Why Chile’s copper and lithium mining dominance is starting to slip

Chile is at the center of the world’s copper and lithium supply. But within the country, the mining sector is mired in politics — and local opposition and environmental protection are complicating things further.

Chile is the world’s largest producer of copper and the world’s second largest producer of lithium. Both resources, commonly referred to as “critical minerals,” are widely used in renewable energy and climate technologies: from electric vehicles to solar PV, and wind turbines to batteries.

As Juan Carlos Jobet, the country's former minister of energy and mining, said in an interview on the Columbia Energy Exchange podcast, “there's no energy transition without mining.”

At present, Chile produces roughly a quarter of the world’s copper and up to 30% of the world’s lithium, Jobet said. And the country holds about 20% of the world’s copper reserves and 36% of the world’s lithium, according to Jobet. By 2040, copper demand is expected to increase by 50% and lithium demand by 600%.

“So Chile is going to be very important [in] supplying those minerals,” he added.

But because Chile has been mining copper for over a century, some of its largest copper deposits are growing old and decreasing in quality. That means the country needs new mines to keep up with growing demand — but setting them up in the current political climate is complicated.

“To keep up with expected growth in copper demand accelerated by the energy transition, we needed to deploy around $70 billion in investment,” or about a quarter of the nation’s entire GDP. 

And the financing piece isn’t even the country’s biggest mining barrier. 

“It takes a very long time to get the permits we need for mining projects,” said Jobet, which he attributed to pushback in light of the negative impacts mining has had on the environment and local communities. “For…historical reasons, local communities and many stakeholders don't want mining.”

In addition to environmental impact, local communities often oppose mining projects because they “don't feel they get a fair share of the value that is being extracted,” he added. From his perspective, this is due to the perception that the government is not reinvesting the money from lucrative mines back into the local communities.

Lithium comes with most of the same issues as copper, Jobet said, but it lacks the “institutional framework” provided by decades of experience — and comes with some extra regulatory and political hurdles. 

Jobet is worried about the impact these challenges will have on the country’s dominance in the critical minerals market more broadly. “We're going to lose market share over the next five to 10 years,” he said. 

The politicization of lithium

Jobet estimated that in 2010, Chile produced over half of the world’s lithium — today, the country produces less than 30%. 

“The forecast is that we will keep losing market share in the coming years, and that is because we don't have broad political agreement,” he said. 

He criticized the political nature of energy transition policy discussion in Chile and around the world, which leads to policy changes as administrations turn over.

“One government comes into office...and tries to put in place one set of policies, without reaching an agreement with the opposition,” he said. “Then four years or six years down the road, a different coalition is elected, and then they start all over again with a different set of policies.”

This is the problem plaguing lithium mining in Chile. When Jobet was minister of energy and mining, his office “conducted an international bidding process to invite private companies to develop the lithium industry.”

But the new administration, which took over in 2022, is now “pushing the development of lithium projects in which the state controls over 50% of the property or the ownership of all lithium production operations,” he said. “I'm not sure that's the best way to go.”. 

He added that the country is still seeing interest from private companies in producing lithium, but that he doesn’t think this approach is “the best way to maximize the production volume or the amount of money or the share of the rents that the state will capture.”

Jobet also criticized the current policy of restricting what technology can be used to produce lithium: “We all want to produce lithium with lower environmental or water impact for local communities…but I think the way to do that is to increase the standards, not to pick up a specific technology,” he said.

More broadly, Jobet thinks this approach is too short-sighted because it’s focused on capturing as much value from mining as possible, as soon as possible. He said taxing a company too much today may capture a large portion of its present-day revenue, but that doesn't send the right signal to other companies to invest.

“And over the long run, I don't think that is a good way to go for a country,” he said.

For the full conversation with Juan Carlos Jobet, listen to his interview on Columbia Energy Exchange.

Columbia Energy Exchange is a co-production of Columbia University and Latitude Studios.

Transcript 

Juan Carlos Jobet: We need to make sure that the standards are very high, that we protect the environment, the local communities and so on, but we need to get things done. And I think we need to spend more time making that case, that the energy transition and the fight against climate change is about building a lot of things.

Jason Bordoff: Demand for the critical minerals needed for batteries, solar panels and other forms of clean energy grow rapidly under the International Energy Agency's Net Zero Scenario by 2050. And this gives mineral-rich countries an outsized role in the energy transition. Chile is one of those countries. Chile currently holds over one-third of the world's lithium reserves, and the country is already the world's second-largest producer of lithium with approximately 30% share of world production. Chile also is the world's largest producer of copper, which will also be needed for a much more electrified economy. So what is Chile's role in the energy transition more broadly? How will Chile's plans to nationalize its lithium industry play out? And how will the country be impacted by an escalating trade war between the US and China? This is Columbia Energy Exchange, a weekly podcast from the Center on Global Energy Policy at Columbia University. I'm Jason Bordoff.

