Driving
Demand:Assessing the impacts andopportunities of the electricvehicle revolution on cobalt andlithium raw material production
and trade
IISD REPORT

Richard Bridle
Christophe Bellmann
Vicente Loyola
Mostafa Mostafa
Tom Moerenhout© 2021 International Institute for Sustainable Development | IISD.org

July 2021

Driving Demand: Assessing the impacts and opportunities of the electricvehicle revolution on cobalt and lithium raw material production and trade© 2021 International Institute for Sustainable Development
Published by the International Institute for Sustainable Development
This publication is licensed under a Creative Commons AttributionNonCommercial-ShareAlike 4.0 International License.

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Driving Demand: Assessing the impacts and opportunitiesof the electric vehicle revolution on cobalt and lithium raw
material production and trade
July 2021
Written by Richard Bridle, Christophe Bellmann, Vicente Loyola,
Mostafa Mostafa, and Tom Moerenhout
Photo: iStock/YvanDube

The production of this brief was funded with UK aid from the UK
government.

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Driving Demand: Assessing the impacts and opportunities of the electricvehicle revolution on cobalt and lithium raw material production and trade

Table of Contents
1.0 Introduction..................................................................................................................................................................... 1
2.0 The Global Market for Lithium-Ion Batteries and Associated Raw Materials............................... 3
2.1 Lithium-Ion Battery Chemistries ...................................................................................................................................6
2.2 Lithium-Ion Battery Market Forecast .........................................................................................................................7
3.0 Lithium Supply From Chile....................................................................................................................................... 9
3.1 Exports..................................................................................................................................................................................................9
3.2 Lithium Industry Structure and Regulation in Chile......................................................................................10
3.3 Chile’s Strategic Objectives for Lithium Production.....................................................................................11
3.4 Trade and Investment Risks .............................................................................................................................................13
4.0 Cobalt Production in the DRC.............................................................................................................................14
4.1 Cobalt Industry Structure in the DRC...................................................................................................................... 16
4.2 The Political Context.............................................................................................................................................................. 16
4.3 Strategic Goals for Cobalt in the DRC..................................................................................................................... 17
4.4 Trade and Investment Measures Regarding Cobalt in the DRC......................................................... 18
5.0 Possible Trade Policy Considerations............................................................................................................... 20
5.1 Addressing Social and Environmental Risks Associated With Mineral Booms.......................20
5.2 Balancing Trade and Investment Policy for Investment and Value Addition.............................21
5.3 Avoiding the Boom and Bust in Lithium and Cobalt:
The role of mining-related activities................................................................................................................................. 24
6.0 Conclusion .....................................................................................................................................................................26
References............................................................................................................................................................................ 28
Appendix 1. Lithium and Cobalt Production........................................................................................................ 36
Annex 2. Global Trade Data on Lithium and Cobalt Products.................................................................... 38

List of Figures
Figure 1. Chilean lithium exports by destination country..............................................................................................9
Figure 2. Chile lithium exports by World Customs Organization Harmonized Item
Description and Coding System (HS) codes 8506, 283699. 283691, 282520 ............................................. 10
Figure 3. Cobalt exports from the DRC by destination country........................................................................... 14
Figure 4. DRC cobalt exports by HS codes 2605, 2822, 2827, and 8105.........................................................15

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Driving Demand: Assessing the impacts and opportunities of the electricvehicle revolution on cobalt and lithium raw material production and trade

1.0 Introduction
The electric vehicle (EV) industry has grown significantly in the last few years. Analysis from
McKinsey of sales of plug-in hybrid electric vehicles (PHEVs) and battery electric vehicles(BEVs) reports an average annual growth rate of 45% between 2015 and 2019 (Gersdorf etal., 2020) and selling 2.3 million units in 2019 (Woodward et al., 2020). In 2020, COVID-19
brought some uncertainty to the market, especially on the demand side, with a decline of 25%
in new EV sales during the first quarter of 2020.
Nevertheless, the current pandemic does not seem to have affected the EV industry as
significantly as the market for internal combustion engines vehicles (ICE), particularly inEurope. Despite the overall drop in sales, global EV market penetration still increased in both2018 and 2019, with a current market penetration rate of 2.8% (Gersdorf et al., 2020). EV
growth forecasts remain encouraging despite the current uncertainty. Given several indicatorssuch as Norway’s high EV registration share as well as bans on sales of new gasoline and diesel
cars scheduled for 2030, some scenarios expect EV sales growth of 29% per year until 2030,
possibly reaching annual new sales of 31.1 million new cars and securing a market share of
32% of all new car sales (Woodward et al., 2020). This incredible growth forecast is partiallyexplained by several regulatory developments, such as stricter emission regulations in theEuropean Union and further advances in the Chinese EV market due to the extension of thecountry’s subsidy scheme in the wake of COVID-19 that runs to 2022 (Lichun & Wei, 2020).
Strong EV growth and strong supply chains depend on a secure and sustainable supply of raw
materials. The main EV component is the battery, which encompasses between one third and
one quarter of total cost of production, and a significant amount of the car’s weight (Bills etal., n.d.). Although battery costs have decreased significantly in the last few years, from ~USD
1,000/kilowatt hour (kWh) in 2010 to USD 150/kWh by 2019 (Azevedo et al., 2018; Yeon
et al., 2019), EVs still have a higher sales price than their ICE counterparts. Technologicalimprovements together with growing demand for EVs with greater range are expected tofurther reduce costs and drive demand for raw materials. One projection from Bloomberg
New Energy Finance (BNEF) estimates that by 2030 battery pack prices will be down to
USD 58 per kWh (BNEF, 2021)
In 2018, raw materials accounted for about 10% of total EV production costs (Azevedo et al.,2018), indicating their importance in EV supply and value chains. Many of the raw materials
used in battery production are sourced in developing countries. Two of the key minerals forbattery production are lithium and cobalt, along with other minerals, including manganeseand nickel.

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Driving Demand: Assessing the impacts and opportunities of the electricvehicle revolution on cobalt and lithium raw material production and trade

The growing interest and projected increase in manufacturing EVs and the subsequentrising demand for specific minerals needed for EV components present a key opportunity
for developing countries that are some of the main producers and suppliers of these minerals.
However, the adoption of new battery chemistries could also lead to falls in demand for someminerals. Developing countries’ ability to take advantage of this opportunity is dependent on
their economic and political readiness to manage sustainable investment as well as the trade
policies in place that shape the growth of their mining and manufacturing sectors.
This policy brief considers the impact of the EV raw materials boom on developing countries
and how trade policy could play an important role in helping them capture value from thisexpansion while managing the risks of overinvestment so as to provide a reliable sourceof revenue and improve development and economic outcomes. The brief is structured asfollows: First, it discusses demand for lithium-ion batteries of various chemical compositions
to highlight the impact that changing technology could have on mineral demand and on
producers; Second, it uses case studies of two major producer countries of related minerals—
Chile, a major producer of lithium, and the Democratic Republic of the Congo (DRC), a
major producer of cobalt—to identify trade-related risks and opportunities and illustrate
how policy settings can support or obstruct engagement in evolving value chains. The brief
concludes by presenting a summary of trade issues raised in the case studies that may be
relevant for other producer countries of minerals used in the production of EV batteries.

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Driving Demand: Assessing the impacts and opportunities of the electricvehicle revolution on cobalt and lithium raw material production and trade

2.0 The Global Market for Lithium-Ion
Batteries and Associated Raw Materials
Lithium-ion batteries, containing the element lithium, power almost all the large EVs currently
in production (Gersdorf et al., 2020). Lithium has a number of other uses, but the EV industry
has changed the lithium market significantly. In 2010, global demand was at 123 kilotons (kt)of lithium carbonate equivalent of which 42% was used for ceramics and glass, 14% for batteries(mainly rechargeable and non-rechargeable batteries for portable electronics), and 11% forlubricating greases (Azevedo et al., 2018). In one decade, the market had changed significantly.
Global demand was up to 290 kt of LCE in 2019, of which 65% is now going to battery
development (the majority of which to EV batteries), 18% to ceramics and glass,
5% to lubricating greases (U.S. Geological Survey, 2020b).
Increasing demand for EVs is expected to continue: a study from BNEF estimates that EVs’
share of car sales will increase from 2% in 2018 to 35% by 2030. Such an increase would lead toan even higher increase in demand for lithium-ion batteries, and as production increases to meetdemand, the economies of scale involved are expected to further reduce battery costs, and thus
make additional uses more viable. The falling price of lithium-ion batteries has already started
creating financially viable options for grid energy storage. Other sectors that will experience
further growth include consumer electronics (BNEF, 2019).
Much of this demand comes from highly industrialized economies. China was the world’s largest
consumer of lithium in 2019, accounting for 39% of global lithium consumption. South Korea
and Japan followed as the second and third largest consumers of the metal, at a 20% and 18%
share of global lithium consumption, respectively. All three countries are major manufacturers ofbatteries and electronics, which explains their high share of lithium consumption (Statista, n.d.).
This growth has not been smooth, however. In the last few years, the lithium industry has been
plagued by price volatility in response to changing demand projections and external shocks.
During the first phase of EV expansion between 2015 and 2017, lithium prices increased
significantly. This encouraged the development of new projects around the globe. Australia
invested in new capacity and developed five new lithium extraction projects (Nesfircroft,2017). Argentina also started heavily promoting lithium investments, with two projects underconstruction and several others in different stages of development (Marchegiani et al., 2019).
Between 2015 and 2018, lithium production increased threefold, achieving a 44% averageannual growth in those years (U.S. Geological Survey, 2020b).

