Clean Energy Transition, Scarcity and Urban Mining
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Clean Energy Transition,
Scarcity and Urban Mining
presented by Clara Carrera
INSEAD, Technology and Operations Management
with Serasu Duran
1
, Atalay Atasu
2
and Luk N. Van Wassenhove
2
1
University of Calgary, Haskayne School of Business
2
INSEAD, Technology and Operations Management
The low carbon economy is a minerals economy
Upon the clean
energy transition…
…limited & concentrated supply
may not catch up with demand
Expected
demand vs
supply
2030
2020
Net Zero Scenario demand
Mine production
Copper
2030
2020
Lithium
2020
2030
Cobalt
Supply
concentration
(Extraction &
Processing)
28%
52%
70%
40%
58%
65%
2021
2030
2021
2030
2030
2021
Today
Net Zero Scenario
– Paris Agreement
Energy installations, GW
How can we maintain the clean energy
transition in the face of scarcity?
Waste
Systemic
Leakage
Secondary
Supply
Waste
Waste
B
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n
c
h
m
a
r
k
M
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R
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i
o
n
U
r
b
a
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M
i
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i
n
g
No investment
Investment
Energy efficiency
We model a monopolist producer and check
alignment with regulator objectives
M
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Profit = Revenues - Costs
Decisions:
•
Virgin Material purchases
•
Investment decisions (Y/N + quantity)
Decisions aligned? Where to
intervene?
Our model
R
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v
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1
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p
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t
1
M
W
h
o
f
c
l
e
a
n
e
n
e
r
g
y
Material
efficiency
Energy
conversion
M
a
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r
i
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C
o
s
t
s
Random component
Price increases with consumption
V
o
l
a
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y
S
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Results
Virgin material
consumption
U
r
b
a
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m
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n
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M
a
t
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r
i
a
l
r
e
d
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c
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i
o
n
B
u
t
!
S
y
s
t
e
m
i
c
l
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a
k
a
g
e
Jevons’ paradox (1865)
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Urban
mining
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Material Reduction
≿
Benchmark
Urban mining
≿
Benchmark
Benchmark
Material
Reduction
What should policymakers do?
Scarcity level
Systemic leakage
Producer strategy by scarcity and systemic leakage
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l
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UM misalignment
MR misalignment
•
Subsidize Urban Mining/
Material Reduction costs?
•
Improve access to EOL
products?
Concluding remarks
Clara Carrera
clara.carrera
@insead.edu
A
p
p
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What about opening new mines?
Opening a new mine can take up to 15 years.
Successful outcomes not guaranteed.
Opposition and protests.
What about opening new mines?
Extension 1: Independent Recycler
Industry practice: Vertically integrated set-up
Ford: recycling facility in Tennessee, Renault: Refactory, 2024.
Examples: Third-party recyclers that do not manufacture
SolarCycle, US
Decoupling:
•
Benefits of urban mining hold, less strong due to double
marginalization.
•
Recycler sells material to commodity market, the critical material
can be lost to other industries.
Extension 2: What if we do BOTH Material
Reduction and Urban Mining?
Two opposing effects:
•
Positive: Recover materials and build even more due to lower
material content -> Increased revenues.
•
Negative: Increase urban mining cost (reduced material
density), need more collection and processing
In most cases, the strategies are substitutes,
not complements
Benchmark model
Revenues
q
B
units of material
=
q
B
products
=
q
B
MWh
Cost of purchasing
q
B
units
Material reduction model
Cost of
purchasing
q
M
units
Additional
processing
costs
T
r
a
d
e
-
o
f
f
X
Additional cost c
X
Convex R&D costs
Urban Mining model
Cost of
purchasing
q
U
units
T
r
a
d
e
-
o
f
f
Recover r units of material
X
Initial investment cost
α
Fixed recycling costs
Marginal recycling
costs
We consider 3 models
We consider 3 models: Material flows
Profitability and Range of Production
Material reduction results (1/2)
Otherwise
U
rban Mining results (1/2)
-
B
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c
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m
a
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k
s
o
l
u
t
i
o
n
,
o
t
h
e
r
w
i
s
e
The path to the renewable energy transition
Benchmark
Prob of negative
profits and
production range
Clean energy
generation
Profits
Material
Reduction
Urban mining
Low scarcity
High scarcity
Prob of negative
profits and
production range
Clean energy
generation
Profits
Depends
on
α
and
κ
Depends
on
α
and
κ
Explore strategies to sustain the clean energy transition amidst limited resources. Model a producer's decisions and regulatory alignment in maximizing clean energy generation with profitability considerations. Utilize benchmarks for material efficiency, urban mining, and systemic leakage to address scarcity challenges.