Today on the show, we have Juan Carlos Jobet. Juan Carlos is Chile's former minister of Energy and Mining. He was recently appointed as dean of the School of Business and Economics at Universidad Adolfo Ibáñez, and he's a fellow here at the Center on Global Energy Policy in our critical minerals work. Throughout his career, he's held several positions in both the public and private sector. He served as undersecretary of Housing and minister of Labor and Social Security, and previously, he also worked as an investment banker and in private equity. Juan Carlos joined me to discuss the role of Chile in the energy transition. We spoke about his time as the country's minister of Energy and Mining, the outlook for clean energy in Chile, and we did a deep dive into Chile's role in meeting the world's critical mineral needs for clean energy, and how geopolitics, environmental risks, community engagement, and technology might affect that outlook. I hope you enjoy the conversation.

Juan Carlos Jobet, thank you for joining us on Columbia Energy Exchange and thanks for being part of the Center on Global Energy Policy, most especially, but your first time here on the podcast. So great to talk with you.

Juan Carlos Jobet: Yes. Thank you for the invitation. I'm excited. I'm a big fan of the show, so it's great to be a guest today.

Jason Bordoff: Well, as I said, you've been part of the center for a while, since you joined us as a distinguished visiting fellow when you left office as minister of Energy and Mining in Chile, and have remained part of the center helping us build a significant program focused particularly on the challenge of meeting our critical minerals need, the minerals and materials and metals we'll need for this transition. So we're going to come to all of that, but just for our listeners, talk a little bit about your role in government, what your service was like as minister of Energy and Mining, and for people who may not really be familiar with the Chilean energy sector, a little overview of what issues dominate, what the primary sources of energy are. So in your role, what were the primary things taking up most of your time?

Juan Carlos Jobet: Yes. Well, I was appointed energy minister in 2019 and I served in that role for three years. I had a previous experience in investment banking and investing more broadly in the private sector, but I had also served in President Piñera's first government between 2010 and 2014, so I had kind of a mixed experience between the private and the public sector. And then I was appointed mining minister at the end of 2021, so I served both ministries for a year, at the end of the second government. On energy, I faced the COVID pandemic. That was kind of an emergency that we faced and it took a lot of time for us, and I think that was true for other governments around the world as well, to make sure that the energy system just keep working. Right? So I mean, were generating electricity, that transmission companies were able to do the maintenance they needed to do. I mean, a long list of invisible things for people at home, but somebody has to make sure that those things kind of work. In an environment that was very challenging, that took part of my time.

Also, I spent a lot of time trying to accelerate and navigate the energy transition. If you look at the Chilean energy sector, Chile is a country that basically imports most of its energy in the form of fossil fuels. And the power sector, I mean, historically had been dependent on hydroelectricity, around 70% for decades. But around 20 to 30 years ago, as the economy started growing very fast, we started increasing our consumption for electricity. It became very hard to build new hydroelectric capacity, as I think it was the case in many other countries. So that difficulty, plus long period of droughts meant that at some point, we needed to build a lot of coal capacity to keep up with the increase in demand. So when I took office, we had roughly 40% of our power was generated with coal and we wanted to change that, so we agreed with private companies and many other stakeholders to phase out coal. By 2040, we defined a very specific timetable to do that and we accelerated the deployment of renewable energy, wind and solar mostly.

We can come back to that later, but Chile has a very good quality and very abundant endowment of solar and wind resources. And we doubled the wind and solar capacity in a year and a half or two in spite of the pandemic, and we accelerated basically the phase out of coal. And last year, over 60% of the generation came from renewable sources, so we're moving basically very well I think in the right direction. We have many challenges as other countries do, but that's moving well. The other thing I spent time on was green hydrogen because we realized that green hydrogen was probably the best way to export the abundant wind and solar resources we have to other countries that will need that energy. So we basically designed first, and then started deploying a green hydrogen strategy for the country. I would say those were the main priorities on energy.

Jason Bordoff: How's that coal phase-out going? How feasible is that? What challenges are you facing trying to do that, local economic impacts as well, and jobs, and as we see in other places, South Africa and elsewhere, and challenges scaling up renewables? I didn't think it was that large. You said half of the electricity generation. Is that what you said?

Juan Carlos Jobet: In 2019, it was around 40%. We had a ten-year drought, so the hydro capacity was not contributing as much, so during certain years, it was over 40% of the generation.

Jason Bordoff: That includes nuclear as well?

Juan Carlos Jobet: No, we don't have nuclear. Now, Argentina has nuclear capacity, but Chile, we don't have nuclear. Basically, the grid at that point was 40% coal and the other, 20% gas, and the rest was basically hydro and solar and wind.

Jason Bordoff: So talk a little bit about how the coal phase-out effort is going and what lessons maybe people can learn from that.

Juan Carlos Jobet: I think the first lesson was that the phase-out of coal was a process that was agreed by all relevant stakeholders. To be fair, the first conversations were started at the end of President Bachelet's government in 2018, in the last months of that government. So before we took office, a broad general agreement to do this was reached. And then we started the negotiations with the companies to phase out coal. We didn't pass a piece of legislation. I think that is very particular of the case of Chile. Many companies had invested in coal plants relatively recently when we wanted or made the decisions to phase out coal, so there was a big kind of economic tension there. Right?

