Strategic Consideration and Optimal Timing of Critical Mineral’s Depletion, Recycling, and Substitution

The global transition to renewable energy technologies has significantly increased the demand for critical minerals, underscoring the need for strategies to mitigate supply chain vulnerabilities. This paper examines the dynamics between exporting and importing countries in the critical minerals market, with a focus on recycling and substitution as alternative solutions. We develop a dynamic game model to analyze the investments of the importing country in recycling and the development of backstop substitutions, while considering the optimal supply strategies of the exporting country. Our study simultaneously investigates the optimal rates of recycling and substitution within a Markovian subgame-perfect Nash equilibrium framework. This paper explores regime-switching conditions across four distinct modes: exclusive reliance on non-renewable resources, recycling readiness, substitution readiness, and the coexistence of recycling and substitution. Key contributions include deriving regime-switching conditions through impulse control, determining optimal supply strategies under different market modes, characterizing explicit mode-switching criteria, and identifying the emergence of multiple Nash equilibria in the presence of recycling. These findings offer valuable insights into reducing dependence on critical minerals, promoting sustainable resource management, and fostering resilient supply chains.