Abstra
The aim of this paper is to analyse the geopolitics of renewable energy, focusing on the lithium market. The renewable energy sector became essential for the future of the international economy since lithium is one of the most requested raw materials due to its life-span and power density. Key actors in the geopolitics of lithium are China, as a major exporter of final products in the Lithium market, but also Argentina, Bolivia, Chile (also called ‘Lithium Triangle’) and Australia, that currently own the largest quantity of Lithium reserves in the world. The increase of Chinese economic power and Chinese producing capacity are jeopardising countries’ opportunity to exploit their natural resources. This essay describes the EU geopolitical perspective as a consequence of the Chinese predominance in the renewable energy sector and its effects on the lithium market.
Introduction
Amidst the pressing threats of climate change and the prevailing energy crisis, the European Union is increasingly acknowledging the significance of renewable energy. This is because renewable energy is viewed not only as a low-carbon energy source, but also as a crucial step towards enhancing European energy security. The EU has persistently pursued climate change mitigation through international initiatives under the 2030 agenda, while simultaneously working towards its 2050 climate action strategy, which aims to establish a net-zero emissions economy. In this regard, the recent developments in energy geopolitics, spurred by Russia's invasion of Ukraine, have further accelerated Europe's commitment to these goals and resulted in the implementation of the RePowerEU plan by the European Commission, launched in May 2022 with the goal to “save energy, produce clear energy and diversify energy supplies” (European Commission, 2022). Given the pressing importance of the European energy mix, all recent initiatives scaling up renewable energy have the effect of creating energy dependencies, hence also influencing energy geopolitics.
From a theoretical standpoint, the shift from fossil fuel geopolitics to renewable energy geopolitics incorporates two distinct perspectives. Firstly, renewable energy introduces a prominent geopolitical pattern by enhancing states' prospects of achieving energy independence as opposed to fossil fuel geopolitics. Despite varying scales of potential, nearly every European country has the prospect to use some form of renewable energy. Moreover, in contrast to fossil fuels, which are geographically concentrated and limited, renewable energy is, in theory, decentralised and thanks to its flow-based form it remains to be more resilient to disruptions (IRENA, 2019). Renewables can thus be deployed at various scales, contributing to the decentralisation of energy production (O'Sullivan et al., 2017; Criekemans 2011). Secondly, the dependence of renewable energy on raw materials for its storage presents a return to centralising geopolitical trends. While renewable energy sources contribute to the overall trend of power decentralisation, their reliance on weather conditions for production creates a need to address energy storage. Consequently, the aspect of raw materials required for energy storage, including lithium, cobalt, manganese, graphite, and nickel (Lebrouhi et al., 2022) tie back to the material’s geographical location or state ownership. This situation, in turn, may influence and reshape the geopolitical landscape (Hernandéz, 2022).
This report seeks to discuss the importance of lithium for the European energy transition by addressing the impact of the new lithium geopolitical realities while providing a predictive lens on the dynamics between Europe and the rising actors in the lithium field.
The Lithium Revolution: Catalyst for Renewable Energy Advancement?
Recently, there has been a sharp increase in the demand for lithium. This is due to multiple reasons, including the growth of the electric vehicles market, the vast integration of renewable energy and technological advancements. The importance of lithium to decarbonization is pivotal, as lithium plays a crucial role in driving advancements in renewable energy (as well as electric mobility), particularly in the expansion of solar and wind power. Lithium, as the main component of lithium-ion batteries, has indeed transformed the renewable energy sector by providing an efficient storage solution, since renewable forms of energy such as solar and wind often generate electricity in excess of immediate demand. Lithium-ion batteries present a solution to the power grid connectivity issue, allowing surplus energy to be stored for later use. The lithium-ion batteries, compared to other types of batteries, are characteristic for their increased life-span, higher energy efficiency and power density (Diouf & Pode, 2015), making it the most widely used way of energy storage. The rising importance of lithium is also evident in the projected global demand for lithium-ion batteries. Over the next decade, the demand for batteries is estimated to increase significantly from approximately 700 GWh in 2022 to around 4.7 TWh by 2030 (McKinsey and Company, 2023), translating to an annual expected growth rate of 33%.
