The prospected surge in demand for Lithium and its rising employment in the production of Li-ion batteries can have different geopolitical impacts. Mainly because the extracting and refining industries of this raw material are well separated and highly concentrated in a few countries.
Critical Raw Materials (CRMs) for the green transition
Transitioning from fossil fuels to clean energy requires a vast set of indispensable raw materials. For example, according to the International Energy Agency (IEA), standard electric cars require six times the mineral inputs of a conventional vehicle, while an onshore wind plant requires nine times more mineral resources than a gas-fired plant. As a result, the rapid deployment of clean energy technologies will imply a significant increase in demand for minerals. Still, to reach climate neutrality by 2050, the minerals global demand will increase by six times than today. However, most of these raw materials are geographically concentrated, and vulnerable countries might struggle to find alternative sources of supply.
Many governments regularly update national lists of raw materials they consider critical for their economies and, indirectly, to comply with environmental commitments. For example, in the last update made by the U.S. government in 2022, fifty materials were listed as CRMs, fifteen more than in 2018. On the contrary, the EU list saw a modest increase. In fact, in the last update of 2020, only four new materials (bauxite, lithium, titanium, and strontium) were added for the first time to the list, increasing the total from twenty-seven to thirty (Helium was removed due to a decline in its economic importance). The EU adopts two main criteria to assess the critical significance of each raw material. On the one hand, the Economic Importance parameter considers variables like the contribution of the material to the EU economy in terms of end-use applications and the value added by corresponding EU manufacturing sectors. On the other hand, the Supply Risk parameter takes into account the disruption risk in the EU supply in terms of the material supply concentration and the governance performance of the supplier. The last parameter shows that most EU’s CRMs are geographically concentrated in a few countries. For example, EU industries import 98 % of their rare earth elements (REE) from China, 98% of borate from Turkey and 71% of platinum from South Africa.
The global demand for Lithium and Li-ion Batteries
In 2021, transportation was the sector that, more than any other, relied on fossil fuels and accounted for 37% of CO2 emissions. Therefore, investing in electromobility and its components is essential for any country willing to reach climate neutrality. Lithium is and will be indispensable in this context, as it is the lightest metal in the world with much higher energy density than other metals. Such a chemical peculiarity makes Li-ion batteries (batteries made with lithium cells) the most convenient for storing electricity in the limited space of electric vehicles. As a result, the global lithium demand is expected to increase more significantly compared to the other raw materials. Indeed, while countries will need 40% more copper and REEs and 60-70% more nickel and cobalt, lithium demand will rise to 90% by 2040. At the same time, the global demand for Li-ion batteries will be tenfold by 2030 and provoke a significant shift in the current lithium industry. As a result, batteries will be the primary commodity produced with lithium in the next decade, passing from 34% to 75% of lithium end-use.
The geography of Lithium and Li-ion Batteries
Lithium reserves are mostly concentrated in Latin America, in the so-called “Lithium Triangle” at the Bolivia, Chile and Argentina borders. Of the 89 million tons of lithium resources identified in 2021, Bolivia possesses 21 million tons; Argentina, 19 million tons; Chile, 9.8 million tons; Australia, 7.3 million tons and China, 5.1 million tons.
Although most of the lithium reserves are located in Latin America, the primary industries for lithium refining and Li-ion battery manufacturing are located in Asia. As for 2021, China produced three-quarters of all lithium-ion batteries and accounted for 70% of the production capacity for cathodes and 85% of anodes, both critical components of electric vehicle batteries. In total, the Asia Pacific region accounted for 90% of the world’s battery manufacturing in 2021. However, it may decrease to 69% in the next decade as other regions are currently investing to increase domestic production capacity of li-ion batteries. The EU is prospected to expand more rapidly than other regions, reaching 20% of the global batteries market by 2030. On the contrary, North America’s cell capacity is dug to register limited growth.
