Question Marks: Environment, Downstream Processing, the China Factor
Lithium-related environmental concerns are genuine. It is suggested that when brine is removed in large quantities from under the salt flats and left to evaporate in ponds, groundwater from elsewhere will flow into the salt flats, aggravating chronically dry areas nearby and adversely affecting local communities. Lithium miners challenge this, but, at best, the impacts are unknown. In any event, the question of whether it would be worth sacrificing these lightly populated areas for the overall benefit of the nation, or even the world, is intensely political.
There is hope for an alternative technology, direct lithium extraction, in which the brine is retained in enclosed tanks and the lithium is chemically separated out, with the remaining brine being pumped back into the salt flats. While some firms boast of their capabilities, how feasible this technology is on a large scale is still undetermined. Bolivia insists that any partner at least partially use this technology, which adds to the uncertainty.
Uncertainty also arises from policymakers’ desire to capture revenue not merely from mining but also from further processing, potentially all the way to battery production. Much of battery production takes place in China, and Chinese firms are seeking to develop mining operations in the lithium triangle precisely to feed these facilities. Adding the cost of building new production facilities in Chile, Argentina, or Bolivia inevitably would have an impact on their calculation of the profitability of potential investments which would have to take into account the availability of workers, electrical power, and port facilities.
And the broader question of Chinese involvement in developing the lithium triangle deserves consideration, given that the United States and Europe are looking to disengage from China and keep closer control of key commodities and industrial goods. A Chinese firm has a 24 percent interest in Chile’s SQM. The existing operations in Argentina sell lithium to China. And several of the bidders to operate in Bolivia are Chinese. This presents the question of how the Biden administration will balance its twin goals of promoting electric vehicle usage and limiting its exposure to China in strategically important economic areas.
Alternatives to the Lithium Triangle
Decisions on building a mining operation involve weighing alternative locations. If the costs, be they from environmental regulation, demands for local industrial production, or tax and royalty regimes, are too onerous investors may look elsewhere. Australian hard rock lithium mining, now a more expensive option, may gain a competitive advantage and other hard rock locations may come into play and, of course, the level of overall political and economic stability—none too high in the lithium triangle countries right now—will factor into any investment calculus.
Also, research is being done on alternatives to lithium-based batteries, which would use more widely available minerals such as sodium, magnesium, or iron. Such alternatives may be a long way off, but as we have seen in the biosciences during the COVID pandemic, breakthroughs can come faster than expected. Will lithium be in demand for the next twenty or thirty years? It is impossible to know. But one should not expect the more than century-long run that petroleum has enjoyed.
With climate change wreaking ever more havoc, the switch to electrically powered vehicles seems baked into our political and business leaders’ planning. But if the lithium triangle countries are to be able to supply demand, while maximizing their benefits and minimizing the costs (especially environmental ones) from any bonanza they will need to thread the needle carefully as they make policies for this sector. A lot will be riding on their decisions, both for them and the world at large.
Richard M. Sanders is a Global Fellow of the Woodrow Wilson International Center for Scholars. A former member of the Senior Foreign Service of the U.S. Department of State, his assignments included serving as an economic officer at the U.S. embassy in Chile, and as desk officer for Argentina and Director of the Office of Brazilian and Southern Cone Affairs in Washington.