On January 26, President Barack Obama outlined the first steps his administration will take to change American energy and transportation policy. Along with other initiatives, the President directed the Department of Transportation to establish rules and regulations which will raise the automotive fuel efficiency standard to an average of 35 miles per gallon by 2020.  The increased fuel efficiency is expected to be accomplished in part by continued development of electric vehicles (EVs) and plug-in hybrid electric vehicles (PHEVs).  Many major automakers have announced a roll-out of EVs or PHEVs within the next few years, including GM, Toyota, Honda, Volkswagen, BMW, and others.

Auto manufacturers have expressed concerns about the increased costs associated with higher fuel efficiency standards for some time.  One such cost increase may result from an escalating global demand for rechargeable lithium-ion batteries. These batteries have already been tested and adopted by a number of auto manufacturers for their electric fleets, and increasing demand for the batteries will put increasing strain on international lithium markets.

Lithium-ion batteries currently charge (and re-charge) various electronic consumer products, such as cellular phones and laptop computers.  In 2007, batteries became the leading end-use product for lithium, comprising 20% of the global lithium market, and the world market for lithium batteries grew to $5.2 billion. Because EVs and PHEVs will likely play a crucial role in allowing auto manufacturers to achieve elevated fuel efficiency standards, the demand for the batteries that power those vehicles should increase. This will lead to a substantial increase in the size of the lithium market.

According to the U.S. Geological Survey, the U.S. already consumes more lithium than any other country, despite possessing less than five percent of the world’s estimated supply of lithium resources. Because of the disparity between domestic supply and demand, the U.S. imports effectively all of its lithium from South America, specifically Chile—the world’s leading lithium producer—and Argentina. Some auto companies have already become concerned about a global shortage of lithium, which could constitute a potential roadblock to the success of lithium-ion batteries, and which some are projecting could happen as early as 2015.

Another problem affecting the global lithium market is the infrastructure issues of countries with large reserves of the mineral. For example, while the salt flats of southwestern Bolivia are estimated to possess more than half of the world’s total lithium deposits, Bolivia does not have the necessary infrastructure to extract lithium in amounts sufficient to affect the market.

These types of supply and demand issues are not uncommon in the energy industry.  In 2004, the solar industry began to feel the effect of a supply crunch for high-quality silicon, which is used to manufacture solar panels as well as computer chips.  This silicon shortage contributed to increased emphasis by the solar industry on thin-film solar cell technology, which uses a smaller amount of material than traditional photovoltaic solar technology.

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