Why Chile’s Energy Future Is Everyone’s Energy Future

Chile is a nation that is incredibly rich in natural resources. In particular, it is rich in two minerals that are most needed by renewable energy and electric vehicles: Copper and lithium.

Chile has long been the world’s largest producer and exporter of copper, the super-conductive metal that is integral to pretty much every device, gadget, appliance and means of transportation that creates, uses or moves electricity. Other than oil, copper is perhaps the single most important mineral resource that enables our modern way of life. In 2021, Chile produced 2-1/2 times as much copper as Peru, the second leading global producer.

Along with Bolivia and Argentina, Chile is also one of three South American nations whose borders intersect in the highly-elevated salt flats basins known as “the lithium triangle,” the world’s largest resource of brine-based lithium. Like copper, lithium is ubiquitous in our lives, although few humans are actually aware of its presence.

Most prominently, lithium is used in the lithium-ion batteries we all use in our daily lives, and which are the battery of choice for electric vehicles, and currently dominant in the realm of providing storage backup for wind and solar power.

This energy transition literally cannot happen without cheap and plentiful supplies of these two critical minerals. As governments of the west attempt to subsidize wind, solar and EVs into critical mass, demand for these two minerals is projected to explode in the coming decades. Copper demand is expected to at least double by 2035, according to an S&P Global study, while the International Energy Agency projects lithium demand to escalate by an almost unimaginable 4,000% by 2040.

Thus, in a very significant way, Chile’s energy future is everyone’s energy future.

But that energy future is about to become quite murky as Chileans prepare to approve a new national constitution on September 4. The draft document is 178 pages long – 7 times the length of the U.S. constitution – and contains 11 chapters and 388 articles. It is a radical shift from Chile’s existing constitution, one so extreme that it has been described by The Economist as “a “fiscally irresponsible left-wing wish list.”

Of particular interest in the draft constitution where mining for copper and extraction of lithium are concerned is Article 145, which reads as follows:

Mineral Statute

Article 145.

1. The State has absolute, exclusive, inalienable and imprescriptible dominion over all mines and mineral substances, metallic, non-metallic, and deposits of fossil substances and hydrocarbons existing in the national territory, with the exception of surface clays, without prejudice to the ownership of the land on which they are located.

2. The exploration, exploitation and use of these substances shall be subject to a regulation that considers their finite, non-renewable nature, intergenerational public interest and environmental protection.

While the constitutional convention that drafted the document debated inclusion of an overt nationalization of the country’s mineral extraction industries, it ultimately rejected the proposal. But some observers are concerned that this mineral statute, along with other provisions in the draft, are designed to facilitate the implementation of a de facto nationalization led by current President Gabriel Boric, who has advocated for such a move.

While current Chilean law provides for all subsurface minerals to be owned by the government, the mining and extraction of these mineral resources are conducted under concessions made during the presidency of Augusto Pinochet to giant mining companies like Rio Tinto and BHP, along with state-owned mining company CODELCO. A full nationalization of the industry would almost certainly result in disruptions that would inhibit the ability of Chile to grow its mineral production to meet the needs of the energy transition.

Recent polling data indicates Sunday’s referendum vote is likely to fail. But as we have seen in the U.S., the U.K. and elsewhere in recent years, polling data has a disturbing tendency to be wrong.

Like it or not, Chile’s energy future is everyone’s energy future. Sunday’s vote is a key event to the future progression of this energy transition.


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