ESTIMATING THE OPPORTUNITY COST OF LITHIUM EXTRACTION IN

58 Pages·2009·5.69 MB·English

ESTIMATING THE OPPORTUNITY COST OF LITHIUM EXTRACTION IN THE SALAR DE UYUNI, BOLIVIA

MASTER PROJECT

by

Rodrigo Aguilar-Fernandez
Dr. Jeffrey R. Vincent, Advisor
December 2009

Masters project submitted in partial fulfillment of the requirements for the Master of Environmental
Management degree in the Nicholas School of the Environment of
Duke University
2009
Estimating the Opportunity Cost of Lithium Extraction in
the Salar de Uyuni, Bolivia

Main uses of lithium: 2008
Batteries, 27%
Lubricant
Greases, 12%
Chemical
processing, 1%
Pharmaceuticals, Frits, 9%
3%
Continuous
Casting, 3% Glass, 8%
Polimers, 4%
Air Conditioning,
Aluminium, 4% 6%
Source: Ebenspergeret.al (2005); SQM (2008)

Master Project

by
Rodrigo Aguilar-Fernandez

Nicholas School of the Environment
ACKNOWLEDGMENTS

To my wife Andrea for her love, trust and patience when I needed it the most.

To my parents, Vicente and Maria del Carmen, who have provided significant support throughout my education.
To Marcelo , Chichi, and my sister Natalia, who have always been by my side.
Thank you all for your continued confidence, guidance and affection.

I ‘m also thankful to my advisor, Dr. Jeffrey Vincent, for his valuable suggestions and counseling during this project.

And lastly, to all my friends who have given me encouragement during this process.
Thank you, your support has been invaluable.
ABSTRACT

If the world plans to be moving away from oil based transport and towards hybrid and electric vehicles,
lithium supply is the key factor. The Salar de Uyuni in Bolivia holds the largest source of lithium in the world;
however, its extraction will bring a trade off with the environment. Due to the arid nature of the climate, the Salar
de Uyuni basin has a sensitive ecosystem heavily dependent on water resources. Consequently, local people’s
subsistence and well-being also depend on water resources on a daily basis. Studies conducted in the Salar de
Uyuni basin concluded that using the same spring as a production input, water consumption for lithium extraction
and crop irrigation cannot simultaneously take place. Thus, the fresh water use from the San Geronimo River
creates two mutually exclusive projects, lithium mining and quinoa crop with irrigation, generating different gains
to the economy of the region. The incremental cash flows model used in this study provides an estimate of the
benefits that each project would provide. The results indicate that even after subtracting the opportunity cost of
not conducting the quinoa irrigation project and reducing the uncertainty of the model parameters, the net
present value (NPV) of the lithium extraction project is still positive and large relative to the economy of the study
area. Nevertheless, the distributional and social differences have to be carefully assessed in the future according to
the ecosystem services and the financial model described in this study. In order to incorporate market distortions
and foreign exchange implications on the financial model, further economic research is required on both projects.
Finally, water resources and its competing uses should be recognized as an economic good, so it could be managed
more efficiently and used more equitably in this ecosystem.
TABLE OF CONTENTS

PARTI - INTRODUCTION AND BACKGROUND………………………………………………………………………………………………………….1
I.1 Characteristics of the study area………………………………………………………………………………………………………………………….4
I.2 Population and Economic Activity……………………………………………………………………………………………………………………….7
I.3 Minerals: The enduring treasure….………………………………………………………………………………………………………………………9
I.4 The focus of Master Project ….…………………………………………………………………………………………………………………………..10
PART II – ECOSYSTEM SERVICES IN SALAR DE UYUNI BASIN ………………………………………………………………………………..11
II.1Recreation, Culture and landscape: Ecosystem gift for local development………………………………………………………...11
II.2 Water resources in one of the world’s aridest places………………………………………………………………………………………..12
II.3 Biodiversity: The intangible key to ecosystem services……………………………………………………………………………………..16
II.4 Agriculture and Animal Husbandry…………………………………………………………………………………………………………………..17
PART III – METHODS………………………………………………………………………………………………………………………………………………19
PART IV – RESULTS…………………………………………………………………………………………………………………………………………………26

IV.1 Initial Scenario ………………………………………………………………………………………………………………………………………………..26
a) Lithium Mining Project……………………………………………………………………………………………………………………………………….26
b) Quinoa Irrigation Project……………………………………………………………………………………………………………………………………28
IV.2 Preliminary project selection…………………………………………………………………………………………………………………………..29
IV.3 Sensitivity Analysis………………………………………………………………………………………………………………………………………….30
a) Lithium Mining Project……………………………………………………………………………………………………………………………............30
b) Quinoa Irrigation Project……………………………………………………………………………………………………………………………………32
IV.4 Project selection………………………………………………………………………………………………………………………………………………35
PART V – CONCLUSIONS AND DISCUSSION …………………………………………………………………………………………………………..36
PART VI –REFERENCES ………………………………………………………………………………………………………………………………………….39
PART VII- APPENDIX……………………………………………………………………………………………………………………………………………...43

