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11/16/2023 | Press release | Distributed by Public on 11/16/2023 09:45

A Western Hemisphere Minerals Strategy for the Energy Transition

A Western Hemisphere Minerals Strategy for the Energy Transition

Photo: MARTIN BERNETTI/AFP via Getty Images

Commentary by Christopher Hernandez-RoyNate LaskeandHenry Ziemer

Published November 16, 2023

Mining in the popular imagination often conjures images of huge open pits with enormous machines moving car-sized scoops of material one at a time. It evokes an industrial landscape that few find appealing. Yet the mining of critical minerals is, as the name suggests, critical. This is because they are essential to transitioning the world from a hydrocarbon-based economy to a future fueled by clean, renewable energy to mitigate the worst effects of climate change, such as sea ice loss, accelerated sea level rise, and longer, more intense heat waves. Droughts, wildfires, and more powerful hurricanes are occurring with more frequency than scientists previously projected, and some of these changes are irreversible over the next hundreds to thousands of years. This year will be the warmest on record, and is currently 1.43 degrees Celsius above the pre-industrial average. As the world increasingly shifts toward renewable energy systems, the minerals such as copper, cobalt, lithium, and nickel for technology, transportation, and energy systems will only become more central.

The anticipated demands of a clean energy transition will amplify demand for critical minerals in myriad ways. According to the International Energy Agency (IEA), 80 million kilometers of electricity transmission lines will need to be added or replaced by 2040 for countries to meet their current climate goals-roughly equivalent to the number of transmission lines that currently exist in the world-requiring huge inputs of critical minerals. Global wind electricity, which grew by 14 percent in 2023, involves offshore wind-turbines, which require nine times the mineral inputs for each megawatt generated of a typical gas-fired power plant. Moreover, if all announced wind projects were actually built, global wind manufacturing capacity would still only meet one-third of what is required in 2030 to be on track to meet the IEA's net zero by 2050 scenario.

As of 2022, solar energy was the fastest growing of all renewables, but annual capacity additions will need to triple from now until 2030 to keep net zero within reach. Solar power generation in turn has one of the highest demands for copper out of all renewable sources. Storing energy during off-peak periods will also be necessary to ensure grid stability. As of October 2022, 7.8 gigawatts of utility-scale battery storage was operating in the United States; from 2023 to 2025, developers and power plant operators in the United States expect to add another 20.8 gigawatts of battery storage capacity. More than three-quarters (77 percent) of these battery power storage systems rely on lithium-ion batteries, and the IEA estimates battery storage capacity worldwide would need to skyrocket to roughly 970 gigawatts by 2030 in a net zero scenario. Finally, the average EV requires six times the mineral inputs of a conventional gas-powered car, and between now and 2050, EVs are expected to go from 0.7 percent to 31.0 percent of the vehicle fleet.

The Western Hemisphere will be critical in meeting these forecasted spikes in demand. The region's democratic governance, expertise in the mining industry, and trade agreements with the United States, European Union, and other major investors in clean energy that protect foreign investment from nationalization make the region an attractive destination for the nearshoring of key mining operations.

Inputs in the Americas

The vast mineral wealth of the Americas has long characterized its relationship with the rest of the world. It has long supplied the world's industrial furnace, from the Spanish colonial mines of Potosí that once supplied 60 percent of the world's silver, to the British-owned and operated St. John d'el Bey Mining Company that developed what was the largest gold mine in Latin America for over a century in Nova Lima, Brazil.

Meeting the surging demand spurred by the over $110 billion in clean energy manufacturing investments since the passage of the Inflation Reduction Act requires unprecedented restructuring and revitalization of the extraction of key inputs such as copper, lithium, cobalt, nickel, and rare earth elements (REEs). But mineral reserves alone are not enough to attract investment-a business-friendly regulatory environment, a skilled labor pool, political stability, and geographic proximity to downstream processing are equally important.

Given these considerations, the Americas represent a promising investment destination as firms look to secure and expand full-circuit clean energy supply chains. Of the 20 countries with which the United States has signed a free trade agreement, 12 are in the Americas, including large mineral-producing economies such as Canada, Mexico, Colombia, Chile, and Peru.