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Driving Demand: Assessing the impacts and opportunities of the electricvehicle revolution on cobalt and lithium raw material production and trade

After 2017, however, the anticipated Chinese slowdown in EV subsidies, the COVID-19
crisis, and the added capacity of several new lithium projects around the world created alithium oversupply, which has resulted in prices falling to historic lows (U.S. Geological Survey,
2020b). Lithium production decreased almost 20% between 2018 and 2019 (U.S. Geological
Survey, 2020b), and its price decreased by 80% between November 2017 and 2019 (Trading
Economics, 2020b).
Despite a reduction in the price of lithium, lithium extraction projects have experienced
relatively few difficulties during 2020, and production has continued as usual, especially in Chileand Australia (Lynch, 2019). This is mainly because the market expects a return to previous
growth trends in the medium and long terms due to the expected increase in battery demandfor EVs, electronics, and grid stabilization. While forecasts need to be taken with a grain of salt
since grid stabilization batteries do not require energy densities as high as EV batteries, market
participants agree that more investment in the international lithium industry is needed to avoid
a supply crunch in the medium term.
Lithium is not the only element that is used for the production of EV batteries. The mostcommonly used lithium-ion batteries use cobalt to stabilize the cathode, which allows batteries
to recharge faster while maintaining safety from overheating, melting, or fire. Besides having
higher conductivity and offering more structural stability, cobalt-based lithium-ion batteries arealso lighter than alternative chemistries (Li & Lu, 2020). Given these characteristics, based on
current technologies, the current performance of cobalt-based lithium-ion batteries is generally
superior compared to other, non-cobalt batteries. However, there are also several concerns
regarding the use of cobalt, including the concentration of the resource in a single country, theDRC (see subsequent sections), and the toxicity of cobalt. Despite the concerns, however, theabsence of effective alternatives to cobalt has meant that as the EV industry has grown, so has
the demand for lithium-ion batteries and for cobalt. In 2020, 62% of the end market of cobalt
was in lithium-ion batteries, compared to 20% in 2006 (Global Energy Metals Corp, 2020).
Deetman et al. (2018) estimated that cobalt demand will increase tenfold to twentyfold by 2050
as a result of the growing demand for EVs. More conservative scenarios still foresee a fourfold
increase by 2050 (Tisserant & Pauliuk 2016). However, there is a possible alternative scenario
in which the cobalt-free battery announcements and goals of some notable players (e.g., Tesla)
result in a peak and decline in demand for cobalt. Given the importance of lithium and cobalt
to the EV industry, this brief will focus on the two developing countries with pivotal roles in the
global supply chain: Chile, for lithium, and the DRC, for cobalt.

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Driving Demand: Assessing the impacts and opportunities of the electricvehicle revolution on cobalt and lithium raw material production and tradeBox 1. Battery Reuse and Recycling
A key factor in the future demand for batteries and the raw materials associated withthem is the potential for battery reuse and recycling to replace demand for virginmaterials. One estimate from battery industry observer CES suggests that by 2030
there will be more than 820 metric kilotons of lithium ion batteries to recycle and that
799 metric kilotons will be reused (Circular Energy Storage [CES], 2021). The value ofmaterials contained in the batteries is estimated to amount to around USD 8 per kilo
for NMC batteries, creating a substantial incentive to recycle and creating a multibillion
dollar business opportunity (CES, 2021).
Battery recycling processes tend to be designed to cope with heterogeneous cell orpack designs due to the fragmentation of the market. Batteries are disassembled
through shredding in low oxygen environments and materials are then separated via
a combination of physical, thermal, or chemical processes. Standardization of battery
design and improvements in disassembly technologies could reduce costs and increase
purity of recovered materials. There is a need for greater research in this area (Harper
et al., 2019).
As battery packs age and decline in capacity, vehicles may not be scrapped but
could find new lives as vehicles used for short-distance driving: battery packs andcells may also be remanufactured for stationary storage applications. Vehicles thatare uneconomical to operate in one country are often exported to countries with lower
labour costs. This trend has already been observed in early-generation EVs; around one
third of first-generation Nissan Leafs sold in the United Kingdom and Germany havenow been exported (CES, 2020, 2021)
The impact on demand for new materials from reuse and recycling is unclear. Morethan 100 companies are engaged in the recycling of lithium-ion batteries—but demandis still increasing dramatically. In the short term, much of the material required forbatteries is likely to come from virgin sources. As electric vehicle penetration increases
and these vehicles reach the end of their lives over the next two decades, the potential
for increasing shares of recycled batteries will steadily grow.

Table 1 illustrates how important these two countries are to the production of lithium andcobalt. Chile produced around 23% of the world’s lithium (excluding the United States)in 2019, while Australia produced 54%, and China, the next largest producer after Chile,accounted for 9%. Chile also holds around 50% of the world’s reserves of lithium. Australia’s
lithium resources are mineral based, which means the lithium is found in solid form combinedwith other minerals, mainly in the form of spodumene (Li2O.Al2O3.4SiO2). Chile’s lithium
resources are mainly in the form of brines found in salt lakes. Lithium extraction from brinerequires evaporation. Natural evaporation using sunlight is the primarily used in Chile. This

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Driving Demand: Assessing the impacts and opportunities of the electricvehicle revolution on cobalt and lithium raw material production and trade

process is slow and influences the ability to scale up production (Geoscience Australia, 2019).
The DRC produces over 70% of the world’s cobalt, and no other producer comes close tothese levels, though several countries including Russia, the Philippines, Cuba and Canada
produce cobalt (U.S. Geological Survey, 2021). The DRC also holds around 50% of theworld’s known reserves, followed by Australia at 17%. It is possible that better geologicalsurvey data in the future may identify additional resources of these minerals.
Table 1. Share of global production and estimated reserves of lithium and cobalt
MineralTop producers

Share of global
production in 2019

Share of known
global reserves

Lithium

Australia

54%

16%

Chile

23%

50%

China

9%

6%

Argentina

8%

10%

DRC

71%

51%

Russia4%

3%Australia

4%17%

CobaltSource: U.S. Geological Survey, 2020b.

2.1 Lithium-Ion Battery Chemistries
To make good policy decisions, policy-makers in developing countries that produce the raw
materials used in EV batteries must have access to accurate projections for the development of
the market for different kinds of EV batteries, each of which involves a different combinationof raw materials depending on the performance characteristics required. These different
battery types, their applications, and likely demand direction, are set out next.
There are different kinds of lithium-ion batteries. All have metallic lithium for their anodematerial, but the use of different minerals for the batteries’ cathode produces batteries withvarying properties. The most common commercially available types of batteries are lithium
cobalt oxide (LCO), lithium manganese oxide (LMO), lithium iron phosphate (LFP), lithium
nickel manganese cobalt (or NMC) and lithium nickel cobalt aluminum oxide (or NCA).
Table 2 provides an overview of types of the main lithium-ion battery chemistries andtheir uses.

