EVs using Lithium batteries are essential in our quest for a cleaner environment and to achieve a Net Zero emissions goal. 

In a joint report published in 2022, Global Battery Alliance and McKinsey suggest that the Lithium battery market will be about US$400 Billion in 2030, representing 4.7 TWh capacity.

Presently, EVs use batteries comprising Lithium, Cobalt, Manganese, Nickel, and Graphite.

Lithium and Cobalt reserves are concentrated in a few regions worldwide, while Nickel, Graphite, and Manganese have no supply-side issues.

Major environmental issues arise from water and soil pollution and the release of GHGs during Lithium and Cobalt mining and processing.

Human issues regarding the involvement of child and enslaved person labor, including adverse effects on the health and safety of miners, are significant areas of concern. 

Fair and transparent transfer pricing by buyers of Lithium/Cobalt ore is questionable, and it negatively affects miners’ remuneration. Present evidence points to substantial income inequalities.

China controls about 80% of the world’s EV battery production; information availability is scarce; it is, therefore, difficult to chart out and implement a fair and sustainable road map for the ecosystem.

techcrisp.org investigates.

Overview of the Lithium Battery Market

Several bodies are involved in the EV Battery industry, such as the Critical Raw Material Alliance, the European Raw Material Alliance, OECD, the Responsible Minerals Initiative, the European Commission Mandatory Human Rights and Environmental Due Diligence (mHREDD) law, and the Fair Cobalt Alliance.

The Global Battery Alliance (GBA) is the leading public-private collaboration platform, incubated by the World Economic Forum from 2017 until its independence in 2021. Members of the Alliance collaborate to achieve the goals set out in the GBA 2030 Vision.

The GBA has over 120 members from all over the world. Ironically, it is situated in Belgium. The main actors in our story, Argentina, Bolivia, and the Democratic Republic of Congo, have no representation, while Chile has two members.

GBA’s vision is:

Creating a  circular battery value chain as a significant driver of meeting the Paris Agreement

Transformation of the economy in the value chain, creating new jobs and additional economic value

A value chain safeguarding human rights, supporting a just energy transition, and fostering economic development in line with the UN Sustainable Development Goals (SDGs)

In 2022, GBA and McKinsey published the “Battery 2030: Resilient, Sustainable, and Circular” report. According to the report, the Lithium battery market size by 2030 will be about US$400 Billion, representing 4.7 TWh capacity. China will account for 40 % of the demand, the USA and Europe for 40%, and the rest of the world for 20%.

85% of the demand will be in the mobility sector (EVs), while the balance will be in consumer electronics and static power storage.

Presently, China controls 80% of the Lithium Battery market.

The largest Lithium battery manufacturers in the world are CATL (Contemporary Amperex Technology Co., Limited) and BYD in China, followed by LG Energy Solution, Samsung SDI, and SK Innovation in South Korea and Panasonic in Japan. These six companies account for 86% of the total Lithium batteries in the world, and CATL alone accounts for nearly 30% of the world market. Companies like Tesla buy Lithium cells from CATL and Panasonic.

50 % of world Lithium reserves in the form of salt brine are situated in the Lithium triangle, comprising Argentina, Bolivia, and Chile, while the balance 50% is in the form of hard rock in Australia.

About 70% of Cobalt reserves are in the Democratic Republic of Congo (DRC), followed by approximately 10% each in Russia and Australia.

In this article, the two main areas of discussion are the Environmental Impacts of Lithium and Cobalt mining, highly unfair compensation paid to mine workers and the use of child and enslaved person labor in the DR of Congo. Mining workers live in relative poverty and ill health due to chemical, water, and air pollution and unsafe mining conditions. In Chile, mining is done in one of the driest places on earth, while in DR of Congo, the environmental conditions are unfit for human survival.

A clean, green, and sustainable future for humanity cannot be built on the exploitation of poor countries and their miners. Electric Vehicle manufacturers have an Extended Producer Responsibility towards their suppliers and customers. Presently, China provides a ‘Viel’ that hides these issues, allowing EV manufacturers to claim ESG compliances.

The GBA and McKinsey report skirts these issues. However, when the projected US$400 billion in revenues in 2030 is broken down, the exploitation of miners stands out glaringly.

As per the report the Revenue Break Up in the Lithium Battery manufacturing cycle is as follows.

They are mining at 9%, Refining at 13%, Active Materials at 27%, Cell production at 30%, Packaging at 18%, and Reuse/ Recycling at 3%. All activities other than Mining are carried out primarily in China, South Korea, and Japan. The miners bear a vast human and environmental cost. Are their natural resources and above-cost costs worth just 9% of the value chain? In a fair world, the answer would be “No.”

