Welcome back. The suppliers of critical minerals for low-carbon energy have a pivotal — and potentially hugely lucrative — role to play in the global shift away from fossil fuels. They are also central to a larger question hanging over the accelerating energy transition. Will this new economic model, as well as being lower in carbon emissions, also be meaningfully better in its wider social and environmental impacts?
Anyone operating or investing in this space should pay attention to what’s happening in Chile’s Atacama Desert, as I explain below. Stand by for more in our series of reports on the booming lithium sector, and our forthcoming Moral Money film on the subject.
Promise and peril in the critical minerals rush
Chile’s Atacama Desert is the driest place in the world outside Antarctica, an environment so harsh that Nasa uses it to put Mars rovers through their paces.
It also contains the world’s most abundant reserves of lithium — putting this region in the thick of a scramble for the so-called critical minerals that will power the world’s shift to green energy.
And as I saw during my recent visit to Chile, this industry is going through a bumpy lift-off — with lessons for businesses and investors all over the world.
Chile’s lithium reserves are concentrated in the brine lakes beneath salt flats such as the Salar de Atacama, a 3,000km² expanse in the middle of the desert. There I toured the operations of SQM, Chile’s biggest lithium miner and the second-largest in the world.
SQM pumps the brine (which contains a small but valuable fraction of lithium) to the surface and passes it through a long series of pools, removing contaminants and allowing water to evaporate in the fierce sun. After several months, the treated brine is trucked to SQM’s refinery outside Antofagasta, a port city 200km to the west, to be turned into lithium chemical powders that are then used to make electric car batteries by manufacturers in Asia.
That single plant near Antofagasta accounts for nearly a fifth of the global refining capacity for lithium — a sector that is set for massive growth. Demand for the mineral could increase as much as fortyfold between 2020 and 2040, according to the International Energy Agency. That offers a huge economic opportunity not just for SQM but for the whole of Chile, not least the communities living near the lithium operations.
And yet this prospect is hardly a driver of universal celebration in those communities. In oases scattered in the desert around the Salar de Atacama, the indigenous Atacameño people have lived for 13,000 years, sustained by creeks that trickle down from the Andes mountains, and by water drawn from underground.
Some I spoke to, such as local community leader Pamela Ibarra, told me of their worries that the large-scale extraction and evaporation of brine could deplete the freshwater aquifers that supply part of their water resources.
Corrado Tore, SQM’s head of salt flat hydrogeology, talked me through a detailed presentation of the company’s extensive research on this question, which indicates that current rates of brine extraction cannot have any significant effect on fresh water bodies in the region, and that SQM’s separate usage of fresh water is far smaller than that of the local agricultural and tourism sectors.
Mariana Cervetto, an independent hydrogeologist who has studied the Salar de Atacama extensively, agreed with Tore that SQM’s data showed no meaningful impact on local water resources. But because the data is gathered by SQM itself — and is not routinely verified by outside analysts — these findings are still viewed with suspicion by the company’s critics, and alternative data sources are scarce, she noted.
In an era when manufacturers and investors face intense scrutiny over environmental, social and governance issues, raw material producers — especially of critical minerals for green energy — need to take these matters seriously or risk being squeezed out of supply chains.
As I saw for myself in the Democratic Republic of Congo, concerns about safety standards and child labour are threatening that country’s potentially huge economic gains as the world’s biggest producer of cobalt. Another key battery material, nickel, comes largely from Indonesia — where companies have been criticised for environmental damage from mining operations and for carbon-intensive processing plants.
Increasingly, governments are intervening to force higher standards upon companies. In Santiago, mining minister Aurora Williams spoke to me about Chile’s new lithium strategy, which would promote investment in new technologies such as direct lithium extraction. This approach would involve removing lithium from brine at the point of extraction, and then pumping the treated fluid back into the brine body.
DLE has generated excitement, notably in the US, where companies including start-up EnergySource Minerals are seeking to use it at the Salton Sea, a salty lake in California. But it’s far from obvious that DLE would always be better for the environment. It would be more energy-intensive than the evaporation pool system, which relies on sunlight, and could require significantly more fresh water. And injecting treated fluid into a brine body could prove hydrogeologically disruptive, Cervetto warns.
By far the most contentious part of Chile’s new lithium strategy — which still needs to be approved by parliament — is a requirement that all new mining projects would need to be executed through a joint venture between a private-sector business and a state-owned mining company.
Williams dismissed the idea that this is a form of nationalisation, as it has been portrayed in some quarters. There is a clear logic to the argument that the state should leave mining operations to private-sector specialists, and simply collect taxes on the proceeds.
But as in many resource-rich countries, this debate in Chile is dogged by concerns that mining companies will find ways to stack the outcome in their own favour, and keep the fruits of mineral wealth concentrated in a relatively few hands. In 2017 and 2020, SQM agreed to pay a total of $92.5mn to settle US cases over alleged improper payments to Chilean politicians.
As demand for critical minerals booms, governments far beyond Chile will be striving not only to address concerns about local social and environmental impacts, but to prove to voters and foreign customers that their resources are being managed equitably and transparently. Companies and investors in this space will ignore that trend at their peril.
When it comes to ambitious climate policy, developing countries are in many cases outperforming their rich-world peers, write Bangladeshi politician Saber Hossain Chowdhury and Hassan Damluji of the think-tank Global Nation.