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Driving Demand: Assessing the impacts and opportunities of the electricvehicle revolution on cobalt and lithium raw material production and trade

Table 2. Types of lithium-ion batteries chemistries
Name

Abbreviation

ChemicalformulaCobaltcontent

Properties andapplications

Lithium cobalt
oxide

LCO

LiCoO260%

High capacity: mobile
phones, tablets, laptops,
cameras

Lithiummanganese
oxide

LMO

LiMn2O40

Safest: lower capacity
than LCO but high specificpower and long life. Power
tools, e-bikes, medical
devices

Lithium iron
phosphate

LFP

LiFeO40

Lithium nickel
manganese
cobalt oxide

NMC

LiNiMnCoO2

10 30%

Lithium
nickel cobalt
aluminum
oxide

NCA

LiNiCoAlO2

1 - 15%High capacity: gaining
importance in electric
power train and grid
storage; industrial
applications, medical
devices

Source: United Nations Conference on Trade and Development (UNCTAD), 2020.

2.2 Lithium-Ion Battery Market Forecast
NMC batteries’ dominance of the market is likely to change in the coming years, as companies
are working toward deploying batteries containing less cobalt due to spiking prices and toxicity
concerns. China’s growing role in the sector over the next decade is also likely to influence theglobal levels of use of different kinds of batteries. Today, LFP batteries dominate the Chinese
market, with over 44% of the total battery demand (Wood Mackenzie, 2020). One reason forthis is that China has domestic reserves of phosphate, a key component of LFP batteries. As
China’s role as an EV producer grows, so may global levels of use of LFP batteries, with clear
implications for levels of demand for cobalt and phosphate.

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Driving Demand: Assessing the impacts and opportunities of the electricvehicle revolution on cobalt and lithium raw material production and trade

Other factors may lead to a shift toward LFP batteries at a global level, not just in China.
According to research from Wood Mackenzie, NMC batteries are projected to become the firstto dominate the EV sector in the early 2020s but will be overtaken by LFP batteries if a newrise in cobalt prices coincides with a boost of LFP’s energy density achieved through researchand development (Wood Mackenzie, 2020). Rises in the cost of cobalt also will also shift theeconomics and increase the price of cobalt-containing NMC cells compared to LFP cells,
potentially accelerating a transition to LFP cells and a corresponding reduction in demandfor cobalt.
Even if not all the predictions above come to pass, the likely evolution in the market for EV
batteries over the next 15 years highlights a risk that mineral producer countries face. They
need to monitor and manage risks associated with how technological change will influence
the global market for their minerals: this will help them avoid the pitfalls of missing an
opportunity to export or possibly overinvesting in capacity before technological change
reduces demand.

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Driving Demand: Assessing the impacts and opportunities of the electricvehicle revolution on cobalt and lithium raw material production and trade

3.0 Lithium Supply From Chile
While current lithium production is dominated by Australia, Chile, and China, the largest
reserves are located in what is called the Latin American triangle formed by Chile and theNorthern parts of Argentina and Southern Bolivia. Chile’s Atacama Salt Lake is located inthis area and provides more than 95% of Chilean lithium production: it holds about half ofglobal reserves (U.S. Geological Survey, 2020b).

3.1 Exports
Chile exports lithium to many countries. The total value of exports increased from around
USD 300 million in 2015 to over USD 1.2 billion in 2019. While there is no single export
market that is overwhelmingly important, there are a number of key markets, including South
Korea, Japan, China, Belgium, and the United States. Over time, South Korea has accounted
for an increasing proportion of exports. Currently, the main export destinations for Chilean
lithium are South Korea (68% of lithium oxide and hydroxide, and 36% of lithium carbonate),the European Union (EU), and Japan (13% of lithium oxide and hydroxide and 26% of
lithium carbonate) (International Trade Center, 2020).
Figure 1. Chilean lithium exports by destination country
1,400

Exports USD million

1,200
1,000
800
600
400
200
0
2015

2016

2017

Rep. of Korea

EU27

Japan

United States

Russian Federation

2018

2019

China
Rest of the world

Source: Authors’ analysis based on Comtrade data.

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Driving Demand: Assessing the impacts and opportunities of the electricvehicle revolution on cobalt and lithium raw material production and trade

The form in which Chile exports lithium is also important. Chile exports two main lithiumrelated products—carbonates (which are relatively unrefined) and oxides and hydroxides,
which are relatively refined products. The data in Figure 2 shows that recent increases inexports have predominantly been associated with less-refined products.
Figure 2. Chile lithium exports by World Customs Organization Harmonized Item
Description and Coding System (HS) codes 8506, 283699. 283691, 282520

SUM of Trade Value (Million US$)

1,200
1,000
800
600
400
200
0
2015

2016

2017

2018

2019

282520 - Lithium oxide and hydroxide

283691 - Carbonates; lithium carbonate

8506 - Cells and batteries; primary

283699 - Carbonates; n.e.c. in heading
no. 2836 and other than lithium or strontium

Source: Authors’ analysis based on Comtrade data..

3.2 Lithium Industry Structure and Regulation in Chile
Mining is a critically important sector for Chile’s economy and such has gone through anumber of fundamental regulatory shifts since the 1980s. Before 1979, private companies
would receive concessions allowing them to extract lithium like any other mineral (i.e., subject
to royalty payments and environmental requirements). After 1979, however, Chile definedlithium as a strategic “non-concessionable” mineral, restricting its extraction and production
to the state, its public companies, and private companies that agree to develop special
operation contracts and administrative concessions with the state (Chile Ministry of Mining,1983). The only special operation contract ever concluded was developed in 2018 with asubsidiary of the state-owned copper production company (Gerencia de Comunicaciones,
Coldeco, 2018).

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Driving Demand: Assessing the impacts and opportunities of the electricvehicle revolution on cobalt and lithium raw material production and trade

The only other lithium production is undertaken by two companies: Albemarle, an international
company, and SQM, a Chilean company privatized in the late 1980s. These two companies
hold administrative concession contracts under Corfo (Corporacion de Fomento a la
Produccion) an agency of Chile’s Ministry of Economics which, for historical reasons,holds the pre-1979 Atacama Salt Lake lithium concession where both SQM and Albemarle
operate today. Through the contracts agreed with Corfo, the government regulates SQM’sand Albemarle’s production quotas, minimum refining levels, environmental compliance,engagement with local communities, and future expansion.
By law, any intention to explore or extract lithium must be communicated to the government
so it can develop the appropriate legal agreement for extraction. The Ministry of Mining isanother particularly important public stakeholder for the development of new lithium projects
because it has the competence to define the exact procedures and extraction agreementswith possible lithium developers. However, there does not appear to be a clear delineationof responsibilities within the government to conclude an extraction agreement.
Other public agencies also have particular roles in overseeing lithium companies’ operations
but are less relevant for the industry’s development. The Water General Direction is an agencyof the Ministry of Public Infrastructure, which oversees water management and is involved
in all major industrial developments. The Chilean Copper Corporation (Cochilco) advises
the government on matters concerning the production of copper, its by-products, and otherindustrial mining—it thus has an influential role in the whole mining sector.
Finally, the Atacama communities’ council (Consejo de pueblos Atacameños) represents the
local Indigenous communities who populate the Atacama Salt Lake area and is an important
stakeholder to be considered for the development of any new project.

3.3 Chile’s Strategic Objectives for Lithium Production
Chile’s developmental goals for its lithium industry are twofold. On the one hand, thegovernment wants to make sure that production can be increased to meet growing global
demand. It would also like to help businesses to add more value by moving from mere
extraction to more downstream operations in refining and even the battery value chain.
First, in an effort to benefit from the expected increase in battery demand and in the context
of increasing lithium prices before 2019, the government started the process of updating thecontracts in place with Albemarle and SQM. This negotiation process was long and difficult,marred by scandals regarding public auctions of licences, challenges in court on the basisof the mines’ environmental impacts, and even SQM’s involvement in a campaign financescandal (“Chile’s SQM fires,” 2015). This all somewhat undermined the legitimacy of theprocess in the eyes of the public (Mineria Chilena, 2012).
In an effort to address the controversy while improving lithium mining and its regulation,
the administration created the National Lithium Commission in 2014. This Commission
consisted of more than 20 professionals and included mining and environmental specialists,
politicians, and Indigenous community leaders. It developed several proposals and suggestions
to improve sustainable production and expand capacity while including local communities’