Is their exploitation funding EV companies’ growth, profits, and huge market capitalization? Tesla, in its 10K report 2023, shows revenues of US$96 billion for EVs and Static Energy Storage solutions, a gross profit of US$17.6 Billion ( 18% approx), and a Net profit of US$14.9 Billion. Tesla’s market capitalization is US$520 billion on the sale of about 473,382 EVs. In contrast, the GDP of Chile and the DR of Congo combined is US$385 billion.

As per market sources, batteries account for about 40% of the revenues and cost of an EV. Therefore, Tesla’s revenues from batteries alone would be about US$ 38 Billion, Gross Profit of US$ 7 Billion and Net Profit of US$ 6 Billion. We do not have figures on the transfer price paid by Tesla to CATL and Panasonic. However, the question that begs an answer is, what if the Lithium cells sourced were taken at a fair market price? The answer could be a significant reduction in sales and profits.

Lithium

About 50% of the world’s Lithium reserves are found in the Lithium Triangle in South America, comprising Chile, Bolivia, and Argentina, in the form of salt brine in lakes. The remaining 50% is in Australia as rock, which is then processed into spodumene, an intermediate material refined to produce Lithium.

Large lakes in the Lithium Triangle contain salt brine, a source of Lithium. Fresh water is used to pump the brine from these lakes, which is then evaporated for 12-18 months. This process results in a yellow-green slurry consisting of 25% Lithium Chloride. The slurry is then transported to a refinery, where it is further processed to produce a fine white powder of battery-grade Lithium. This powder is primarily shipped to China for further processing.

This process uses 1.9 million liters of water per ton of Lithium extracted. This has caused a water sustainability crisis in places like Chile’s Salar de Atacama, where Lithium extraction has contaminated the remaining water supply with chemicals used in the Lithium evaporation process. The water shortage has also affected agricultural activities in the area, putting farmers’ livelihoods at risk. Wastewater is often dumped into the sea.

These areas also host the nesting sites of three species of flamingo, which nest on mounds of soil in salt lakes to guard against predation. By destroying these flats, they endanger the birds.

Chile is investigating technologies such as Direct Lithium Extraction to minimize water usage.

While Chile has successfully transformed most of its available resources into economically viable reserves for commercial production, Argentina and Bolivia still need to do so, mainly due to their unfavorable political and investment climates.

Chile has a per capita GDP of US$16,000. It has a good Human Development Index of 0.855 but is ranked as a flawed democracy. 60% of the Income is attributable to the top 10% of the population, while the bottom 50% get an 8% share. The Corruption Index is relatively high at 67.

Based on the latest data from the World Bank in 2022, around 6.5% of Chile’s population is estimated to live below the national poverty line. The country’s median income is around US$ 456 monthly, only one-third of the average per capita GDP. This means that most Chileans do not get any benefits from the country’s natural resources. Shockingly, the top 10% of Chile’s population holds 80% of the country’s wealth.

Miners in the Lithium triangle live in relative poverty despite their rich natural resources. Is their poverty subsidizing the EV revolution?

Bolivia has yet to be able to capitalize on its larger Lithium reserves. It is classified as a Hybrid regime, just one notch better than a dictatorship. The per capita GDP is just US$3,600. Political and economic problems plague the nation’s development.

Argentina is regarded as a Deficient Democracy. The per Capita GDP is US$14,000, and the HDI is high at 0.842. The top 10% of the population has 45% income and wealth, while the bottom 50% have 15% income and wealth. Argentina, too, has not been able to develop its Lithium reserves.

Australia mines about 50 percent of the world’s supply of Lithium. Lithium is found naturally in hard rock deposits. The rock is crushed and processed to produce spodumene, a greenish crystalline powder that is about 6 percent lithium. From there, it is shipped to China, where it is refined further.

Hard rock mining, crushing, and spodumene production are energy-intensive, resulting in 15 tonnes of GHG emissions per ton of rock mined. Australia cannot process spodumene further into Lithium hydroxyl, as their capital investment, comparable to China’s, would be 2-5 times higher due to stringent environmental laws.

Producing Lithium batteries for electric vehicles is more material-intensive than traditional combustion engines.

EV batteries require fossil fuels to mine, process, and refine raw materials. For example, building the 80 KWh Lithium battery found in a Tesla Model 3 creates up to 16 metric tons of CO2. This intensive battery manufacturing means building a new EV can produce around 80% more emissions than building a comparable fossil fuel-powered car. In addition to GHG emissions, there is chemical waste, water, and soil contamination.

