he urgent need to address the challenges posed by climate change and the energy transition has become a strategic opportunity for Chile, which has the potential to generate a major impact on the country’s future economic and social development. Chile offers optimal conditions for the development of solar and wind energy, and is the world’s leading producer of copper and lithium, two essential minerals for advancing the global energy transition. Specifically, the development of the lithium industry requires a comprehensive strategy that promotes harmonious, sustainable, and shared development.
The main objectives of Chile’s National Lithium Strategy are outlined below.
a. Sustainable development of lithium production potential
To harness the opportunities that lithium offers for Chile in a responsible way, it is essential to increase lithium production potential, ensuring maximum recovery, minimal environmental impact, and engagement and participation with local communities and indigenous peoples within the area of influence of each project. This requires investment in production capabilities, attracting new players, and introducing new extraction technologies that address the environmental and social challenges faced by the industry in Chile for current and future contracts or projects.
The increase of lithium production must make progress on two fronts simultaneously:
- Generating the necessary conditions to increase production in the Atacama Salt Flat while also safeguarding the area’s hydrogeological equilibrium.
- Establishing the necessary conditions for the development of lithium mining projects in other salt flats, starting with the exploration of salt flats for which preliminary studies have already been conducted. These projects—which will require an in-depth study of potential environmental impact and the participation of regional governments and local communities—are expected to take between 6–8 years to initiate production.
It is especially important that this increase in lithium production potential is based on the use of technologies that minimize environmental impact.
To achieve this objective, producers in Chile can leverage more than 40 years of experience with lithium mining operations in salt flats, during which time the State has created and accumulated extensive knowledge and experience in theformulationandmonitoringof contracts.
b. Social and environmental sustainability
All mining activities require social and environmental impacts to be minimized and the participation of local communities to be ensured, and this is an essential condition for the development of the lithium industry. In Chile, lithium is extracted from the brine in salt flats, which has high levels of biodiversity and a delicate hydrogeological equilibrium that must be safeguarded. Communities and indigenous peoples also inhabit areas close to these salt flats.
As such, a new institutional framework for salt flats and lithium will be developed to update current standards and regulations. This framework will place special emphasis on sustainability aspects such as minimizing local freshwater consumption and guaranteeing the use of renewable energy such as solar and wind.
Salt flats are ecosystems whose intrinsic value goes beyond the minerals contained in brine. For that reason, the National Lithium Strategy specifies that biodiversity and hydrogeology baselines must be established prior to lithium mining operations. This will enable us to understand the potential impacts of lithium production, as well as develop biotechnology and innovation based on the extensive biological diversity that exists in salt flats and salt lakes, thus strengthening environmental conservation and cutting-edge scientific, cultural, and technological development for the Chilean people and future generations.
Of the total salt flat surface area in Chile, only 7.5% currently has official protected status. Similarly, a very low percentage of salt flats are considered priority sites by Chile’s Environmental Impact Assessment System (SEIA).
In order to safeguard the long-term environmental sustainability of these ecosystems, a significant percentage of them will be protected, in line with the Convention on Biological Diversity’s Global Biodiversity Framework. Additionally, the exclusion on developing lithium mining projects in protected areas or priority sites for biodiversity conservation will be maintained. To complement these safeguards, salt flat classification criteria will be proposed to ensure effective and comprehensive protection, including a systemic analysis of salt flats and measures to prevent their fragmentation.
c. Technological and supply chain development
As outlined in President+ Gabriel Boric’s Government Manifesto, the National Lithium Strategy must overcome the extractivist mentality, promoting technological and supply chain development with local companies, as well as more sophisticated business activities that generate productive employment. This will prevent the lithium industry from becoming an enclave economy.
Upstream supply chains involve the implementation of exploration and extraction tasks to develop knowledge and technologies associated with these activities in Chile, such as hydrogeological and physicochemical models of salt flats, with all the on-site work and instruments that this requires; the development and implementation of extraction methods that minimizes the environmental impact; renewable energy sources for operations; and water treatment (including desalination plants). Possible uses of other mineral elements in brine should also be considered, and the economic feasibility of their production explored.
In the case of downstream supply chains, Chile’s lithium policy should consider the promotion of refining processes and obtaining chemicals from lithium, including lithium hydroxide and metallic lithium; the development of batteryprecursor materials; and eventhe initialstagesof the battery value chain. The strategy should incentivize the mining and metals sectors that are necessary for battery production, such as cobalt, manganese, and rare earths, among others. Less traditional activities, such as new uses of lithium (lightweight aluminum-lithium alloys or isotopic separation of Li6, for example), as well as lithium recycling, should also be considered.
d. Chile’s participation in lithium revenue streams
An indispensable objective of the strategy is to maximize lithium revenue streams for the State in a sustainable way, and to achieve the highest possible amount of public revenue in the current lithium price cycle.