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Driving Demand: Assessing the impacts and opportunities of the electricvehicle revolution on cobalt and lithium raw material production and tradedevelopment goals and environmental protection (Williams et al., 2014). It appears thatmany of these proposals were not implemented when governmental priorities changed.
The government did manage to reach new production agreements with both Albemarle and
SQM in 2016 and 2018, respectively. These new contracts were agreed with Corfo and weremuch more detailed than their predecessors, specifying new production quotas, refining levels,
stronger environmental standards, and ambitious expansion plans (Albemarle, 2017; Roskill,2018). As of 2020, Chilean producers extract around 80,000 tons of LCE, and the expansions
plans should allow the doubling of production within the next 5 years. Albemarle and SQM
are currently seeking to secure contracts with international customers.
A second key objective of the government (and a proposal of the Chilean National Lithium
Commission), is to improve the value added of Chilean lithium products. Extraction of lithium
uses brine from the Atacama Salt Lake, in the northern part of Chile, and the first, relatively
simple, stage of refining produces lithium carbonate (60% of 2017 SQM production) andhydroxide (23% of 2017 SQM production), both precursors to lithium used in battery
production. Currently, there are no Chilean or international companies devoted to developing
any part of the battery manufacturing value chain. However, the Chilean government aspires
to change that and develop the first stages of battery manufacturing in the country.
Through its agreement with Corfo, SQM agreed to sell up to 25% of its production at
special prices to companies devoted to developing lithium and battery products within
Chile. After a failed public auction process in 2018, the government awarded the contract toNanotec, a Chilean company dedicated to developing nanoparticles, in 2020. The auction
revealed, however, that there was some international interest in developing battery-related
technologies in Chile. Companies who participated in the first auction process included
TVEL Fuel Company of ROSATOM (Russia), Sichuan Fulin Industrial Group Co. Ltd.
(China), Jiangmen KanHoo Industry Co. Ltd. (China), Molymet (Chile), Gansu Daxiang
Energy Technology Co Ltd. (China), UMICORE (Belgium), and Samsung SDI Co. Ltd.
(South Korea). This broad participation suggests there may, in fact, be international interestin producing batteries in Chile, to respond to local content requirements, and in developing
value-added activities in the lithium sector.
This tentative policy progress may be vulnerable, however, as Chile started experiencing
considerable political uncertainty in October 2019. After many protests and riots in all major
cities demanding better public management, the government agreed to call for a referendum
to reform Chile’s current constitution, which eventually took place on October 25, 2020. The
whole process to develop a new constitution is expected to last almost 2 years and may have
impacts on the regulation of economically—and politically—sensitive sectors like mining. In
addition, the COVID-19 crisis has struck the country hard (Roser et al., 2020).
These two events have hurt the Chilean economy, and current forecasts estimate a 6% decreasein the country’s GDP for 2020 (IMF, 2020). The current government, many companies, andalmost all productive associations are engaged in the development of stimulus measures topromote economic growth (CEPAL, 2018). These short-term shocks, combined with themedium-term challenge of somewhat opaque regulatory processes around lithium mining,
create uncertainty about the role of lithium mining in the country’s economic development.

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Driving Demand: Assessing the impacts and opportunities of the electricvehicle revolution on cobalt and lithium raw material production and trade

3.4 Trade and Investment Risks
The Chilean lithium industry has significant comparative advantages for lithium extraction
and its first refining stages. The country holds most of the proven international reserves, andits extraction processes consume less fresh water and energy than in other countries, though
it is also difficult to increase production as it uses natural evaporation driven by the sun’senergy. However, the preceding sections point to several challenges that have hampered
the development and expansion of the industry in the last years, and that will continue
to constrain investments and operations if not carefully managed.
As indicated, the most significant challenge to achieving a more sustainable and reliableindustry is the regulatory uncertainty related to developing new lithium extraction projects.
Without well-defined procedures, informed compliance standards, and clear responsibilities
within the government, effectively assessing and granting transparent authorizations for
new lithium extraction projects will continue to be difficult. Consequently, the country’s
production is likely to continue to depend on the operations of SQM and Albemarle andthe agreements they can negotiate with Corfo, at least in the short term. This opens thelithium business to risks related to the definition of Corfo’s role and its capacity to design
and agree contracts.
Environmental protection, sustainable water management, and local communities’ engagement
will also continue to be important challenges that will need to be taken into account in thesustainable development of Chile’s lithium industry. Considering the public’s concerns
related to lithium and other extractive industries, companies may find their ability to expand
constrained. Part of this opposition may be alleviated by guaranteeing the protection of
the environment in other areas and ensuring responsible management of water use
so communities and ecosystems can flourish, and the sharing of benefits with thecommunities through well-paying jobs and development projects.
The world’s lithium supply is another challenge to keep in mind. Even though an increasein lithium demand is expected in the medium term, lithium prices are volatile, creating therisk of price reductions due to oversupply. Other factors affecting the potential future supplyof lithium include the potential for development of new sources of lithium, since it is not as
geographically concentrated as other minerals and the increase in supply of recycled lithium
as recycling technology improves and increasing quantities of products such as lithium
batteries reach the end of their lives.
Finally, there are always challenges resulting from battery producers constantly working
to develop safer batteries, with higher energy densities, at lower costs. At the present
time, it appears that lithium-ion batteries will play a dominant role in the years ahead,but technological advancements are always possible. Furthermore, changes in the global
perception of the lithium industry could increase pressure to diversify. Lithium producers
and governments in lithium-rich countries should be aware of this risk and plan its long-run
development accordingly.

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4.0 Cobalt Production in the DRC
The DRC is the world’s key source of cobalt. The United States Geological Survey estimatesthat the DRC represented about 71% of global cobalt production in 2019 and holds just over
50% of global reserves (U.S. Geological Survey, 2020a). No other country comes close to its
production and reserves. The main reason for this is that cobalt is a metal generally found as
an alloy, i.e., joined with another metal. As a result, cobalt is rarely mined on its own but israther a by-product of copper and nickel. In many places, there is an insufficient concentrationof cobalt alongside either of these two metals to make extraction economical. In the African
Copper Belt, however, cobalt quantities occur in higher concentrations. Most of it is locatedin the DRC, which is also responsible for 88% of global cobalt exports (compared to 4% forZambia, the next highest exporter) (van den Brink et al., 2020).
The refining of cobalt is as concentrated as its production: China is responsible for refining
almost half of all mined cobalt (van den Brink et al., 2020). Of the top 10 refineries worldwide,
six are in China (with the rest in Finland, Belgium, Zambia, and Japan). This means that
China is also the key global importer since the country does not have sizable cobalt mines. In
total, China accounted for 97% of world imports of cobalt (van den Brink et al., 2020). Not
surprisingly, then, most DRC cobalt exports go to China, in quantities that rose steadily until
2018 before falling back (see Figure 3).
Figure 3. Cobalt exports from the DRC by destination country
5000
4500

Exports USD million

4000
3500
3000
2500
2000
1500
1000
500
0
2015

2016
China

Zambia2017
Morocco

2018
EU27

2019
Rest of the world

Authors’ analysis based on Comtrade data.

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Driving Demand: Assessing the impacts and opportunities of the electricvehicle revolution on cobalt and lithium raw material production and trade

Figure 4. DRC cobalt exports by HS codes 2605, 2822, 2827, and 8105
5

Trade value (billion USD)

4

3

2

1

0
2015

2016

2017

2018

2019

8105 - Cobalt; mattes and other intermediate products of cobalt metallurgy, cobalt and articles
thereof, including waste and scrap
2827 - Chlorides; chloride oxides and chloride hydroxides; bromides and bromide oxides;
iodides and iodide oxides
2822 - Cobalt oxides and hydroxides; commercial cobalt oxides
2605 - Cobalt ores and concentrates
Source: Authors’ analysis based on Comtrade data.

Trade data also shows clearly that the DRC’s cobalt exports have changed over the years.
As recently as 2015, nearly half of cobalt exports (by value) were ores and concentrates. By
2018 this proportion had fallen to less than a quarter (see Figure 4). This is partly due to thethreat of export restrictions on ores and concentrates designed to promote local processing(Organization for Economic Co-operation and Development [OECD], 2021a). On several
occasions since 2007, the government of the DRC has taken steps to ban the export of ores
and concentrates, but these bans have always been later cancelled or overturned. Increases inexport taxes on these products have been introduced and upheld over this period. However,
the threat of an impending ban has certainly created a signal to the market that seems to have
had an impact (Roskill, 2021). This indicates that the country has taken steps to move up thevalue chain through greater domestic refining and that these had succeeded, at least by
this measure.

