Written evidence from Cornish Lithium Limited (BEV0042)

Call for Evidence on Batteries for electric vehicle manufacturing launched by the Business, Energy and Industrial Strategy Committee.

About Cornish lithium Plc

Cornish Lithium is an innovative mineral exploration and development company providing the raw materials for the Green Industrial Revolution. The Company aims to establish a strong, sustainable and environmentally responsible extraction industry in the UK for those minerals that can contribute to the global goal of decarbonisation through clean growth and a transition to a green economy.

Cornish Lithium is delighted to submit evidence to BEIS on the following questions which the company believes are within its industrial limits.

 

  1. Does the UK have a sufficient supply of critical materials to support vehicle battery production?

a)      Whilst Cornwall has a well-established lithium resource, currently under development by Cornish Lithium and others, at present UK has no upstream indigenous battery grade lithium production. As a consequence the UK does not have access to a sufficient supply of critical materials free of supply chain geopolitical risk to support domestic vehicle battery production. According to data compiled by the Faraday Institution the UK will need approximately 80,000t lithium carbonate equivalent (LCE) by 2035 and 135,000t LCE by 2040. Cornish Lithium believes it can supply approximately 8,000t – 10,000t of LCE per annum from its operations in Cornwall from 2026. This will have a low carbon footprint compared to imported battery grade material or imported raw material processed in the UK, something that involves significant carbon-intensive transport components. In contract, production of Cornish Lithium’s lithium resource in Cornwall does not rely on the import of raw materials for refining, has low transport components and as a consequence represents is a truly sustainable, traceable and reliable source of LCE for the battery industry.

b)      We believe that significant opportunity exists within the UK to provide a portion of the UK’s future demand for lithium from domestic sources. Importantly, this will be produced to the UK’s high environmental standards, and will not have the carbon costs associated with transport of imported lithium chemicals from current global supply chains. Currently the UK is totally reliant on imports of lithium, and rather than importing lithium concentrate for processing, the UK tends to important products with processed lithium within them e.g. lithium ion batteries or assembled EVs. There is substantial economic opportunity in establishing a vertically-integrated supply chain for lithium in the UK from mine to battery, which would support vehicle battery production. However, to the best of our knowledge there are gaps existing currently around cathode manufacture in the UK, as well as other downstream battery manufacturing steps.

 

  1. How ready are UK vehicle producers for the EU–UK Trade and Cooperation Agreement (TCA) rules of origin (ROO) phasing in from 2024?

c)       Whether products are deemed to originate in the UK is defined by the Rules of Origin part of the TCA. These rules stipulate the proportion of the product in value terms that need to be created in The UK or the EU for the product to be classed as a UK/EU originating product. In effect, these rules limit the proportion of imports from outside the UK and the EU that can be used to create the product.

d)      There is a six-year phase-in period to a permanent state from 2027 for EVs, plug-in hybrid EVs(PHEVs), hybrid EVs and EV batteries. From 2027, the UK can export any number of EVs and PHEVs into the EU market at a zero tariff under the following conditions:

  1. EVs must have 55% UK/EU content and must have an originating battery pack.
  2. An originating battery pack must have either 65% UK/EU content for the cell or 70% for the

battery pack.

 

e)      A March 2020 report by the Faraday Institution “UK electric vehicle and battery production potential to 2040” concluded there will be demand for seven UK-based gigafactories by 2040. These gigafactories are large, high volume battery manufacturing facilities and each producing 20 GWh per year of batteries.

f)        The UK is, however, at risk of falling further behind Europe for battery manufacturing. Battery manufacturing capacity in continental Europe is expected to reach nearly 450 GWh per year by 2030.The UK currently has a 2 GWh per annum plant in Sunderland and as second site in Blyth in the North East for a 30+ GWh per annum plant. Additional options exist including the “Gravity” site in Somerset, close to the UK’s largest lithium resource in Cornwall.

g)       Batteries are heavy and regulations about cross-border transport are increasing. Batteries are also hazardous to transport over long distances due to their flammability. This will push EV manufacturing to be located relatively close to battery manufacturing, probably in the same country or region. If batteries are made in Europe or Asia, then it is likely that the EV would be as well. Building gigafactories in the UK and the upstream and midstream capacity and capability to supply them is essential to safeguard the future of the UK automotive industry.

h)      Whilst transitional rules of origin apply for the period from 2021 to 2026, the short answer is that in the absence of an indigenous supply chain for lithium and other battery components, UK vehicle producers are not ready or able to comply with the Rules of Origin under the TCA UK vehicle manufacturer will have to rely upon EU-sourced batteries. The development of battery manufacturing facilities in the EU with the associated likelihood that EU battery manufacture will be hypothecated for EU based vehicle production introduces a significant risk to the sustainability of UK vehicle manufacturing.

 

  1. What can the UK learn from investment in other countries in the establishment of gigafactories?

USA

i)        The UK can learn vital lessons from the Inflation Reduction Act (IRA) that was recently adopted into law in the US in late 2022. The IRA heavily incentivises electric vehicle purchase, manufacturing and associated supply chains to establish themselves in the US. The IRA has, over a short period of time,  created an environment that both stimulates and accelerates private investment in the development of electric vehicles. For instance GM has announced an investment of $650m, in Lithium Americas $2.3 billion Thacker Pass lithium development that is also backed by US government loans.