According to a study, for an EV’s ten-year life, the first three years of operation would be needed to offset the GHG emissions of Lithium production. At this time, the majority of electricity in the world is produced from fossil fuels, so running an EV on fossil fuel-generated electricity would be a Catch-22 situation.

Cobalt

Approximately 70% of Cobalt is produced in the Democratic Republic of Congo (DRC).

Most Cobalt is mined by large-scale mines, indirectly under Chinese control. In contrast, 15 – 30 % of the DRC’s Cobalt supply is produced by ASM (Artisanal and Small Scale Mining—a euphemism for unorganized mining by children and youth), which is informal and technically illegal. ASMs produce more Cobalt than Russia, which has the second-highest reserves in the world.

About 28.8 Kg of GHG and 0.44 Kg of SO2 are emitted to produce 1 Kg of Cobalt. Bluewater consumption is 992 Kg. Production of Cobalt is energy-intensive, requiring 156 kWh of energy per Kg of Cobalt.

Cobalt ore contains traces of heavy metals, including copper, zinc, lead, cadmium, germanium, nickel, vanadium, chromium, and uranium. Miners wash cobalt ore in a process called lavages, during which their bodies absorb these heavy metals. Runoff water seeps into the ground and waterways, affecting the local population and animals. Lead poisoning leads to neurological damage, reduced fertility, and seizures. Skin and respiratory ailments, including “hard metal lung disease,” are caused by chronic and potentially fatal inhalation of cobalt dust. Unsafe handling and washing of Cobalt ore is also the cause of a high incidence of cancer.

Roughly 200,000 people work as artisanal miners, sustaining another five people in local communities. This suggests that about a million people are dependent on the ASM ecosystem.

Both male and female children, sometimes as young as 5-7 years, work with others to scrape out Cobalt ore in areas where large-scale mining cannot be done. They work without proper tools and safety wear. They are exposed to toxic material from previously abandoned uranium and copper mines. They suffer from various physical and psychological diseases and stress. Accidents are frequent, and little or no medical aid is available.

Children and youngsters are also deprived of education, condemning them to a life of sickness, poverty, struggle, and toil.

Siddharth Kara reveals in his book “Cobalt Red,”

“All cobalt sourced from the DRC is tainted by various degrees of abuse, including slavery, child labor, forced labor, debt bondage, human trafficking, hazardous and toxic working conditions, pathetic wages, injury and death, and incalculable environmental harm.”

Kara’s book reveals how politics, commerce, and armed groups rule the DRC’s deadly mines. It also shows how the rule of law is absent and how “death worlds” are constructed and maintained by rich actors to extract resources at low cost.

At the end of a long day, the ASMs extract a few sack loads of cobalt ore, for which they are paid a pittance of one dollar or more based on weight and quality by middlemen who, in turn, sell to trading depots.

By law, Congolese must own the trading depots that buy ores. However, they are usually financed by foreigners, primarily Chinese. Every depot is colloquially known as La Maison Chinoise.

They lament their lack of market power since Chinese buyers have purchasing power. They complain about a litany of unofficial “taxes” imposed by state agencies, chiefs, police, and security guards.

Artisanal Cobalt ore is trucked from trading depots to preliminary processing and sorting facilities, where it is blended with ore from big mines.

Kara writes in his book Cobalt Red, and I quote.

“Artisanal cobalt feeds into the formal supply chain via an informal ecosystem of négociants (traders) and comptoirs (depots), also known as maisons d’achat (buying houses). Once the négociants have loaded their hauls onto motorbikes and pickup trucks, they transport the ore to the depots for sale.”

“After the depots purchase ore from négociants or artisanal miners, they sell their supply to industrial mining companies and processing facilities. From this point forward, it is impossible to isolate artisanal from industrial production. Although Congolese law stipulates that mineral depots should be registered and operated only by Congolese nationals, almost all depots in Haut-Katanga and Lualaba Provinces are operated by Chinese buyers.”

“In public disclosures and press releases, the corporations perched atop the cobalt chain typically cite their commitments to international human rights norms, zero-tolerance policies on child labor, and adherence to the highest standards of supply chain due diligence. Here are a few examples:

Apple works to protect the environment and to safeguard the well-being of the millions of people touched by our supply chain, from the mining level to the facilities where products are assembled. As of December 31, 2021, we found that all identified smelters and refiners in our supply chain participated in or completed a third party audit that met Apple’s requirements for the responsible sourcing of minerals.

