How we can future-proof the energy industry through sustainable regional battery production

Developing diversified, regional battery supply chains is crucial to ensure national security and foster economic growth. Unfortunately, today’s battery supply chain is highly concentrated in a few areas of the world. And, while a massive battery production build-out is beginning, regional supply chain development will only be successful if we leverage technical innovation, public-private partnerships, existing infrastructure and skilled labour.

With electricity demand growing due to the 'electrification of everything,' including new markets, like AI-based data centres, batteries have become a key component in electric grid and transportation systems. Whereas past investments in energy security have seen countries securing oil and natural gas supplies via regional production and processing, strategic reserves and/or diversification of sources, today governments are working to secure regional battery supply chains that are not vulnerable to geopolitical conflicts (wars or trade wars) or logistical issues (e.g. due to weather, labour or a pandemic).

Examples of regional government efforts include sourcing requirements in the Inflation Reduction Act passed in the US in 2022 and the EU’s goal to meet 90% of its battery demand via EU manufacturers in alignment with the 2024 Net Zero Industry Act. A localized production model mitigates risks associated with supply chain disruptions, which, according to a World Economic Forum report, are more robust against shocks and are better equipped to handle changes in demand.

Energy security and resilience aren’t the only motivation for prioritizing domestic battery supply chain development. With lithium-ion battery production estimated to gross $480 billion in 2030, there’s significant economic value to be captured too.

But, today’s battery supply chain is highly concentrated. Nearly 80% of the world’s lithium comes from three countries — Chile, Argentina and Australia. While China plays a dominant role in battery material processing and manufacturing. China processes over 60% of the world’s lithium and produces approximately 75% of the world’s battery cells and components.

While the hurdle to achieving a globally competitive domestic supply chain is high, there is a large opportunity ahead to shape the future, as battery production is set to more than double by 2030.

Capitalizing on this opportunity, however, requires that we think and act differently. We can not just copy existing methods of manufacturing used in low-cost, highly subsidized locales. A 'copy exact' strategy will not lead to a successful build-out of regional supply chains for three reasons:

First, existing supply chain development has relied on government subsidies to such a degree that it isn't politically or economically feasible to reproduce it globally. As an example, in addition to other industrial policies, China has provided an estimated $231 billion over the last 15 years to support domestic electric vehicle manufacturing, including battery production. China's investment to date is nearly six times larger than that of the US and spans a longer period.

Second, the existing supply chain incurs environmental harms that are not tolerated in regional supply chains in the Western world. The delay of a new cathode plant in Finland and investigations into improper waste disposal from expanding cell manufacturers in the US are a couple of examples of more strict environmental protections in the West.

Finally, costs must be substantially reduced to compete globally with the existing supply chain. Zooming into capital costs, for example, we see that building an LFP (lithium ferrophosphate) cell factory in China costs 75% of a similar facility in the US or Europe using today’s technology. The difference is likely greater for nickel-based chemistries, due to the much higher costs of environmental waste disposal.

Developing resilient and competitive regional battery supply chains requires investment and major technology and business innovation. Three classes of innovation are required: technology and process innovation to reduce costs and waste; public-private partnership business innovation to ensure rapid and efficient scalability; and, infrastructure and labour innovation to leverage existing resources.

The huge challenge we face in regional supply chain development aligns with the World Economic Forum’s key initiatives, including the Global Battery Alliance, which fosters sustainable and inclusive battery value chains; and the Centre for Energy and Materials, aimed at accelerating innovation and investment in green energy solutions. The mission also resonates with the Forum’s portfolio of Global Innovators, a network designed to catalyze breakthrough technologies and support large companies with transformative innovations.

Technology and process innovation are needed to reduce costs and avoid the environmental barriers to scaling regional battery production. A broad range of innovations are being developed and commercialized now – such as waterless cathode production, dry electrode manufacturing and direct lithium extraction – to reduce operating costs, input costs, capital costs and environmental waste, but they must be brought to scale quickly to make the coming supply-chain build-out successful.

Given the significant economic value of the battery supply chain, public-private partnerships can be a win-win. The International Renewable Energy Agency estimates that the clean energy sector could employ nearly 38 million workers worldwide by the end of 2030. With public engagement, we can drive economic revitalization in areas that have historically relied on industries like coal, oil and gas or other industries that have relocated or declined. Public support does not just mean grant allocations, it can also include streamlined permitting for facilities and retraining of existing, often under-employed, skilled labour forces.

Furthermore, there is significant, underutilized infrastructure at risk of abandonment – from industrial facilities to rail transportation infrastructure to industrial gas distribution systems. Leveraging existing infrastructure to expedite scaling the budding battery materials industry is one more way that battery supply chains can be developed as quickly and economically as possible. This trend is already underway with oil and gas developers expanding their scope into the lithium market.

The doubling of battery capacity in the next five years and beyond represents an exciting opportunity to build resilient, regional battery supply chains to address a massive, global market. Copying existing patterns won’t get us there. Technical and process innovation, public-private partnerships and leveraging existing infrastructure will allow us to create the regional battery supply chains we need to future-proof the energy industry.