The Rise of China as a pivotal player in the lithium global market
The global lithium market has witnessed a significant transformation in recent years with China emerging as a pivotal player. However, this is not due to Chinese lithium reserves, as they account for only of 14% global reserves and are characterised by their scattered distribution and inferior quality (Jaghory, 2022). Rather, China's domestic lithium requirements, driven by its substantial economic power and sizable market, exert a significant influence on global lithium demand. After the 2000s’ vast economic growth, Chinese domestic demand for lithium started to be linked to the rapid growth of the renewable energy sector, with a particular focus on the solar sector which skyrocketed from 6,72 GW to 43,54 GW between the years 2012-2015 (Our World in Data). At the same time, China demonstrated its leadership in the adoption of electric vehicles and hybrids using a lithium-ion battery, which in 2021 represented approximately 13% of all Chinese vehicles’ sales (Jaghory, 2022).
However, the Chinese strong influence on the global lithium market goes beyond its domestic lithium demand. Instead, China’s importance in the global lithium market is consequent to its position as the leading exporter and manufacturer of lithium-ion batteries. This is particularly the case since 2015, when China surpassed South Korea and Japan in the number of exports (Jaghory, 2022). Furthermore, Chinese companies play a crucial role in the global lithium supply chain, occupying a significant majority of the market, manufacturing approximately 80% of all batteries. Hence, the disparity between China's lithium reserves and the share of their lithium-ion batteries exports solidifies the Chinese role as a key middle man in the global lithium market, forming a core link in the supply chain and bridging the gap between countries with vast lithium reserves and the global consumers.
World’s Major Lithium Markets
Three South American countries, along with Australia, emerge as the frontrunners in terms of geographical lithium reserves, underscoring their status as the primary holders of the world's largest lithium deposits. The South American countries that hold 56% of the world's lithium are the so-called “Lithium Triangle”, consisting of Bolivia, Chile and Argentina (Silva, 2023), with Chile’s reserves being the greatest. The geographical location of lithium is consequential to a form of the material’s purification. In this regard, Australia and Chile have distinct approaches for their method of lithium production. For example, in Chile, lithium is extracted from salt deserts through the evaporation of lithium-rich saltwater. The resulting solution undergoes meticulous processing to ensure it reaches the desired quality necessary for its application in batteries.
The lithium market is in a very important stage as countries are increasingly recognizing that possessing carbon-free energy sources will hold the key to political power and influence. To set a brief timeline, China established significant ties with the Lithium Triangle countries at the outset of the 21st century, when it gained recognition as a reputable international trading partner. In just a decade China lent billions of dollars both to Argentina and Bolivia through the state-owned development banks (MacDonald, 2023). As one of the largest economies in the world, China gained a key inside in the importance of owning energy means early on. This knowledge, combined with Chinese low domestic reserves of lithium, have led China to incentivise commercial deals with the countries of the Lithium Triangle. China itself, however, makes efforts to challenge its position as a middle man in the lithium market (with its deposits of lithium accounting for less than 25% of the world’s total reserves) and rather, the country actively seeks to expand its share in the lithium mining industry internationally (Go, 2022).
In a strategic move aimed at preserving its lithium monopoly, China strategically expanded its Belt and Road Initiative (BRI) to include Argentina. Initially focused on Africa and Asia upon its launch in 2013, the BRI's expansion demonstrates China's intent to secure its position in the global lithium market. Beyond Argentina, South America overall, with a particular importance of the Lithium Triangle countries present a promising opportunity for China to expand its high-tech exports. China holds a significant advantage as the leading producer of lithium-ion batteries globally. This means that nowadays every country has to count on China processing raw materials even if they are plenty of lithium as Chile, Bolivia and Argentina are. Furthermore, gaining success with Latin countries would help China to reduce the widespread mistrust in the international community.