We basically sit down with the companies, with the workers unions, with consultants, and local communities and so on, and we said, "Okay, we want to do that. How do we make this happen?" And we basically agreed on a timetable. We said the older facilities that are usually not that efficient and more pollutant are going to be phased out first. We asked the coordinator, which is the system operator of the power system, to give us technical advice to see how quickly we could do that without affecting the security of the operation of the grid. As you know, as we increase the share of renewables, that's clean and cheap, but it's intermittent, so you need baseload power and coal was a big source of that. And we also built into the agreement some flexibility to, I mean, keep checking the conditions of the system to make sure that we could phase out coal without jeopardizing, as I was saying, the security of operation of the system. And I think as the deployment of renewables accelerated, we figured out and we realized that we could phase out coal more quickly than we originally thought.

I mean, one advantage we had, when you compare Chile's phase-out process with other countries like Germany or others, is that we don't have coal mining. We basically import all the coal we use in our coal facilities, coal power plants. So even though some people work at the coal plants themselves, the biggest portion by far of jobs associated with coal generation is in coal mining, and we didn't have that problem in Chile. So it was easier from that perspective. And companies were very receptive and very kind of flexible to reach agreements with their unions to basically help those workers navigate with retraining and so on into new positions within the same companies, usually in renewable projects. Right. So that was kind of a difficult topic but not as difficult as it was in other countries.

And then the other thing we faced in Congress, some people, especially NGOs, wanted to phase out coal, but they said, "Okay, if we're phasing out coal, we are going to phase out natural gas as well." And I had to spend a lot of time making the case that, I mean, we can get into the technical details, but it's a reasonable assumption to say that coal is dirtier than natural gas. So eventually, we want to phase out natural gas too, but we cannot do that in the short term, and that was a tension with NGOs and some members of Congress.

Jason Bordoff: You have, I guess, not new president anymore, but roughly two years or so. It was one of the most left-wing presidents Chile's had in a long time. How did that shift, change the policy you're describing? Did it or is it still pretty much what you put in place?

Juan Carlos Jobet: It's basically what we put in place, which is good. I think one of the areas in Chile, which we have a broad political agreement on what we want to do in Chile, is energy. I mean, when we were in office, some congressmen and women who are part of the current president coalition wanted to phase out natural gas. Now, they are in power, in charge. I mean, they realized that was not possible, which I think is good. The other challenge we faced, which is not directly related with phase-out of coal, is building transmission infrastructure. What we face in Chile is that in many cases, the same groups that oppose coal generation for the right reasons and want to phase out coal oppose the construction of transmission lines that are essential to replace coal with renewables. Right? So we spend a lot of time trying to make that case to the general public and to NGOs as well.

Jason Bordoff: Yeah. That's a challenge we face here as well as you know, so if you have good lessons or ways to address that, let us know. We do need to build and put a lot of steel on the ground and build a lot of clean energy infrastructure, and you want to minimize the environmental impacts of doing so, but it's hard to have a clean energy transition and phase out or phase down fossil fuels without building a lot of clean energy, including a lot of transmission lines.

Juan Carlos Jobet: Yeah. I think what we faced in Chile and we're still facing is that most people, I would say, I mean, the general public, but especially NGOs... This is a generalization, so it could be unfair with some NGOs, but generally speaking, NGOs kind of have a long track record of opposing projects because those projects' construction would hurt the environment. And that has been the case for many, many years, but as you know, as you said, it's impossible to transform the energy sector as we need to without building a lot of stuff. And I don't think NGOs have, in most cases, adjusted their agenda to make sure that their work, it's compatible with that tension.

That doesn't mean that we kind of need to build whatever we want to build, I mean, in any way. I mean, we need to make sure that the standards are very high, that we protect the environment, the local communities and so on, but we need to get things done. Otherwise, we will keep burning coal or natural gas and so on, so it's going to be worse. And I think we need to spend more time making that case that the energy transition and the fight against climate change is about building a lot of things. That's part of the work that politicians need to do and that we do at the center as well.

Jason Bordoff: Yeah, a lot of the work we do. How do we do that in a responsible way, and ways that respect local communities and indigenous communities? So we should come to that because that's a big part of the mining and minerals challenge in Chile. Let me just ask you quickly though, on the broader energy outlook, I know you talked about the significant potential Chile has for solar, and one of the consequences of that was the very high expectations for green hydrogen that Chile could become a huge exporter of green hydrogen. I think that has proven to be pretty difficult and maybe facing a sobering reality now. I'm wondering if you share that assessment. What's your take on hydrogen development and what role hydrogen will or should or can play in the transition more broadly?

Juan Carlos Jobet: Yeah. I think I share that statement. When I came into the ministry, I realized that Chile we still have 80 times more capacity solar and wind, than the size of our grid today. So to put it differently, we could build 2,400 gigawatts of solar and wind and the size of our power grid today is 35 gigawatts. So there's no way we would be able to take advantage of those resources if we try to use them locally. We can electrify the whole economy, but we still have very abundant and good quality resources. And when I say good quality, I mean, the capacity factors in Chile are huge. In the Atacama Desert, solar PV, you could have capacity factors of over 35%. And wind, especially in the south in Patagonia, in Magallanes, could be over 65 to 70%.

