'Green' lithium
Demand for commodities essential to the green energy transition are expected to rise fourfold by 2040 if we are to reach the goals of the Paris Agreement, i.e., climate stabilisation at “well below 2°C global temperature rise”. In order to achieve net-zero globally by 2050, six times more commodity inputs will be required by clean energy technology in 2040, according to the International Energy Agency (IEA).
However, the average growth in commodity demand does a disservice to the growth requirements of certain niche metals essential to the energy transition. For example, demand for nickel, cobalt and graphite are all projected to grow 20-25 times under the IEA’s Sustainable Development Scenario (SDS) by 2040.1
Lithium demand is projected to grow almost twice as fast, with the IEA estimating that the requirement for lithium from clean energy technology will need to rise 42 times by 2040, primarily reflecting the expected growth in demand for electric vehicles (see Carbonomics returns).
Despite serving an overwhelming positive environmental outcome, lithium cannot escape its own carbon footprint being scrutinised by battery producers, automobile manufacturers and investors.
The environmental performance of lithium miners and refiners is likely to become a key differentiator in the lithium industry, with strong leadership on emissions reduction rewarded by institutions allocating capital to the sector.
So, how is lithium extracted and processed, what are the main sources of emissions, and what can be done to minimise them?
Lithium is not geologically scarce, but in a similar vein to other commodities essential to the energy transition it does face challenges in extracting it from the earth in quantities that make sense economically. There are two primary sources of economically extractable lithium. From hard rock (the mineral spodumene) mainly found in Australia, and from the mineral rich brine hidden beneath the salt flats of South America.
Australia is the largest producer of lithium, accounting for around 55% of global output in 2019, but only 8% of identified lithium resources across the globe. After the spodumene is crushed, the rock extract needs to be roasted at temperatures of up to 1,000 degrees centigrade before the lithium is extracted.
Lithium brine meanwhile is extracted from the salt flats of South America, one of the driest places on the planet. Three countries, Bolivia, Argentina and Chile hold almost 60% the worlds identified lithium resources. Together the group are often referred to as the ‘Lithium Triangle’, since the lithium brine deposits are located close to where the three countries borders interconnect. Chile is the biggest producer of this group, accounting for 23% of global output in 2019.
After pumping the mineral-rich brine to the surface, the mixture is then left for the water to evaporate for months, filtered and left to evaporate once more. This whole process takes between 12 and 18 months and only then can the lithium be extracted. Lithium extraction in South America is highly water intensive. It takes approximately half a million gallons of water for every tonne of lithium. That’s a major problem in such a dry part of the world where competition for water from farmers is already extreme (see Putting a price on H₂O: Carbon markets are just the start of a revolution putting a price on natural capital).
The next stage is processing. China dominates the processing of lithium, accounting for almost 60% in 2019, followed by Chile with a 25-30% share. Here the extracted lithium is processed into multiple different qualities of lithium carbonate and lithium hydroxide depending on the demands of the end application.2
Extracting lithium from rock is much more energy intensive, and with it comes higher carbon emissions than if it is produced from brine. According to Roskill, lithium sourced from spodumene requires an average 9 tonnes of CO2 for every tonne of refined lithium carbonate equivalent (LCE) produced, nearly triple that of the average tonne of LCE produced from lithium brine.
On an average global production basis ~5 tonnes of CO2 are emitted for every tonne of refined lithium carbonate equivalent (LCE) produced. The current emissions intensity of lithium carbonate (mining plus processing) compares favourably to other battery metals such as nickel and cobalt. However, as deposits become more difficult to find and exploit and ore quality declines, the carbon emissions involved with extracting lithium - whether brine or spodumene - are expected increase.3
The process involved (in mining brine versus spodumene) accounts for the lions share of the difference in lithium mining emissions. Given the remote nature of the lithium mines, most operations have traditionally used diesel generators to supply power. More recently, remote wind and solar farms have provided electricity to the mines, although this has its limits.
Processing the lithium into lithium carbonate and lithium hydroxide accounts for the majority of the emissions associated with producing lithium for batteries. Here, the carbon intensity of the power grid also has a bearing on the overall emissions. Over 60% of Chinese electricity generation mix in 2019 was accounted for by thermal coal, which means that lithium refining in China is very carbon intensive. Chinese electricity generation is expected to decarbonise, but at a much slower pace than either Chile or Australia (see Everything you need to know about China's national carbon market).
In South America, lithium miners have sought to introduce alternative technologies that can reduce the environmental impact of brine-based lithium extraction. For example, direct lithium extraction (DLE) has the potential to significantly reduce the local environmental impact of brine-based lithium production, at the same time as increasing the amount of lithium extracted.