Starting with Argentina, its trade with China arose in the last ten years (US$ 450 billion in 2021) due to numerous energy and transport projects. Chinese enterprises have contributed greatly to Argentina's energy sector evolution (Koop, 2022). In particular, the Chinese company ‘Zijin Mining’ is investing $319 million in the ‘Tres Quebradas’, located in the Catamarca province. This project is expected to start in the early 2024 and will involve the brine process based on evaporation ponds (NS ENERGY). However, if compared to Bolivia and Chile, Argentina has a more decentralised governance of lithium, which is not considered as a “strategic resource” (Sanchez-Lopez, 2023). This means that provinces are in charge of stipulating concessions with private or public actors.
After Chile’s president Boric recently announced he would nationalise the lithium industry, it seems that the relationship with China has changed shape. As Reuters reported, the analyst at Samsung Securities declared that “contract conditions would likely become more difficult than what they saw in the past when there was no state involvement” (Villegas & Scheyder, 2023). In the last few years, Chile has renegotiated the contracts with the major extractor enterprises, the US Albemarle and the Chilean SQM in favour of national wealth. The difference between Chile and the other two Latin American countries is that Chile seems to be less dependent on the Chinese lithium market and to have a diversified market (Sanchez-Lopez, 2023).
Bolivia has a situation similar to Chile’s. Bolivia has the largest lithium deposit in the world but it hasn’t gained a substantial position in the international market yet (Sanchez-Lopez, 2023). In January 2023, Bolivian President Luis Arce approved the agreement between a consortium of Chinese enterprises (CBC) and the Yacimientos de Litio Bolivianos (YLB). Many actors disagree with this partnership but the President claims that Bolivia needs to exploit this particular natural resource to counteract the climate crisis. As The Diplomat declared, the Chinese CBC will both build the infrastructures and coordinate extraction with YLB. If China gains control of the extraction process too, it will obtain even more power than it already has, and countries all over the world would become more dependent on the Chinese lithium-ion batteries industry (Bouchard, 2023).
Nevertheless, Chinese efforts to enforce its share on the lithium market have been met with criticism in these three South American countries. The opposition is both public and political and voices that the agreement with Chinese companies will certainly bring to the internationalisation of national lithium causing damage to the domestic economies of Argentina, Bolivia and Chile (Bouchard, 2023). While some South American countries are trying to nationalise the lithium industry to produce on their own, China still has 47% of lithium carbonate refinery capacity. Australia holds a prominent position as one of the largest lithium producers, however, it falls short in terms of the lithium refining process. This is due to the fact that China refines most of Australian extracted lithium (Wong, 2023). China processes lithium into lithium carbonate from brine or lithium hydroxide from spodumene for making lithium-ion batteries. Tianqi Lithium Energy Australia (TLEA) is a Chinese-Australian venture that has made a deal to work together in the Greenbushes hub in Western Australia (Ker, 2023). Australia’s government is not as sure as the Bolivian one on the partnership with Chinese enterprises. The joint-venture Tianqi Lithium Energy Australia (TLEA) proposed to buy an Australian lithium developer, gaining even more power on this particular market (Murdoch, Singh, 2023).
What Changes in World’s Geopolitics?
From the European perspective, together with the shift away from Russia as the main energy provider, the lithium market has a strong influence on geopolitics. In the past decades the EU has paid increasing attention to environmental challenges. In particular, in 2019, the EU announced the European Green Deal, aiming at becoming the first climate-neutral continent by 2050 and urging the creation of a competitive sustainable battery industry. However, despite its efforts to establish an independent lithium market,, the EU still imports 87% of lithium from Australia and 13% from Portugal and remains highly reliant on China for battery assembly operations (European Commission).
Recently, the relations between EU and China have gradually broken down, for instance due to European countries’ concerns regarding China's civil rights policies. As a consequence, the EU is trying to allocate its resources on increasing domestic production so that it could eliminate Chinese final products imports. This is a challenge considering that the EU and China are economically and politically codependent. Eurostat shows in Figure 8 that in 2022 the EU imported most goods, such as tools for telecommunications, electronic devices, while China exported motor vehicles and their components and medicaments as shown in Figure 9. The EU seems to have a deficit with China in the energy sector, which is € 2.4 billion in 2022 as reported in Figure 7 (Eurostat, 2023). In addition to being a threat to international human rights, China seems to be a threat for the international trade equilibrium too.