In the case of copper, Chile has 190 million metric tons of proven reserves, more than double that of Australia, making it the country with the second-largest reserves globally, with Peru and Mexico in third and fifth place, respectively. Chile also hosts most of the world's "economically extractable" lithium reserves, with Argentina, Bolivia, and Chile-the so-called lithium triangle-in possession of more than 60 percent of global proven supply. The U.S. Geological Survey (USGS) estimates that Latin America and the Caribbean (LAC) is host to one-quarter of global nickel reserves, led by Brazil (17 percent) and Cuba (6 percent), making Brazil the eighth-largest producer of nickel in the world. While over half of cobalt globally is concentrated in the Democratic Republic of Congo, Cuba and Canada hold considerable reserves, ranked third (7 percent) and sixth (3 percent), respectively.

Underinvestment in exploration in recent decades has made major discoveries of copper and nickel illusive, caused in part by mining firms' preference for safe, short-term returns. Out of 224 copper deposits discovered since 1990, only 16 have been found in the past 10 years, and only one since 2015. In terms of nickel, only 4 of the 82 major nickel discoveries made from 1990 to 2022 were discovered in the last 10 years, accounting for only 3 percent of total nickel discovered. Despite this, Chile and Peru alone account for 43.2 percent of all copper discovered since 1990, and the region receives nearly half of global annual exploration funding for new copper deposits.

However, expanding mining within the hemisphere is not without its challenges; around half of global lithium and copper production is concentrated in areas of high water stress, especially along the coast of Chile, Peru, and Mexico. According to the Global Atlas of Environmental Justice, 45 percent of reported mining-related conflicts are in Latin America, the highest concentration of any region.

After China and Vietnam, Brazil has the third-largest reserves of REEs, according to the United States Geological Survey. However, China is the only country with a fully integrated rare earth magnet supply chain and is by far the largest producer of these elements, which are essential for EV motors and wind turbines. Firms in Brazil have taken interest in developing the country's nascent rare earth sector; according to Brazil's National Mining Agency, mineral research requests increased by 70 percent between 2021 and 2023, mostly for rare earths exploration in Goiás, Minas Gerais, and Bahia.

While the LAC region has impressive resources, any hemispheric minerals strategy needs to account for the demand to increase U.S. domestic production as well. This is especially true in light of recent mineral discoveries such as the largest viable lithium deposit in the world by the Lithium Americas Corporation at McDermitt Caldera along the Nevada-Oregon border. In California, MP Materials' Mountain Pass mine represents the only rare earth mining site in North America and the largest producer of REEs in the Western Hemisphere, constituting 15 percent of the world's production. Increased exploration, mining, and processing efforts at home not only contribute to U.S. mineral security but demonstrate political willpower and commitment to fellow resource-rich partners in the hemisphere.

Out of the Ground and into Circulation

Obtaining greater quantities of key minerals is not enough. All of these materials need to undergo substantial processing in order to be molded into a product that is usable in clean energy technologies. Processing capacity is not only vital for meeting the demands of the energy transition, it allows the countries which host processing facilities to establish themselves higher up in the value chain. This could allow LAC countries to upgrade from shipping raw and unfinished products overseas to contributing to processing key minerals, and in some cases manufacturing complete goods, within their borders.

However, shoring up processing capacity in the hemisphere faces substantial challenges. Decades of anticompetitive practices have given China a significant competitive advantage in downstream processing and manufacturing of clean energy technologies, especially battery and solar technology. Meanwhile, new processing infrastructure must also contend with a history of environmental damage caused by existing facilities. Nevertheless, as mineral-rich countries continue to explore avenues to capitalize on their natural resources, processing efforts in the hemisphere will continue to increase.

One particularly noteworthy entrant to this space has been Argentina, which is well positioned to reap a windfall from surging demand for battery cells as one of the world's largest suppliers of lithium. Indeed, Buenos Aires has announced 10 new lithium refining and battery manufacturing projects that are under construction and expected to enter operation in the coming years. The first battery plant will be located in La Plata, the capital of Buenos Aires province. A second, five times larger than the first, will begin operations in Santiago del Estero in 2024. This plant, to be constructed by state-owned energy research company Y-TEC, will source metal extracted from Catamarca, with the goal of each battery being at least 50 percent locally produced.

Neighboring Chile, home to the world's third-largest reserves of lithium and largest reserves of copper, has developed an investment promotion scheme aimed at positioning the country as an investment destination for advanced manufacturing in the clean energy space. To this end, Chile's recent lithium strategy, which envisions a greater role for the government in overseeing mining projects, may hamper private sector confidence. At the same time, Chile's robust institutional architecture, especially on environmental issues, means it is well positioned to navigate the harmful externalities associated with growing mineral processing capacity. Indeed, in addition to battery manufacturing, Chile has sought to modernize its copper smelting infrastructure. While Codelco recently closed one smelter in Ventanas, the state-owned copper company has called for new and upgraded smelters which are less polluting than its current, decades-old infrastructure. For a country which produces more than a quarter of global copper supply, but exports less than half of this in a fully processed form, greater smelting capacity is a natural next step which may pay significant dividends.

