Critical minerals could be one of the clean economy’s greatest resources—if it’s done right.
Of all the building blocks that make up a clean economy, six critical minerals—cobalt, copper, lithium, nickel, graphite, and the rare earths—will form the foundation. In a world that meets its climate pledges, annual demand for these minerals will reach a value of $770 billion by 2040. This demand opportunity primarily comes from the clean economy, and particularly from the rise of electric vehicles. Canada has the mineral reserves to compete here, and how it approaches this opportunity will shape the success of its clean energy transition.
Battery and car makers have already invested billions of dollars into Canada’s electric vehicle value chain, betting that the country will ramp up its production of critical minerals. But expectations will have to reconcile with investor wariness towards mineral extraction. Capital markets remember the sector going bust in the early 2010s, when supply outstripped demand. The sector’s human rights violations and environmental damage—and the fact that many Canadian-based companies have committed both—also raise non-negotiable sustainability concerns. Attracting capital to Canada’s mining sector will mean making progress on multiple, and often competing, policy imperatives—and fast.
We estimate that Canada requires a $30 billion investment in critical mineral extraction, and that the mining sector must improve its sustainability performance to attract this much capital. Ultimately, critical mineral mining should not only supply the clean economy, but also become part of it.
Canada’s critical mineral production gap
In 2022, Canada produced $8 billion worth of critical minerals. By 2040, it could produce anywhere from $4 billion to $43 billion worth annually, depending on investment decisions today. To ground Canada’s production potential, we developed three scenarios showing critical mineral demand in the clean energy transition: a scenario with growing Canadian domestic demand, a scenario with growing Canadian domestic demand plus growing exports to the United States, and a scenario with growing Canadian domestic demand but reduced by greater recycling.
Even in our domestic demand scenario, securing enough critical minerals to keep up with growing demand means doubling annual production by 2040, from $8 billion to $16 billion worth of critical minerals. Because it takes 18 years on average to open a mine in Canada, this investment to secure domestic production can’t happen soon enough.
To dig into the details, the interactive Figure 1 shows the production gap between production forecasts from existing mines (existing production) and projected demand for 2040 (clean demand, other demand). Across all six priority critical minerals—which have been aggregated together using their respective market values—we estimate that reaching an annual production capacity worth $16 billion will require a total of $30 billion in new capital investment as soon as possible.
Figure 1 also shows the production gap for each critical mineral separately, in kilotonnes, and notes their individual capital requirements. Copper has the most domestic demand in 2040 (640 kilotonnes) and requires the most capital ($11 billion). Neodymium, a rare earth element, has the lowest domestic demand in 2040 (3 kilotonnes) and the lowest capital requirement ($0.8 billion).
We project $16 billion worth of demand when looking exclusively at mining for domestic demand. Meanwhile, in our exports scenario, we have critical mineral exports to the United States rising steadily as the North American clean economy grows. This doubles the value of demand that Canada could see to $32 billion, and it could be greater if Canada were to be more ambitious on exports. Conversely, in our greater recycling scenario, we have North America matching the European Union’s critical mineral recycling goals. This cuts Canada’s projected demand for raw critical minerals down to $12 billion, but also reduces the amount of mining capital required and facilitates more sustainable outcomes.
Closing the production gap would be an economic win for Canada. Across all three demand scenarios, the value of output exceeds the cost of investment after just two or three years of full production. Getting to that stage, though, requires billions more in capital investments, which, in turn, means convincing investors of the value of this opportunity.
Insufficient capital flows
At current market trends, Canada won’t attract enough capital to meet 2040 demand in the clean energy transition. To add to the challenge, our analysis does not include exploration costs, the 28 other lower-priority critical minerals, or the 16 other rare earth elements, all of which raise capital requirements.
Mining capital expenditure in Canada is stagnating, even as global investment grows. Moreover, of the $12 billion invested into Canadian metals mining in 2023, only a quarter went to metals other than gold, silver, and iron. Government policy won’t be able to cover the difference—the main financing mechanisms for critical mineral extraction are the Critical Minerals Infrastructure Fund of just $1.5 billion and the refundable Clean Technology Investment Credit that covers, at most, 30 per cent of capital costs.
Canada will require a major boost to its capital investment attractiveness, and soon, if the country is to play a significant role in meeting demand for the clean economy’s most important building blocks.
Unearthing a competitive advantage
Canada’s mining sector would be more attractive to investors if it could mine more competitively than other countries. Competitiveness is often understood in terms of capital intensity, which is the amount of capital required per product. Canadian critical mineral mines have capital intensities that are roughly on par with global mines, as shown in Figure 2, and this has not attracted enough investment to meet projected domestic demand. If Canada’s mining sector wants to compete over capital intensity, it would have to innovate substantially to bring its ratios down.
If Canadian mining could compete over emissions per product or emissions intensity instead, it would come out ahead. Across the four critical minerals displayed in Figure 2, Canadian mines tend to be 15 per cent more capital intensive than the global average, but stand out as being 68 per cent less emissions intensive.
Capital markets have not historically prioritized low emissions intensity, but mines, which are responsible for between 4 and 7 per cent of global emissions, are increasingly looking to display their climate credentials. The International Council on Mining and Metals represents over a third of the global mining sector and has set a target of net zero emissions by 2050. Canada currently enjoys a competitive advantage in this space, but needs to decarbonize its mining sector faster to keep growing activity and energy use from derailing improvements in emissions intensity.
Other measures of sustainability also matter to the future of Canada’s mines. We find that 34 per cent of active priority critical mineral projects are within 25 kilometres of protected and conserved areas, while 25 per cent are within 25 kilometres of federally recognized Indigenous Territories. The global mining sector does not have a common approach towards other measures of sustainability, but it is working towards one, and the Mining Association of Canada will play a leading role in defining standards. Any standards that emerge should, at a minimum, recognize Indigenous Peoples as having a right to free, prior, and informed consent, in line with Canada’s adoption of the United Nations Declaration on the Rights of Indigenous Peoples into law.
Critical mineral mining is a multibillion-dollar opportunity for Canada to power its clean energy transition, and investment must start flowing today to meet the opportunity. Given the sustainability risks involved with mining, though, the Canadian mining sector must fulfill this market imperative alongside environmental and social imperatives. Mines have an obligation to align with net zero and work with host communities.
Simultaneously meeting these economic, environmental, and social imperatives will be challenging, but necessary for building Canada’s clean energy transition. It could also be the sector’s greatest competitive advantage in a net zero world.
The data used for this insight can be downloaded here.
Calvin Trottier-Chi is a research associate with the Canadian Climate Institute.