A couple of decades ago the issue of climate change was mostly an academic subject, or a political battleground on ethics, but despite its media high profile and inspiring promises made at major political summits it remained a subject disconnected from the workings of the economy with the exception of entrepreneurial initiatives in the field of renewable energy. The public wanted action, but that “want” never gained real and lasting traction in elections. This has changed however in the past few years since the rapid rise of the electric vehicle into the consciousness of the mainstream media.
One could argue that Tesla has singlehandedly caused the profound transformation in the attitude of the auto industry toward climate change . When Tesla started cranking out the Model 3, leading to 500,000 yearly production volume across all models, suddenly, everybody jumped on board affirming loudly their desire to build electric vehicles to save the planet.
Once Bob Lutz said that Tesla has no moat because EV is all about car manufacturing, an area where Tesla has practically no history, and making batteries, which is not a big deal. It is all a matter of hiring engineers in large numbers. That proved to be a colossal error, because making good batteries is a big deal, and so is writing software for self-driving capability. Over time, both pundits and incumbents transitioned from being confident in a quick solution to one of uncertainty, recognising that making batteries is a remarkable challenge. Most of the observers, insiders and outsiders, and the public at large made the assumption that once these technical problems are solved, the EVs will inevitable take over sweeping the planet clean.
It is a human trait to initially get excited about the prospect of a brilliant innovation while ignoring execution problems and potential side effects. As the EV’s manufacturing expanded and matured the reality started to sink in. The use of batteries looks clean and easy, the making is not. The raw materials have to be mined, batteries must be recycled, refilled and reused, none of which is that clean. Not without substantial investment anyway. Mining lithium can be taxing for the environment through carbon emissions and water consumption. The latter can be very problematic in regions where the water is scarce and its usage has consequential impact on the sustainability of the wider ecological system (such as in Chile’s arid parts of the country).
The electricity itself doesn’t get a free pass. There is green energy (renewable) and red energy (fossil). If you drive an EV you might feel you do the planet good, but that is if you use green energy and it is not if you use red energy. If you pay using bitcoin to buy a green car you are unwittingly polluting the planet as bitcoin mining is an intensive energy consumer. Globally, the generation of bitcoin uses more energy yearly than Belgium. The bitcoin miners may even use red energy directly. As an example, Greenridge Generation recently bought a coal plant in the state of New York and converted it into a gas powered generator to mine bitcoins. The company said it is planning to expand ten times in the near future by buying more fossil fuelled generators as more coal plants are decommissioned.
If we want to do good we must ensure that batteries are produced using responsibly mined lithium, they are cleanly recycled and refilled with green energy. If these conditions are not met, then we have achieved little in saving the planet.
How do we do this?
Firstly, we need a well-designed regulatory framework. To make it work in practice we then need a clear measuring system, data tracking and monitoring. Finally, we need a corrective system that rewards the good doers and eliminates the bad practices.
I submit that not a single authority can design and implement all these requirements and the best way to do this is to enact regulations in a global free market that supports a feedback based self-improvement of the participating regulators, businesses and consumers.
I also submit that the use of global free market mechanism for regulating the EV battery industry is under way and we are about to witness a profound transformation of the manufacturing of batteries long value chains. This realisation was triggered by an innocuous, hardly visible (although public) statement of one company that doesn’t even produce anything yet: Vulcan Energy, a public company listed on the Australian and German stock
exchanges. On the 16th of June 2021 the company announced it has been accepted in the Global Battery Alliance. While I might have heard about this organisation, it was not until now that I understood the implications of its principles and its implementation in practice. I have followed Vulcan Energy for a while and noticed a number of appointments and structural changes the company made in the past twelve months that are unusual for a lithium miner, but it is only now that I see how they make up the big picture. I will explain all this in the sections below.
The Global Battery Alliance
The Global Battery Alliance (GBA) is a partnership made up of over 70 members worldwide that have agreed to abide by ten guiding principles to help the industry move toward a sustainable battery value chain. The alliance include the likes of Volkswagen, Volvo, LG Chem, Google, Renault, BMW, BASF, Wesfarmers and among others now Vulcan Energy.The ten principles are grouped into three categories: battery value chain, economic value, and sustainable development. These categories link the battery industry to three ESG pillars: circular battery value chain to support the fight against climate change (linked to the Paris Agreement), building a low carbon economy that is accessible to the developing countries, and implementing measures that safeguard human rights and economic development (eliminate child and forced labour, respect of human rights and fight anti-corruption) in line with UN Sustainable Development Goals.
The Datafication of the Battery Industry
The most notable feature of this alliance is the reliance on data. The architecture of this partnership has written and verbally agreed principles as a foundation, as any general alliance has had since the beginning of time, but in addition to that it proposes a data system with digital attributes and values attached to each battery component beginning with the first raw material extracted from soil, to the production of battery modules, assembly, use of batteries in cars, collection and recycling. Everything is datafied. No longer is the evaluation of the quality of the
battery a matter of opinions on the merit of particular technologies supplied by the value chain gate keepers, complaints departments or industoard meetings, but a matter of certified data collection, real-time analysis and reporting.