Promoting the growth of this industry and implementing a new public-private partnership model will enable an increase in public revenue, which can be used to finance social, technological, and industrial investments, while safeguarding macroeconomic equilibriums. Specifically, this will enable an increase in public spending on science, technology, and innovation, promoting sustainable and inclusive development in the future.
e. Fiscal sustainability
In accordance with the established commitment to maintain orderly and sustainable public finances in the long term, the Chilean Government will make an adjustment in the calculation of public revenue from lithium. This adjustment is necessary, as the current methodology for calculating the cyclically adjusted balance recognizes all this revenue as structural, even though it contains a clearly temporary component.
Failing to make this adjustment to public revenue from lithium would put fiscal sustainability at risk.
For that reason, this revenue will be reasonably adjusted through a simple rule to avoid spending of lithium revenue streams above a certain threshold, defined as the average revenue of the previous four years. In this way, the temporary component of lithium revenue streams will be placed in a savings fund to finance social, scientific-technological, and industrial investments.
f. Fiscal sustainability
The incorporation of new players in Chile’s lithium industry, either from the private sector or via partnerships with the State, is fundamental to stimulate a more competitive, open, and transparent market that enables the development of a more efficient industry strongly committed to complying with the most stringent environmental and social standards.
Increased competition also offers better revenue prospects for the Chilean State, as companies or consortiums must offer the best possible conditions to participate in lithium mining operations. This could include not only technological or process improvements that are directly associated with lithium mining operations, but also the generation of supply chains, added value, local/regional development, and commitments with local communities.
The fact that each salt flat is different and unique—and as such tailored industry knowledge and developments are required for lithium mining operations—is also a motivation for the State to seek various private-sector partners for each project.
Furthermore, the presence of various industry players will also give rise to more partnership opportunities with different companies, supply chains, and global markets, especially for activities related to lithium battery manufacturing.
Finally, the diversification of industry players will ensure a better distribution of risks in the public-private partnerships undertaken by the State, with the appropriate geopolitical balance, as Chile’s different trading partners will have opportunities to participate in this industry locally.
g. Contribution to economic diversification and growth potential
The lithium industry’s contribution to economic diversification and consequent increases in economic growth is also a priority objective of this strategy.
This objective complements the goal of generating supply chains to ensure that the development of this industry does not become an enclave economy, and poses an additional challenge: attempting to position Chile as a country on a more advanced level of the global lithium value chain.
Breaking down the value chain into five stages—mining, refining, electrochemical processes, battery components, and battery assembly—Chile has a relevant market share in the first stage, participates in the second stage, and does not currently have any role in subsequent stages.
Chile has a favorable position to progress in adding value. The country is home to one of the world’s largest lithium reserves, which enables us to enter into negotiations with leading multinational technology companies and develop partnerships with them in order to offer lithium supply security in exchange for local industry development in Chile.
 A global value chain is a set of activities carried out in different geographic locations (regions, countries, etc.) that is necessary to produce a good or service. In the case of lithium-ion batteries for the automotive industry, for example, the value chain starts with the extraction of lithium from brine or hard rock. In Chile, lithium is extracted from brine and exported primarily as lithium carbonate (Li2CO3) or lithium hydroxide (LiOH). Subsequently, together with other minerals (copper, cobalt, nickel, and graphite, among others), components are manufactured (anodes, cathodes, separators) which are subsequently joined together to make a battery cell. The set of packaged cells are assembled to form an electric battery which stores the energy required by vehicles. Battery manufacturing involves three main production processes: battery cell manufacturing, battery module manufacturing, and battery assembly. Each of these stages can be conducted at a single site or in different geographic locations. However, battery assembly tends to be carried out near vehicle manufacturing facilities in order to reduce the cost of transporting the battery packs, as they are much bigger and heavier than the cells and modules. Source: Poveda Bonilla, R. (2021). Public policies for lithium innovation and added value in Chile.
 As a basis of comparison regarding the impact of this, the lithium mining industry (SQM, Albemarle, Livent, Tianqi, and Ganfeng, among others) is valued at between US$10 and US$15 billion, while the battery industry (CATL, LC Chemical, Samsung SDI, and Panasonic, among others) is valued at between US$45 and US$55 billion, and the automotive industry (Tesla, BYD, Volvo, and Volkswagen, among others) is valued at over US$400 billion.