To the north, Canada is a regional leader in both the extraction and processing of critical minerals. Mineral exports alone accounted for 21 percent of Canada's total exports in 2020, and critical mineral mines, smelters, refineries, or advanced projects are located in all Canadian provinces and territories, with the exception of Prince Edward Island. Canada's mining industry includes particularly vital materials such as gallium, where Canada is the second-largest producer behind China, and cobalt, for which the Electra Battery Minerals Corporation recently launched construction on a cobalt refinery near Toronto, the first of its kind in North America. Through regional partnerships, Canadian firms involved in advanced processing and manufacturing would be well served by expanding investment and technical cooperation with countries across the hemisphere to build a more robust, resilient, and closed-circuit mineral supply for the net-zero transition.

Despite impressive commitments to shore up processing capacity across the hemisphere, the mineral and metal needs of the energy transition are liable to outpace such efforts already. The environmental externalities associated with many types of mineral processing should not be understated-they risk exacerbating the already high levels of social tension associated with mining throughout the hemisphere. Indeed, recent upheaval in Panama surrounding First Quantum's mining and ore processing activities point to a widespread sentiment in the hemisphere that the effect of such activities on affected communities is negative. Increasing rates of mineral recycling across the hemisphere could lessen environmental impact, especially for metals such as copper, which has one of the highest recycling rates among metals. However, recycling is greatly complicated by manufacturing processes, which make minerals difficult to separate from other components.

What Comes Next

A Western Hemisphere minerals strategy for the energy transition will require unity of purpose and close coordination among allies.

  1. Expand the Minerals Security Partnership

A natural starting point would be the expansion of the Minerals Security Partnership to include LAC countries such as Peru, Chile, and Brazil. Since this partnership was inaugurated, it has suffered from an absence of any LAC partners. Especially in light of recent discussions of a possible BRICS-led partnership around minerals, the partnership may have competition, especially in the LAC. Given the vital role the LAC will play in any net-zero scenario, Washington needs to ensure that these countries are treated as equal partners. By imposing higher standards to enable international cooperation, membership in the Minerals Security Partnership could help mitigate the negative environmental and social externalities brought about by expanded mining operations in the region.

  1. Support Permitting Reform at Home

Permitting reform in the United States will be needed to increase the rollout of mining operations. According to the U.S. Department of Energy, there is a backlog of more than 2,000 gigawatts of clean energy generation and storage waiting for approval, approximately equivalent to the country's extant capacity today. Swift implementation of recommendations from the Interagency Working Group on Mining Laws, Regulations, and Permitting for reforming the 1872 Mining Law would also help increase the ease and speed with which new production can come online. Permitting reform will signal a powerful commitment to allies and partners that the United States is willing to shoulder the requirements of increased mining and processing, and not merely try to foist these costs on others.

  1. Increase Mineral Processing within the Hemisphere

Harnessing the LAC's potential for value-added downstream processing is another potentially significant way for the Americas to leverage its mineral wealth to foster truly inclusive growth. For this to happen, there is a need for a comprehensive minerals strategy in the Americas that identifies areas where value-added downstream processing can be developed, facilitated by private and public investment, as well as areas to target with greater investment, such as mining education, knowledge sharing in clean energy technologies, and remediation of environmental damage caused by mining.

  1. Invest in the Circular Economy

The United States should initiate greater international cooperation around mineral recycling in the Americas. A regional strategy should encourage mineral recycling, similar to the European Union's, with shared standards for disposal of e-waste and regulations on product manufacturing to streamline recycling processes throughout the hemisphere. Closer cooperation between regulatory authorities, mineral recycling facilities, and manufacturers is also needed to ensure recycling is viable at the end of product life, especially with respect to EV batteries.

The opportunities and challenges facing the countries of the Western Hemisphere are enormous and require urgent action. Fortunately, the region is starting on strong footing, and if done properly, the transition to net zero can deliver inclusive growth for citizens across the Americas.

Christopher Hernandez-Roy is deputy director and a senior fellow with the Americas Program at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Nate Laske is an intern with the CSIS Americas Program. Henry Ziemer is a research associate with the CSIS Americas Program.

Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

© 2023 by the Center for Strategic and International Studies. All rights reserved.

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Deputy Director and Senior Fellow, Americas Program

Nate Laske

Intern, Americas Program
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Research Associate, Americas Program

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