By Horst Teubert and Dr. Peer Heinelt
(Opinion) Germany relies more heavily than ever on Chile for its supply of green energy sources and key raw materials for the transition.
During his visit to the South American country, German Chancellor Olaf Scholz expanded a “raw materials partnership” for ten years.
In particular, German access to lithium and copper is to be strengthened. Berlin will also purchase green hydrogen produced with the help of renewable energy sources on a large scale from Chile.
German companies are involved in profitable hydrogen projects in the country.
Accompanying this, on Dec. 9, the EU expanded its free trade agreement with Chile, which has existed since 2002.
In its new version, it exempts 99.9 percent of all exports from the EU from taxes; conversely, it prohibits Santiago from restricting exports of unprocessed raw materials to help build its value chains.
Critics, including the small farmers’ organization Via Campesina, denounce the agreement as a clear “expression of neocolonialism” and criticize it as primarily serving “the EU’s electromobility” – at Chile’s expense.
CHILE AS A HYDROGEN PRODUCER
Unlike Argentina, where the German government is currently pushing for the acquisition of fracked gas, Chile primarily focuses on purchasing “green” hydrogen from renewable energy sources.
Chile adopted a National Strategy for Green Hydrogen (Estrategia Nacional de Hidrógeno Verde) in 2020, which envisions the industry’s rapid expansion.
The country aims to become the world’s lowest-cost producer of hydrogen by 2030 and one of the world’s three largest exporters by 2050.
To achieve this, it is attracting investment from abroad.
From Germany, Linde AG is involved in the HyPro Aconcagua project, which aims to produce up to 3,000 tons of green hydrogen per year in perspective.
The Federal Republic and Chile established a “Hydrogen Task Force” in 2021 to help tap the country’s vast potential for wind and solar energy to produce green hydrogen.
In August, the city of Hamburg signed a cooperation agreement with Chile’s energy minister to facilitate deliveries to Germany.
The Haru Oni project in the country’s south was recently inaugurated, which uses green hydrogen to produce carbon-neutral fuel. Siemens has received federal funding of 8.23 million euros for this project.
(German EU Commission president Ursula von der Leyen at WEF: “Those who develop and manufacture the technology that will be the foundation of tomorrow’s economy will have the greatest competitive edge.”)
RAW MATERIALS FOR THE ENERGY TRANSITION
German industry is also interested in numerous industrial raw materials mined in Chile – especially those critical for energy transition technologies.
Lithium stands out among these. Together with Argentina and Bolivia, Chile forms the so-called lithium triangle, the region with the largest lithium reserves in the world.
The country is currently the second largest exporter after Australia and covers around two thirds of the EU’s lithium requirements.
Chile is also important as a copper producer – in 2021, it was Germany’s third-largest supplier behind Brazil and Peru.
On the fringes of the chancellor’s visit, Hamburg-based Aurubis AG agreed with state-controlled Codelco, the world’s largest copper producer by its own account – to cooperate more closely in the future.
Chile possesses other raw materials that also play an essential role in German industry, including molybdenum and rhenium.
Scholz and Chilean President Gabriel Boric agreed over the weekend, not least to intensify the “raw materials partnership” already concluded in 2013.
According to reports, this mainly aims to optimize German companies’ access to Chilean lithium.
FROM MINING TO PROCESSING
Recent global raw materials sector developments are forcing the German government to make concessions.
Indonesia offers an example of these developments. The country banned exports of unprocessed nickel ore at the beginning of 2020 to increase its share of the value added.
While this has brought trouble with the World Trade Organization (WTO), it has also attracted billions in investment, mainly from Chinese companies now setting up local Indonesian nickel processing.
In June, the government plans to go one step further and ban the export of unprocessed bauxite – also to promote further processing in its own country.
Efforts to export unprocessed raw materials and use the country’s natural resources to promote industrialization can also be seen in South America.
Last year, for example, the battery cell manufacturer Gotion from China signed an agreement to build a plant in Argentina to process the lithium mined into lithium carbonate.
In perspective, there are plans also to locate the production of battery cells in Argentina.
Scholz announced on Sunday that Berlin would work hard to ensure that at least “the first step in the processing process” would be carried out in the raw material countries in the future: “That would also save a lot of transport costs.”
RAW MATERIAL SUPPLIER AND SALES MARKET
Both current and hoped-for future imports of raw materials will benefit from the new, expanded free trade agreement between the EU and Chile, which was agreed to by both sides on Dec. 9.
It goes well beyond the provisions of the existing 2002 agreement.
For example, it provides for duty-free access for 99.9 percent of all exports from the EU to Chile, whose industry is thus unprotected against European competition; the EU Commission expects exports to increase by 4.5 billion euros.
In addition, investors from EU countries will be granted the same rights in the South American country as domestic investors; the provision of services in Chile – telecommunications, finance, and others – will be made considerably easier for companies from the EU.
Furthermore, the agreement intensifies European corporations’ access to Chile’s raw materials – for example, by limiting the country’s government’s ability to restrict the export of unprocessed raw materials.
Thus, the agreement stands in the way of Santiago’s efforts to bundle a larger share of value creation in Chile to work its way up economically.
The agreement will be put into effect provisionally next year at the latest.
WHO PAYS THE PRICE
Massive protests have accompanied its signing.
For example, more than 500 organizations and individuals, ranging from the international smallholder organization Via Campesina to French politician Jean-Luc Mélenchon (La France insoumise), signed an appeal denouncing the free trade agreement as an open “expression of neocolonialism.”
The appeal says the agreement primarily serves “the EU’s electromobility” and the business of its transnational corporations, with a view to raw material exports.
Regarding the planned hydrogen deliveries to the EU, it says that “for every liter of ‘green’ hydrogen,” it takes “10 liters of freshwater” and “a large amount of energy” to produce.
This is to come from the rededication of agricultural land on which solar and wind energy plants will be built to enable the export of “renewable” energy sources.
Thus, Chile will have to “pay the environmental, social as well as climate costs required for the European climate change” and, in the affluent West, “perpetuate the use of cars – instead of prioritizing public transport”.
The signatories of the appeal explicitly call to prevent the agreement from entering into force.