Raw Materials for Energy Transition

The Paris Climate Agreement aims for net-zero emissions by 2050, prompting global energy transition targets. As reliance on renewables such as solar, wind, and batteries grows, so does dependence on mineral raw materials. The production of energy transition metals (ETMs) is highly concentrated in a few countries. Their historical trading data is relatively limited, and their trading frequency is lower compared to other commodities. These factors pose unprecedented challenges to energy security, supply chain resilience, and market stability. Unlike conventional commodities, which have extensive trading histories, high liquidity, and well-established supply chains, ETMs require urgent attention to improve our understanding. This is essential for effective policy-making, sound financial investment strategies, and robust energy security planning. Among ETMs, 16 materials have been identified as critical in the European Union due to their high production concentration, supply risks, and economic importance. These include seven base metals (aluminum, cobalt, copper, lead, molybdenum, nickel, and zinc), three precious metals (palladium, platinum, and silver), and six minor metals (chromium, lithium, manganese, rare earth elements, silicon, and vanadium). This study aims to provide a comprehensive analysis of the role of ETMs in commodity markets. In Chapter 1, we analyse stochastic volatility models for their ability to capture the main features of ETM price volatility dynamics. In Chapter 2, we examine the links between ETM returns and other major commodities such as energy and other industrial metals. Our findings reveal that, compared to traditional commodities, ETMs exhibit more complex return behaviors, making their price movements more difficult to forecast. Moreover, in recent years, ETMs have played an increasingly important role in commodity markets, with their price fluctuations significantly impacting other commodities. We suggest that enhancing market liquidity and implementing long-term investment strategies in the raw materials supply chain can help stabilize ETM price volatility, support a steady energy transition, and ensure long-term energy security.