Why is sustainable Lithium production important?
Unlike any time previously, stock analysis now requires consideration of carbon emission reduction strategies, or more broadly, environmental and sustainability initiatives.
Investors will be increasingly cautious of a lithium company which is itself a heavy carbon emitter. These issues will influence the decisions of investors such as pension funds, financiers such as banks as well as customers.
Have You Heard of the New Carbon Tax?
The EU is enacting its carbon tax initiative, which also acts as a contract tracing mechanism when it comes to carbon emitted in processes for goods imported.
The EU’s “Carbon Border Adjustment Mechanism” requires that exporters to the EU pay a levy based on the amount of carbon used in making and shipping products.
This necessarily requires information being provided on the carbon footprint of every component from the mine gate to final product supply chain, as part of an “electronic product passport”.
For example, the battery alone could represent in the region of 30% of carbon emissions in an EV lifecycle. Mechanisms such as the CBAM and similar schemes elsewhere in the world create an imperative for miners and others in the supply chain to reduce emissions.
What is the electric vehicle conundrum?
Here’s what we know. Electric Vehicles (EV) have negligible greenhouse emissions when being used, contrasted with the high emissions from petrol cars and trucks whose mode of power is the internal combustion engine.
On the other hand, the manufacture of an EV requires a great deal of energy and produces more emissions than producing a petrol vehicle. Lithium-ion battery manufacturing is energy intensive due to the cost of lithium extraction and its processing into battery grade.
What is changing for investors is increasing supply chain risk for producers of EV components. This is the risk that emissions generated in the production of EV components are higher than they should be, which is related to increasing regulatory requirements.
What is The European Union’s Life Cycle Assessment?
Despite being emission intensive, EVs have much lower life-cycle greenhouse gas emissions than petrol vehicles. On top of this, world leading regulatory authorities including the European Union, recognise the importance of maximising the life-cycle benefits of EVs.
They understand that in order for EVs to make a meaningful contribution in improving the environment over their entire life, there needs to be minimal emissions i.e. in both their production and consumption.
On this front, “Life-Cycle Assessment” is used by the EU and others to monitor and reduce emissions. Key statistics are provided for stakeholders such as car buyers and governments.