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Presentation Transcript
Clean Energy Transition, Scarcity and Urban Mining presented by Clara Carrera INSEAD, Technology and Operations Management with Serasu Duran1, Atalay Atasu2 and Luk N. Van Wassenhove2 1University of Calgary, Haskayne School of Business 2INSEAD, Technology and Operations Management
Upon the clean energy transition limited & concentrated supply may not catch up with demand Copper Lithium Cobalt Energy installations, GW Expected demand vs supply 2020 Mine production 2030 2020 2030 2020 2030 Net Zero Scenario demand 20212030 20212030 2021 2030 28% 52% 70% Supply concentration (Extraction & Processing) Today Net Zero Scenario Paris Agreement 40% 58% 65%
How can we maintain the clean energy transition in the face of scarcity? No investment Investment Benchmark Material Reduction Urban Mining Secondary Supply Systemic Leakage Waste Waste Waste Energy efficiency
We model a monopolist producer and check alignment with regulator objectives Maximize clean energy generation Maximize expected profits Maintain industry production and profitability Profit = Revenues - Costs Decisions: Virgin Material purchases Investment decisions (Y/N + quantity) Decisions aligned? Where to intervene?
Our model Producer contracts q units Market baseline revealed Producer pays price Scarcity Price increases with consumption Material Costs Volatility Random component Time 1 unit of critical material 1 clean tech product 1 MWh of clean energy Benchmark Material efficiency Energy conversion Material Reduction Revenues Urban Mining
Results Material reduction Urban mining Maximize clean energy generation Material Reduction Benchmark Urban mining Benchmark But! Systemic leakage Recycled % Virgin material consumption Jevons paradox (1865) Scarcity level Maintain industry production and profitability Material Reduction Urban mining Benchmark
What should policymakers do? Producer strategy by scarcity and systemic leakage UM misalignment Material Reduction Alignment Material Reduction MR misalignment Benchmark Systemic leakage Subsidize Urban Mining/ Material Reduction costs? Improve access to EOL products? Urban Mining Scarcity level UM Preferred by Policymaker MR Preferred by Policymaker
Concluding remarks Clara Carrera clara.carrera@insead.edu
What about opening new mines? Opening a new mine can take up to 15 years. Successful outcomes not guaranteed. Opposition and protests.
Extension 1: Independent Recycler Industry practice: Vertically integrated set-up Ford: recycling facility in Tennessee, Renault: Refactory, 2024. Examples: Third-party recyclers that do not manufacture SolarCycle, US Decoupling: Benefits of urban mining hold, less strong due to double marginalization. Recycler sells material to commodity market, the critical material can be lost to other industries.
Extension 2: What if we do BOTH Material Reduction and Urban Mining? Two opposing effects: Positive: Recover materials and build even more due to lower material content -> Increased revenues. Negative: Increase urban mining cost (reduced material density), need more collection and processing In most cases, the strategies are substitutes, not complements
Benchmark model Supply Installed base Revenues qB units of material = qBproducts = qBMWh Cost of purchasing qB units Waste
Material reduction model Supply Installed base Waste Additional processing costs Cost of purchasing qM units 1 unit of material -> 1+ ? products X Efficiency loss: 1+ ? products -> 1 + (1 ?)? MWh Trade- off Revenues ??units of material = (1 + ?)??products = (1 + (1 ?)?)??MWh X Additional cost c X Convex R&D costs
Urban Mining model Virgin Supply Installed base Secondary Supply Leakage Waste Marginal recycling costs Cost of purchasing qU units Recover r units of material Fixed recycling costs X Initial investment cost Trade- off Revenues: X Convex recycling costs cRr2 ??+ ? units of material = ??+ ? products = ??+ ? MWh X Limited by EOL products: ? (1 )(qU+ r)
Material reduction results (1/2) If ?, and ? are below a certain threshold No installations when ? ? ? Otherwise Reduction proportional to (1 ?)? ?
Urban Mining results (1/2) - Interior solution, when ? < ?? ? and ? < ?( ,?) - Boundary solution, when ?? ? < ? < ?? ? and ? < ?( ,?) - Benchmark solution, otherwise
The path to the renewable energy transition Low scarcity High scarcity Prob of negative profits and production range Prob of negative profits and production range Clean energy generation Clean energy generation Profits Profits Benchmark Material Reduction Depends on and Depends on and Urban mining
