Chile’s President Gabriel Boric speaks during an event to present the National Lithium Strategy in … [+] Antofagasta, Chile, on April 21, 2023. – Chilean President Gabriel Boric announced on April 20 the creation of a public-private model for the country’s lithium industry. “It’s the best chance we have to move towards a sustainable and developed economy,” Boric says on national television. Chile is the second biggest producer of the metal. (Photo by Glenn ARCOS / AFP) (Photo by GLENN ARCOS/AFP via Getty Images)
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At the end of April 2023, Chile’s leftist President Gabriel Boric announced the nationalization of its lithium reserves. Boric’s speech justifying his actions highlighted the economic and social reasons often behind nationalization and contained considerable appeals to environmental consciousness. Chile’s nationalization of lithium foretells a forthcoming international wave of greenwashed protectionist policies revolving around Rare Earth Elements (REEs).
Chile is one side of the “Lithium Triangle”, the other two being neighboring Argentina and Bolivia, which have most of the world’s proven lithium reserves. Chile has the world’s third-largest reserves behind its neighbors, but its extraction efforts have allowed Chile to outproduce everyone globally. It dwarfs the second-largest lithium producer, Australia, by almost 100% and possesses a wealth of expertise and equipment to sustain production. The US imports approximately 91% of its lithium from the Lithium Triangle, mainly from Chile. Chilean Lithium producer Sociedad Química y Minera de Chile (SQM) is a leading supplier of lithium to the US. Earlier this year Tesla
TSLA
executives met with Chilean authorities as well as SQM and Albemarle executives to increase business cooperation as the EV maker plans to secure larger supplies of lithium.
Aerial view of the Kolla indigenous community of Santuario de Tres Pozos in the northern province of … [+] Jujuy, Argentina, near the Salinas Grandes salt flat, taken on October 18, 2022. – The turquoise glimmer of open-air pools meets the dazzling white of a seemingly endless salt desert where hope and disillusionment collide in Latin America’s “lithium triangle.” A key component of batteries used in electric cars, demand has exploded for the “white gold” found in Argentina, Bolivia and Chile in quantities larger than anywhere else in the world. (Photo by Martín SILVA / AFP) (Photo by MARTIN SILVA/AFP via Getty Images)
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As green technology progresses and proliferates, our dependence on lithium will only deepen. Smartphones, solar panels, electric vehicles, and every facet of modern life rely on lithium. Earlier this year, scientists at MIT developed a new battery that outperforms the ones we currently use in every aspect using solid-state lithium. With newer technology requiring even more lithium, the US will likely have no choice but to swallow this nationalization and maintain its short to medium-term dependency on Chilean lithium, while supporting development of new sources in more business-friendly countries.
Despite of what free market/libertarian purists want to believe, energy in general and lithium and other REEs in particular can be quite politicized. Coal and oil were since the beginning of the fossil fuel era, with the British Empire strategically placing coaling stations around the world, and projecting power into Iraq and Iran after World War I. The Arab Oil Embargo of the 1970s cut down the predominance of the energy consumers a peg or two. Still, the consequences of President Boric’s ill-though-through and myopic nationalization plan are breathtaking.
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Decade-long data from a broad spectrum of researchers and international organizations repeatedly demonstrates that private sector natural resource mining is economically more efficient than state-owned. Chile, a member of OECD, is capable of taxing the lithium miners – just like it taxes the copper miners, to fill state coffers.
The progress of green energy technologies in the last decade, whose LCOE is now cheaper than many fossil fuels, required a stable supply of raw materials, lithium among them. This same technological development led producers to anticipate future demand, creating a virtuous cycle of low commodity costs facilitating cheap energy and technological development. Nationalization imperils this cycle.
A worker negociates his way amid the melting pots of copper at the foundry of the Chuquicamata … [+] copper mine, in the desert town of Calama, 1000 km north of Santiago, Chile, 25 October, 2005. Chuquicamata, the world biggest opencast mine, is 4,3 kilometer long, 3 km large and 825 meter deep. As all the other mining enterprises in Chile, it was nationalized in 1971 by late Chilean President Salvador Allende. AFP PHOTO MARTIN BERNETTI (Photo by Martin BERNETTI / AFP) (Photo by MARTIN BERNETTI/AFP via Getty Images)
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To Boric’s credit, this is not a case of hasty expropriation. Chilean nationalization entails compensation to investors and will be undertaken gradually and does not exclude future private-sector involvement. Chile also plans to leverage its considerable experience with its nationalized copper industry to use lithium for profit. Nevertheless, with countries increasingly seeking to secure their supplies of critical elements, this will likely result in an economic clash between the supplying and demanding nations.
If Chile’s initiative snowballs into the emergence of an “REE OPEC” with all that entails, the U.S. and Europe would have to do away with the Not In My Back Yard (NIMBY) policies when it comes to mining. Such exclusive economic blocs and political alliances would hinder green energy. The U.S. Congress should consider applying its anti-trust regulation, including the Sherman Act to the lithium monopolists from Chile and elsewhere. Such measures are likely to gain a bipartisan support on Capitol Hill.
And what is good for the goose is good for the gander. Worryingly, we have already seen the rise of resource nationalism in Africa and South America. Even the developed world, usually championing minimal tariffs, has enacted a sundry assortment of protectionist policies. Law makers should limit curbs or monopolization of supply only to cases that directly affect U.S. national security.
The nationalization of industry isn’t the only thing Boric promised. According to Boric’s plan, the new, state-owned company is more than simply the long arm of the government collecting profit from a natural resource. It bets on an emerging technology called the Direct Lithium Extraction process (DLE). While DLE performed well in controlled environments, it is still unclear whether commercial use will succeed.
Chile’s current lithium extraction companies use evaporation ponds where the metal is separated from brine. This is a commonly criticized method of producing lithium using tremendous amounts of water and electricity, with devastating results for the environment. Addressing this environmental danger indeed invites government regulation, but betting the farm on an barely tested emerging technology is risky and foolish.
President Boric’s plan signifies something more foreboding than transforming the global lithium industry. A similar resource nationalism pattern will likely follow other elements. Repetitive failures of previous administrations, both Republicans and Democrats, made the US almost entirely reliant on other nations for REEs. Whether lithium in Chile or cobalt in China, the US will need a more assertive foreign policy and strategy on the matter. The lack of US domestic REE production and refining, and friend-shore supply of many vital elements will jeopardize American companies’ position in energy, electronics, and EV markets. Beyond that, it is a real and present danger to national security. The time to act is now.
With acknowledgements to Ali Su.
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Publish date : 2023-05-16 02:00:00
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