Punditry has it that the rise is because of the enormous increase in consumption by China, and it is a fact that the expansion of its economy and its copper consumption are highly correlated. Without dramatic increases in supply, prices will stay high, subject to China’s booms and busts.
The decline of the dollar also hurts. Put simply, on the world market, it takes more cheap dollars to buy a pound of copper than when it was more valued. That’s probably not going to change very much, either, as long as we continue to mortgage the future.
So why should you care about copper? Because the Environmental Protection Agency is going to make you care.
That hybrid car that you smugly drive contains about 100 pounds of the stuff, largely in the electrical cables and the electric motor. That’s over $400 of raw material price that is a fixed cost at current scarcity. A conventional car has only half as much.
The more electric a vehicle is, the more copper it contains (with the exception of completely impractical fuel cell cars). Part of the reason for the $41,000 sticker price of the Chevy Volt is that it contains about three times as much copper as its gas‐only counterpart, the Cruze. This cost is pretty insensitive to the margins of scale or the number of Volts built, as even Government Motors doesn’t catch a break on raw commodity prices.
Enter the EPA. Because of the Supreme Court’s (questionable) interpretation of the 1990 Clean Air Act Amendments rendered in Massachusetts v. EPA, the agency is now in the business of specifying corporate average fuel economy (CAFE) standards. That used to be the purview of the Congress via the Department of Transportation, and the rules were pretty straightforward.
No more. The EPA has declared a CAFE standard of 34.1 mpg in 2016, but has “incentivized” the production of copper‐gulping hybrids and plug‐ins. The new dictate is about as convoluted as something the State Science Institute could set up in Atlas Shrugged. To wit: Even though the power that charges the Volt comes from a grid that is about 70% fossil fuel (i.e. carbon dioxide‐emitting) based, the EPA will count the vehicle as having zero emissions when it is on battery power, contributing an inordinately large amount to a manufacturer’s CAFE.
This applies to the first 200,000 plug‐ins, but goes up to 300,000 if an automaker sells at least 25,000 in the 2012 model year. How convenient that General Electric, the corporatist-state’s green goody two‐shoes, has promised to buy 12,000 “in 2011.” Want to bet that these will be 2012 models?
Further, automakers are going to have to sell a load of family cars that will beat the CAFE standard because there will always be a big demand for large vehicles that aren’t likely to reach 34.1 mpg. Which means more hybrids … which means more copper … which means less supply …
Unless … supply increases dramatically.
And how’s the EPA doing with this?
The next biggest thing in world copper production may be something known as the Pebble Partnership* near Iliamna, Alaska, which is a consortium of the wonderfully named Northern Dynasty Minerals and British mining giant Anglo‐American.
Alaska is a very sensitive subject in all the other 49 states when it comes to the extraction and transport of energy and raw materials — whatever the wishes of its citizens might be. Hence decades worth of hand‐wringing over the Trans‐Alaska Pipeline and the (current) closing of large areas of the North Slope to oil drilling. Now, Pebble.
Anticipating the upcoming environmental fight, Pebble has already poured in an astounding $114 million (that’s not a misprint) for baseline environmental studies, and the EPA is mulling a preemptive kill shot using an obscure portion of the Clean Water Act, despite the fact that Pebble hasn’t even filed for a mining permit.
The scrum between Pebble and the EPA is likely to be one of the biggest environmental fights of this decade. Think about that as your hybrid runs stealthily on battery power, brought to motion by the conductivity of copper.
*Disclosure: The author visited the Pebble site in August, 2010, and was reimbursed by the Partnership for his travel expenses. He owns shares of Freeport‐MacMoRan (FCX) and Broken Hill Proprietary (BHP) the two largest nongovernmental copper producers worldwide.