Can U.S. energy storage bank on sustainability?

This article originally appeared in the Q4 issue of Solar Builder magazine. Two notable U.S. battery manufacturing announcements have been made since. The ABF gigafactory and the DOE’s loan to GM and LG.

The U.S. battery energy storage industry is moving rapidly toward a comprehensive adoption of sustainability practices, inspired by the Biden administration’s new green energy investment requirements, the broader effort to build battery production beyond China and the rising corporate sensitivity to energy equality in cradle-to-grave mining and manufacturing.

This impending shift toward the adoption of corporate Environmental, Social and Corporate Governance (ESG) principles is likely to lead to “a tsunami wave of compliance in 2023,” reckons Assheton Stewart Carter, the CEO of ESG consulting group TDi Sustainability.

U.S. battery protectionism

The strongest of these causal factors inspiring ESG adoption is the U.S. Inflation Reduction Act, which became law in August 2022, establishing a fund of nearly $370 billion for climate, clean energy and green policies. Included in this reform is an electric vehicle (EV) tax credit of up to $7,500 for buyers, with the caveat that manufacturers must provide verifiable evidence that much of the material sourcing and manufacturing takes place within the United States or within a partner country that has a U.S. free trade agreement in place.

This near-shore sourcing requirement is staged, with a requirement of 40 percent of critical battery minerals from the United States or free trade partners by 2024. That percentage bolts up to 80 percent in 2026. Added to that quantitative requirement is the now red hot social requirement that neither forced nor child labor can been involved in the material sourcing or manufacturing.

This focus on labor comes from the U.S. Department of Labor’s Bureau of International Labor Affairs (ILAB), which maintains a list of goods and their source countries “which it has reason to believe are produced by child labor or forced labor in violation of international standards, as required under the 2005 Trafficking Victims Protection Reauthorization Act (TVPRA).” The “List of Goods Produced by Child Labor or Forced Labor” comprised 158 goods from 77 countries as of September 2022. EV batteries were singled out as a key product of concern within the introduction of this latest hit list report.

“We are drawing attention to critical supply chains in clean energy — highlighting China’s use of forced labor in polysilicon production (a key input in solar panels) and the use of child labor in the Democratic Republic of the Congo (DRC) for the mining of cobalt (an input in lithium-ion batteries),” wrote Thea Mei Lee, the Deputy Undersecretary for International Affairs in her September report.

Beyond the DOL, for nearly a decade, the Dodd-Frank Act has required companies who might have conflict minerals in their supply chain to register with the U.S. Securities and Exchange Commission and disclose their suppliers.

Critical minerals sourcing

The key mineral of concern in the EV battery industry is, of course, lithium, most of which comes from Australia, Chile and Argentina. Nearly two-thirds of all global lithium refining takes place in China. But the addition of cobalt to lithium batteries — for better performance — is the greatest ESG concern today. The vast majority of all global cobalt is mined under Chinese influence in the DRC, where child labor has been widely documented by international NGOs like Amnesty International. Three-quarters of the DRC cobalt is processed by China.

Cobalt is not going away anytime soon. EVs are the greatest consumers of global cobalt demand, at about 59,000 metric tons per year, or 34 percent of the global total in 2021, according to the Cobalt Institute. While some EV battery manufacturers like CATL, SVOLT and Tesla are moving away from cobalt battery chemistry quickly, others are still dependent on the mineral, particularly those battery makers in China.

In 2022, Benchmark Mineral Intelligence forecasts 70 percent of all batteries will be made in China. “This is supported by strong control of the midstream, with a near monopoly over anode production and over three-quarters of cathode production,” the minerals pricing agency reports.

However, South Korea, home to players like LG and Kia, is investing heavily in U.S. battery production capacity. “South Korean companies are set to account for half of U.S. battery production by the end of the decade,” according to Benchmark’s Lithium Ion Database. “South Korean battery plants in the United States are set to reach a production of 338 GWh a year by 2030 and 355 GWh by 2040, which would account for about 53 percent and 48 percent of the total future planned U.S. cell production.”

Ranking ESG in the lithium supply chain

The mere establishment of an ESG policy is not enough for companies in the battery supply chain. A host of metrics for corporate citizenship ranking are well in place through many international organizations. And third-party due diligence that confirms ESG achievements also are an inherent requirement.

Benchmark has expanded its minerals production tracking and pricing base into the ESG space with a new annual ESG report. “Benchmark found that 45 percent of operating lithium mining companies and 42 percent of operating lithium converting companies publish ESG reports. In comparison, just 9 percent of developing lithium mining companies and 22 percent of developing lithium converting companies publish an ESG report,” the analysts said in their most recent report.

“Companies in the top-rated category include Albemarle, Galaxy Resources, Livent, Mineral Resources, Orocobre and Pilbara Minerals,” according to Benchmark. Two other leading lithium producers, Ganfeng and SQM, also have provisional Tier 1 status as they build out their new ESG programs.

Blockchain documentation of sourcing

To manage the massive volume of documentation around EV battery ESG, a number of industry leaders have turned to blockchain, or encrypted, accumulative record keeping. Ford and other automakers formed the Responsible Sourcing Blockchain Network (RSBN) in 2019 to support mineral supply chain ESG. The group has developed an open pilot blockchain platform developed by IBM that can trace and verify mineral sources.

Still, someone has to input the data for such ESG-friendly platforms, and the burden for this is likely to fall on smaller and mid-sized companies, according to Carter. Large EV makers will pressure their parts suppliers for ESG accountability, and they in turn will likely pressure raw materials producers and processors.

Will this great wave of ESG adoption add a substantial amount to energy storage battery costs? The answer is not so readily defined from a quantitative viewpoint but is more obvious in terms of hours and employees. “An audit can cost $50,000 to $150,000, but it can cost a company much more to get ready for an audit,” Carter notes.

Charles W. Thurston is a contributor to Solar Builder.