So hydrogen for us was probably the best way to take advantage of those resources and export those excess resources to countries that don't have enough renewable energy for their transition. So we kind of push the hydrogen agenda from the supply side, if I may say it that way. We set very ambitious goals. We put in place a strategy with different pillars and so on. And I think as you said, that agenda, I mean, globally, it's not moving as fast as many people thought. I think that the biggest challenges, the first one is the price of green hydrogen. It's still very expensive to produce, and a lot of people thought at that time that we could navigate that cost curve down faster than we're doing. And that has to do with basically the cost of electrolyzers, which are the equipment that is used to divide water molecules, as you know.

Infrastructure is a big challenge. To produce hydrogen, you need desalination plants. You need ports. You need transmission lines and so on. Also, the demand is still not there. I know it's kind of a cliché, but it's a chicken or egg problem. I mean, since the demand is not there, producers don't have off-day contracts, so they can finance their project and scale up production to then reduce cost of production. And since it's not happening, the demand is not taking place or growing. So that's kind of the challenge.

My take, I think there's still a lot of uncertainty going forward around hydrogen basically because the technologies is evolving as we speak and because policy is evolving as we speak. We don't know exactly what green means in different locations and so on. So there's a lot of uncertainty, but with the information we have today, my guess is that hydrogen is not going to be used in ground transportation. I mean, cars are going to be electric, I guess. I mean battery electric. Maybe a small segment of tracks. Maybe a small segment of trains. But basically, I guess, it's going to be battery electric.

A lot of people say that shipping and aviation will be using hydrogen, not directly, but as some type of derivatives, maybe methanol or ammonia, and some industry that are hard to abate like steel production, for example. Maybe the first use that we're going to see of green hydrogen, I think it's going to be replacing existing uses of gray hydrogen because in that case, the only challenge is the price of production because the technology to use it and all the applications are there already. So that's going to be probably fertilizers and maybe oil refineries. I don't think we're going to have a hydrogen economy, as some people said at that time. I never thought that was going to be the case, but I think it's going to be a one piece of a very complex puzzle to solve this problem.

Jason Bordoff: Yeah. I mean, the challenges you're describing resonate a little with the situation you see elsewhere in the world, including the US with very large supply-side incentives for the Inflation Reduction Act for green hydrogen, low-carbon fuels, but we need the demand signals as well. Other than you're being a great colleague, part of the reason you have remained at the center is particularly to work on the issue of critical minerals. When we think about what the clean energy transition is going to look like and which countries are going to matter most to it, then the way people might've talked about Saudi Arabia or certain countries in the oil economy, Chile comes up again and again because of its pretty massive potential to supply the world with a lot of the metals and minerals that we're going to need.

So for those who may not be familiar, just start by talking a little bit about what resources are in Chile and what current production looks like and how people are approaching plans to try to scale that up. And then we can come to the challenges and the policies that are needed and the investment that's needed and more and more.

Juan Carlos Jobet: Yeah. To start with the basics, I mean, as most people know, but it's good to kind of go through that very quickly, is there's no energy transition without mining. I mean, it's that simple. Electric vehicles need twice as much copper, as internal combustion engine vehicle, they need lithium. As we know, the energy transition is all about electrifying our users of energy, so replacing fossil fuels with electricity. And that needs a lot of solar PV generation and wind farms, and that requires, I mean, a lot of copper as well. And batteries need other critical minerals too. I'm just focusing on lithium and copper because those two are important for Chile.

Also, transmission lines and distribution networks are basically copper, so copper is going to be the backbone of the energy transition. The energy we will be using increasingly in the future, we are going to get that energy through copper cables. That's kind of the simple way to look at it. So if we don't produce enough copper, the price of those cables will go up and the transition will slow down. I mean, that's the simple version of the story. If you look at copper production, Chile produces roughly 25% of the world's copper. We are by far the biggest producer. Number two or three are Peru and the DRC with around 12% each. So between Chile, Peru, and DRC, we basically produce half the world's copper. Okay? On lithium, we produce let's say 25 to 30% of the world's lithium, and we have 36% of world reserves. In copper, we have a bit over 20% of world reserves. Okay? So Chile is going to be very important supplying those minerals.

If you think about copper, in which Chile is even more important than in lithium, when I was in government, I don't think that those numbers have changed significantly. We made a projection of Chile's copper production by 2030, and just to keep up with expected growth in copper demand accelerated by the energy transition, we needed to deploy around $70 billion in investment just in Chile. Okay? That's huge. I mean, maybe it's not huge for the US, but for Chile, it's huge. Just to keep that in perspective, our GDP is around $300 billion, so it's 70. It's a quarter of our whole GDP in six or seven years, so it's huge.

And it's getting increasingly difficult to get not the financing, but the permits, the approval from local communities, from environmental NGOs, to build mining projects. And maybe for good reasons because if you look back in history, mining projects in many countries have hurt the environment, have not had a healthy relationship with local communities and so on. So for the right reasons, I think, or for the right historical reasons, local communities and many stakeholders don't want mining, so that is another challenge. We were talking about transmission lines a couple of minutes ago. Mining is even more complicated I think because the connection between mining and climate change is more distant for most people. Most people don't know, and it's not their fault. It's our fault. We haven't explained this enough that we need to do more mining to accelerate the energy transition.

Lithium is complicated as well. In the case of copper in Chile, the legislation is... We can come back to this later, but I think our institutional framework is good, I would say. The challenge is more permitting and communities and their environment. In lithium, the regulation is very complicated on top of those other challenges. So it's challenging, but I think we need to make that case more strongly if we want to make this happen, right?

