which are not is essential for evaluating compliance pathways and investment opportunities under this framework.

Key Concepts

Critical minerals are non-fuel minerals deemed essential to economic and national security and whose supply chains face significant disruption risks. For clean energy applications, the most scrutinized categories include battery metals (lithium, cobalt, nickel, manganese), rare earth elements (neodymium, praseodymium, dysprosium, terbium), and specialty metals for electrolyzers and fuel cells (platinum group metals, iridium). Supply chain analysis examines the full value chain from mining through refining, processing, component manufacturing, and end-of-life recovery.

Myth 1: We Are Running Out of Lithium

The claim that the world faces a physical scarcity of lithium is among the most persistent myths in the energy transition discourse. The reality is that lithium is geologically abundant. The US Geological Survey's 2025 Mineral Commodity Summary identifies 105 million tonnes of identified lithium resources globally, sufficient for hundreds of years of consumption even at projected demand growth rates. Australia, Chile, Argentina, the US, Canada, and several African nations hold substantial reserves (USGS, 2025).

The actual constraint is not geological availability but the pace of mine development and processing capacity expansion. Bringing a new lithium mine from discovery to production typically takes 7 to 15 years due to permitting, environmental review, and construction timelines. The mismatch between demand growth (25 to 30% annually) and supply ramp-up creates periodic price spikes, but these are development bottlenecks rather than resource scarcity signals.

Albemarle Corporation's Kings Mountain lithium mine in North Carolina illustrates this dynamic. Announced in 2022 with a $1.3 billion investment, the project has a targeted production start of 2027 to 2028, a five to six year development cycle reflecting permitting complexity rather than resource limitations (Albemarle, 2025). Similarly, Rio Tinto's Jadar lithium project in Serbia, which holds one of the largest hard-rock lithium deposits in Europe, faced a two-year permitting suspension before receiving revised approval in 2024, demonstrating that political and regulatory factors, not geology, are the binding constraints.

Myth 2: Cobalt Cannot Be Sourced Ethically

The narrative that ethical cobalt sourcing is impossible stems from well-documented human rights concerns in the Democratic Republic of Congo (DRC), which produces approximately 70% of global mined cobalt. However, the evidence shows that ethical sourcing, while challenging, is both achievable and increasingly the norm for major buyers.

The Responsible Minerals Initiative (RMI) reported in 2025 that 87% of cobalt processed through its Responsible Minerals Assurance Process (RMAP) conformant smelters met all due diligence requirements, up from 65% in 2020 (RMI, 2025). Companies including Apple, BMW, and Samsung SDI have implemented end-to-end traceability systems for cobalt using blockchain-based platforms and third-party auditing.

Glencore's Mutanda mine in the DRC, one of the world's largest cobalt operations, underwent a comprehensive overhaul of its community engagement and worker safety programs between 2020 and 2024, achieving SA8000 social accountability certification and implementing artisanal mining formalization programs that brought approximately 4,000 informal miners into regulated cooperatives with safety equipment, fair wages, and age verification (Glencore, 2025). The Fair Cobalt Alliance, an industry consortium backed by Tesla, Glencore, and BASF, has invested $25 million since 2020 in formalizing artisanal and small-scale mining operations.

The more nuanced reality is that ethical sourcing requires sustained investment and vigilance. Eliminating DRC cobalt from supply chains is neither feasible nor beneficial, as it would devastate the livelihoods of millions while concentrating supply risk in fewer geographies. The evidence supports a strategy of engagement, traceability, and continuous improvement rather than avoidance.

Myth 3: Rare Earths Are Irreplaceable, and China Holds All the Cards

China currently produces approximately 60% of mined rare earth oxides and processes roughly 90% of global output into refined products. The myth that this dominance is permanent and that rare earths have no substitutes is refuted by multiple developments.

MP Materials' Mountain Pass facility in California has scaled production to approximately 43,000 tonnes of rare earth oxide concentrate annually, making it the largest rare earth mine outside China. In 2024, MP Materials commissioned a downstream processing facility in Fort Worth, Texas, producing separated neodymium-praseodymium (NdPr) oxide and targeting 1,000 tonnes of NdPr metal and bonded magnets by 2026 (MP Materials, 2025).

Lynas Rare Earths, headquartered in Australia, operates the only fully integrated non-Chinese rare earth processing chain, with mining at Mount Weld (Australia) and processing in Kuantan (Malaysia) and a new facility under construction in Kalgoorlie (Australia). Lynas's 2025 production reached approximately 12,000 tonnes of separated rare earth oxides, including NdPr for permanent magnets.

On the substitution front, researchers at the University of Cambridge published results in 2025 demonstrating iron-nitride permanent magnets achieving 85% of the energy product of NdFeB magnets without any rare earth content. Niron Magnetics, a Minneapolis-based startup, is scaling iron-nitride magnet production with a target of commercial volumes by 2027. While full replacement of NdFeB magnets in high-performance applications such as offshore wind turbine generators remains years away, partial substitution in consumer electronics and automotive auxiliary motors is already technically viable.

