Electric cars from China are taking over Europe. Showrooms display the
pricey models, but others are very cheap. Meanwhile, on the other side of the world, Chile
wants to exert more control over lithium mining. The state is playing a part in the entire
production cycleof this mineral. Lithium is essential to electric
vehicle batteries. The global run on this (coveted) raw material is well underway.
The global North is asking the global South to make the effort to
deepen resource extraction to decarbonize their highly carbon emitting economies.
But is that really true? Is the shift to e-mobility coming at the expense of the
global South? And why does Chile want to bring its lithium companies under state control?
In Latin America, lithium is extracted from underground brines. The process
is straightforward and profitable. The salt-rich water is pumped to the
surface in large ponds, where it evaporates in the sun. That can take up to two years.
The salt water is then filtered to extract the lithium, a basic component in battery production.
There’s more than enough lithium in the world. The world’s largest lithium reserves are in
Bolivia, Argentina and Chile – the ‘lithium triangle’. 53% of all deposits are located there.
Other key countries include the US with 12%, Australia with 8% and China with 7%.
When it comes to lithium extraction, Australia leads the way. In 2022, it mined around
61,000 tons – followed by Chile, China and Argentina. Around 130,000
tons of lithium were produced globally in all. But that’s not nearly enough.
By 2028, we’ll need eight times as much lithium, mainly for rechargeable batteries in smartphones,
laptops and wind turbines, not to mention e-vehicles.
A single mid-size European car needs about 7 to 8 kilos.
Lithium goes into the battery, which stretches nearly the length of the chassis.
It’s what allows the battery to charge, and discharge. Without lithium, there’s
no electricity flow, and the car won’t drive. For now, lithium is still vital to e-mobility.
The advantage of lithium is that it's really light and also has a small volume. This means
that with the lithium batteries, we can really build powerful and small
and low-weight batteries as compared to other electrochemical elements.
Chile, for its part, wants to raise its share of the e-mobility boom. Right now China dominates
that market but we’ll return to that later. In late April, Chile’s president announced
his new national lithium strategy. He wants the country to not only extract the lithium
but to process it. And he wants to put lithium production under state control.
First, the state will participate in the entire production cycle of this mineral
by establishing a national lithium company. And second, the exploration, exploitation and
value-adding efforts will be based on the principle of public-private partnership.
But what exactly does that mean? In Chile, all mineral deposits are owned by the state.
And nearly all of it is extracted by two of the world’s largest lithium companies.
SQM’s lease runs out in 2030, while US-owned Albemarle’s runs till 2043.
Afterwards, the state will receive a majority
stake in all new contracts under President Boric’s proposed policy.
Neither company replied to our request for an interview.
It's bad news for the lithium industry in Chile in particular anytime you start talking about any
sort of nationalization, and I do think that what the Boric administration has proposed here is more
of a partial nationalization. Foreign capital and foreign direct investment is like water in
the sense that it always finds and flows through the path of least resistance. And I think what the
Boric government has done has put up potentially a significant barrier to foreign direct investment.
The left-leaning coalition that took power about a year ago sees things differently.
It wants to work with new companies and new investors in the country.
But it’s still unclear whether Chile’s lawmakers will pass the proposal.
However, Boric’s plan also has its supporters. So far the state has been very arm's length with
regards to the regulation and what happens in the industry. These two companies have
been reluctant to do anything else than just producing raw materials. And so it is expected
that with the entry of the state, they will not only contribute more to the state coffers
in terms of paying of taxes and royalties and so on and so forth. But also the state will
be able to force these companies to start entering new segments of the value chain.
Historically, most of Chile’s lithium has been processed elsewhere, mainly in China.
Since the year 2000 its influence in Latin America has been growing.
When it comes to raw materials, China is Chile’s biggest trading
partner. For Argentina, it is number two after Brazil.
China’s trade with Latin America is set to double over the next ten years.
China is in a good position and has a good commercial strategy.
It approached Latin America in difficult times, offered support in other areas,
and is taking on a very important role. I believe it's like that in the whole world also in Europe.