Jason Bordoff: For sure, and we're doing a lot of that work in the critical minerals work we do here. I mean, I guess I would ask. Part of it is explaining the importance of these minerals and metals to the transition, but the opposition you're describing from indigenous groups from local communities comes not only from a place of perhaps not fully understanding that I think, but also from the fact that for a very long time, the significant expansion of extractive activities and mining has had negative impacts on a lot of those communities, and they haven't always realized the economic benefits of all of that industrial activity. So talk a little bit about what can be done to integrate local communities in mining to ensure there are broader economic benefits, to make sure that it is done in a way that's respectful of indigenous rights.

I know earlier this year, indigenous groups in northern Chile are placing roadblocks to restrict access to the lithium mines there, so pretty passionate opposition to this. Have you seen best practices and what were you able to do when you were in office to try to make sure that this transition has broad support and is fair and just?

Juan Carlos Jobet: Yeah. I think there are several challenges. I think one is about getting the environmental angle of this right. Okay? Basically, to make sure that they give their consent voluntarily, without any source of coercion or manipulation or pressure and so on, that they do that before the permits are awarded, that they have the relevant information they need. And then basically communities have the right to approve or reject projects. Okay?

I think that is a good way to go, but it's complicated. When I think about Chile for example, if we had that type of legislation, it would be a great opportunity to build trust with local communities, to reduce thI think Chile has done a reasonably good work at updating its regulation to make sure that mining minimizes the impact on local communities, especially on the environmental side on water consumption. In the case of Chile, for example, most of the mining activities in the north of Chile, which is very dry, and copper and lithium also but especially copper, uses a lot of fresh water historically. And for the last years, I mean, mining companies have done, I would say, a good job recycling a bigger share of the water they use, and building a lot of infrastructure to use seawater in their operations. So in Chile-

Jason Bordoff: Desalinated water, you mean?

Juan Carlos Jobet: Yeah, desalinated in most cases. Some companies use just, I mean, seawater, but in most cases, it's desalinated water.

Jason Bordoff: Is that because government regulation or policy required less use of fresh water and investment in say, desalination?

Juan Carlos Jobet: It was not mandatory, but it was getting increasingly difficult to get the permits because the impact to the local communities of water used by mining operations was becoming a serious problem. And I think companies themselves realized that without desalinated water, that they were not going to have... These are very long-term investments, so the uncertainty around access to water was a big driver of that, the opposition of local communities and getting the permits. Right? So I think desalinated water today is over 10% of the total use of water. Recycled water is around 70%, and continental water, so fresh water is around 15 to 20%. And that used to be three times higher, let's say, six years ago. So on the water front, I would say copper companies are doing a good job.

With local communities, I think we have a big challenge and it has different angles. One of those is how are we spending the resources that the government is getting from mining operations? In the case of copper, we just passed and changed a reform of the royalty that copper companies pay. And if you look at the level of taxes they pay in Chile, that is kind of in line with other big copper jurisdictions like Canada, Australia, South Africa and so on. But still, local communities don't feel they get a fair share of the value that is being extracted. And I don't think that is because the level of taxes is not high enough, but it is because the government is getting that money, is collecting those taxes, but is not reinvesting enough of that money back into local communities.

So if you travel to a local community that is close to a mining operation, they have the tailings next to their communities. They have the dust and the pollution on the tracks, I mean, driving through their towns, but they don't have good parks. They don't have good medical infrastructure and so on. And it's not because mining companies are not paying enough taxes, but it is because the government is not reinvesting enough of that money back into the local communities, so I think that is a challenge for us.

I would say the other challenge is how do you engage with local communities when you're permitting projects? In Chile, we don't have a prior consent obligation for companies. They have the obligation to do consultation with indigenous people, with local communities. It has to be done in good faith, but if they don't reach an agreement, they can still get the permits and go ahead with the projects. I think this is a very complicated issue, but a lot of people argue that what we should be able to do, not just in Chile but in other places too, is to have basically companies give free, prior and informed consent. Okay? e risk of project delays because of community opposition and trials and so on, and to kind of push companies to improve or enhance the standards of social and environmental practices. But it's difficult because you need to make sure that you have a good process, that you have clarity on who is the representative of the community to make sure that you're talking to the right people.

I mean, companies would of course try to maximize the value they capture from projects, which I mean I think is a reasonable expectation, but how do you make sure that that's not a source of extortion, if it's kind of manipulated by the wrong kind of leadership? So it's complicated. I think that is a big challenge. I think that is a discussion that is evolving all over the world. I don't think we have the perfect recipe to do that, but we need to work on that. And we at the center, we're trying and we're working on that to see how we can help policymakers and companies around the world get that right, but it's difficult.

Jason Bordoff: As you said, there's pretty much no question, we're going to need a lot more copper. There could be innovations in battery chemistry, but probably a lot more lithium too. But for copper, what's your outlook on long-term supply for Chile. Prices have been going up. Does that provide sufficient incentive? Maybe the royalty and tax regime, is that supportive, not supportive now? Other regulations, water issues, it sounds like you're saying maybe, it won't be a big challenge because it seems like you think those have been handled well. But what are the issues that determine the outlook and what do you think the outlook is right now? How significantly are you expecting supply to grow?

