Intergenerational Fairness Lithium Mining in South America - Marc Burri Simone Jung
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MARC BURRI, SIMONE JUNG 01 DECEMBER 2023 INTERGENERATIONAL FAIRNESS: LITHIUM MINING IN SOUTH AMERICA MARC BURRI, SIMONE JUNG 01 DECEMBER 2023 INTRODUCTION What is Lithium? - Chemical element (Li) - Silvery-white, soft material - Lightest metal - Often used in batteries due to its favorable chemical properties 01 DECEMBER 2023 MARC BURRI, SIMONE JUNG INTRODUCTION What is Lithium? - Johan August Arfwedson - Discovered lithium in 1817 01 DECEMBER 2023 01 DECEMBER 2023 MARC BURRI, SIMONE JUNG 01 DECEMBER 2023 Global lithium production, by countries [%] LITHIUM PRODUCTION What is Lithium? - Worldwide production is distributed across few regions - Australia produced 61'000 tons in 2022 - Chile produced 39'000 tons in 2022 - South America accounts for 35% of the global production - Total production: 130’000 tons United States Geological Survey (2022) MARC BURRI, SIMONE JUNG 01 DECEMBER 2023 Global lithium reserves, by countries [%] LITHIUM RESERVES What is Lithium? - Reserves are the known amounts of lithium that can be economically extracted with the current technologies - Chile and Argentina totalize more than half of the world's reserves (53%) - Total reserves: 26'000’000 tons United States Geological Survey (2022) MARC BURRI, SIMONE JUNG 01 DECEMBER 2023 Global lithium resources, by countries [%] LITHIUM RESOURCES What is Lithium? - Resources consider the estimated total amount of lithium that exists on the planet - Bolivia, Argentina and Chile account for 50% of the world's resources - Total Resources: 98'000’000 tons United States Geological Survey (2022) MARC BURRI, SIMONE JUNG 01 DECEMBER 2023 Lithium exploitation, by type [%] LITHIUM EXPLOITATION What is Lithium? - Lithium production only amounts for 0.132% of the total resources - Enormous unexploited potential United States Geological Survey (2022) MARC BURRI, SIMONE JUNG 01 DECEMBER 2023 UNDERSTANDING LITHIUM MINING MARC BURRI, SIMONE JUNG 01 DECEMBER 2023 BRINE Understanding Lithium Mining - Underground reservoirs are pumped - Water is placed in these large reservoirs - Lithium salts are obtained after solar evaporation Requires little energy Long process requiring enormous amounts of water MARC BURRI, SIMONE JUNG 01 DECEMBER 2023 HARD ROCK MINING Understanding Lithium Mining - The Ore is drilled, blasted and extracted from the ground - Crushed and grinded in order to isolate lithium very industrial process very energy-consuming but yields higher lithium concentration MARC BURRI, SIMONE JUNG 01 DECEMBER 2023 LITHIUM IN SOUTH AMERICA Understanding Lithium Mining - The "Lithium triangle" - Enormous concentration of Lithium in Argentina, Bolivia and Chile - 35% of global production, 53% of global reserves, 50% of Lithium resources of the planet located in the lithium triangle - Bolivia has the most Lithium resources in the world - Primarily use the Brine technique MARC BURRI, SIMONE JUNG 01 DECEMBER 2023 SIGNIFICANCE OF LITHIUM TODAY MARC BURRI, SIMONE JUNG 01 DECEMBER 2023 ECONOMIC SIGNIFICANCE Significance of Lithium Today - Preferences in society to reduce their carbon footprint - Lithium is an essential resource in transitioning to green energy - Essential for the EV industry metal is lighter and energy efficient - Governments subsidizing the EV industry and thus demand has risen tremendously - Lithium-rich countries have developed different types of policies to govern the extraction of this finite resource MARC BURRI, SIMONE JUNG 01 DECEMBER 2023 POLICY FRAMEWORKS ARGENTINA BOLIVIA CHILE Decentralized decision making Centralized decision making Centralized decision making Provincial governments are responsible The state participates directly in the Lithium industry State companies, administrative concessions, special contracts Public-private partnership (with an Italian company) Royalties (3%) Royalties (6,8 – 40% of sale price) Chinese offensive Joint venture with Xinjiang TBEA Encouraging private-driven industrialization Javier Milei Russian and Chinese offensives President Boric promoted the creation of a state-owned company & prioritizes environment protection MARC BURRI, SIMONE JUNG INTERGENERATIONAL FAIRNESS AND FINITE RESOURCES 01 DECEMBER 2023 MARC