China is the world's biggest lithium importe and also the second-largest exporter. The Asian
country dominates the refining industry and lithium-ion battery manufacturing.
It is by far the leader, accounting for 79 percent of lithium-ion battery production
capacity worldwide. Followed by the US, Hungary and Poland.
How realistic is it for a country like Chile to develop its own production industry,
given that its competing against the big players on the battery market, like China's CATL?
In theory you could build out a supply chain in Chile, you know, cathode and anode production,
battery production, perhaps even electric vehicle production. But you know, the largest
EV markets in the world are the EU and China, and they are also building out their own supply
chains and capacity. So Chile would probably be competing to try to export any manufacturing
into those very crowded and very competitive markets. So, no, I don't think it would work.
So is Chile going to be relegated to a supplier of raw materials for the big global carbon-emitters
who are now looking to meet their climate goals? Places like China, the US and the EU?
There is a really dividing line and conflict in this world drive towards decarbonization because
the global North is asking the global South to make the effort to deepen resource extraction
in order to decarbonize their highly carbon emitting economies. And the global South says,
so, I can have more investment. I can have more employment, I can have more state resources.
In any case, Chile has benefited from the high lithium prices of recent years.
The big jump came in November 2022, when the commodity hit an all-time high of some
$75,000 per metric ton. Indeed,
last year was an extremely good year in terms of revenue, particularly in Chile, which has a
very high mining royalty tax rate. That meant that revenue increased practically tenfold.
Lithium prices have been sinking since November 2022, due to declining demand for electric
vehicles in China. But that's likely to change. In 2020, some 10 million EVs were on the road
worldwide. By 2025, that figure is set to be nearly 80 million.
Chile wants to expand lithium production to new regions
while doing more to help protect the environment. Until now, the extraction in the country has been
limited to the Atacama salt flat region. It's the world's largest lithium reserve.
Extracting the commodity from brine emits comparatively little CO2. But it does consume
huge amounts of water. And that's depleting vital groundwater supplies. Wetlands are being drained,
and delicate ecosystems are at risk. Chile has pledged to protect 30 percent
of its land and marine territory by 2030. And to look for new techniques for lithium extraction.
The idea is to look for more modern methods, such as direct extraction of lithium to reduce
the use of water and for the state to provide communities with a more active
so that they can also share in this wealth like indigenous communities, for example.
The problem is that the new techniques are not yet being used commercially. It is
unclear when they will be ready for use. The Environment Minister, Maisa Roja,
has also been criticized. Despite her ambitious climate targets, she has
approved a controversial project - a copper mine and not really environmentally friendly.
The conditions under which this project was approved are unprecedented. They should set
a precedent for responsible mining. It's not sustainable. But the question is how do
we minimize the impact. How much impact are we willing to accept in order to obtain the
minerals that are needed for the energy transition and to face climate change.
You may be able to decarbonize the world economy, but that's not necessarily you know,
it doesn't go hand in hand with sustainability. Now the environmental groups are asking for
the resignation of the minister of the environment because, you know,
they have approved new mining operations. So you need more mining and to have more state resources.
But at the same time, this affects your know, your environmental concern and your pledges. So.
This is politics. How do you solve this? I don't know.
But one thing is clear. E-mobility is booming, and Chile hopes to profit from the trend. That's why
the country wants to put lithium producers under state control and encourage companies to develop
a domestic lithium-processing industry. Boosting Chile's share in the lithium boom could be used
to benefit the country and its people. But will this plan attract new companies and investors?
The global lithium market is fiercly competive. China dominates processing and it's where most
lithium-ion batteries are made. But Chile also profits from high process and global demand and
is looking to expand its extraction industry. At the same time, the country wants to do
more to protect the environment and meet its own climate goals.
Extracting lithium from salt flats emits comparatively little CO2,
but it does consume vast amounts of water. Some vulnerable ecosystems will need special
protection. But it’s not
clear what will be Chile's priority, maximizing state profits or protecting the environment.
Or whether the government manages to find a good balance between the two.