As Europe Races to Electric Vehicles, Will Latin America’s Lithium Producers Keep Up? Q&A with Espen Hauge

Q&A with Espen Hauge by Patricia I. Vásquez and Anders Beal

The EU recently announced a bold commitment to address the climate crisis: By 2035, the 27-country bloc plans to phase out fossil fuel vehicles entirely. Environmentalists celebrated the announcement as a significant contribution to the fight against climate change. However, the plan also raised questions about the availability of raw materials – from rare earth metals to lithium, cobalt, nickel and copper – needed to satisfy skyrocketing demand for batteries.

For the countries that hold these resources, including in Latin America, Europe’s renewable energy transformation offers an opportunity to speed the global transition away from fossil fuels and create jobs and new industries at home. Indeed, for producers of these raw materials, there is no longer any question about finding customers to justify capital investments. Europe is decarbonizing at breakneck speed, responding to warnings from scientists and public demand. But ramping up production will take time, and there are already fears of bottlenecks and of the potential environmental and social impacts of hastened extraction.

To understand the scale and speed of the EU’s pivot to a sustainable transportation sector, the Wilson Center’s Latin American Program interviewed Espen Hague, president of the European Association for Electromobility (AVERE).

Q: So far, wealthier regions, such as the EU, appear to be moving the fastest to adopt electric vehicles (EVs), with developing economies playing a supporting role by providing inputs for lithium ion batteries. Are there signs that lower-income countries are also transitioning their transportation systems away from fossil fuels? Is it plausible to imagine a near-term scenario where multinational automakers and battery producers invest in Latin America so that locally produced lithium is used in locally produced batteries for locally produced EVs?

A: Definitely, yes! Our activities are global, including the social dimension both in-country and between countries and regions. Inside a country or state, the average car buyer does not buy a new car. Only a smaller fraction of car owners “choose” which cars should be built. The first electric cars were not cheap. Therefore, the electric revolution started to gain momentum with the people rich enough to buy a brand new vehicle. But we already see that prices come down, and the selection of models in all segments hits the market. Moreover, EVs are getting cheaper to produce than fossil fuel cars. The only difficulty is that there will be a surplus of fossil fuel car production capacity, and genuine fear in poorer countries that they will be the dumping ground for fossil fuel cars, while all the clean cars go to the rich countries. In that case, rich countries will get clean air in cities and the jobs and factories associated with the future car industry, while unemployment and pollution prevail elsewhere.

But it is also possible for developing countries to make better policy decisions. Just look at Costa Rica, which is a prime example in Latin America. Electrification is a necessary climate solution; it must be implemented 100 percent across the board, not only in certain countries. It is not costly to tax polluting products, and it is not expensive to make the polluter pay. Now that EVs are competitive, it is an attractive option for any country to promote them as a solution to climate change and improving health outcomes in urban areas. The list of countries that prefer EVs and their benefits for society is growing each year. We are now at a point where you must embrace the future if you want to be a part of it. Forward-leaning policy is key. There is still time for Latin America to get on board and take part in the electric revolution, obtaining economic benefits and improved environmental outcomes in the process.

Q: New public policies in the EU, China, Japan, South Korea and the United States are driving consumers away from transportation powered by fossil fuels. That is creating an intense competition in the EV and battery sectors. Several U.S. automakers, for example, recently announced plans to focus almost exclusively on EVs by the end of this decade. As this transition picks up speed, is there more governments should be doing to promote the development, production and adoption of EVs?

A: Electric cars will be cheaper to produce than fossil fuel vehicles within approximately three years. They are already better in terms of performance, and also more affordable to run. Therefore, the EV market will continue to grow incredibly fast while vehicles running on fossil fuels will eventually disappear. We have seen perhaps earlier than anywhere else in my native Norway that traditional vehicles running on fossil fuels are becoming less common, because polluting cars have high taxes while zero-emission cars have zero taxes. Much of the global car industry knows that Norway’s experience will become the international norm, and they will need to act accordingly. Many companies are launching plans to move into the growing EV market instead of being trapped in a downward spiral, with little growth potential.