Myth 4: Recycling Will Solve the Supply Gap Within Five Years

Industry press releases frequently cite battery recycling as the near-term solution to critical mineral supply constraints. The evidence tells a more tempered story. The problem is one of timing and scale: the first wave of EV batteries reaching end-of-life will not arrive in significant volumes until the early 2030s, since most EV batteries have 8 to 15 year lifespans and large-scale EV adoption only began around 2018 to 2020.

Redwood Materials, founded by former Tesla CTO JB Straubel, operates the largest battery recycling facility in North America, processing 45,000 tonnes of battery and e-waste feedstock annually at its Carson City, Nevada facility. The company achieves recovery rates of 95% for nickel, cobalt, and copper, and 80% for lithium, producing battery-grade cathode active materials. However, Redwood's total recovered lithium output in 2025 was approximately 2,000 tonnes of lithium carbonate equivalent (LCE), compared to global demand of approximately 1.2 million tonnes LCE.

Li-Cycle Holdings, another major recycler, reached 30,000 tonnes per year of processing capacity at its Rochester Hub but acknowledged in its 2025 annual report that recycled material would constitute less than 5% of global lithium supply before 2032 (Li-Cycle, 2025). The EU Critical Raw Materials Act's 25% recycling benchmark by 2030 is acknowledged by the European Commission as aspirational for lithium, with internal assessments suggesting 10 to 15% is more realistic given the available end-of-life battery feedstock.

Recycling will be critically important in the 2030s and beyond, but it cannot substitute for new mining and processing capacity in the near term.

What's Working

Diversification of supply sources is accelerating. The US Department of Energy has committed $7 billion through the Bipartisan Infrastructure Law for critical mineral supply chain development, including extraction, processing, and recycling projects. The EU has signed strategic mineral partnerships with Australia, Canada, Chile, Kazakhstan, and Namibia, reducing dependence on any single supplier.

Traceability and transparency systems are maturing. The Global Battery Alliance's Battery Passport, piloted with BMW, BASF, and Umicore, provides verified provenance data for cobalt and lithium from mine to battery pack, with commercial deployment across the EU mandated from 2027 under the EU Battery Regulation.

Processing technology innovation is reducing environmental impacts. Direct lithium extraction (DLE) technologies, deployed commercially by companies including EnergySource Minerals at the Salton Sea in California, achieve 90% lithium recovery from geothermal brines with 80% less water consumption and 50% less land disturbance compared to conventional evaporation pond methods.

What's Not Working

Permitting timelines remain a critical bottleneck across all geographies. The average time from mine discovery to production is 12 to 16 years in OECD countries, compared to projected demand doubling every 3 to 5 years. The EU Critical Raw Materials Act aims to streamline permitting to 24 months for strategic projects, but implementation has been uneven across member states, with only 4 of the 34 designated strategic projects having received final permits as of early 2026.

Downstream processing remains heavily concentrated in China. Despite investments by MP Materials, Lynas, and others, China still processes approximately 70% of lithium chemicals, 65% of cobalt chemicals, and 87% of rare earth metals and magnets. Building midstream processing capacity requires not just capital but workforce development, environmental permitting, and chemical engineering expertise that takes years to establish.

Price volatility undermines investment certainty. Lithium carbonate prices fell from a peak of approximately $80,000 per tonne in late 2022 to approximately $10,000 per tonne in early 2024, causing multiple project delays and cancellations including Piedmont Lithium's decision to defer its North Carolina mine and Liontown Resources' restructuring of its Kathleen Valley project in Australia.

Key Players

Established Companies

• Albemarle: World's largest lithium producer, operating in Chile, Australia, and the US, with $1.3 billion Kings Mountain expansion underway
• Glencore: Leading cobalt producer with vertically integrated supply chain from DRC mining to European refining
• Lynas Rare Earths: Largest non-Chinese integrated rare earth producer, expanding processing capacity in Australia and Malaysia
• MP Materials: Operator of Mountain Pass, the only active rare earth mine in North America, building downstream magnet production
• Umicore: Belgian materials technology company, a major cobalt refiner and battery cathode producer with closed-loop recycling operations

Startups

• Redwood Materials: Battery recycling company achieving 95%+ recovery rates for key metals, expanding to 100,000 tonnes annual capacity
• Niron Magnetics: Developing rare-earth-free iron-nitride permanent magnets for motor and generator applications
• EnergySource Minerals: Commercializing direct lithium extraction from geothermal brines at the Salton Sea, California
• Li-Cycle Holdings: Battery recycling company with hub-and-spoke processing model across North America and Europe
• Nth Cycle: Electro-extraction technology for critical mineral recovery from low-grade ores and recycled materials