1
PART I- INTRODUCTION AND BACKGROUND

As the global energy landscape tilts away from fossil fuels towards renewables, the demand for lithium-
ion (Li-ion) battery is growing. Because of its light weight and huge energy storage capabilities, Li-ion batteries are
preferred for electronic devices, such as computers, cameras, and cell phones. Between 2003 and 2007, the world
consumption of lithium for the battery industry increased over 7% per year (Roskill, 2008). Also, Ebensperger et.al
(2005) predicts that because of the many diverse uses for lithium metal1, demand is expected to expand
considerably over the next decade reaching a up to 8.2% increased in 2010. From a global perspective, the most
important application of lithium products in 2008 covered the following applications: battery, glass & ceramics,
lubricating greases, aluminum &casting, air conditioning, pharmaceutical, and others (Ebensperger et al., 2005;
SQM, 2008; USGS, 2008). Figure 1 shows the 2008 main uses of lithium in percentages.
Figure 1: Main uses of lithium

Source: SQM Annual Report, 2008.
In particular, increased worldwide interest in greener transportation has triggered an upswing in the
market for lithium as it is a major component of batteries for electric and hybrid automobiles (Tahil, 2007;
Ebensperger et al., 2005; Nicholson, 1998). In the US, President Obama directed 2 billions of dollars of the
economic stimulus package to fund lithium battery manufacturing (Galbraith, 2009), and GM announced it would
build a plant to manufacture (Li-ion) batteries for the Chevy Volt scheduled to debut in 2011(Warren, 2009;
Lawrence 2009). Likewise, Asia and Europe are making strong commitments to electric, plug-in, and hybrid vehicles
with stated goals of starting production in 2011 (Gartner, 2009). Nissan-Renault which, together with the “Better
Place” project for electric distribution, announced the availability of electric cars in different countries such as

1 Lithium metal and compounds are widely use in lightweight aerospace alloy, ceramics and glass; carbon dioxide
absorption, water disinfection, and pharmaceuticals for treating mood disorders.
1
Israel and Denmark starting in 2011; and Mitsubishi’s launch of the i-Miev, a compact vehicle operating solely with
an electric motor, which the Company expects to sell outside of Japan starting in 2010 (Abuelsamid, 2009).
Lithium metal is 33rd-most abundant element on the planet and is widely distributed in trace amounts in
most rocks (pegmatite minerals), soils (brine salt flats and clay deposits) and natural waters. Large concentrations
are extracted from pegmatite (lithium-containing minerals spodumene and petalite) and brine salt flats. Lithium is
not found in elemental form due to its high reactivity, so most studies report lithium consumption or deposits in
terms of Lithium Carbonate (Li CO ) Equivalent (LCE).2
2 3
Although the purity of extraction from pegmatites is greater, the extraction from brine salt flats is the
most economic alternative (Evans, 2008; MIR, 2008; Tahil, 2007). Figure 2 shows the world’s total reserves3 of LCE
in million (MM) tonnes from brines and pegmatite. Today the greatest part of the world’s accessible lithium
reserves (over 80%) is in the so-called “Lithium Triangle”, where the borders of Argentina, Bolivia, and Chile meet
(Evans, 2008; MIR 2008). Furthermore, the Lithium Triangle accounts for more than 50% of the world’s total
lithium metal resources (Figure 3). Lithium with extremely high strategic value has led to a race for many lithium
extraction projects on the salt flats of the world during the past two decades (Evans, 2008; Tahil, 2007; MIR, 2008).
Figure 2 : World’s Total LCE Reserves from Brines and Pegmatite by country
in (MM tonnes ; %)
0.45; 0.55%0.21; 0.26%
13.83; 16.84%
23.94; 29.15%
14.42; 17.56% Chile
Bolivia
Argentina
China & Tibet
Brazil
29.26; 35.63% US

Source: adapted from Evans(2008), USGS (2007), and MIR (2008)

2 Approximately 5.32 units of Lithium Carbonate (Li CO ) equivalent converts to one unit of Lithium Metal.
2 3
3 According to the USGS (2008) “reserves” are that part of the “resources” which could be economically extracted
or produced at the time of determination. The term “reserves” need not signify that extraction facilities are in
place and operative. The term also implies that the material can be extracted with existing technology at a specific
price, usually the prevailing market price.
Figure 3: World’s Total Lithium Metal Resources by continent
in (MM tonnes) 4
South America 14.19
North America 6.48
Asia 3.60
Africa 2.36
Australia 0.26
Europe 0.24

