South America: Reality Check on Lithium Fantasies

By Thomas Andrew O’Keefe*

Lithium mine at Salinas Grandes salt desert Jujuy province, Argentina/ EARTHWORKS/ Flickr/ Creative Commons License

The urgent need to reduce global greenhouse gas emissions and transition to an energy matrix centered on renewable energy guarantees a steady demand for lithium, but speculation that South America is on the cusp of a lithium boom is premature. The chemical is critical in the production of rechargeable batteries for mobile devices, electric vehicles, and, increasingly, renewable energy storage systems. The so-called Lithium Triangle of Argentina, Bolivia, and Chile holds just over half the world’s currently known lithium deposits, while Brazil and Peru have large amounts of spodumene hard rock that contains lithium.

  • Lithium in its natural form is part of a chemical compound that requires a complex re-composition process to make, among other things, lithium‑ion battery cells. How it is mined entails significant cost differences. Lithium from the brine below salt flats in Argentina and Chile is currently the most cost-competitive. While Bolivia also has brine deposits, the lithium is less concentrated, contains more impurities, and is found at more difficult-to-access lower depths in the Uyuni salt flats. Accessing lithium in spodumene hard rock pegmatites is even more complicated and hence costlier. The advantage, though, is that this type of lithium synthesizes better with the higher nickel content required to improve electric vehicle performance and range.

The region’s largest producers adopted different approaches to capitalizing on lithium reserves.

  • In 2008, then-President Evo Morales of Bolivia restricted extraction to the state-owned Corporación Minera de Bolivia (COMIBOL) because past commodity boom and bust cycles profited foreigners and left little wealth but plenty of environmental catastrophes and other social ills in their wake. In 2017, lithium extraction was transferred to the newly created Yacimientos de Litio Bolivianos (YLB).  Morales also promoted public-private partnerships to jointly produce batteries and even electric vehicles in Bolivia. The latter echoes a failed Andean Pact initiative during the 1970s in which aspects of automobile production were to be distributed among different member states. The scheme failed because, among other reasons, manufacturing anything in isolated Bolivia was cost prohibitive due to poor infrastructure. Several decades later, logistical realities still make exporting a Bolivian-produced electric vehicle, let alone lithium‑ion batteries, economically unfeasible.
  • Chile, which also deems lithium to be a strategic mineral, imposes onerous production quotas on private-sector producers and requires that they sell 25 percent of their output at preferential rates to domestic downstream buyers. The set-aside provision is designed to encourage manufacturing in Chile of lithium‑ion battery components such as cathodes, hydroxide, and electrolytes. While Argentina is more accepting of private investment in its lithium industry, the country is notorious for recurring economic crises and erratic oscillation in economic policy that make investing in the country a high-risk proposition.

Complicating resource extractive activities in South America are heightened environmental sensitivities. Indigenous communities are well versed in the prior consultation obligation of ILO Convention 169 as well the free, prior, and informed consent requirements of the 2007 UN Declaration on the Rights of Indigenous Peoples. For over a decade now, the continent has seen numerous energy and mining projects blocked and even abandoned because of an actual or perceived failure to adequately consult with detrimentally impacted Indigenous communities. Lithium brine deposits in the Lithium Triangle countries are found in some of the most arid spots on the planet, raising concerns that the water-intensive lithium brine extraction process directly competes with subsistence agricultural activities in nearby communities. This has sparked major road blockades protesting mining projects in Argentina’s Jujuy province and in southwestern Bolivia, as well as court litigation in both Argentina and Chile.

The panorama for the lithium industry in South America is subject to new social and political realities that were not true of past commodity booms. There is little tolerance today for extractive investment projects that are not environmentally sustainable and do not benefit local communities. This trend will accelerate with efforts to turn the voluntary United Nations Guiding Principles on Business and Human Rights into a binding legal treaty. In addition, Environmental, Social, and Corporate Governance (ESG) principles emanating from the UN’s Principles for Responsible Development now make it very difficult for corporate management to push through projects that result in serious environmental damage and human rights abuses.

  • An example of this trend was the announcement last month that Daimler AG, Volkswagen AG, and BASF would join Dutch smartphone manufacturer Fairphone to launch the Responsible Lithium Partnership so that extraction in northern Chile will not negatively affect the sensitive ecosystem or the people who live in the surrounding areas.

July 14, 2021

* Thomas Andrew O’Keefe is President of Mercosur Consulting Group, Ltd. and a lecturer with the International Relations Program at Stanford University.

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2 Comments

  1. Roger Friedman

     /  July 14, 2021

    This is interesting, but could be more comprehensive.

    The international market is highly cartelized, with automakers at the top seeking to guarantee supply; international chemical companies in the middle making the cathodes, anodes, battery cells, control electronics, and properly-dimensioned power components; and international mining companies at the bottom providing the refined lithium. These cartels can take their profits at any level, in any country, minimizing taxes and royalties in the extraction countries. This makes it difficult for extraction countries to reap more benefits from the value chain.

    The current evaporative processes used in the lithium triangle countries must be tailored to the composition of the source brine and take as long as two years to complete the extraction and refining process. This makes it difficult to respond to changes in demand. Newer processes can speed this up, but require quantities of water, which is a major environmental impact. There was a global summit on these new processes earlier this year after the new government took office in Bolivia, but I have no details.

    There are new projects underway to extract lithium from a rock substrate in the US and northern Mexico. These projects require vast quantities of water. It is hard to see how the Mexican project can succeed in the water-short north without corruption and environmental damage.

    The Bolivian infrastructure problem shows just how serious the loss of what is now northern Chile in the War of the Pacific was to Bolivia’s development. Except for gas and oil pipelines, all of Bolivia’s imports and exports go through the port of Arica. As a developed country, Chile should enter into treaties with Bolivia that at least provide for free port and bonded shipment privileges.

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