Juan Carlos Jobet: My take is that we're going to lose market share over the next five to 10 years. I don't think that is because of the tax regime. I mean, we had that discussion open for several years. It was open in Congress and people were proposing different kind of models for taxing copper mines. That discussion was resolved. A regional piece of legislation was approved a year and a half ago or so, and that source of uncertainty is not there any longer. Okay? So I don't think that is a problem.

The biggest problem we have is that we have been mining copper for more than a century in Chile, so most of the big deposits are growing old and the grade of those deposits is going down. So for people who don't follow mining closely, the amount of work you need to do to extract the same amount of copper. Therefore, the cost of production is going up, as those deposits are growing older, and the amount of investments we need to put in place, as we said, are huge. And communities usually don't approve mining. I think that is the biggest challenge we have, how we can accelerate projects. I think local communities is one issue, and permitting is a big issue in Chile, as in many other countries. It takes a very long time to get the permits we need for mining projects.

That is not a problem that just the president can solve if he wants to, right? Because it's a long history of different pieces of legislation and normative and regulation at different state levels that have been kind of accumulating over a long period of time, so it takes a big reform of the whole kind of government apparatus to do that. And that requires an agreement in Congress and it's going to take time and resources, and that is a political issue that is difficult. Right? It's much easier to make the political case that you want to protect the environment and local communities, and therefore, you don't want permitting reform. Even though you could have permitting reform and accelerate permitting, without making the standards less demanding for companies, but most people see it that way, so I think permitting reform is the biggest issue, if I were to pick one.

Jason Bordoff: Talk a little bit about the politics and how that affects the outlook for mining and metals production. As I said, one of the most left-wing leaders elected president, there has been a trend in some parts of the world and some parts of Latin America toward nationalization. Talk about the say, lithium strategy, for example, for Chile, which does create a larger role for the state, I believe. Tell me if I'm wrong. And how that works and do you view that as a positive or a challenge for expanding the production in the way you're talking about?

Juan Carlos Jobet: I said a couple of minutes ago that on copper, we have a broad agreement, and that's true also for energy. We have a broad agreement on what we want to do. That's not the case for lithium, unfortunately. I mean, Chile produce over 50% of the world world's lithium. By I'd say 2010, we now produce less than 30. And I mean, the forecast is that we will keep losing market share in the coming years, and that is because we don't have broad political agreement. I emphasize that, Jason, because I think many discussions of the energy transition, not just minerals, hydrogen or renewables or permitting, are policy discussions that get politicized, and that need a long-term perspective and stability of policy. And I see many countries in which, I mean, one government comes into office... This is happening all over Latin America. And put in place or tries to put in place one set of policies, without reaching an agreement with the opposition. And then four years or six years down the road, a different coalition is elected, and then they start all over again with a different set of policies.

That's a disaster to make progress. These are long-term investments. You need to send the right signals to investors and so on. So that is a problem, and that has been our problem in lithium. I said that because on lithium, we don't have an agreement on where we're going to go. And I have to confess that when I was in government, we conducted an international bidding process to invite private companies to develop the lithium industry, and the then opposition didn't agree with what we wanted to do, and then when they came into office, they did something different.

And I think I made the mistake of not reaching out to the then opposition enough to reach an agreement to make sure that the policy we put in place had continuity. Okay? So this government, what they are doing, and the current opposition don't agree with that, which is the same problem all over again, is they are basically pushing the development of lithium projects in which the state controls over 50% of the property or the ownership of all lithium production operations, with the exception of some small salt flats, but in all the relevant operations, they are seeking state control. And there are different cases.

I mean, just a couple of days ago, a big agreement was reached between Codelco, the state-owned copper company that is now moving into lithium, to take control of SQM, which is one of the biggest copper producers in the world that produces lithium in the Atacama Desert. SQM has a contract to operate in concessions that are state-owned concessions, and SQM was leasing those concessions to the state. And basically, the state awarded Codelco a new contract for another 30 years, and Codelco used that leverage because the existing contract of SQM with the state is expiring by 2030. They use that leverage to negotiate with SQM and say, "Okay, now we're going to be partners. We're going to own this company 51-49, and the state is taking control of SQM's lithium production."

I'm not sure that's the best way to go. In that particular case, there were several specifics of that specific situation that maybe justified that way, and I don't think we have time to discuss that. But in all the other salt flats, they are basically inviting private companies to make the investment to produce lithium with new technologies. The state is not putting money. It's just offering the resource, and the state is getting over 50% of the ownership of the operations. The government says rightly so that they still see interest for many parties to invest, and I think that is reasonable because, I mean, many companies want to produce lithium, but I don't think that's the best way to maximize the production volume or the amount of money or the share of the rents that the state will capture.

Jason Bordoff: Yeah. So talk about what is. I mean, what you're describing, we see this time and again in countries around the world, oil, gas, mining for metals. Countries want to attract investment and set up the terms to make sure that that happens. And then as resources are discovered, countries understand that these are national resources. Countries want to make sure that they're capturing the greatest value they can from their natural wealth, but that can go, as you said, maybe too far in the direction where you don't have reliability or certainty in contracts. And experience with nationalization probably has, tell me if you disagree, more often created challenges for developing resources and for developing that revenue, than making sure that you retain the involvement of lots of international firms. So what do you think the right balance is to make sure that the country is getting a fair deal for the resources that are its natural wealth?