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Driving Demand: Assessing the impacts and opportunities of the electricvehicle revolution on cobalt and lithium raw material production and trade

4.1 Cobalt Industry Structure in the DRC
Mining is a key sector for the economy of the DRC, representing about 18% of its GDP and
98% of exports (Extractive Industries Transparency Initiative [EITI], 2020). In 2018 alone,metals and mineral exports accounted for USD 9.7 billion, more than half of which went toChina. Of that USD 10 billion, USD 4.3 billion was in the form of cobalt exports, most ofwhich going, again, to China (Chatham House, 2020). Besides cobalt, copper is also exported
in large quantities, accounting for USD 5.3 billion in 2018, most of which goes to China,
Zambia, Gulf states (the United Arab Emirates and Saudi Arabia) and South Korea.
There are two large types of cobalt mining in the DRC: industrial or large-scale mining (LSM)
and artisanal and small-scale mining (ASM). While often considered distinct practices, thereis extensive interaction between LSM and ASM across the entire upstream supply chain,with LSM operations sourcing cobalt from ASM and blending it with their own production(OECD, 2019).
Large-scale or industrial mining is responsible for over two thirds of cobalt production in
the DRC. The key players fall into three broad groups (Sanderson, 2019a). First, there is the
Swiss mining conglomerate Glencore, which operates two of the largest mines in the country(Mutanda and Katanga). Second, there are Chinese-owned companies that occupy 7 outof the top 12 cobalt mines in the DRC. In total, these mines account for about half of total
cobalt output from the DRC. Third, there are several other companies from the Gulf andelsewhere that operate Congolese subsidiaries.
Artisanal mining is responsible for about a quarter to a third of total cobalt output in the
DRC and between 140,000 and 200,000 jobs (OECD, 2019). Some of this artisanal mining
is formal and registered. Most artisanally mined cobalt, however, is informal and outside ofthe legal code. This type of mining takes place on active or inactive parts of privately owned
mining concessions, many of which were granted to LSM companies. Even if it falls outsideof the legal framework, such informal artisanal mining still involves local and state authorities
that verify ASM output (OECD, 2019).
Besides LSM and ASM, a key player is the state-owned mining company Générale desCarrières et des Mines (Gécamines). Until the 2000s, Gécamines had a monopoly on cobalt
mining, but that changed when the DRC opened up to private investment as a result of astrong drop in mining output. Today, Gécamines is still involved in some mining, though they
are now more important in terms of granting mining concessions outside of the licensing
system set up by the Mining Code and setting up joint ventures with international companies(OECD, 2019).

4.2 The Political Context
One of the largest impediments to a trustworthy, ethical, and efficient cobalt industry in the
DRC is its history and colonial legacy of fragile governance (Crawford & Church, 2018).
To put this into today’s context, the DRC is 161st out of 198 countries on Transparency
International’s Corruption Perception Index (Transparency International, 2020) and 5thout of 178 countries on the Fragile States Index (Fund for Peace, 2020). In terms of resource

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Driving Demand: Assessing the impacts and opportunities of the electricvehicle revolution on cobalt and lithium raw material production and trade

governance, the Natural Resource Governance Institute (2020) gives the DRC a mining
sector value realization score of 69 points out of 100, which is relatively good. However,it highlights a revenue management score of 30 out of 100 and an enabling environmentscore of 12 out of 100.
This macro-level picture can be substantiated by practical experience in the DRC’s cobalt
sector. In principle, cobalt mining is governed by the DRC Mining Code, which was last
updated in 2018. This update increased taxes and royalty rates for strategic minerals, which
includes cobalt. It also sets out requirements related to the transparency and allocation oflicences and contracts (EITI, 2020). That being said, Gécamines also holds a large numberof mining concessions that are not covered by the DRC Mining Code. The granting of suchconcessions to LSM has been marred by a lack of transparency and corruption allegations(OECD, 2019). This dual system of licence and concession allocations continues today.
The DRC’s cobalt industry has also been rocked by two large scandals in recent years.
The first one related to corrupt mining deals, which were estimated to have deprived theCongolese state of over USD 1.3 billion in revenues (U.S. Department of the Treasury, 2017).
The second corruption scandal involved the largest cobalt producing company, Glencore.
In July 2020, the Swiss government opened a criminal investigation into Glencore over its
alleged corrupt practices in the DRC (Hume & Jones, 2020). This investigation comes on topof several other corruption allegations and investigations, including the 2018 investigation by
the U.S. Department of Justice (Hume, 2020) and the 2019 corruption investigation by the
U.S. Commodity Futures Trading Commission (Farchy & Mazneva, 2019). These corruption
scandals show how some governments are tightening their oversight of the activities of theirmultinational companies, intermediaries, and even state-owned mining companies, bringing(in addition to labour-related concerns) a spotlight on fraud and corruption associated withcobalt production and trade.
International efforts to reduce human rights violations, negative social impacts, andenvironmental damage such as the Responsible Minerals Initiative or the OECD Guidelines
on Responsible Mineral supply chains have pushed international consumers of cobalt to seek
sources of cobalt outside of the DRC and contract directly with producers they believe to be
responsible (OECD, 2021b). This trend may create a risk for DRC-based producers if othercompetitive sources of cobalt become available.

4.3 Strategic Goals for Cobalt in the DRC
The DRC has two strategic and specific goals besides the general objective of improving theoverall sustainability of all producers within the country (addressed below). First, the country
wants to tighten its control of global cobalt markets. Most recently, it has aimed at doing
so by establishing the government as the monopoly buyer of artisanally mined cobalt. By
controlling around 25% of exports, the government hopes to get more control over international
market prices. The system would require artisanal miners to sell to one single company thatis a subsidiary of Gécamines (reported to be called “Entreprise Générale du Cobalt”). Thatcompany would then be the conduit that sells to downstream refiners. Despite having been
confirmed in a governmental order in November 2019, it is unclear exactly how the system will
work and when it will be implemented (Clowes & Kavanagh, 2020; Holland & Bujakera, 2020).
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Driving Demand: Assessing the impacts and opportunities of the electricvehicle revolution on cobalt and lithium raw material production and trade

Second, the DRC seeks to keep part of cobalt processing within its borders. After extraction,
cobalt goes through a first stage or “crude” refining process, which already adds value to theextracted raw cobalt. One challenge with some of these processes is that the processing of cobalt
concentrates relies on the introduction of oxide to produce cobalt hydroxide. These oxide
deposits are gradually depleting, and this will require companies to make capital investments tokeep up refining capacity in the next decade (OECD, 2019). In the recent past, during the priceslump, the DRC tried to implement export restrictions on cobalt and copper concentrate toencourage both price recovery and domestic crude refining (Hunter & Luk, 2019).

4.4 Trade and Investment Measures Regarding Cobalt
in the DRC
There are two main types of private sector trade and investment concerns at play in the DRC:
those related to supply chain responsibility and those related to supply chain reliability. The
first deals with problems associated with cobalt production and their increased visibility
worldwide. It is now well-known that various large-scale miners source material and cobalt
from artisanal miners without adequate reporting. Since there are no clear regulations torecognize and register ASM, this LSM–ASM interaction is often reported as sourcing minerals
from open markets rather than their actual ASM origin (OECD, 2019). Unethical practices
such as inhumane salaries and child labour, which are not exclusive to the ASM sector but
are considered to be more common in ASM operations, are severely under-reported becauseof a lack of due diligence rules and practices across the DRC, as well as a general lack oftransparency in local supply chains (Bayer & Cooper 2019; Federal Institute for Geosciences
and Natural Resources [BGR], 2019; World Economic Forum, 2020).
This means that the final cobalt used in batteries is difficult to trace and may be linked toirresponsible practices in the cobalt supply chain—which leads to increased pressure on
consumers, companies, governments, and civil society to track the supply chain and holdactors accountable. The most noteworthy example of the pressure imposed on downstream
manufacturers is the class-action lawsuit brought by a human rights group on behalf of victims
injured or killed in ASM against Apple, Google, Microsoft, Dell, and Tesla in December 2019.
The lawsuit identified both producers and intermediaries, including some of the largest cobalt
producers, such as Glencore and Huayou (Dempsey, 2019).
These reputational risks can weigh heavily on producers and incentivize two reactions. On the
one hand, they can engage in ensuring better traceability and performance of existing supply
chains in the DRC. Because of supply chain concerns, several companies have decided to cut
out intermediaries (see below). This type of vertical integration can open new possibilities
for supply chain management. There has also been a rise in several company initiatives thatengage explicitly or implicitly with the OECD Due Diligence Guidance. Companies such as
Tesla, BMW, Volkswagen, and Ford also committed to the Responsible Minerals Initiative(RMI), which seeks to ensure that cobalt that finds its end purpose in EV batteries was mined
responsibly. Another example is various downstream companies such as Volkswagen, BASF,
BMW, and Samsung supporting the Cobalt for Development Initiative, which seeks to train
artisanal miners on environmental, social, and governance aspects of responsible mining(BASF, 2020). Another example of directly engaging with supply chains is the teaming up