BURRI, SIMONE JUNG 01 DECEMBER 2023 WHY CONSIDER INTERGENERATIONAL FAIRNESS IN LITHIUM MINING? Intergenerational Fairness and Finite resources - Supply is supposed to meet demand, leads to depletion of resources - What is the environmental impact of lithium extraction? - How do we invest today’s profits so that future generations can profit? - Is it worth sacrificing local communities for the greater good? - Discounting, Risk, Population Ethics - Are future generations supposed to have the same access to resources as we have today? MARC BURRI, SIMONE JUNG 01 DECEMBER 2023 WELFARE CRITERIA ECONOMIC SOCIAL ENVIRONMENTAL Evaluate well-being by considering consumption patterns and maximization of economic benefits Emphasis on the overall well-being of individuals in a broader context Mitigation of the lithium mining industry’s impact on the environment E.g., Utility, Pareto Efficiency E.g., Happiness Development Index, Income Distribution & Equity E.g., air & water pollution, energy consumption, carbon footprint Understanding economic impact of the lithium mining industry: utility for individuals Effect of lithium mining on various social aspects: employment, social infrastructure development Depletion of resources due to the mining industry, collapse of ecosystem due to lithium extraction LIMITATIONS Environmental externalities are not included, equity distribution, emphasis on immediate satisfaction Insufficient consideration of impact, lack of specificity in localized impacts, disregard intergenerational Environmental externalities are hard to quantify, uncertain of future impact our actions have now MARC BURRI, SIMONE JUNG BEST CASE: NORWAY 01 DECEMBER 2023 MARC BURRI, SIMONE JUNG 01 DECEMBER 2023 THE NORWEGIAN EXAMPLE - The Norwegian Oil Fund is worth approximately 1,4 trillion USD Best Case: Norway and is the largest sovereign wealth fund worldwide - Owns 1.5% of all public companies - Accounts for 40-70% of Norway's export - Exploit a finite but crucial resource, that is at the center of our industrial society (like Lithium?) Norwegian Oil Fund (2023) MARC BURRI, SIMONE JUNG 01 DECEMBER 2023 WELFARE CRITERIA Economic - Return of 6% per year since the last 10 years - Keeps increasingly investing in the Big Tech giants Social - Transfers at least 3% of its worth to the Norwegian Best Case: Norway budget each year, supporting social services such as healthcare and pensions - Ordinary taxation of 22% currently, can climb up to 78% for oil companies, reinvested in the Norwegian economy Environmental - "Do not invest in companies that cause harm to the environment" is this a paradox? - Issues about the Rosebank field in the North Sea and exploiting resources in the Arctic Norwegian Oil Fund (2023) MARC BURRI, SIMONE JUNG 01 DECEMBER 2023 POLICY IN THE LITHIUM TRIANGLE MARC BURRI, SIMONE JUNG 01 DECEMBER 2023 ARGENTINA Policy in the Lithium Triangle - Many different mining companies in Argentina - No further value creation within the country as lithium is exported abroad - Lack of infrastructure and know-how MARC BURRI, SIMONE JUNG 01 DECEMBER 2023 CHILE Policy in the Lithium Triangle - Two predominant companies in Chile: SQM and Albemarle - Chilean State cooperation with two major minors leads to more revenues staying within Chilean borders MARC BURRI, SIMONE JUNG 01 DECEMBER 2023 BOLIVIA Policy in the Lithium Triangle - Closest policy structure to Norway in resource management - Higher taxation on lithium carbonate - Lack of know-how and infrastructure - Value capture to be reinvested into research to be able to keep lithium transformation within the country MARC BURRI, SIMONE JUNG 01 DECEMBER 2023 BEST PRACTICES Policy in the Lithium Triangle - State control over public goods as there are no institution to hold private companies accountable for the effects on the environment - Higher taxation of lithium carbonate than lithium-ion batteries create incentives to transform the element locally leading to value creation - Invest into research & development to create expertise in the region, disincentivizes outsourcing to Asia - “Keeping the money inside” to further society as a whole MARC BURRI, SIMONE JUNG 01 DECEMBER 2023 CONCLUSION & DISCUSSION Summarizing the Key Takeaways What point of view should we take today to define the policies of tomorrow?