Geopolitical trends
China
Since 2018 China has acquired multiple Argentinian, Chilean, and Bolivia lithium mining operations. For example, in2021, China’s Ganfeng Lithium and Argentina’s mining ministry signed a memorandum of understanding to create a lithium battery manufacturing plant. In 2022, China invested more than one billion in Argentina’s mining sector and inaugurated several collaborations with local companies. Instead, with the acquisition of Chilean mining company Sociedad Quimica y Minera de Chile’s shares and mining contracts, Beijing has ensured its dominance within the Chilean lithium mining industry. Finally, in Bolivia, the developing Chinese-Bolivian lithium production plants may produce 146,000 tons per year.
The EU
Unlike China, the EU is expanding its lithium trade ties mainly with Chile, which already accounts for 80% of EU lithium imports. In December 2022, the EU and Chile concluded negotiations on modernising the EU-Chile Association Agreement signed in 2002, now renamed “Advanced Framework Agreement”. With the renovated agreement, Chile committed to avoiding forming export and import monopolies for raw materials by ensuring that no exclusive trading rights are awarded to any specific company. In addition, Chile is committed not to apply any export restriction towards the EU and not introducing price requirements below the market price of the previous year. Moreover, with the European Battery Alliance’s establishment the EU seeks to achieve strategic autonomy in the Li-ion batteries industry. As a result, it is set to meet 89% of its increasing demand for batteries by 2030.
The U.S
From 2016 to 2019, over 90% of the U.S. Lithium supply came from Argentina (55%) and Chile (36%). However, the Biden administration seeks to create a complete and independent domestic supply of Li-ion batteries. In the “National Blueprint for Lithium Batteries 2021-2030”, the Biden administration laid the agenda to achieve independence in this sector. The U.S. strategy involves a holistic approach covering the whole lithium-ion battery ecosystem, from increasing domestic extraction to developing a circular economy ecosystem for used batteries. Accordingly, in 2022 President Joe Biden issued presidential determinations providing the U.S. Department of Energy (DOE) with authority to utilise the Cold-War era Defence Production Act to accelerate domestic production of key energy technologies. As a result, the DOE issued a $12 million Funding Opportunity Announcement to support the domestic extraction and conversion of lithium.
The lithium Triangle
Chile, Bolivia, and Argentina account for over half of the world’s lithium reserves. However, it is still unsure whether lithium increasing global demand will bring competition or collaboration. The three governments are in talks to propel themselves further down the li-ion battery global supply chain. Argentina proposed replicating the tri-lateral working group established among its lithium-mining provinces with the other two countries. However, achieving an agreement seems uncertain, especially considering the negative outcome of the previous initiative to create a Lithium- OPEC. The three governments could not find a compromise to regulate lithium production and prices, mainly due to internal variables and legacies that made the three countries reluctant to cooperate in the resource sector.
Australia
Up to 2022, Australia imported 100% of its li-ion batteries from third countries. However, the government has a comparative advantage in lithium-ion battery production as it is the largest producer of lithium. It currently produces nine of the ten elements required to make most lithium-ion battery anodes and cathodes. The building of Australia’s first lithium-ion battery production facility commenced only in 2021, and the country’s li-ion production capacity doesn’t seem to be expanding.
Current national policies suggest that the Global Supply Chain of li-ion batteries will be increasingly regionalised in the following decades. China will continue to dominate the market but will not monopolise it, mainly because the EU and the U.S. seek to increase their domestic production capacities and invest in developing a circular economy for batteries. Instead, countries forming the Lithium triangle and Australia, which could have an economic advantage due to their natural resources of lithium, will refrain from exploiting them to build domestic production of batteries. In sum, as the li-ion batteries global demand will continue to surge and national industries will need these commodities to survive the green transition, those countries that most of any other fear the risk of future li-ion batteries shortages are devoting their efforts to reinforcing domestic production capacity rather than relying on China.
