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The ‘White Gold’ Rush: Impacts of lithium mining in South America

Source: Unsplash

Dylan Gaymer

Lithium, the so-called 'white gold' of the future, is fast becoming a key driver in the modern world. It is essential in the production of lithium-ion batteries, used in mobile phones and electric vehicles (EVs) at a time when the demand for such devices is accelerating. In 2019, batteries accounted for 65 per cent of all lithium end-usage worldwide and lithium demand for electric vehicles is set to increase by over 171 per cent by 2025, compared to ten years prior. As fossil fuels become increasingly untenable in light of anthropogenic climate change, the 21st century may see lithium become one of the most critical components in meeting the world's future energy and consumable demands.

South America hosts approximately 60 per cent of the world's supply in its "lithium triangle" (see figure 1) which consists of high-altitude lakes and salt flats. Given the magnitude of these deposits and the trajectory of lithium demand in the future, South America is set to play a “big role” in the global supply of the resource and capitalise on the growing market. However, concerns over how the states manage both the resources and the subsequent potential wealth persist.

Figure 1: The Lithium Triangle/ 'The White Gold Rush' in The Economist 15/06/2017

Commodity Dependence

Commodities such as lithium are integral components to developing economies, where they create revenue to increase living standards and stimulate growth. However, with novel technologies driving demand for lithium and commodity prices remaining notoriously volatile, relying on lithium exports creates substantial risks of commodity dependence for South America. This risk was made clear when the instability of lithium prices saw its price halve between Q4 2017 and Q4 2018, dropping to US$7,000 per tonne in 2020 for the first time since 2014. This drop was due to a roll-back of subsidies for EVs in China, which resulted in a slowdown of sales and an increase in supply as other states expanded their production.

This phenomenon of resource dependence has been demonstrated by the rise and fall of Venezuela's economy, from the peak of their oil production during the late 1990s and early 2000s to the disintegration of the petrostate's economy in recent years. As the price of oil collapsed due to the inherent volatility of global supply and demand, the Venezuelan government descended into one of the worst economic collapses in recent history.

The cautionary tale of Venezuela is not an indictment on states developing new commodities for export, but rather on a disproportionate reliance on such commodities without sufficient diversification. Within “lithium triangle” states, Bolivia remains particularly vulnerable to commodity fluctuations with respect to potential lithium exploitation due to the country's relatively small nominal GDP and exports.

Wealth Inequality

Although lithium’s economic benefits are clear, the opportunities presented by South America's deposits must be tempered by the social effects of exploiting natural resources. Where states heavily rely upon a small number of commodities or industries, the wealth distribution of such states depends on who controls that commodity. Particularly in industries that are capital-intensive such as mining, the benefits of exploiting a resource accrue to the owners of that capital.

This became evident when the largest lithium mining corporation in Chile, 'Sociedad Química y Minera' (SQM), was privatised in the 1980's during Augusto Pinochet's regime, with his former son-in-law now owning a controlling stake (to read more about Pinochet, click here). Since Pinochet's regime, much of Chile's wealth has remained in the hands of the elite few, with the political ruling class profiting off the country's natural resources. Since 2014, SQM has been targeted by authorities over market manipulation and dubious tax invoices. Now as the world's biggest lithium producer, the company's revenue was over US$1.9 billion in 2019 in the same year Chile was ranked as one of the most unequal countries among a group of 30 of the world's wealthiest nations.

Such wealth disparity often triggers social unrest. Inequality remains pervasive in Chile, despite recent demonstrations against the wealth gap receiving widespread coverage. These demonstrations should come as no surprise; the Economic Commission for Latin America and the Caribbean has stated that one per cent of the population in Chile controls 26.5 per cent of the country's wealth, while 50 per cent of low-income households access only 2.1 per cent.

Environmental Impacts

Not only can commodity dependence create a ‘catch-22’ of profit versus income equality, it also raises questions of sustainability. As dependence on a commodity becomes more entrenched, so too does the pressure to continue exploiting the resource in order to maintain the income. This often places governments in a dilemma: continue to exploit the resource to profit today, or adopt conservationist principles which forgo immediate income for a sustainable approach. More often than not, governments choose the former, with lithium deposits proving no different.

To this effect, evidence against SQM has shown that the lithium-mining company is playing a direct role in damaging the local environment of Chile's Atacama salt flats, as activities reduce water levels affecting protected lagoons and alluvial muds. Lithium mining is putting pressure on water supplies in what is already the driest desert in the world, excluding the poles. Argentina has also experienced similar issues, with advocates representing 33 indigenous groups in the Salinas Grandes area in opposition of mining agreements which leave rural communities with barren land and little money.

South America's lithium reserves undoubtedly present significant opportunities for resource rich states to transform energy production and storage. However, despite confidence in the future of ion-lithium battery technology, the challenges presented by a volatile global market and increasing competition make commodity dependence a consequential risk. Although lithium is heralded as a step towards a future of more sustainable energy storage, significant environmental effects linked to its mining continue to impact biodiversity and vulnerable communities, and perpetuate wealth inequality in already challenged economies. South America may attempt to cement itself as a key component in lithium’s global supply-chain, but Chile, Argentina and Bolivia must remain wary of the risks posed as they seek to benefit from the 'white gold' rush of the future.

Dylan Gaymer graduated from Monash University with a Bachelor of Laws and Bachelor of Arts (Politics & Spanish). He volunteered at NGOs throughout Latin America during university and currently works as a commercial lawyer.

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