Source: adapted from Evans(2008)
Not surprisingly, in 2008 more than 55 % (65,000 tonnes) of the global production and consumption of
LCE (118,000 tonnes) came from Chile and Argentina. Because lithium is not traded as a commodity on the open
market, its price is variable depending on the deals directly between producers and manufactures. In the early
2000, the average export value for Chilean and Argentinean lithium carbonate remained around US$2,000 per ton.
That changed in 2005, when the nominal prices for lithium carbonate began to increase sharply (Figure 4). Average
export values for LCE reported by major producing countries in 2008 were more than double those seen in 2004
(Roskill, 2008).
Figure 4: LCE Average annual prices from Chile exports
in (US$ per ton)*
7,000
6,000
Nominal US$ per ton
5,000
Inflation-Adjusted US$ per ton
4,000
3,000
2,000
1,000
-
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

*Chile GDP deflator (2000=100)

Source: adapted from Roskill (2008); International Monetary Fund (2008)

4 To convert 1,000 tonnes of lithium metal to million pounds of lithium carbonate equivalent, multiply by 11.7.
For all the above mentioned, today the real power player in the lithium market is Bolivia. The Salar de
Uyuni in Potosi Bolivia has close to 42% of the world's lithium reserves from brines only (Evans, 2008; USGS,
2008;MIR, 2008). Although production has not yet commenced, in May 2008, the president of Bolivia signed a
decree investing US$ 8.7 MM to set up a state owned pilot lithium extraction plant in the Salar de Uyuni with the
hopes that future profits will “fund social programs in the country” (COMIBOL, 2008).
In pursuing this, it might open further areas for production, promote further use of lithium or charge
higher taxes and introduce royalties to derive greater benefit from the economic profits of LCE exports. After all,
historically the mining sector has always been an important economic activity for Bolivia. From 1995 to 2005, the
mining sector has contributed in a range from 4.2% to 6.1 % of Bolivia’s gross domestic product (INE, 2009).
Nevertheless, in Potosi concerns remain about the environmental and social impact of the massive lithium mining.
In an impoverished but natural resource-rich Bolivia, the depletion of natural capital is typically not
accounted for. Specifically, the mining industry has traditionally been structured to externalize such environmental
costs so as to maximize profit — the industry appropriates undervalued resources and shifts the environmental
costs to others— rather than improving efficiency and innovating (Escobari, 2003; McMahon et.al., 1999).
Responses are typically short term and no sustainable. Moreover, it is certainty that when comes to evaluating
these costs, the most affected by environmental pollution and biodiversity loss from mining, are generally those
least able to understand and respond to it (e.g. remote miners' families or isolated rural communities and the
tourism business).
I.1 Characteristics of the study area
The Salar de Uyuni basin occupies a surface of 7,185 thousand hectares and is located at extreme
southwest of Bolivia. Figure 5 shows the topography and location of the basin where the gray/white indicates
elevations above 4,000 meters, green below 500 meters and the different shades of brown represent altitudes
between 500 and 4,000 meters. A characteristic of the region is the presence of large salt flats and salt lakes that
are remnants of ancient lakes. The level and area of these lakes has varied greatly over the past 200,000 years,
which is associated primarily with temporary changes in precipitation and temperature (Risache and Fritz, 1991).
Figure 5: Topography of the Salar de Uyuni Basin

Source: Molina Carpio (2007).
The Salar de Uyuni is the largest salt flat in the world and one of the twelve most important watersheds in
South America. It is at an altitude of 11,995 feet and covers an area of 1,062 thousand hectares of salt desert
(World Resources Institute, 2005). The Salar de Uyuni (Figure 5 and 6), located on the Bolivian Altiplano at 20ºS
68ºW, is surrounded by the Andes Mountains. These mountains cause a rain shadow, preventing moisture input
to the Altiplano (Highlands), producing an arid to semi-arid climate, nonetheless, where open water bodies exit
(rivers and lakes) there is a rich avifauna and vegetation cover (Pastures and marshes). Arroyo and et al. (1988)
concluded that plant species have a great dependence on the availability of water due to the arid climate; and,
only minor changes in the water budget can induce gain or decrease in vegetation cover and plant diversity.
As the evaporation rate near the salar (1300-1700 mm/yr) greatly exceeds precipitation (100-200 mm/yr),
salt crust and brines are formed throughout the year in the salar (Molina Carpio, 2007). Although the salar is
normally dry, seasonally flooding changes the volume of outflow water producing a unique pasture and marsh
pattern (Messerli, et.al., 1997).