Of course, it takes time to build all this, but the rules are clear and once the system starts working, it becomes self-improving because when issues surface the pressure is on to find a remedy or pay the prices.
The feature that impresses me the most is the Battery Passport. This is a digital representation of a battery which contains all the attributes that have been agreed to be incorporated in the data design as part of the overall system architecture. The GBA Assurance platform is open for auditing, accessible by government institutions and NGOs. Data is also made available to the public at large.
The vast digital ecosystem of which the GBA system is part of will gradually do the magic of joining all the participants in a self-organising choreography typical to the internet era. This will work as long as there is strong regulatory support and the alliance maintains its principled foundation to ensure ongoing improvement. The market will take care of the rest. A manufacturer of batteries with X pollution points will be forced to adjust if another manufacturer makes batteries with X-5 pollution points. That happens when a rule based regulatory framework rewards “the good” and demotes “the bad” with taxes, credits and penalties where the case is.
Vulcan Energy and the Future of Mining
What does Vulcan Energy have anything to do with this, apart from being accepted into the alliance? I have followed this company since early 2020 when my interest was piqued by its value proposition. Vulcan Energy’ lithium resources in form of brine are situated in a relatively small area in the Rhine region, Germany conferring Vulcan Energy a significant strategic advantage in Europe against any competitor.
There is no other lithium resource producer that can claim a zero carbon footprint. That seems to be a definite advantage from the start, assuming the technology works. Vulcan Energy could simply focus on exploration, comprehensive feasibility studies, technology R&D, plant construction, collaboration, etc., like any other miner. Its natural strategic advantage required no other effort, other than good execution. Europe is desperate to detach itself from a near total lithium dependence on China. The European auto manufactures, sick of paying carbon emissions penalties to EU, should be eager to sign long term contracts with Vulcan Resource once the Definite Feasibility Study demonstrates the economic value. As a sign of how hot could be the demand for its products in the near future is the intense buying by Regina Hope Rhinehart and John Langley Hancock in January to secure around 12% of the listed shares.
The company’s adopted strategy deviated from the standard script. Vulcan Energy did make some notable hires in technical positions, but what caught my attention are the key relationship and advisory appointments. In February this year Vulcan it concomitantly announced the appointment of Thorsten Weimann as Chief Operating Officer (that is a traditional hire) and the joining of the German Lithium ISO with Dr. Katharina Gerber, Vulcan Lithium Product Manager, being elected Chair of the ISO standard committee. After raising AUD120m Vulcan made a string of strategic hires and appointments in quick succession: Annie Liu, former Tesla Head of Battery and Energy Supply Chain, as Non-executive Director, Julia Poliscanova, member of the steering committee for the Battery CO2 Passport programme of the Global Battery Alliance, as EU sustainable battery & CO2 policy expert, Josephine Bush, former EY Global Renewables Partner with an extensive pedigree in green energy and climate change, as a Non-executive director, and Dr Stephen Harrison, expert in electrochemistry and lithium extraction, as CTO.
I confess that as I was reading these announcements at the time of their release to the market I wondered if this is not some extravagant spending following the generous capital raising. But once I read about the Global Battery Alliance I began to see the emerging big picture in the context with other large developments in Europe and US in the fight against climate change. The EU’s intent to impose a carbon tariff on products that are made by polluting manufacturers opens the door to devise measures that are effective in the adoption of positive behaviours toward environment. The tariff idea is appealing despite the added cost, but it needs good execution.
The Battery Passport shows the better way of doing it. Datafication beats statement of intent.
Vulcan approach provides a glimpse how the modern miner might operate in the future: every mining product has a data set in form of a passport. As the product traverses the supply chain to be combined with other parts into the next intermediate product that has its own new passport issued with new data inputs and passports, its origin and history never gets lost. Whenever a product is sold, broken down, recycled, you can still trace back its history. It is the data architecture that allows a reasonably accurate measure of the environmental impact of each product. It is a little bit like the food nutritional information label. When you buy a product off the shelf you have information about what you are about to consume with a high degree of confidence. Of course, this requires a rigorous certification system. The likes of the Global Battery Alliance and related normative regulations will force companies and countries to implement quality controls not only in the developed countries, but also in the developing countries. It will be more and more difficult for countries that harbour polluting manufacturers and turn a blind eye to unethical labour practices to avoid scrutiny.
The latest appointments suggest that Vulcan Energy will use the Battery Passport for green diplomacy to strengthen its relationship with the regulators and improve its business value. This will not go unnoticed and competitors sooner or later will find a heightened motivation to improve their demonstrable environmental credentials. We are witnessing the dawn of a new industrial era. The recent EU regulations are tough, favouring the development of EV industry. Yes, Europe has the tendency to complicate the conversation through a complex embroidery of titles such as “Spokesperson for Internal Market, Defence Industry, Space, Education, Youth, Sport and Culture”, but in matters of climate change it is the global leader in a very clear and direct fashion. The rest of the world will follow.