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Lithium Rush: The Risks and Rewards of a China-Led Commodity Boom for Latin America and the Caribbean’s Transition Materials

File image of the evaporation pools of the new state-owned lithium extraction complex, in the southern zone of the Uyuni Salt Flat, Bolivia that are now used to produce lithium for Chinese battery makers. Pablo COZZAGLIO / AFP

By Zara C. Albright

At last week’s Belt and Road Forum, China announced the creation of the Green Investment and Finance Partnership (GIFP), part of the $100 billion in new financing for the Belt and Road Initiative (BRI), aimed at helping developing countries build new renewable energy infrastructure.

This announcement presents a significant opportunity for countries in Latin America and the Caribbean (LAC) to pair this finance with funds for decarbonization from the West’s Just Energy Transition Partnership (JETP).

The timing is especially significant for LAC, as global annual new energy generation capacity will need to be 90 percent renewable between 2022-2030 to limit global warming to 1.5 degrees Celsius. Materials necessary to support the transition to renewable energy, especially lithium, and copper, which are found in abundance in LAC, will be in high demand and will likely lead to a commodity boom for such materials.

The relationship between LAC, as the majority supplier for key transition materials, and China, as the majority stakeholder in solar and wind energy manufacturing and assembly, is a central artery for renewable energy supply chains and is likely to shape the ability of the global community to reach its energy goals, as seen in Figure 1.

Source: Boston University Global Development Policy Center, 2023. Note: R.o.W. refers to ‘Rest of World.’

The unfolding commodity boom for copper, a legacy mineral with a long history of extraction, and lithium, a new mineral with significant deposits in the region, presents both new risks and potential new rewards for LAC countries.

How can LAC countries make the most of the coming commodity boom? What lessons can be gleaned from the literature and what are knowledge gaps that need to be filled?

A new report by the Working Group on Development and Environment in the Americas, convened by the Boston University Global Development Policy Center, the Universidad del Pacífico’s Centro de Estudios sobre China y Asia-Pacífico and Peking University’s Institute for New Structural Economics, reviews existing research to identify knowledge gaps and proposes a research agenda to fill them.

Much like during previous commodity booms, including the China-led boom for agricultural products in the mid-2000s, LAC countries are facing significant economic, social and environmental risks. A strong regional tradition of research on the resource curse, structuralism, and dependency emphasizes the need for well-designed industrial policies to mitigate the economic risks for commodity-exporting economies. While demand for lithium is projected to reach between four and a half and 40 times its 2018 production levels by 2050, prices for one ton of lithium carbonate, have been extremely volatile, doubling between January and November 2022 before falling to 60 percent of its January 2022 value by April 2023. Future research should identify means by which LAC countries can overcome this volatility challenge to support long-term development goals.

The risks of Dutch Disease and de-industrialization are especially high in the wake of re-privatization from the last commodity boom, and more research is needed into strategies for LAC countries to move up the value chain. This boom also presents new types of social and environmental risks along multiple stages of the supply chain. For example, lithium extraction in South America is extremely water-intensive, which affects local ecosystems, water availability for local communities and the sustainability of lithium-based economic development. Researchers and policymakers should pursue community-based and participatory initiatives rooted in a climate justice framework to mitigate the social impacts on affected populations and workers in declining fossil fuel industries.

LAC’s centrality to the supply chain for transition materials, with 64 percent of world trade in copper ores and concentrates and 90 percent of world trade in lithium originating in the region, portends significant potential rewards for the region as well. This position gives the region a major opportunity to achieve domestic development goals, especially if LAC countries can coordinate at a regional level to leverage this market position. Future research should outline the obstacles to previous integration efforts and evaluate them in the context of this new commodity boom and new commitments to environmental governance, such as the Escazú Agreement.

Furthermore, both Chinese and Western investors have grown increasingly interested in supporting green finance in the Global South, as evidenced by the creation of the GIFP and JETPs. More research is needed to map out the complementarities between these external financing options and between Chinese commercial actors who have grown more comfortable operating in the region and account for over half of all renewable energy mergers and acquisitions in LAC in the past decade.

Developing a policy-oriented research agenda to mitigate risks and secure rewards will require global collaboration between academics, policymakers, and communities across LAC and China. The time is ripe for such a collaboration.

Zara C. Albright is a Global China Pre-doctoral Fellow with the Boston University Global Development Policy Center and a PhD Candidate in Political Science at Boston University.

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