Is copper the new oil?

August 20, 2023

An energy transition is happening. Moving to a target of net-zero
global emissions requires a steady move from fossil fuels to
renewable energy, or sources that reduce emissions, while not
affecting productivity and output at the same time. An energy
transition is an expensive proposition, as economies
reconfigure how they source and utilize energy, resulting in
complex interplay of supply and demand, resulting in greater
volatility in energy prices.

The green transition, the ultimate objective of which is

decarbonization, will eventually trigger greater demand for
copper, as the world moves from gasoline to electric vehicles,
supplemented by establishment in greater numbers of solar and
wind power generation units.

Copper with its unique properties of being ductile, as well as

electrical & thermal conductivity, is uniquely placed to be used
heavily in electric vehicles, as well as in solar and wind power
generation equipment. It is estimated that electric vehicles
require five times more copper than traditional vehicles (internal
combustion engines). As there is greater adoption of electric
vehicles, and countries put in place transition plans, the demand
for copper is only going to increase further. Similarly, copper is
also heavily used in solar panels for improving efficiency, and its
intensity will continue to increase as the surge in demand for
solar panels continues to increase.

It is estimated that there is approximately 4.5 tons of copper in

every megawatt of solar power systems that is established,
spread across various components. A transition from on-shore
wind to off-shore wind power generation globally will also
increase the intensity of copper in wind turbines, further
increasing the demand for the same. It is estimated that there is
roughly 4.7 tons of copper in every megawatt of wind farm
installation that takes place, spread across various
components.

Effectively, the transition and adoption of solar & wind power, as

well as electric vehicles is going to drive demand for copper as
the world decarbonizes. The global demand for copper for green
transition is expected to exceed 5.3 million tons by 2030,
growing at an average 16 per cent over the next few years as the
green transition accelerates. As the demand continues to
increase, the supply for copper is expected to remain tight. This
is where Pakistan is uniquely positioned to potentially benefit
from a surge in copper demand over the next decade as green
transition gains traction.

There has been accelerated progress on initiating copper mining

at Reko Diq, and operationalization of the same. There exists an
opportunity to utilize indigenous resources and add value to the
same locally, thereby not just exporting refined copper, but
utilizing it to develop local industries to produce, and export
value-added products. The current plan of the mine operators is
to operationalize the mine at Reko Diq, move the copper
concentrate through pipelines, and export it. This is the lowest
value-added form of export, as more value would be added
outside Pakistan, and at the refining stage, resulting in higher
value being captured outside.

Policymakers must consider having in place mid-to-long-term

forward integration plans in place. Disregarding this would be a
catastrophic failure in not being able to capture the value that
can be generated from favourable demand dynamics over the
next ten years. There is an argument that copper smelting, and
refining cannot be done in Pakistan because of high energy
costs. The high energy costs are largely a function of a horribly
inefficient transmission and distribution network, and an
extractive taxation regime that excessively burdens the
electricity consumer, discouraging industrial activity in the
process. Relying on the grid to provide affordable electricity is
akin to living in a fool’s paradise, and cannot be done without
structural reforms across the board.

However, during the last few years, tremendous progress has

been made in generating electricity from indigenous coal
extracted from the Thar Coalfields. The variable cost of
electricity being generated from the Thar Coalfields is in the
range of three cents per kilowatt-hours of energy generated. As
coal mines scale up, and transition from utilizing diesel as a fuel
to electricity, this can be brought down further through a more
efficient process.

At these electricity prices, it is possible to profitably run copper

smelting and refining operations, effectively capturing all the
value that is generated by refining copper through indigenous
resources. The prevailing regulatory framework is too rigid and
inefficient, and actually discourages industrial activity at this
point – it is only through moving towards a more market-
oriented structure (rather than a single-buyer structure that
currently exists) that we can reduce electricity costs across the
board.

Going a step further, ensuring availability and stable supply of

copper, it will also be possible to encourage and incentivize
development of industries that produce final goods such as
electric vehicles, solar panels, etc, in addition to other industries
that utilize copper heavily. There is a dire need to have in place
the vision to turn the indigenous resources being extracted from
Reko Diq and Thar into high-value added finished goods that
can be exported, and put the country on the path of sustainable
growth. It is also important that communities that have played
host to such mineral wealth are treated fairly, and in an
equitable manner. Repeating mistakes of the past may
eventually result in a future that is also reminiscent of the past.

The global green transition is providing an opportunity to fast-

track industrialization through utilization of indigenous
resources. Driving market reforms and forward integration
across the copper and energy value chain can put the country
on a path of industrialization that can provide necessary jobs for
the country’s youth, while enabling precious knowledge transfer.

The country is at the cusp of yet another generational

opportunity, we can either have the vision for it and build for the
future, or we can continue with a myopic view, and keep making
the same mistakes we made in the past – and that also
includes relying on the same people who have spearheaded the
same mistakes time and again every few years.

The writer is an independent macroeconomist.