TL;DR

Moving away from our fossil-fuel-based economy will require adequate energy storage, which means the world will need a lot of batteries and a large-scale increase in mining activities.
The battery industry has been plagued by fragile, opaque, and unsustainable supply chains, making it difficult for players to keep up with growing demand sustainably. New regulations require better management and reporting of those supply chains, so battery makers and car manufacturers are struggling to keep up with and understand the requirements–specifically, which are applicable to them and what steps are necessary to comply.
Advances in supply chain monitoring, reporting, and management will enable the battery industry to meet demands and remain compliant with regulations, ensuring a smooth transition into an electric future.

TL;DR
Why do we need batteries?
Impact of batteries
Materials and production
Opportunities
Supply chain tracing
Sustainable mining processes
Refining and manufacturing improvements
Regulation
European Union
United States
Industry initiatives
Resources

Why do we need batteries?

A global transition to clean technology and renewable energy will only be possible with adequate energy storage. Battery-supplied energy storage is critical to a fossil-free future, as it enables us to power electric vehicles and store and transfer the electricity generated by renewables to the grid.

Individual homes can use batteries to replace diesel-powered generators for power backup and store the electricity generated by rooftop solar panels. New smart batteries even allow homeowners to purchase electricity when it is cheap and green and use it when it isn’t, which also reduces pressure on the grid.

On the scale of electrical grids, batteries can help ensure the phase-out of coal-fired power plants that until now have been necessary to ensure steady electricity supplies. The UK government has estimated that the flexibility offered by grid-scale batteries could even save up to £40 billion by 2050, and they are investing heavily in these facilities.

Impact of batteries

Emissions from the production of EV batteries range from 56 to 494 kg CO2 per kWh of battery capacity, that’s more than half of the carbon footprint of the entire vehicle. About half of those emissions come from extracting, processing, and refining the raw materials.

80% of battery component production happens in China, but the materials for those components come from all around the world. The materials that go into an EV battery will travel 20,000-30,000 miles (up to 50,000 miles) before they end up in a vehicle.

Source: McKinsey & Company, 2023

Materials and production

The average EV battery contains about 185 kg of minerals, with the cathode containing the widest variety (about 31% of the entire mineral weight). NMC is the most common EV battery. It is a lithium-ion battery using nickel, manganese, and cobalt in the cathode.

Lithium: Demand for lithium is expected to rise by over 40x by 2040, and the world is facing a lithium shortage by 2025 if production does not increase. Not because of a shortage in the natural supply of lithium but mostly because we will face difficulties in sustainably extracting enough lithium in time to meet demands.

Extracting lithium requires a lot of water, and more than half of lithium production is in water-stressed regions. In South America in particular, lithium extraction comes at the expense of indigenous people who are being left without water to drink.

Nickel: Most nickel today goes towards stainless steel production, with 5-8% going to the EV battery market, but that share is expected to increase to more than 30%. Currently, less than half of all nickel produced (Class 1 Nickel*) can be used in batteries.

Large sustainability challenges in nickel production relate to the release of sulfur dioxide gasses from smelting and toxic chemicals from refining.
Nickel mining in Russia (specifically Norilsk Nickel, aka Nornickel) has created “one of the most polluted places on Earth” with 5.98 million acres of dead forest and caused the largest Arctic oil spill in history. Nornickel joined the Responsible Sourcing Blockchain Network in 2021 and will undergo regular assessment.

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*Nickel is divided into two classes based on its purity. Class 1 nickel is high purity and considered battery-grade. Class 2 nickel (aka nickel pig iron and ferronickel) is less pure and is commonly used in stainless steel production.

