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Is A Lithium Cartel Inevitable?

The more people I speak with about lithium, the bigger this story gets.

Following my previous article — How The U.S. Is Losing The Lithium Industry To China — several readers told me that this battle is already lost. And, I have to admit that the trajectory we are currently on gives little reason to believe that China’s dominance will be threatened any time soon.

In today’s article, I want to reiterate two threats to U.S. national security based on the current trajectory. Then, I want to revisit why China jumped ahead of the U.S. Finally, I want to talk about steps that are aimed at addressing this.

Also, this week I have engaged with multiple American companies that are working to address the domestic lithium supply chain. Those efforts will be the focus of my next article.

Threats to National Security

There are two separate national security threats that I can see. These threats will apply to any country that is electrifying transportation without a domestic lithium supply chain.

The first is that the vast majority of the world’s lithium resource is in South America — primarily in Chile, Argentina, and Bolivia. As the U.S. becomes more dependent on lithium as the key raw material underlying our passenger transportation, these countries will enjoy an increasing amount of pricing power over that resource.

It isn’t out of the question that an analog to The Organization of the Petroleum Exporting Countries (OPEC) could emerge. Let’s call this hypothetical organization The Organization of the Lithium Exporting Countries. OLEC, if you will.

The power of OPEC over the world’s petroleum supplies has had a huge impact on U.S. foreign policy for decades. And in 1973, that power was exerted when Arab members of OPEC cut off oil exports to the U.S. We need to remember the lessons from decades of OPEC dependence, and work to ensure that scenario isn’t repeated.

The good news is that Australia — a close U.S. ally — is also a major lithium producer. But most of the lithium reserves are in South America; some in countries that have historically had a spotty relationship with the U.S.

The second threat is that China controls the downstream supply chain from lithium refining through battery production. Thus, the U.S. is currently at the mercy of both the raw lithium producers in South America, as well as the supply chain in China. Disruption to either could have a significant impact on U.S. national security.

How Did We Get Here?

The U.S. was once the world’s largest oil producer. We were also the world’s largest solar panel producer, as well as the world’s largest lithium producer. Although the shale oil boom has at least temporarily boosted U.S. oil production, we have fallen steadily behind China on both solar panel and lithium production.

The main reason I believe this has happened is that China has developed these industries with long-term, strategic goals. As these industries were being built, economic viability was a secondary consideration given the view of how important these industries would become. So, in the U.S. many companies fell victim to poor economics — sometimes brought on by China dumping cheap solar panels, for instance.

China acted as a partner to these industries, providing generous subsidies and beneficial legislation that would ensure that these industries developed domestically. It also doesn’t hurt that China has a huge supply of cheap labor.

At a minimum, remaining competitive would have required much greater support in the U.S. to ensure that these industries developed here.

Now, imagine that we are trying to get a massive package of legislation passed that sets the groundwork for a domestic lithium supply chain. A large block of legislators generally resists efforts to subsidize green energy. Lithium is going to fall into that category.

Then you have another block of legislators which has a number of constituents that 1). Distrust corporations; and 2). Don’t want to see new mines or large industrial projects developed. But you have to convince them that we need to incentivize a large, domestic lithium supply chain in order to ensure that green future they want.

So you have different blocks opposing the strategy based on different reasons. And nothing gets done. Or, at least not enough to keep pace with China.

What Can We Do?

The U.S. government recognizes the threat. Last summer the Biden Administration released the National Blueprint for Lithium Batteries 2021-2030. The document outlines a number of steps that need to be taken in order to avoid falling further behind China. They include:

  • Secure access to raw and refined materials and discover alternatives for critical minerals for commercial and defense applications.
  • Support the growth of a U.S. materials-processing base able to meet domestic battery manufacturing demand.
  • Stimulate the U.S. electrode, cell, and pack manufacturing sectors.
  • Enable U.S. end-of-life reuse and critical materials recycling at scale and a full competitive value chain in the U.S.
  • Maintain and advance U.S. battery technology leadership by strongly supporting scientific R&D, STEM education, and workforce development.

But, as a newly-published white paper by California-based lithium-ion battery supplier OneCharge argues, the blueprint presents neither timing nor budget, making it just a wish-list. The white paper lays out additional steps that need to be taken, one of which I want to highlight:

  • Become a demand center for batteries in order to shift the balance of the worldwide market by stimulating EV adoption; build charging infrastructure; electrify industrial machinery; provide rebates to end-users and subsidies to battery manufacturers.
  • Streamline and simplify regulations, incentivize local communities to overcome “not in my backyard” syndrome in order to step up domestic production of lithium and other battery feedstocks and develop a domestic refining capability.
  • Build more gigafactories on U.S. soil.
  • Develop a domestic lithium battery recycling industry.
  • Continue U.S. dominance in battery R&D, STEM education, and workforce development to ensure local development of the new technology
  • Provide subsidies to battery startups to support the ramp-up of manufacturing.
  • Conduct a national educational campaign highlighting the importance of battery manufacturing separate from the climate change narrative.

There are many good ideas there, but let’s focus on battery recycling for a moment. As the U.S. becomes increasingly dependent on lithium for personal transportation, the number of lithium batteries that will need to be recycled is going to grow exponentially. Right now, battery recycling is another area that is dominated by China.

Western countries should take whatever steps are needed to ensure that once the lithium batteries have reached the end of their use, that this lithium isn’t once more exported back to China for recovery. Most Western countries don’t have access to huge lithium reserves, but they will have access to growing quantities of lithium that could be recycled. That could require legislation — much like the legislation that banned oil exports from the U.S. for many years — that would require those batteries to be recycled domestically.

In the concluding article in this series, I will talk about the efforts of some American companies to address some of the lithium supply chain challenges.

By Robert Rapier

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