There has been a lot of recent talk about shortages of energy materials (i.e., lithium, hi-grade nickel and cobalt) imperiling the future of lithium-ion battery manufacturing in North America. While much of that talk is sensationalized (we are not about to run out of lithium in the world), the United States’ failure to invest in stabilizing sources of energy material supply may put the United States at a long term disadvantage in the global competition for lithium-ion battery manufacturing capacity and expertise.
Properly understood, the energy materials supply chain challenge in North America consists of two problems: The market price problem and the geopolitical problem. These problems may from time to time be related. But they are best thought of separately.
The market price problem exists because the timing of the cycles of energy materials supply and energy materials demand are different. The supply cycle is longer than the demand cycle. It takes a long time to finance and develop new mines for energy materials. The rise and fall in demand for electric vehicles and lithium-ion batteries, which drive much of the demand for energy materials, occurs more rapidly. When these cycles become out of balance, prices rise (in times of supply shortage) and fall (in times of oversupply). This is as true in all industries. Companies deal with these issues all the time.
The reason why the supply price problem should be a public policy concern is because in the global competition for advanced battery manufacturing capacity and expertise, the ability to guaranty reasonably stable (and ideally low) energy materials prices to manufacturers is a considerable advantage. Chinese companies, acting almost certainly at the behest of the Chinese government, are buying up energy materials supply sources around the globe in order to ensure that battery manufacturers based in China have access to reasonably stable supplies of energy materials. This strategy will serve China well in times of shortage and will be very costly in times of surplus. But the Chinese are focused on dominating a handful of strategic industries and are willing to pay the cost to do so (i.e., the Chinese are willing to bear the cost of 1,000 Solyndra’s in order to dominate the solar industry and solar technology).
The public policy question the United States must answer is what strategic industries is it willing to invest public money in in order to dominate? It is wrong to suggest that the United States does not have an industrial policy that contemplates making such investments. The defense and aerospace industries in the United States are heavily if indirectly subsidized. As a consequence, the United States dominates those industries and technologies. An argument can be made that the petroleum industry enjoys similar subsidies. The question to the U.S. Congress and the Administration is: are there other industries that the United States must invest in and dominate in order to maintain the United States’ leadership in the world economy of the 21st Century? NAATBatt and its members would argue strongly that the answer is yes and that one of those strategic industries in which public investment should be made is the industry of advanced battery technology.
The second problem is the geopolitical problem. This is the threat of physical disruption of supply by foreign actors. The geopolitical problem likely terrifies the Chinese government and explains at least in part why it views advanced batteries and electric vehicles to be a strategic industry. The ability of the U.S. navy to disrupt China’s supplies of petroleum in a crisis doubtlessly looms large in its strategic thinking. Accordingly, China has invested heavily in electric vehicle technology and is willing to suffer the environmental degradation necessary to mine energy materials and rare earth metals in order to have a source of domestic supply. The United States socializes its investment in geopolitical energy security differently, through heavy expenditures on defense. But increasing Chinese interest in blue water naval technology may indicate that it is considering a different approach and begs the question whether the United States should consider additional approaches to energy materials security that would provide for more redundancy.
A major variable in any discussion of energy materials supply constraint is the subject of lithium-ion battery manufacturing. A recent DOE analysis concluded that by 2040 a full 60% of U.S. requirements for energy materials could be provided by the recycling of lithium-ion batteries already in the market in North America. But recycling lithium-ion batteries is, at the moment, difficult and uneconomic. The Chinese, again, are leading in this area as a result of their heavy recycling infrastructure investment. But new recycling technology is being developed in the United States that could make profitable lithium-ion battery recycling a possibility. A profitable and robust system of recycling lithium-ion batteries in North America could go a long way towards moderating possible market price problems in future years and providing some redundancy in the United States’ defenses against geopolitical disruption.
Advanced battery technology will arguably be the most important technology of the 21st Century. If the United States wants to be a center of lithium-ion battery manufacturing and technology expertise, it will need to make the kind of public investments in its lithium-ion supply chain that some of its competitors in Asia have been making for many years.