Juan Carlos Jobet: I don't think there is a specific formula. It's a difficult question. In copper, I think we are getting this right. That is my sense. If you look at taxation of copper in Chile, we are in the neighborhood of other countries that have good copper resources like Canada, South Africa, Mexico and so on. So private companies, when they evaluate where they want to make the next mine, they see taxation and they say, "Okay, these different locations are kind of similar." Okay? So I think that is reasonable.

In the case of lithium, however, when you look at taxation in Chile, it's much higher and this set of kind of risk-return features that Chile is offering to companies, I don't think that is very attractive. So many times, I think politicians think in terms of a time horizon that is too short. They say, "Okay, the resource is there. We're going to be capturing as much percentage of the value that is being extracted as possible." But I don't think that's the right way to think about it because you need to think long term, and if you were doing a financial analysis, you need to maximize the NPV of tax revenue. Right? So not just how big is the share of the value you're capturing, but how big is the total production of a mineral in your country? And if you're taxing too much a company today, you may get a big share of that company's revenue, but that don't send the right signal to other companies to come down and invest. And over the long run, I don't think that is a good way to go for a country.

The other thing is that the Chilean lithium policy is forcing companies to do two things that I think that we all agree we want to do, but I don't think forcing companies to do them is the best way to go. One is adding value to resources, so pushing companies, for example, instead of just producing lithium carbonate, to move down the value chain and produce copper cathodes and that type of thing. The second thing is to use certain technologies to produce lithium. We haven't discussed this much, but when you produce lithium out of brine, you evaporate a lot of water that is in the brine and you use a lot of fresh water. So we all want to produce lithium with lower environmental or water impact for local communities and their environment, but I think the way to do that is to increase the standards, not to pick up a specific technology because if you as a government official pick up specific technology, especially when technology is evolving very quickly, you might get that wrong. And again, putting a restriction into companies, that I don't think is the best way to do.

Jason Bordoff: We've talked about the impact of local and national politics on the outlook for mining in Chile. Talk about geopolitics for a moment, particularly China. You mentioned SQM before. I think that's about a quarter owned by a Chinese company. You see in the United States the significant backlash and concern about Chinese investment and also Chinese exports, electric vehicles, solar panels in Chile. I think there are more Chinese buses on the streets of Santiago than in any city outside China in the world. How do you view the role of Chinese investment in that sector? Is that a positive that's going to help it develop faster or do similar concerns about security, national security, energy security apply?

Juan Carlos Jobet: I think we need to make a distinction between energy and mining. On energy, the Chinese companies are big suppliers of electric buses, which I think is a good thing. I mean, the state runs open competitive bidding processes to buy electric buses, and whoever offers the lowest total cost of ownership gets the wins. I don't think that's a problem. And if at some point, you're too dependent on one particular company or country, the next bidding process, you can buy from someone else. I don't think that's a big problem for us.

If you look at energy infrastructure though, I think it gets more complicated. I mean, Chinese companies have bought, I mean, two power distribution companies in Chile and they now serve over 50% of Chilean households. And in the case of China, you never know, I mean, who's the final owner, and you always get the sense that maybe the Chinese government is behind that. As you know, I mean, power distribution is a utility. I mean, the state needs to define tariffs and make sure the quality of services is good enough for clients and so on. How do you do that when the company or the final owner of 55% of your power distribution is the Chinese government in a way? So that is complicated.

So far, we haven't had any problems. The Chinese are making good investments, are deploying technology, and so on. But I think it could get tricky, until it does not have a foreign direct investment screening mechanism to make sure that we don't have too big a share of the ownership in one particular industry by one company or country or so. So I think that could get complicated. We have, for example, certain restrictions or vertical integration in the power sector, so generation, transmission, the distribution. Some people in government are trying to change that. That would allow the Chinese companies to own also transmission infrastructure, and that could get complicated, I think.

On mining, the Chinese don't have a big presence in mining operations in Chile. They, as you said, own 24% of the shares of SQM, but the other 75% is sold by Chilean and international investors. And now, with this agreement with Codelco, the controlling state will be owned by the state. But where I think the Chinese angle is more complicated is that we didn't discuss this earlier, but we export most of our copper to China in the form of copper concentrates. Copper concentrates is basically 25% copper, and the rest is just the soil that you extracted from the mining operations. And the Chinese own most of the smelting and refining capacity in the world. So we send our copper to the Chinese. They do the smelting and refining. And then they sell or use the refined copper themselves, and they control most of the smelting and refining capacity of copper. I think that could be a problem because at some point, they could try to extract value out of copper producers because they have the monopsony power. They are the biggest buyer of the product.

Private companies, Jason, when I talk to them, they are not that concerned because they say if they try to do that, the Chinese I mean, we could build the smelter and refinery in Chile in five or six years. I mean, that's not a problem. But if you look that dependence from the international perspective, the US or Europe or South Korea or other countries that need copper, that could be a problem because I mean... Let's think about the IRA for example for a minute. The IRA says if you are selling an electric vehicle in the US and that electric vehicle gets X percent of the minerals from a friendly country, then you can access the subsidies. I'm just simplifying it. Chile has a free trade agreement with the US, so Chile is a friendly country, but that copper is not going straight from Chile to the US. It's going through China. So does that count as a friendly copper? I don't think so, so it's very complicated.

