WHAT IS THE OPTIMAL EXHAUSTION PACE OF LITHIUM RESOURCES IN SOUTH AMERICA?

摘要

OverviewThis paper presents a simulation of the global market of lithium, with focus on lithium supply from South America.Lithium is a necessary material in the production of batteries that power electric cars, among other electronicartefacts. The Andean region integrated by Argentina, Bolivia and Chile (The ABC triangle) holds the world’sbiggest lithium reserves ever known. These countries have the intent to explore their natural resources on its ownand in a sustainable way. We will investigate to what extent wealth maximizing strategies of these countries imply aslower global energy transition towards electric cars and other use of batteries for energy storage. Since lithium is adurable and recyclable resource, there is need to know what is the efficient amount of recycling lithium batteries aswell. So, what is the optimal exhaustion rate of lithium? Moreover, what is the future role of lithium suppliers forthe diffusion of clean energy?Scholars have extensively analyzed optimal resources depletion. However, as far as we know, there are no previouseconomic studies about how to estimate the optimal exploitation of lithium resources considering the possibility ofrecycling. This paper defines an emerging problem for energy transitions and try to fill the gap in existingknowledge about reusing lithium resources.MethodsA global market for lithium is formulated as a Mixed Linear Complementarity Model - MCP. In order to know whatis the optimal exhaustion rate of lithium resources in South America we draw on the economic theory of exhaustibleresources. We develop an analytical and numerical simulations (using GAMS) model of the global lithium marketunder perfect competition and incorporate different assumptions about technological development of electricvehicles, batteries disposability and recycling.The model is constituted by three building blocks: supply, demand and recycling marketplace. We consider Ndemand regions and one or two sectors in each region (transport and possibly energy storage in the power market).The demand function depends on lithium prices, income and prices of other goods, where the elasticity ofsubstitution between lithium and other materials or products are important.On the supply side, we consider M producers (starting with M=4, Chile, Argentina, Bolivia, Rest-of-world).Initially, we assume a competitive supply where each producer considers the prices as given. Afterward, we willconsider Cournot supply. Constant unit costs are measured to represent the cost of lithium production. The costfunction will change when taking into account both accumulated supply and exogenous technological progress.In the recycling marketplace, we analyse the efficient amount of reusing lithium by exploring cost of disposal,quality and prices of the recycled material. The efficient amount would define to what extent recycled lithium is a(perfect) substitute of primary lithium. Some environmental costs related to lithium disposal and waste can beincluded and used to asses to what extent an efficient amout of recycled lithium can be produced automatically bythe market without government intervention.The key assumption of this problem is that lithium is a durable resource. This has two implications: first, the demandof a durable resource is for quantities of stock in circulation, rather than for flows of production (Levhari andPyndick, 1981). And second, the price of a durable good in any period is a function not only of current and pastproduction, but also of acticipated future production, since that future production and current recycling will affectprices (Stewart, 1980).The traditional theory of exhaustible resources has focused on deducing what is the optimal extraction path overtime for any particular non-renewable resource stock. Only a few papers have focused on the impact of durableexhaustible resources on pricing, inter-temporal production and efficiency conditions (Schulze (1973), Stewart(1980), Levhari and Pindyck (1981) and Chilton (1984)).The literature provides a discussion on the major characteristics of durable exhaustible resources, and an examination of the models for resources exhaustion regarding different optimization settings, and private and publicconcerns as well.The durability of an exhaustible resource can be defined by a group of physical characteristics and, correspondingly,by its demand and supply patterns. In general, a durable exhaustible resource is re-usable at some future date. Thereis a possibility of “mining” accumulated stocks of waste or scrap minerals to extend the time horizon of resourceavailability (Schulze 1974). Therefore, there is also an opportunity of supplanting extraction with waste recoveryand release tensions about scarcity and dependency concerns. In addition, a durable exhaustible resource does notwear out during the firm’s planning horizon (Stewart, 1980, p.100). So, the purchaser of a durable product wouldfrequently not re-enter the market until his earlier purchase has “worn out” (Ibid.)The problem of exhaustible and durable resources can lie on scheduling its production (Stewart ,1980). In manyindustries, including extractive industries, firms may find that their most important competition comes not fromother firms’ products, but from their own earlier production. This is due to the existence of efficient second-handmarkets or the frequency of purchasing products with long lasting use. However, recycling does not guarantee anincreasing availability of resources when taking into account the declining quality of the second hand resource.Weinstein et al. (1974) discuss additional patterns for depletable and recyclable resources. They examine thebehavior of markets with depletable resources where market interest rates are determined endogenously with zerocost of recycling and constant costs of extraction.ResultsWe resolve how prices of primary and second hand lithium are determined and how lithium companies and othermarket players behave. We develop a case study of the ABC Triangle of lithium and analyse the challenges of thesecountries to prosper and survive in the ever-changing international energy system. This paper also includes adiscussion about optimal resource extraction, where optimality and sustainability are congruent notions.ConclusionsThis study is important for regulatory reasons and to anticipate challenges for energy transitions as well. On onehand, if lithium production tends to be concentrated, market power may lead to a too slow diffusion of lithiumbatteries. On the other hand, recycling can be used as a defensive way (behavior) for consumers (importers) againstmarket power. This study can be used to discuss some policy measures for lithium exhaustion and recycling in acircular economy.