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Driving Demand: Assessing the impacts and opportunities of the electricvehicle revolution on cobalt and lithium raw material production and tradeof Ford, Huayou Cobalt, IBM, LG Chem, and RCS Global to use blockchain technology
to trace where cobalt comes from (Lewis, 2019). More examples include the “Fair Cobalt
Initiative” and the “Responsible Cobalt Initiative” that include Chinese refiners and top cobalt
producers such as Glencore and others. A lot of these initiatives are new, and their ability to
influence unethical practices remains to be proven.
On the other hand, downstream companies can try to reduce their dependence on cobalt
from the DRC. They may do this because of supply chain reliability concerns since theresults of the efforts described above will be under increasing scrutiny. The lack of supply
chain reliability is linked to several factors. First, most of the production is centred aroundthe DRC, which poses a supply risk in and of itself, even without taking into account ethicalconsiderations. While it could help to alleviate some unethical practices in artisanal mining,
the new plan to have Gécamines be the monopoly buyer of artisanally mined cobalt can also
increase supply chain risks because there will be less diversification. Second, since cobalt ismined as a by-product of nickel and copper, the economics of cobalt mining is fundamentallytied to not only the cobalt market, but also the market of the host metal (van den Brink et al.,2020). And third, trade tensions with China have pushed countries to consider finding newcobalt supply chains, which could create cracks in the de facto DRC–China monopoly overcobalt-based battery production.
Public sector trade and investment measures imposed by the government of the DRC havetended to focus on encouraging domestic refining of cobalt. In 2013 the government of
the DRC imposed an export ban on unrefined cobalt, as well as copper and tin, but theabsence of local refining capacity reportedly forced it to waive the ban repeatedly; the latest
indefinite waiver was issued in August 2020 (Reuters, 2020). According to domestic businessassociations, the lack of reliable energy supply in the country was one of the main barriers to
the domestic refining of minerals (Radford et al., 2019).
The quasi-monopoly of cobalt from the DRC will remain a reality over the next decade.
The pressure for major consumers to secure access to cobalt from the DRC is evidenced byincreasing numbers of direct purchasing agreements between Glencore and key players suchas China’s refiner GEM Company (Sanderson, 2019b), Europe’s largest battery manufacturer
Umicore (Sanderson, 2019c) and the world’s largest EV manufacturer, Tesla (Sanderson,2020). However, there are also changes that may weaken this monopoly and the prospectsof cobalt mining in the DRC in the longer term. The best example is Tesla, which, besides
its direct cobalt trade deal with Glencore, has also announced its intention to eventually cut
cobalt from its batteries altogether (AP News, 2020). Even in the medium term, though,uncertainty around policy settings could encourage players to consider alternative cobalt
sources and to increase efforts to recover cobalt through recycling batteries that have reached
the end of their economic life. There are possible alternatives in Ontario, for example. Ifbattery producers can lower the amount of cobalt used, such other supply sources mightoffer possibilities for more significant substitution in the medium term.

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5.0 Possible Trade Policy Considerations
The rise in demand for EVs, lithium-ion batteries, and the raw materials used to produce
them will continue to create rising demand for the production of lithium and cobalt. As
discussed in this paper, a significant quantity of these materials is produced in developing
countries. This boom in global demand creates a number of trade-related issues for producer
and consumer countries. Based on the global analysis and the case studies presented here,
the following considerations could be relevant for policy-makers.

5.1 Addressing Social and Environmental Risks AssociatedWith Mineral Booms
In a context of mineral booms and high prices, combined with weak states, where few
opportunities for income generation exist beyond mining, there is a high risk of uncontrolled
increases in artisanal mining and illegal or unethical labour practices, with significant
environmental impacts. On the one hand, these concerns may lead to increased government
regulation or control of multinationals by their countries of origin (as seen above), including
potentially regulation, in addition to the many private initiatives in place, requiring certain raw
materials to be ethically sourced. On the other hand, the increased demand for minerals thatcan be shown not to be associated with illegal or unethical labour practices could create a dual
market, whereby a formalized and regulated part of the market serves the part of the market
subject to effective regulation and, outside of this, unethical practices continue unabated.
In practice, many of the sustainable production initiatives are driven by the private sector
in this area. Trade rules under the World Trade Organization (WTO) or regional trade
agreements do not restrict the ability of the industry to adopt such voluntary standards, andtheir design and implementation remain largely unregulated. Nonetheless, the voluntary
nature and the proliferation of these schemes raise several challenges. The predominance ofindustry-led responsible cobalt initiatives, for example, suggests that companies may be trying
to demonstrate that regulation in this area is not required. The plethora of initiatives could
also generate consumer (and regulator) confusion if the coverage and veracity of different
standards are not clear. Enhanced transparency, combined with an independent review ofsuch schemes, may help address part of the problem.
Beyond private sector initiatives, however, the primary responsibility to regulate mining
practices rests with the host country, which has sovereignty over the resources. Evidence
highlighted in this brief suggests, however, that not all host countries have the capacity todesign, implement, and effectively monitor regulations or contracts. In light of this reality, thequestion arises as to whether home countries of the mining companies or simply importing
countries should also assume responsibilities in this area to ensure sustainable extractive
practices or the respect of human rights (Cottier, 2016). As demand rises, pressure to securevital minerals while demonstrating that supply chains conform to ethical norms, end usersof minerals may get more directly involved down the supply chain. This could be achieved
through different instruments such as quantitative restrictions, labelling requirements,

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Driving Demand: Assessing the impacts and opportunities of the electricvehicle revolution on cobalt and lithium raw material production and tradecertificates of origin, or potentially “blockchain” distributed ledger technologies. To be
credible, such measures should be supported by effective mechanisms to trace the originof the resources and ensure compliance. A possible approach in this area could consist of
establishing an international index or reference list of responsible miners, traders, investors,
and/or shippers (Bellmann, 2016).
To avoid the extraterritorial nature of such measures and ensure that they do not undermine
standards and regulations of the host state, they should be based on a set of internationallyagreed uniform standards, as illustrated by initiatives in conflict diamonds. International
standards, however, risk convergence around the lowest common denominator—a situationthat may lead to less stringent labour or environmental standards than those required in
more advanced countries. In the absence of harmonized standards at the international
level, large importing and exporting countries could put emphasis on mutual recognition
agreements or equivalences. Regional trade agreements may offer avenues to incorporate such
efforts at promoting enhanced cooperation, as is already the case in a range of other areas.1
Alternatively, this could be reflected in plurilateral sectoral initiatives following the model ofthe WTO Information Technology Agreement (ITA) or, many years ago, the EU coal andsteel agreements. Such efforts could be supplemented with technical assistance and capacity
building, including transfer of technologies to enable host countries and companies to comply
with relevant standards.

5.2 Balancing Trade and Investment Policy for Investment
and Value Addition
There is a delicate balance to be struck between allowing sufficient flexibility in business
operations to attract investment for export and creating domestic employment opportunities
for value addition or industrial development. In practice, most developing countries find
it difficult to mobilize domestically the long-term investments needed to exploit theirmineral resources and usually rely on foreign direct investment. This is often facilitatedby providing an enabling environment including an open and predictable trade regime,
effective border clearance mechanisms, good connectivity, including transport, logistics
services, and information and communications technology. From an investor’s perspective,
lack of transparency and accountability (including complex and opaque licensing regimes),difficulties for investment due to corruption, complexity, or simply a slow-moving bureaucracy
can create significant barriers to investment and trade.2 The reluctance or inability of new
entrants to enter a market or expand operations can, in turn, stymie value-added processing
and exports more generally.

1 See for, example, the sectoral Annex on Energy Performance Standards in the United States–Mexico–Canada
Agreement (USMCA) or the chapter chapters on trade in renewable energy in the EU–Singapore or the EU–
Vietnam agreement including disciplines on local content requirements, standards, regulations, and mutual
recognition of conformity assessment procedures.

This is arguably less the case for critical raw materials, where none of those issues seem to be stopping requests
for licences for mining.