EU

j)        On February 1st 2023 the EU published a Green Deal Industrial Plan which is described as a plan “to enhance the competitiveness of Europe's net-zero industry and support the fast transition to climate neutrality. The Plan aims to provide a more supportive environment for the scaling up of the EU's manufacturing capacity for the net-zero technologies and products required to meet Europe's ambitious climate targets.

k)       The EU also announced that “this framework will be complemented by the Critical Raw Materials Act, to ensure sufficient access to those materials, like rare earths, that are vital for manufacturing key technologies, and the reform of the electricity market design, to make consumers benefit from the lower costs of renewables.”

l)        In Cornish lithium’s view the UK needs to urgently adopt similar measures to the US and EU or risk the loss of vital industrial capabilities – such as automotive manufacture.

m)    In particular,  the UK should:

  1. With the newly formed Department of Energy Security & Net Zero and Department of Business and Trade form a “task and finish”  task force to define future focussed policy and strategy that emulates the US and EU positions in what is an increasingly competitive market place for internationally mobile large scale electric vehicle supply chains including gigafactory development. 
  2. Areas of focus should concentrate of current barriers to development including, but not limited to planning policies (that should presume in favour of development of gigafactories and other elements of the battery supply chain) and development of energy supply market structures that increase the support for energy intensive industries above and beyond current levels to allow industry to benefit from the lower cost of renewables in order to make use of Britain’s standing as a leader in renewable power such as wind and solar.
  3. We also suggest that the supply chain for producing EV batteries is considered holistically, from mine through to cathode and battery production. If all pieces of the puzzle do not align at the right time for the rest of the supply chain, then it will fail as a whole and raw materials produced within the UK would likely have to be sold to the EU rather than being able to be used by UK battery producers. Support to facilitate alignment of the whole supply chain should recognise how important timing is in bringing each part into commercial production.

 

  1. Do we have the skills in the workforce required for the production of batteries? If not what needs to be done?

n)      In short, no!

o)      The skills and workforce required for large scale battery production are well known and there are example existing precedents that can provide direct qualitative and quantitative estimates of demand.

p)      In addition, battery manufacture is, in the context of the broader UK industrial sector, a narrowly-defined activity. Therefore developing an accurate work force plan should be relatively straight forward to quantify the demand side of the skills equation. Armed with this information schools, FE colleges and universities (for whose students the development of battery manufacture represents  new large scale employment opportunities) should, through curriculum and undergraduate/post graduate courses, be mandated to align provision with demand, if necessary through regulation. If such interventions are not undertaken and it remains problematic to import skills from overseas, there is a material risk that battery manufacture will relocate to other jurisdictions.

q)      Incentives for young people and others already in the workforce and looking to retrain should be put in place. For example, there has been a significant drop in the number of students looking to study geoscience, mining engineering and mineral processing within the UK over the past five years (https://abmec.org.uk/ukmef-skills-shortage-threatens-mining-revival/). Part of this decline is attributed to the public perception of the industry, which is often outdated and negative. It is suggested that funding is provided to support the outreach and engagement work being pushed by industry bodies such as IOM3 and the UK Critical Minerals Intelligence Centre (established following production of the UK’s first Critical Minerals Strategy in 2022).

  1. Will the cost of UK batteries be competitive compared with batteries produced elsewhere?

r)       Without reform to the electricity market that presumes in favour of  gigafactories and other energy intensive elements of the supply chain treating directly with the UK will be at a competitive disadvantage to other jurisdictions. If low cost renewable power can be used to power a domestic lithium extraction industry and the UK battery manufacturing industry that it supports this could make the UK into an internationally competitive battery producer.

  1. What impact will the European Union’s proposed Carbon Border Adjustment Mechanism have on UK production?

s)       The Carbon Border Adjustment Mechanism (CBAM) will cover direct emissions (Scope 1) of selected sectors: iron and steel, cement, aluminium, fertilisers and electricity. The greenhouse gas emissions regulated by the CBAM correspond to those emissions covered by Annex I to the EU Emission Trading System, namely carbon dioxide (CO2), nitrous oxide (N2O) and perfluorocarbons (PFCs).

t)        Companies that want to import goods produced outside the EU into the EU will have to purchase certificates corresponding to the amount of emissions generated in the production of those goods. The European Commission will calculate the price of CBAM certificates to reflect the average weekly price of EU Emissions Trading System (ETS) auctions. This means that CBAM certificates will be pegged to the EU’s ETS.

u)      The UK is one of the countries most exposed to the EU’s CBAM, with UK exports of iron and steel and aluminium particularly vulnerable. This exposure poses a problem for the UK and its exporters, as it is not currently listed as exempt from the CBAM regulation. Switzerland is exempt from the measure due to them having linked their own ETS to the EU’s.

v)       However, a lack of exemption does not necessarily mean that UK exports of CBAM goods to the EU will be subject to an additional charge. EU importers will be able to take into account any carbon price paid in the UK when determining how many CBAM certificates they need to purchase and surrender. In  December 2020 the UK Government announced that a new  UK ETS will replace the UK’s participation in the EU Emissions Trading System (EU ETS) and will be a market-based measure which will provide continuity for participants. The UK ETS will initially apply to power stations, energy-intensive industries, and aviation. UK ETS is more ambitious than the EU system it replaces - from day one the cap on emissions allowed within the scheme will be reduced by 5 per cent.

w)     As a consequence there may be  little risk of additional direct costs, any EU company buying CBAM goods from the UK will need to comply with  additional time consuming CBAM-related processes that, in incremental terms could further erode the competitive position of UK vehicle manufacturing.