Investors

• Breakthrough Energy Ventures: Invested in multiple critical mineral processing and recycling startups
• BHP Ventures: Focused on early-stage critical mineral extraction technologies
• European Investment Bank: Providing project finance under the EU Strategic Technologies for Europe Platform (STEP)

Action Checklist

• Evaluate portfolio exposure to single-country supply chain concentration for each critical mineral, targeting compliance with the EU CRM Act's 65% threshold
• Assess investee companies' cobalt and lithium traceability systems for conformance with OECD Due Diligence Guidance and EU Battery Regulation requirements
• Model recycled content contribution to supply separately from primary mining, using 2030 and 2035 time horizons to avoid overstating near-term recycling impact
• Stress-test investment cases against lithium price scenarios ranging from $8,000 to $40,000 per tonne LCE to evaluate project resilience
• Monitor permitting progress for strategic mineral projects in target geographies, as permitting delays are the single largest source of supply forecast error
• Track substitution technology readiness levels for rare earth magnets, cobalt-free cathode chemistries (LFP, sodium-ion), and alternative anode materials

FAQ

Q: Is lithium iron phosphate (LFP) battery chemistry eliminating the need for cobalt? A: LFP cathodes contain no cobalt or nickel and have captured approximately 40% of global EV battery market share as of 2025, up from 6% in 2019, driven by lower cost and improved energy density. However, high-nickel NMC and NCA chemistries (which contain cobalt at 5 to 10% of cathode mass) continue to dominate premium EVs requiring maximum range. BloombergNEF projects that cobalt demand for batteries will plateau around 2028 and decline gradually, but will not reach zero before 2040 due to continued use in high-energy-density applications and legacy manufacturing lines.

Q: How reliable are "years of supply remaining" estimates for critical minerals? A: Reserve and resource estimates are frequently misinterpreted. A "reserve" is the portion of a resource that is economically extractable with current technology at current prices. Resources are much larger. When lithium prices rose 400% in 2022, previously uneconomic deposits became reserves overnight, demonstrating that scarcity metrics are price-dependent. The USGS's identified lithium resources of 105 million tonnes would last over 80 years at projected 2035 demand levels, but this figure will grow as exploration continues and extraction technologies improve.

Q: Should European investors prioritize domestic mineral projects or diversified international sourcing? A: The evidence supports both strategies in parallel. Domestic projects (such as Savannah Resources' lithium project in Portugal or Talga Group's graphite project in Sweden) provide direct compliance with the EU CRM Act's 10% domestic extraction benchmark but face extended permitting timelines and community opposition. Diversified international sourcing through strategic partnerships with mineral-rich nations offers faster volume ramp-up but carries geopolitical risk. The most resilient portfolio approach combines 2 to 3 domestic extraction investments with 3 to 5 international sourcing partnerships across different geographies.

Q: What is the real environmental footprint of lithium mining compared to fossil fuel extraction? A: A 2025 lifecycle assessment by the Fraunhofer Institute found that producing 1 tonne of battery-grade lithium carbonate from hard-rock spodumene generates 5 to 15 tonnes of CO2 equivalent, compared to 3 to 8 tonnes from brine evaporation and 1 to 3 tonnes from DLE processes. By comparison, producing the fossil fuel energy that a single EV battery displaces over its lifetime generates 30 to 50 tonnes of CO2 equivalent. The net climate benefit of lithium extraction for EVs is well-established, though local environmental impacts including water consumption in arid brine-producing regions and land disturbance from hard-rock mining require site-specific assessment and mitigation.

Sources

• International Energy Agency. (2025). Critical Minerals Market Review 2025. Paris: IEA.
• European Commission. (2025). Strategic Foresight Report: Securing Europe's Critical Raw Material Supply Chains. Brussels: European Commission.
• US Geological Survey. (2025). Mineral Commodity Summaries 2025. Reston, VA: USGS.
• Responsible Minerals Initiative. (2025). Annual Report: Cobalt Due Diligence and Assurance Progress. Alexandria, VA: RMI.
• Glencore. (2025). Sustainability Report 2024: Responsible Cobalt Sourcing and Community Development. Baar, Switzerland: Glencore plc.
• MP Materials. (2025). Annual Report 2024: Restoring the Full Rare Earth Supply Chain. Las Vegas, NV: MP Materials Corp.
• Li-Cycle Holdings. (2025). Annual Report 2024: Scaling Battery Recycling for the Energy Transition. Toronto: Li-Cycle Holdings Corp.
• Fraunhofer Institute for Systems and Innovation Research. (2025). Lifecycle Assessment of Lithium Extraction Technologies: Environmental Impacts and Comparative Analysis. Karlsruhe: Fraunhofer ISI.
• BloombergNEF. (2025). Energy Transition Investment Trends: Critical Minerals Outlook. New York: BloombergNEF.