We also know that electrification is the primary solution to address the climate crisis as well as improve the local environment. We know that a response to this crisis is extremely urgent. So any measure to address emissions in the transportation sector and increase the speed of a sustainable transition to more efficient, environmentally friendly electric drive trains is a good thing. We have so many tools to speed up the transition, but the key is to support public policies that ensure the market is less risky for consumers and businesses to invest in electrification.

Taxing pollution, and especially polluting products (e.g., fuel combustion engines), is a much-needed solution. If the international community does not do this, we simply absorb the cost of pollution in terms of poor global health outcomes and other external costs, such as more extreme weather events. Of course, lobbyists for the fossil fuel industry will tend to construct a picture of a choice between jobs and the environment. But going forward, the risk of lost jobs will be much more significant if you ignore global and local environmental impacts from a warming planet. Moving too slowly when it comes to electrification also increases the risk of being left behind and losing out on significant economic opportunities. The electrification of cars will be accompanied by electrification of bigger vehicles, boats and even planes. Electrification also integrates cars, or at least their batteries, into national power grids, leading to more flexibility and efficiency. Policymakers should encourage fast deployment of smart but straightforward charging infrastructure to encourage a much more rapid transition this decade.

Q: President Biden recently announced plans to import raw materials for EVs and batteries and to increase manufacturing at home, rather than promoting more mining in the United States. Given the environmental and social challenges of mining, do you expect European countries to follow a similar path? Should the United States and Europe adopt the same strategy, where would EV and battery manufacturers expect to obtain their raw materials? Are natural suppliers, such as Australia and South America, up to the task?

A: Within the European agenda, we have successfully pushed ahead for more sustainable supply chains. There is also a focus on fair trade aspects and low emissions in the full life cycle. I believe governments, customers and industry will try to comply more and more with higher ethical standards and lower emissions. It is hard to predict in a fast-paced transition, but I would bet on countries and companies that excel in sustainability and low total emissions from their products. We have seen various plans for gigafactories for battery production coming to life in the past couple years. These proposals, and more, will be needed in the near future. Growth will continue, and the need for raw materials will follow. Both Australia and South America have a lot of the required resources and the know-how, so they are indeed well placed to take advantage of this global transition. But some of the resources required for our electric future will need considerable increases in production capacity, leading additional regions and countries to enter the market.

Q: Both the EU and United States have adopted ambitious emissions reduction targets. But simply outsourcing negative environmental impacts, including from natural resource extraction, will not satisfy rising ESG (environmental, social and corporate governance) standards for European and U.S. producers and consumers of EVs. How could European and U.S. governments and private sector actors promote high environmental standards in lithium-producing countries, including South America?

A: I have spent more than a decade in the oil industry, and I know that natural resource extraction has a dark history in many ways. But there is also a lot of promise that this time we will do better. The first reason is that people are aware now more than ever about social responsibility. What was never really discussed concerning the oil industry in terms of its sustainability is now debated at the highest political levels regarding battery materials and potential impacts on local communities and environment. Again, it is hard to predict exactly how we will succeed, but industry, policymakers, customers and voters are interested in sustainable outcomes.

Second, we have to improve on social responsibility for all products, be it cars, laptops or clothes. Although the auto industry still needs improvement, I believe it is strong enough to tackle these challenges better than most. It is helped by consumer awareness and conscientious policymakers. New legislation is on its way in the EU with stricter requirements for the entire supply chain. Will it work? Too early to say. But I believe that if we continue to have a positive and constructive focus on these matters, we will make it work.

Vásquez is a global fellow in the Wilson Center’s Latin American Program, where Beal is a program associate.

To learn more about the Latin American Program’s Lithium Triangle Initiative (LTI), including corporate sponsorship opportunities, please contact Erik Romanin.