2

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From the host state perspective, there are legitimate expectations that investments should
create jobs, enable the country to move up the value chain, and diversify its economies.
However, while the mining sector has significant potential to foster sustainable development,
many of the benefits do not materialize automatically. In this respect, one approach consistsof promoting forward linkages by undertaking the first stages of processing domestically andadding value to the raw material. Another strategy consists of fostering backward linkages byencouraging the use of domestic factors of production or encourage the development of local
input providers for the extractive industry (Korinek, 2020).
Tariff barriers affecting minerals at a more advanced stage of transformation are relatively
limited. While some countries like China or Korea still maintain some level of tariff escalation
for lithium and cobalt products (i.e., higher tariffs on processed products compared to raw
material) large exporters such as Chile or the DRC benefit from duty-free and quota-freemarket access on all large importing markets, be it through bilateral free trade agreements
or trade preferences benefiting least developed countries.3 As a result, most of the regulating
efforts by host countries have focused on local content requirements, pricing regulation,
export restrictions, the establishment of government-regulated monopolies, and licensing
restrictions.

5.2.1 Local Content Requirements
To capture more of the potential benefits associated with mineral resources, governments
often use local content policies. In practice, local content requirements (LCRs) may either be
implemented through demand-side policies to encourage mining companies to procure goods
and services from local suppliers or through supply-side policies to support local suppliers
to compete with international suppliers (Ramdoo & Cosbey, 2019). They often impose a
combination of binding quantitative requirements (e.g., number of contracts awarded to local
suppliers or share of spending on local procurements) and non-binding qualitative targets(e.g., training or technology transfer). In many cases, LCRs are also complemented by othertypes of incentives in the form of tariff exemptions on imports of equipment for local
suppliers, subsidies, access to finances, training, etc.
At the international level, LCRs are subject to WTO disciplines as defined under the
General Agreement on Tariffs and Trade (GATT), the Agreement on Trade-Related
Investment Measures (TRIMs), the General Agreement on Trade in Services (GATS), theAgreement on Subsidies and Countervailing Measures (ASCM), and the Agreement on
Government Procurement (GPA). Overall, these disciplines impose strict conditions in termsof national treatment and non-discrimination and prohibit LCRs affecting the use of foreign
inputs or the granting of subsidies contingent on the use of domestic over imported goods.
Exceptions to these rules are relatively limited and mostly relate to public procurement orservices if the member has not undertaken any commitment in this area. With many LCRs
being primarily investment related, international and bilateral investment agreements also
discipline the use of LCRs and impose additional limitations on top of WTO disciplines.
Beyond tariff protection, however, it should be noted that countries manufacturing high tech and green techproducts have provided subsidies or other incentives to their domestic companies.

3

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In practice, however, these strict disciplines have not stopped the proliferation of LCRs—a situation that points to the inadequacy of existing rules and how they are enforced.
According to earlier research by McKinsey (2013), 90% of resource-rich countries have atleast one form of LCR in place, and half of these are of a quantitative nature. This, in spiteof the fact that many LCRs have a net negative impact on the productivity of the sector andultimately reduce investment incentives (Korinek & Ramdoo, 2017). LCR policies also often
fail to achieve their stated objectives due to a lack of capacity to implement, manage, andmonitor them. This reality suggests governments could consider whether agreeing a more
pragmatic approach to existing disciplines, including for example a clarification of whenand how they can be legally applied, might help make the rules more effective. This could
take the form of an annex to the TRIMs Agreement. At the national level, lessons learned
from successful practices point to the need to establish strong partnerships bringing together
companies, government agencies, research institutions, and relevant stakeholders. Ramdoo
and Cosbey (2019) also highlight the need to base policies on reliable data and evidence;
use a combination of mutually support measures, including on the supply and demand side;and design adaptable and flexible policies to reflect the evolution of the situation.

5.2.2 Export Restrictions
Export restrictions are another tool used by governments to regulate the production andprocessing of mineral products. Many are introduced for environmental purposes, to reduce
negative externalities associated with extraction, or slow down the pace of extraction. In othercases, government imposes them to encourage local processing and capture domesticallya higher share of the value flowing from extraction (Korinek & Kim, 2010). By restraining
exports, governments hope to divert these materials to the domestic market and give local
industries access to cheap raw materials, thereby creating opportunities for employment andindustrial development. From an importing country perspective, however, export restrictions
have been firmly contested as unjustifiable restrictions on trade, particularly when imposed bysuppliers controlling a large share of the world market.
In practice, export restrictions can take the form of export bans, quotas, duties and taxes, ormandatory minimum export prices. In the WTO, quantitative export restrictions are generally
prohibited under GATT Article XI except for balance of payment or national security
reasons, or under the general exceptions provided in GATT Article XX (for example for theconservation of exhaustible natural resources if they are applied in conjunction with domestic
restrictions on production or consumption). Export bans or quantitative restrictions may,
however, be applied temporarily to prevent or relieve critical shortages of essential products.
By contrast, WTO disciplines contain no binding limitations on the extent to which members
may impose export taxes.4 As a result, most resource-rich countries have tended to privilege
this form of export restriction on mineral products, and the use of such instruments has
proliferated in recent years.

Some newly acceded WTO members have nonetheless accepted to bind their export taxes at a certain ceilinglevel. Similar provisions also exist in some bilateral or regional trade agreements. For a full discussion of this
topic see Korinek and Bartos (2012).

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Export restrictions also entail a cost for countries applying them, by lowering returns
on material, creating inefficiencies, and discouraging investment in the extractive sector.
Empirical evidence by the OECD also suggests that in most instances they have failed topromote downward processing industries or generate employment. In some cases, they haveeven led to negative effects on the primary sector (Fliess et al., 2017). Avoiding disruptionsin international market may require enhanced transparency and predictability in the use ofallowable export restrictions, this could be achieved through notification requirements onexport taxes and duties and by providing incentives to resource-rich countries to bind theirlevel of export taxes to a maximum (Espa, 2015).

5.3 Avoiding the Boom and Bust in Lithium and Cobalt:
The role of mining-related activities.
A key risk in the fast-evolving EV industry is that technology will bypass problematic or
expensive materials, leaving countries that have grown dependent on mining them withstranded assets and the loss of mining-related jobs. While lithium appears to have a relatively
certain market for the foreseeable future, the market for cobalt in lithium-ion batteries
seems much less certain. This may be achieved by diversifying away from mining, and use
revenue from mining to invest in other industries—but this is much more easily said thandone. In practice, a more pressing question for producing countries will rather be how to
avoid excessive dependence on certain minerals. This may be achieved by promoting thedevelopment of services, capital goods, or intermediate goods industries that support mining
activities. In the case of the DRC, cobalt is primarily mined as a by-product of nickel andcopper mining. The development of mining-related activities could support the extractionof other minerals should the demand for cobalt decrease in the near future.
In practice, this approach tends to offer wide opportunities with lower capital requirements
and greater multiplier effects than investing in mineral processing and transformation(Korinek, 2013).5 Over time, international mining firms have increasingly focused on theircore business, with remaining activities being outsourced. Sustainability and resourceefficiency requirements in areas such as water and energy use, emission reduction, or waste
treatment have created a significant potential for specialized goods and services. Chile
has already undertaken steps in this direction by taking advantage of its concentration ofmining operations. Other countries have successfully developed mining-related goods andservices: these include mining equipment in Canada, metallurgy and technology services
in Finland, and the development of mining software in Australia (Korinek, 2013). In turn,these activities offer important trade opportunities as the country becomes competitive ininternational markets. For countries that do not have a comparative advantage in developing
a competitive downstream industry, focusing on the processing of minerals, policies fostering
the development of mining-related goods and services (e.g., through specialized education
programs or public–private partnerships) may provide opportunities for diversification andemployment creation while reducing the country’s dependence on mineral extraction in theface of market uncertainty.
It should be noted, however, that new technologies in the mining sector are evolving rapidly andfundamentally changing the face of mining and the demand for mining-related products (e.g., softwaredevelopment). This evolution may affect local procurement if such trends are not well understood.
5

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Driving Demand: Assessing the impacts and opportunities of the electricvehicle revolution on cobalt and lithium raw material production and tradeBox 2. Fostering a Regional Approach
One critical challenge encountered by mining companies considering new investment
is the absence of existing infrastructures in areas such as transport, energy, or logistics.
Such infrastructure can, in turn, serve other economic sectors and ultimately help
foster economic diversification. For example, Ramdoo shows that in countries with
important agriculture potential, connecting last-mile mineral infrastructure to farms,
storage facilities, or markets can play a critical role in supporting agri-business supply
chains as illustrated by the case of the Northern Corridor in Brazil (Ramdoo, 2015b). In
many developing countries, however, the limited size of domestic markets requires acoordinated approach with regional partners to establish cost-effective transnational
projects. This, in turn, can foster regional integration, link markets, and enable themovement of goods and people within the region. Connecting infrastructure acrossborders can also lead to improved accessibility and economies of scale, potentiallyunlocking other economic benefits. In a similar vein, resource-rich countries might wantto promote the development of regional value chains focusing on backward or forward
linkages. Regional integration schemes in particular can play a critical role in removing
intra-regional barriers to trade and complement efforts at creating national clusters
around extractive industries. Extending local content requirements to a regional market,
for example, can constitute (together with other coordinated measures), a first step inincentivizing such regional value chains.

