Understanding the Future of Critical Raw Materials for the Energy Transition: SVAR Models for the U.S. Market
25.03.2024
Ilenia Gaia Romani (Università degli Studi di Brescia e Fondazione Eni Enrico Mattei); Chiara Casoli (Fondazione Eni Enrico Mattei)
C53, Q02, Q31, Q4, Q54
Energy transition, critical minerals, Structural Vector Autoregressive models, conditional forecasting, Inflation Reduction Act
Massachussetts Institute of Technology, Center for Energy and Environmental Policy Research (CEEPR)
Working Paper Series, CEEPR WP 2024-05, March 2024
We examine the impact of energy transition policies on the U.S. markets of three critical minerals used for batteries, namely cobalt, lithium and nickel. To achieve this, we estimate three Structural Vector Autoregressive models, disentangling supply and demand shocks at the aggregate and mineral-specific level. We then perform a structural forecast analysis to study mineral price patterns under various demand and supply scenarios up to 2030. Specifically, we investigate the implications of the U.S. Inflation Reduction Act (IRA) and the associated policies aimed at boosting the domestic production of these critical minerals, combining them with various demand projections. Our findings suggest that, whereas cobalt and lithium prices could decrease conditional on the successful implementation of energy transition policies in the U.S., nickel price most likely will remain high.