The Lithium Illusion: How Green Industrial Policy Is Creating a New Global Resource Divide

By Felix Tan Jul. 28, 2025

Governments across the world have framed lithium as the metal of the future—a keystone of decarbonization and national competitiveness. Yet, beneath this optimism, a quieter pattern has emerged: the very industrial policies meant to secure sustainable growth are entrenching a new global resource divide. From Chile’s nationalization of lithium to the United States’ Inflation Reduction Act (IRA) sourcing mandates, the race to secure “critical minerals” has replicated the same extractionist and inequitable logic that the green transition was supposed to transcend. The global lithium economy now embodies a paradox: a renewable energy revolution built upon old-world dependencies.

The Rise of Lithium Nationalism

Between 2015 and 2024, global lithium demand surged twelvefold, driven by exponential electric vehicle (EV) growth. The International Energy Agency (IEA) projects demand will triple again by 2030. In response, lithium-producing nations—primarily Chile, Argentina, Bolivia, Australia, and China—have moved to assert greater control over extraction and exports. In April 2023, Chile announced the partial nationalization of its lithium industry, requiring all new projects to operate as public-private partnerships with state oversight. Bolivia and Mexico have followed with similar policies, citing “sovereign stewardship” of strategic minerals.

While this trend mirrors historical attempts at resource nationalism, the beneficiaries remain uneven. Chile’s Salar de Atacama, for example, produces 40% of global lithium, yet less than 8% of total export value remains in-country. Despite government claims of equitable reform, 80% of processing capacity still lies in China. This imbalance persists because the value chain is not in extraction, but in refinement, cathode production, and battery assembly—stages dominated by East Asian economies.

Green Protectionism and the New Trade Walls

Industrial policies in advanced economies are reinforcing this divide. The U.S. Inflation Reduction Act (IRA) requires that 40% of critical minerals in EV batteries originate from countries with which the U.S. has free trade agreements (FTAs), rising to 80% by 2027. This effectively excludes major producers like China and Indonesia. The European Union’s Critical Raw Materials Act (CRMA) mirrors these provisions, mandating “strategic autonomy” in mineral sourcing by 2030.

These mandates have reshaped trade flows overnight. Chinese battery exports to the U.S. fell 72% in 2024, while shipments from Australia surged 198%. Yet, in redirecting supply chains toward “friendly” jurisdictions, Western policies have inflated costs and sidelined emerging economies. According to Benchmark Mineral Intelligence, EV battery prices rose 14% globally in 2023—the first increase in a decade—due to policy-induced supply concentration. What began as environmental risk mitigation is now an exercise in economic exclusion.

Extraction Without Transition

The ecological and social costs of lithium extraction are mounting fastest where regulation is weakest. Producing one ton of lithium carbonate from brine requires approximately 2.2 million liters of water, according to Chile’s Comisión Chilena del Cobre (COCHILCO). In the Atacama Desert—one of the driest places on Earth—local communities report groundwater declines of 17% since 2015, threatening indigenous livelihoods and biodiversity. In Argentina’s Jujuy province, protests erupted in mid-2023 over lithium concessions on indigenous lands, leading to violent confrontations and new constitutional restrictions on community land rights.

The same pattern of unequal burden unfolds across the Global South. In Zimbabwe and the Democratic Republic of Congo, Chinese-owned firms have acquired lithium mines at valuations up to 60% below global benchmarks, exploiting weak fiscal regimes. The result is “green extractivism”—the environmental rebranding of resource dependency. Where oil once divided nations between producers and refiners, lithium now divides them between extractors and assemblers.

Financial Bubbles and State Dependency

The lithium boom has also distorted fiscal policy. In Australia, royalties from lithium exports reached A$2.3 billion in 2023, prompting Western Australia to lower corporate taxes to attract more investment. In Chile, lithium revenues accounted for 10% of total tax income, incentivizing the government to expand production despite environmental backlash. This overreliance risks repeating the “Dutch disease” dynamic—where resource windfalls crowd out innovation and manufacturing.

Meanwhile, global lithium prices have entered a speculative cycle. From January 2022 to November 2023, the spot price of lithium carbonate fell from US$85,000 per ton to under US$17,000, a collapse of nearly 80%. Yet, investments continue at record pace, driven by policy guarantees rather than market fundamentals. The Bank for International Settlements (BIS) warns that “subsidy-cushioned overcapacity” in lithium processing could lead to stranded assets exceeding US$40 billion by 2030. The green transition, paradoxically, may produce its own version of fossil-era boom-bust cycles.

Toward a Cooperative Resource Future

If the world is to avoid replicating past patterns of extractive inequity, the lithium economy must evolve beyond competitive sovereignty. Multilateral coordination—through frameworks like the Minerals Security Partnership (MSP)—offers a starting point but remains dominated by the U.S. and its allies. A more inclusive architecture would require integrating producer nations into decision-making, with shared standards for pricing transparency, labor rights, and environmental impact.

Technological innovation must also complement geopolitical reform. Recycling could offset up to 25% of lithium demand by 2040, according to the World Bank, but less than 2% of lithium batteries are currently recycled. Without such structural shifts, green industrial policy will merely relocate the environmental frontier rather than remove it. The path forward demands not “sovereignty over minerals,” but sovereignty over sustainability.

The lithium transition will test whether the world can decarbonize without recolonizing. Unless green policy aligns with global justice, the metal of the future risks hardwiring the inequities of the past.

Works Cited

“Global Critical Minerals Outlook 2024.” International Energy Agency (IEA), 2024. https://www.iea.org/reports/global-critical-minerals

 “Comisión Chilena del Cobre (COCHILCO) Lithium Report.” Government of Chile, 2023. https://www.cochilco.cl

 “Benchmark Mineral Intelligence Price Index.” Benchmark Mineral Intelligence, 2024. https://www.benchmarkminerals.com

 “Inflation Reduction Act: Critical Minerals Provisions.” U.S. Department of Energy, 2023. https://energy.gov/ira-critical-minerals

 “Critical Raw Materials Act Proposal.” European Commission, 2024. https://ec.europa.eu

 “Lithium Market Risk Assessment.” Bank for International Settlements (BIS), 2024. https://www.bis.org/research

 “Minerals Security Partnership Statement.” U.S. Department of State, 2024. https://www.state.gov/msp

 “Battery Recycling Potential Report.” World Bank Group, 2023. https://documents.worldbank.org

 “Mining Conflicts in Jujuy Province.” Human Rights Watch, 2023. https://www.hrw.org

 “Green Extractivism in Africa.” African Natural Resources Centre (AfDB), 2023. https://www.afdb.org