DLE consists of replacing conventional evaporating ponds with a chemical facility capable of separating lithium from other elements. Instead of taking several months for brine-based lithium to dry, the resulting product from DLE can be available in days. The process is significantly less water intensive than conventional methods, with projects typically proposing that they will employ renewable energy to power the process. Unfortunately there is little evidence that DLE has actually been able to be implemented on a commercially viable basis. For now at least, it remains on the drawing board.
Demand for Australian lithium spodumene meanwhile is being supported by the needs of the battery manufacturers. Producers favour cathodes with a high nickel content, which in turn favours lithium hydroxide. The latter is less expensive to produce directly from spodumene, rather than converting brine to carbonate and then to hydroxide. The downside to needing more lithium hydroxide is that it’s more emissions intensive to process once accounting for Chinese processing facilities.
Australian miners are looking at vertically integrating, producing more of the lithium hydroxide themselves, rather than exporting lithium to China only for it to be processed there using coal-fired power. Although Australia’s power grid is also highly carbon intensive - around 50% of Australia’s power comes from thermal coal - its emissions intensity is expected to decline over the next 15-20 years.
According to a recent report from the Australian government, several companies (Chinese, American and Australian) are either in the process or plan to build lithium refineries in the country. If everything goes according to plan this could take Australia’s share of the lithium refining market from near zero currently to 10% in 2024 and to 20% by 2027. In a first for the country, Tianqi Lithium Energy Australia (TLEA) announced in May its plant had begun to produce battery-grade lithium in commercial quantities.
Who then are the companies most likely to be rewarded for their carbon foresight and ability to deliver? The lithium industry is notoriously opaque and so it can difficult for individual investors to understand where companies are at. In August 2022, Benchmark Mineral Intelligence launched its first Lithium ESG Report covering carbon emissions, water usage, community engagement and Diversity & Inclusion. The 'seven flagship indicators' they used to rank global lithium producers include:
Does the company have a current ESG or sustainability report?
Is the report publicly available and easily accessible?
Does the company have a designated ESG team or committee?
Does the company use biodiversity indicators to assess its impact on the ecosystem?
Does the company have a timeline or plan to reach net zero or carbon neutrality?
Does the company have a 3rd party verified life cycle assessments or carbon emissions which declare scope 1 to 3?
Does the company have female representation at the board level?
One of the top performers in the ESG index is pure-play Australian lithium miner Pilbara Minerals. One of their initiative’s is to make low-carbon lithium salts utilising calcination technology. Currently negotiating on the development of a demonstration plant, the project aims to demonstrate a superior value-added lithium product to the existing industry supply chain, while also potentially delivering a significant reduction in carbon intensity. Electrification of the mid-stream process could mean that renewable energy could be used to power significantly more of the lithium mining operation.
As companies and nations battle for the resources required to accelerate their energy transition and meet net zero commitments, more and more attention is focusing on the environmental impact of the essential metals and minerals (see Zero carbon supremacy: Why governments are looking to secure their green industrial sovereignty).
However, increased demand for ‘green’ lithium from auto manufacturers is likely to increase the overall cost of producing battery grade lithium, at least in the short term as supply chains are reconfigured.
For example, as more lithium hydroxide capacity is added to Australia. In the longer term, cheaper renewable energy, coupled with the decarbonisation of power grids could reduce operating costs. However, that needs to be set against the prospect of a decline in ore quality and an associated increase in energy requirements.
An increase in costs could slow the rate of EV adoption, but manufacturers are right in pursuing decarbonisation throughout the supply chain. For without ensuring that the whole supply chain is doing everything it can to cut emissions it will be impossible to maintain support among consumers and the wider public.
The SDS is consistent with the goal of meeting the Paris Agreement, i.e., climate stabilisation at “well below 2°C global temperature rise”.
Broadly there are two grades of lithium carbonate: battery grade and technical grade:
- Battery-grade lithium carbonate is defined as a free-flowing, odourless white powder with guaranteed 99.5% purity and a relatively fine particle size. Battery grade product is a superior purity grade product for use as a precursor in making critical battery materials. Lithium carbonate is typically used in batteries with a low nickel content, while lithium hydroxide is coupled with high nickel content batteries.
- Technical-grade lithium carbonate has a purity of less than 99%. It is cheaper than battery-grade material and is used in glass and ceramic applications.
It typically takes ~4 years between the discovery of a spodumene discovery in Australia and its first production. In South America it typically takes 6-8 years after first finding a lithium brine deposit before production starts.