Manganese: The Institute of Electrical and Electronics Engineers calls manganese “abundant, safe, and stable” but capable of less energy density than nickel. Manganese can actually be very toxic in high concentrations, especially in aquatic and coastal ecosystems where it is normally found at very low levels and can have complex interactions with other components of that environment. The mineral can also accumulate in the tissue of fish, presenting a human health concern for those who would consume the fish.
Cobalt: Considered the highest risk in the EV battery supply chain. 74% of the world’s supply comes from the Democratic Republic of Congo, and about 70% of all cobalt is refined in China

There are cobalt-free batteries (like sodium-ion), but one of the problems is that battery recycling becomes tricky when cobalt is removed. Cobalt is the most valuable part of the battery and drives the economics of battery recycling.
Amnesty International produced a scalding report in 2016 called “This is what we die for” about human rights violations in DRC cobalt mines.

Most cobalt mining in DRC is done by hand (called artisanal mining), where workers are paid a few dollars a day for the dangerous work. One of the concerns with moving away from this kind of mining is that it might actually increase child labor in the long run by reducing the income of households that depend on the mines.

Most processing is done in China, which means there is a high degree of transportation from the mining location.

Opportunities

Supply chain tracing

One of the biggest challenges in battery production is that manufacturers don’t typically know exactly where their materials come from or how they were extracted. The critical minerals needed by batter makers are scarce, and many blind eyes have been turned in the name of getting ahold of those materials at any expense. What we don’t measure, we can’t improve.

Critics of blockchain traceability, specifically, say it will increase the divide between the producers and the consumers, putting an extra burden and cost (and not profits) on laborers that are already paid very little. The data recorded at the mining level has not typically included the conditions it claims to fight against, i.e., poor labor and environmental conditions.

Sustainable mining processes

Renewables: Source electricity for mining activities from renewables like wind and solar.
Geothermal lithium: Lithium is sourced as a byproduct of geothermal heating. Test projects are underway in the US, where the Salton Sea is believed to contain 10x the current US demand for lithium.
Advanced water technologies:

Desalination: Rather than using valuable freshwater resources, Chile plans to build 15 desalination plants by 2028.
Water recovery: Creating closed water loops by recycling wastewater.

Repurposing waste streams:

Carbon sequestration projects: Some mining byproducts can be used to capture and mineralize CO2.
Creating useful products from waste:

Reprocessing - extracting metals from leftover mining materials
Downcycling - using the bulk material as is
Upcycling - modifying mining tailings into useful material

Refining and manufacturing improvements

Renewables: The battery production process is very energy intensive, so renewable energy deployment will also be important here.
Process optimization: Implementing ways to reduce the consumption of energy during battery component manufacturing.

Recuperation of energy discharged during battery cell testing back into the production line could reduce overall energy consumption by 17%.

Regulation

This is only a small snapshot of the regulatory landscape related to battery supply chains.

European Union

In 2022, the EU agreed on a new Batteries Regulation, the industry's most comprehensive battery reporting and compliance laws. Starting in late 2023, battery manufacturers will be subject to mandatory targets on sustainability, performance, labeling, and recycling, increasing yearly through 2027.

The new EU Batteries Regulation replaces the Batteries Directive of 2006, which allowed for interpretation and implementation by the individual member states. The Battery Regulation will overrule national laws and prohibit battery manufacturers from selling their products on the EU market unless they are able to maintain and prove compliance.

Other related regulations:

The Corporate Sustainability Reporting Directive (CSRD): Sets rules around what social and environmental data companies are required to report. Entered into force in January 2023, with 2024 being the first financial year where the rules apply.
Corporate Sustainability Due Diligence Directive: A proposal was adopted in Feb 2022 to ensure that businesses address any adverse social and environmental impacts of their operations and governance. Once adopted, member states will have two years to implement.

United States

There is a big push for the US to produce its own batteries, and that includes supplying its own minerals. The Inflation Reduction Act (IRA) has set goals through critical mineral and battery requirements and offers tax credits and incentives to jump-start production and adoption. Under the IRA, tax credits will only go to producers that can show that 40% of the minerals were extracted or processed in the US or a close trade partner. This will gradually increase to 80% by 2027, but the targets have been criticized for lacking clarity and specificity.