Jason Bordoff: Yeah. I was going to ask you if you see Chile getting caught in the middle in potential trade conflict between the US or Europe and China, not just in the way you described? You qualify for a tax credit, but diplomatic pressure as well to resist or limit Chinese investment into the sector. If the goal of the US is to build resilience and security and supply chains by diversifying global supplies of metals and minerals away from China, you could imagine those diplomats saying, "Well, we don't want Chinese to control that production in other countries outside China either."

Juan Carlos Jobet: Yeah. I see that. For a small country like Chile, we have free trade agreements with around 90% of the world's GDP, including the US, China, Europe, I mean, most big economies. And I don't think even though for obvious reasons, I mean, we share the values with the US or at least I share the values with the US... I lived there three years. I mean, I work with Columbia. I mean, I feel very comfortable with US values, right? So if that were my choice, I mean, that's an easy one for me, but for a country, you need to rely on multilateral institutions, on rules. You need to have trade agreements and relations with different countries. We sell most of our copper to China, but also we sell, food, fruits, wine, salmon. I mean, they are a huge trade partner for us.

Even though we may not share many of the way in which they do many things, I mean, we still rely on them for many things. So for us, the worst scenario I would say is to be caught up in a fight between the US and China and being forced to take sides. We don't want to do that. When I say that, I think that's true for many other small developing countries as well, so we need to rely on international institutions. And one of my concerns of this whole dynamic and the trade tensions is that I think that is debilitating. It's not strengthening international institutions, and without rules of the game, small countries like ours are the ones that suffer the most. I think that is for me a big source of concern.

Jason Bordoff: We talked about the water scarcity challenges to dramatically increase in mining, and a big part of that comes from roughly 15 years of drought. Reservoirs in Chile are running low, and I think across much of Chile, much of the world, you're seeing hotter and drier conditions. I didn't want to miss focusing on the cause or the accelerant or the driver of some of the drought and water issues we're seeing. Can you talk just for a moment about how you see the impacts of climate change today in Chile?

Juan Carlos Jobet: We had a severe drought for 10 or 15 years, as you said, and that has had impact. Especially unfortunately, the case in many locations, it has a bigger impact on poor people, right? So in big cities, water utility companies have made the investment to basically ensure the supply of fresh water for drinking water for households, but in many rural areas, people don't have water utilities, and they get their water locally and they are suffering. Many people are dependent on agriculture and drought is hurting them as well. So floods is a big problem as well because as you know, we have droughts in places where we used to have a lot of rain, but then it's raining in places where it used to be very dry and in the desert in the north. So we have a very intense rain there that is generating or causing floods, and people are hurting too. The agricultural patterns of the country are changing as well. Different crops are moving south as it's getting hotter, so it's having many effects on different places.

That is the paradox, what is more complicated about this because in many cases, you see those impacts. People are suffering and their tendency is to kind of try to protect whatever they have left with more intensity, right? And that is, to a certain extent, what is making the development of mining and renewable energy projects harder, so I think that is very complicated. I don't think we have figured that out. How do we do that? So that's why I think it's so important that we at the center and other people are thinking about these issues because a lot of people say, "We need renewable energy. We need to stop climate change." We all agree on that or most of us agree on that. Some politicians on the extremes don't agree with that, but most people at this point agree on that. But this is about trade-offs. It's not easy answers. I mean, how much mining are we willing to allow to stop climate change, even though we know mining is going to have negative impacts on local communities and local environments? How do we solve those trade-offs?

Jason Bordoff: Yeah. I was going to ask you to wrap up because we're pretty much out of time, just by talking about what the plans are for the critical minerals work here, but I think you just described it. And really in the last hour, we've talked about the impact of geopolitics, how to do this activity in a way that respects local communities, indigenous communities, the environment, how to think about technologies on the demand side. Maybe that could reduce how many demand for minerals and mining we need. And a range of other questions. As you said, there's a lot of work to do, and really grateful to you and your colleagues like Tom Moerenhout and others for the work that you do here every day to help advance our understanding of these issues. Juan Carlos, thanks for your time today.

Juan Carlos Jobet: No. Thank you so much. You're doing a great job leading this center and it was great to be on the show.

Jason Bordoff: Thank you again, Juan Carlos, and thank you for listening to this week's episode of Columbia Energy Exchange. The show is brought to you by the Center on Global Energy Policy at Columbia University School of International and Public Affairs. The show is hosted by me, Jason Bordoff, and by Bill Loveless. The show is produced by Erin Hardick from Latitude Studios. Additional support from Tom Moerenhout, Diego Mesa, Lilly Lee, and Caroline Pitman. Roy Campanella engineered the show. For more information about the podcast or the Center on Global Energy Policy, please visit us online at energypolicy.columbia.edu or follow us on social media at Columbia U Energy. Please, if you feel inclined, give us a rating on Apple Podcasts. It really helps us out. Thanks again for listening. We'll see you next week.