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Driving Demand: Assessing the impacts and opportunities of the electricvehicle revolution on cobalt and lithium raw material production and trade

6.0 Conclusion
This policy brief considered the impact of the EV raw materials boom, with a specific focus
on lithium and cobalt as components of EV batteries, and how trade policy could play animportant role in helping developing countries capture value from this expansion while
managing the risks of overinvestment, so as to provide a reliable source of revenue andimprove development and economic outcomes.
Broadly, current forecasts suggest that demand for EVs will continue to rise in the coming
decades, and with it will demand for lithium as a component of lithium-ion batteries. Recent
volatility caused by surging demand, and then surging supply, does not appear to havediscouraged investment in lithium production, and demand is projected to keep growing.
By contrast, the market for cobalt is likely to tighten in coming decades as demand forbattery chemistries changes, because of the mineral’s toxicity and the environmental,social, and governance problems associated with its mining.
The case study of Chile, which accounts for 23% of global lithium production but whichholds 50% of global reserves, illustrates the opportunities for revenue generation and value
addition that the EV boom presents, but also the challenges of developing transparent andefficient regulatory processes to facilitate investment in the sector while balancing domestic
political pressures. Reasonable expectations of continuing demand growth suggest the riskof overinvestment in lithium production is limited. Requiring some lithium to be sold todomestic players or on regional markets appears to be a useful way of attracting foreign
investment in battery manufacturing and other value-adding activities (judging by the interest
already expressed), but ensuring investment contributes to development objectives will require
coordination across several areas of policy and engagement with local stakeholders. Such a
process would be greatly facilitated by ensuring transparency in institutional structures andprocesses. Part of the revenue from lithium mining could be reinvested in local communities.
This would help reduce the environmental impact of the activity and support education andtraining, thus enabling local employment in mining-related services and refining services
and battery manufacturing, should this be pursued.
The case study of the DRC, which holds a virtual monopoly on the world’s supply of cobalt
with 71% of production and 50% of global reserves, is a useful contrast because it illustrates,
conversely, a situation where there is a real risk of overinvestment in production and refiningof cobalt, demand for which appears likely to fall in the coming decades. Previous attempts
to impose export bans on cobalt have been abandoned because of a lack of domestic refining
capacity; had they been successful, they may even have increased the risk of stranded assets if
demand falls as projected. Instead, the DRC’s virtual monopoly position for cobalt, combinedwith the importance of mining other compounds (copper, tin) for which demand may be
more stable, suggests that if cobalt revenues could be maximized in the short term, they could
then be reinvested in the basic infrastructure, governance, and education required to build
local capacity to provide mining-related services to other local extractive industries. However,
without basic governance and labour and environmental standards, these may not rendersuch development sustainable either.

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Driving Demand: Assessing the impacts and opportunities of the electricvehicle revolution on cobalt and lithium raw material production and trade

Developing country governments have a range of trade and investment policy options
available to them to maximize the development outcomes they can achieve from the EV boom.
Policies should obviously be chosen to fit particular political and economic contexts, but witha clear view of the long-term development of this fast-changing industry. Where demand for
key raw materials looks stable in the medium term, policies that leverage domestically sourced
inputs to attract investment in value-adding activities would appear to be a good long-term
option as long as the “created” industries are economically viable. Where demand for a key
material is volatile, and in particular where it is likely to fall, trade measures to encourage
domestic refining of those minerals run the risk of stranding assets, and revenue might bebetter applied to supporting diversification of economic activity in the extractives sector.

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Driving Demand: Assessing the impacts and opportunities of the electricvehicle revolution on cobalt and lithium raw material production and trade

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van den Brink, S., Kleijn, R., Sprecher, B., & Tukker, A. (2020). Identifying supply risks
by mapping the cobalt supply chain. Resources, Conservation and Recycling, 156, 104743.
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World Economic Forum. (2020). Making mining safe and fair: Artisanal cobalt extraction in
the Democratic Republic of the Congo. https://reliefweb.int/sites/reliefweb.int/files/resources/
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Driving Demand: Assessing the impacts and opportunities of the electricvehicle revolution on cobalt and lithium raw material production and trade

Appendix 1. Lithium and Cobalt Production
Table A1. Lithium global production per country (metric tons)
Country

2015

2016

2017

2018

2019*

Reserves

United States**

W

W

W

W

W

630,000

Argentina

3,600

5,800

5,700

6,400

6,400

1,700,000

Australia

14,10014,00040,00058,80042,0002,800,000

Brazil

200

200

200

300

300

95,0002,400

200

370,000

CanadaChile

10,50014,30014,20017,00018,0008,600,000

China

2,000

2,300

6,800

7,100

7,500

1,000,000

Namibia500

NA

Portugal

200

400

800

800

1,200

60,000Zimbabwe

900

1,000

800

1,600

1,600

230,000

Other
World total(rounded)***1,100,000
31,50038,00069,00095,00077,00017,000,000

Source: U.S. Geological Survey, 2020b.
*Forecasted data**Withheld to avoid disclosing company proprietary data****Does not include the United States.

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Driving Demand: Assessing the impacts and opportunities of the electricvehicle revolution on cobalt and lithium raw material production and trade

Table A2. Cobalt global production and reserves per country (metric tons)
Country

2015

2016

2017

2018

2019*

Known
reserves

United States

760

690

640

490

500

55,000Australia

6,000

5,500

5,030

4,880

5,100

1,200,000

Canada

6,900

4,250

3,870

3,520

3,000

230,000

China

7,700

NA

3,100

2,000

2,000

80,000Congo (Kinshasa)

63,00064,00073,000104,000

100,000

3,600,000

Cuba

4,300

4,200

5,000

3,500

3,500

500,000

Madagascar

3,700

3,800

3,500

3,300

3,300

120,000

Morocco

NA

NA

2,200

2,100

2,100

18,000New Caledonia

3,680

3,390

NA

2,100

1,600

NA

Papua New
Guinea

NA

2,190

3,310

3,280

3,100

56,000Philippines

4,300

4,100

4,600

4,600

4,600

260,000

Russia

6,200

5,500

5,900

6,100

6,100

250,000

South Africa

3,000

2,300

2,300

2,300

2,400

50,000Other

16,20010,600

7,650

5,540

5,700

1,100,000

World total(rounded)***126,000

111,000

120,000

148,000

140,000

7,000,000

Source: U.S. Geological Survey, 2020b.
*Forecasted data

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Driving Demand: Assessing the impacts and opportunities of the electricvehicle revolution on cobalt and lithium raw material production and trade

Annex 2. Global Trade Data on Lithium
and Cobalt Products
To understand how trade in minerals related to electric vehicles is affecting developing
countries, an analysis of trade data for two key minerals, lithium and cobalt, was conductedin the leading developing country producers, Chile and the Democratic Republic of Congo
respectively.
Key product (HS) codes were identified and used to extract data from the UN’s Comtrade
database to assess a) changes in overall values of exports b) changes in the destination country
for exports and c) changes in the types of products being exported, for example fromunrefined ores to refined products such as oxides and unwrought metals. A list of codesis presented in Table A2 below, and trade data is presented in the country case studies.
Table A3. Cobalt and lithium HS codes

CobaltLithiumHS
CodeLevel 1HS
CodeLevel 2HS
CodeLevel 3

Commodity Description

26

2605

260500

Cobalt ores and concentrates

28

2822

282200

Cobalt oxides and hydroxides; commercial
cobalt oxides

28

2827

282734Chlorides; of cobalt

81

8105

810520

Cobalt; mattes and other intermediate
products of cobalt metallurgy, unwrought
cobalt, powders

81

8105

810590

Cobalt; articles n.e.c. in heading no. 8105

28

2825

282520Lithium oxide and hydroxide

28

2836

283691

Carbonates; lithium carbonate

28

2836

283699Carbonates; n.e.c. in heading no. 2836 andother than lithium or strontium

85

8506

850650Cells and batteries; primary, lithium

Source: Authors’ analysis.

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