A Review of Carbon Pricing Mechanisms and Risk Management for Raw Materials in Low-Carbon Energy Systems
Hongbo Sun, Xinting Zhang, Cuicui Luo
Abstract
The global shift to low-carbon energy systems has significantly increased demand for critical raw materials like lithium, cobalt, nickel, rare earth elements, and copper. These materials are essential for renewable technologies and energy storage. However, their extraction and processing produce significant carbon emissions and face challenges from supply chain vulnerabilities and price volatility. This review examines the complex relationship between carbon pricing mechanisms—such as carbon markets and taxes—and raw material markets. It explores the strategic importance of these materials, recent policy developments, and the transmission of carbon pricing impacts through supply chains. The review also analyzes the systemic risks created by carbon pricing, including regulatory uncertainty, market volatility, and geopolitical tensions. We then discuss financial tools and corporate strategies for managing these risks, such as carbon-linked derivatives and supply chain diversification. Finally, this review identifies key challenges and suggests future research to improve the resilience and sustainability of raw material supply chains. Here, resilience is defined as the capacity to adapt to carbon pricing volatility, geopolitical disruptions, and regulatory shocks, while maintaining operations. The paper concludes that coordinated policies and flexible risk management are urgently needed to support a reliable and sustainable energy transition.