Another challenge is represented by the different governance systems of China and the EU. As a matter of fact, on the one hand China operates under a form of governance that can be characterised as a non-pure authoritarian system, which enables the government to effectively uphold national unity as one of China’s primary ambitions. As a result, the Chinese government continuously proposes policies aimed to centralise political and economic powers to get as much stability as possible. On the other hand, the EU is a community of states, a union of 27 countries that have opposite economic and political points of view. Regarding, for example, the electric vehicles market, indeed, the EU has some internal divisions. Italy, Germany, Poland and Bulgaria blocked the law proposed by the EU Commission on the engine fuel vehicles (Von Der Burchard et al., 2023). The EU decisions depend on members’ governments. This means that reaching a common deal on the energy sector is more difficult than it is in China where decisions are taken most of all considering the opinion of the National People’s Congress, which is the most important authority in the Chinese government.
The difficulties in easily finding a deal between EU members seems to be an obstacle in this particular period: while the Chinese government may release a lithium-ion batteries production law without any opposition, the EU Commission has to wait for the members’ approvals. The lack of opposition in the PRC might be the reason why China has made great economic leaps in the last decades and is making great leaps in the energy sector. China has established many international trade relations with countries that prefer to avoid the European approach on poorer countries that are rich in raw materials too. For instance, the countries participating in the Belt and Road Initiative exhibit a preference for engaging with China as a commercial partner. This approach entails a non-interference policy towards the political structures of the involved nations, wherein China refrains from imposing any changes. Furthermore, China is viewed as an actor that refrains from criticising the participating countries' commitment to upholding fundamental civil rights. Overall, China is often seen as more efficient in reaching its goals if compared to the EU. For these reasons, non-EU countries may find the Chinese approach to negotiating critical lithium deals more appealing.
Conclusive remarks: What holds the future of lithium geopolitics?
To sum up, the evidence presented in this article demonstrated that the lithium market and its fluctuations and dynamics have geopolitical implications. These implications have particularly severe consequences for the EU due to its ambitious renewable energy deployment. The EU's failure to anticipate and address China's monopoly in lithium processing and global market shares has resulted in a lag, intensifying a power conflict and its ramifications concerning renewable energy storage. Therefore, it appears that the future of lithium geopolitics will shape the ability of European countries to enhance domestic production capabilities and create a more balanced trade environment as the lack of diversification is the primary cause of the current vulnerability of the supply chain.
Amidst the current circumstances, it is essential to prioritise the transition to renewable energy. Given the urgency and global impact of climate change, facilitating a widespread and early transition to renewable energy appears to be in the best interest of all. However, the European stance also reflects a valuable lesson learned, as the European Union is now acutely aware of the necessity to establish robust monitoring mechanisms for raw materials supply chains, having created Brussels' Critical Raw Materials Act - an early-warning system for the mitigation of the potential shortages of crucial raw materials. Yet, faced by the current situation, in order to sustain the transition to net zero carbon by 2050, Western countries overall and Europe in particular, should continue importing Chinese-assembled batteries until they achieve cost parity with Chinese counterpart, since this approach aligns with the prioritised objective of fostering a healthy and sustainable environment.
Karin Michalikova (Junior Researcher G.E.O. Environment) and Matilde Pierattini (Junior Researcher G.E.O. Environment)
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1 | Confirmed | Confirmed by other independent sources; logical in itself; coherent with other information on the topic |
2 | Presumably true | Not confirmed; logical in itself; coherent with other information on the topic |
3 | Maybe true | Not confirmed; reasonably logical in itself; coherent with some other information on the topic |
4 | Uncertain | Not confirmed; possible but not logical in itself; no other information on the topic |
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