The Potential Impact of Biden’s Greenhouse Gas Emission Reduction Targets on South American Lithium Triangle

By Thomas Andrew O’Keefe, President
Mercosur Consulting Group, Ltd. [https://www.mercosurconsulting.net]
Co-Chair, ABA ILS International Energy and Natural Resources Committee

In April 2021, the Biden administration announced that the United States would move towards a 50-52 percent reduction from 2005 levels in economy-wide net greenhouse gas emissions by 2030.  The pressing need to reduce emissions from the transportation sector by transitioning to electric vehicles powered by renewable energy resources guarantees a steady demand for lithium.  Lithium is critical in the production of rechargeable batteries for electric vehicles, and, increasingly, for renewable energy storage systems.  South America’s so-called Lithium Triangle, made up of Argentina, Bolivia, and Chile, holds just over half the world’s currently known lithium deposits.  Brazil and Peru also have large amounts of spodumene hard rocks that contain lithium.  There are important factors, however, that may make it difficult for South America to fully benefit from the sharp increase in global demand for lithium.

For one thing, lithium in its natural form is part of a chemical compound that requires a complex re-composition process that ultimately allows making, among other things, lithium ion battery cells.  There are also major differences in how lithium is extracted that have 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 duration.

Conscious of past commodity boom and bust cycles in which foreigners profited from South American natural resources, leaving little wealth but plenty of environmental catastrophes and other social ills in their wake, then President Evo Morales of Bolivia proposed a new model for lithium.  For starters, extraction would be restricted to the Bolivian state.  Morales also promoted public-private partnerships to jointly produce batteries and even electric vehicles in Bolivia.  Logistical realities, however, currently make exporting a Bolivian produced electric vehicle let alone lithium ion batteries economically unfeasible.

In Chile, lithium is deemed to be a strategic mineral.  As a result, the country 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.  This 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 monetary crises and erratic oscillation in economic policy.

Complicating resource extractive activities in contemporary South America are heightened environmental sensitivities.  This is particularly true among Indigenous communities 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.  Given that lithium brine deposits in the Triangle countries are found in some of the planet’s most arid zones, there are concerns that the water intensive lithium brine extraction process will compete with subsistence agricultural activities in nearby communities.  This has already led to major road blockades protesting lithium mining projects in Argentina’s Jujuy province and in southwestern Bolivia, as well as court litigation in both Argentina and Chile.

The contemporary panorama for the lithium industry in South America is subject to new social and political realities.  There is little tolerance today for extractive investment projects that are not environmentally sustainable and do not benefit local communities.  This trend will accelerate if efforts to turn the voluntary United Nations Guiding Principles on Business and Human Rights into a binding legal treaty prove successful.   In addition, European countries are making human rights due diligence standards obligatory for businesses.  For example, France passed a law in 2017 that requires companies with a substantial presence in the country to adopt “reasonable vigilance measures to allow for risk identification and for the prevention of severe violations of human rights and fundamental freedoms, serious bodily injury or environmental damage or health risks resulting directly or indirectly from the operations of the company and of the companies it controls.”[1]  Furthermore, Environmental, Social, and Corporate Governance guidelines 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 in June of 2021 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.

[1] Elise Groulx Diggs, Mitt Regan, and Beatrice Parance, “Business and Human Rights as a Galaxy of Norms,” Georgetown Journal of International Law Vol. 50 (2019): 312.  Companies that fail to meet their vigilance obligations are liable for damages, although a plaintiff has the burden of proving that failure to adhere to the law led to the harms that occurred. Id. at 313.