Samsung has a zero-tolerance policy against child labor as prohibited by international standards and relevant national laws and regulations in all stages of its global operations.

While Tesla’s responsible sourcing practices apply to all materials and supply chain partners, we recognize the conditions associated with select artisanal mining (ASM) of cobalt in the DRC. To assure the cobalt in Tesla’s supply chain is ethically sourced, we have implemented targeted due diligence procedures for cobalt sourcing.

For Daimler, respect for human rights is a fundamental aspect of responsible corporate governance. We want our products to contain only raw materials and other materials that have been mined and produced without violating human rights and environmental standards.”

“As scrutiny over the conditions under which cobalt is mined has increased, stakeholders have formulated international coalitions to help ensure their supply chains are clean. The two leading coalitions are the Responsible Minerals Initiative (RMI) and the Global Battery Alliance (GBA). The RMI promotes the responsible sourcing of minerals in accordance with the UN Guiding Principles for Business and Human Rights. Part of the RMI’s platform includes a Responsible Minerals Assurance Process that purports to support independent, third-party assessments of cobalt supply chains and to monitor cobalt mining sites in the DRC for child labor. The GBA promotes safe working conditions in mining raw materials for rechargeable batteries. The GBA has developed a Cobalt Action Partnership to “immediately and urgently eliminate child and forced labor from the cobalt value chain” through on-ground monitoring and third-party assessments.”

“In all my time in the Congo, I never saw or heard of any activities linked to either of these coalitions, let alone anything that resembled corporate commitments to international human rights standards, third-party audits, or zero-tolerance policies on forced and child labor. On the contrary, across twenty-one years of research into slavery and child labor, I have never seen more extreme predation for profit than I witnessed at the bottom of global cobalt supply chains. The titanic companies that sell products containing Congolese cobalt are worth trillions. Yet, the people who dig their cobalt out of the ground eke out a base existence characterized by extreme poverty and immense suffering. They exist at the edge of human life in an environment treated like a toxic dumping ground by foreign mining companies. Millions of trees have been clear-cut, dozens of villages razed, rivers and air polluted, and arable land destroyed. Our daily lives are powered by a human and environmental catastrophe in the Congo”.

China has a virtual monopoly in the DR of Congo. EVs and other battery buyers have little control over the supply chain.

All players understand that the problem of ASMs cannot be wished away, and it would be better if ASMs were given legal recognition and become part of Cooperatives. The Cooperatives would ensure that adult miners with proper training, implements, and safety equipment undertake mining, and children are sent to schools funded by them. These Cooperatives would sell ore to large commodity traders like Trafigura, who would ensure transfer at fair prices. The Fair Cobalt Alliance and others are working on such initiatives; time will tell how the government of DR of Congo and the incumbent Chinese companies react.

Conclusion

Currently, China has a stranglehold on the Lithium battery market, and EV manufacturers worldwide have little choice in sourcing. BYD, the second largest Chinese battery manufacturer, has launched its EV in China and Europe and become the largest EV company in the world, pipping Tesla to the number two spot.

It is not possible to control the way China works. CATL of China has a significant battery production base in Germany and plans to build more factories in Europe. CATL and BYD are also setting up bases in Southeast Asian countries. It is better to create alternatives now, even if they are short- to medium-term expensive.

EV manufacturers and their partners must create alternative sustainable battery mining and manufacturing supply chains, ensuring fair prices to miners, mitigating environmental issues, and reducing the energy intensity of the battery supply chain. The OECD has issued various guidelines on responsible mining that must be implemented.

Western countries, including the USA, should take firm, affirmative, and concerted action. This would need political will and a proactive approach from EV companies.

In January 2023, the U.S. Department of State released a signed Memorandum of Understanding (MOU) with the DRC and Zambia to bolster electric vehicle battery value chains. The MOU aims to support responsible mineral sourcing and promote transparency in the supply chain while also helping to develop the DRC’s and Zambia’s mineral resources in a sustainable and equitable manner. Progress in implementing the MOU seems to be slow.

If this is not done, Chinese EV companies will outcompete other EV companies in the world market; BYD has already taken steps in that direction. Another half a dozen EV companies, including Xiaomi, have launched EVs in China and are poised to enter world markets. Chinese companies’ predatorial pricing in solar cells, electronics, and low-end chip manufacturing has resulted in a trade war between the USA and China. If uncurbed, the same shall happen in the EV and, consequently, Lithium battery space.

Increased consumer awareness of the human and environmental damage caused by the Chinese battery suppliers would swing decisions in favor of EVs, which use batteries produced ethically and sustainably. Consumers would be happy to pay higher prices for such EVs.