EU hopes with trade agreement for better access to Chilean lithium

Pelle Boonstra has noticed in recent years that lithium has become more expensive. He trades in lithium carbonate, which ceramic makers use to glaze. In an email, Boonstra speaks of “exorbitant” prices and poorer delivery. At the beginning of 2021, a kilo of lithium carbonate cost $ 6.75, but the price has now fluctuated around $ 75 for a year, with outliers above 80.

The lithium market is turbulent. The mineral is crucial for batteries, increasingly important for the energy transition. The International Energy Agency expects demand for lithium to be 400 percent higher in 2040 than in 2020, largely due to more electric vehicles.

To ensure sufficient supply, the EU recently strengthened its relationship with Chile. This country has the world’s largest lithium reserves, and is the world’s second largest lithium producer after Australia.

Trade agreement

Since last month, a renewed trade agreement between the EU and Chile has been on the table, which will, among other things, put an end to most reciprocal export tariffs in the coming years. It will also become easier for Chileans to provide services in the EU, and European companies will find it easier to invest in Chile.

Exactly how much lithium the EU can count on and at what price is not yet clear. The agreement is that European companies can buy lithium for the price that applies within Chile. Employers’ organization VNO-NCW expects that the import of lithium will become easier as a result of the agreement, but cannot specify this either.

This lack of clarity is because the trade agreement, even after seven years of negotiations, requires further elaboration. After that, all European member states must approve it. Normally, EU members want to change a few things at this stage.

Such a process can take years, but in this case some haste is required: the old trade agreement between Chile and the EU expires in mid-2024. The German Bernd Lange, chairman of the European Parliament’s Committee on International Trade, already urged the rapid development of a final version last month.

Geopolitics

While the talks between the EU and Chile initially focused on free trade, the emphasis gradually shifted to lithium and other raw materials. Samira Rafaela, MEP on behalf of D66 and rapporteur on the negotiations, also noticed this. It was already important for the EU to secure lithium, she explains, but the corona pandemic and the energy crisis have made that necessity even more important. “Our geopolitical position is becoming more important, we want to strengthen our autonomy.” Copper and hydrogen, also important for the energy transition, are also mentioned in the trade agreement.

In the agreement that has now been reached after ten rounds of consultations, agreements have been made about respecting environmental and human rights with regard to mining activities. That is certainly relevant for Chile; mining lithium takes a lot of water and the mines are located in extremely dry, vulnerable areas. As a result, mining projects often harm the local, partly indigenous population. Rafaela is “certainly aware” of this; that is why the agreement also includes passages that aim to do justice to their interests.

Should a disagreement nevertheless arise, the agreement provides for the establishment of an independent committee of experts. He can then draw up a report to ‘promote dialogue between the conflicting parties’.