Critical Minerals, Cornish Lithium

The UK is heavily dependent on imports for its CM needs.^[4] Although more data is needed, initial surveys indicate a rich potential for CM extraction in the country.^[5] Currently, lithium is the most notable of these opportunities. A granite site in Cornwall, St Austell, is home to the largest deposit in Europe.^[6] Lithium is one of the main CMs required for the global green transition, and it is used primarily in batteries of electric vehicles (EVs), which are considered a key mechanism to decarbonise sectors like transport.^[7] To meet the UK’s climate goals — including that all new vehicles sold by 2035 are electric — 110,000 tons of lithium hydroxide are required to produce the required EV batteries.^[8] Presently, the UK imports all of the lithium it requires to produce EV batteries.^[9] Having recently set up the biggest gigafactory in Europe in Somerset, operated by the company JLR and, producing lithium batteries for EVs - the UK’s push to develop domestic lithium is accelerating.^[10]

Since 2017, two British firms — Cornish Lithium (CL) and British Lithium (BL) — have sought to develop lithium in the south-west of England.^[11] Cornish Lithium extracts lithium from hard-rock and brines and has established a pilot direct lithium extraction (DLE) plant to produce lithium hydroxide.^[12] British Lithium extracts lithium from the granite site in St Austell. It has established a pilot plant and produced its first small batch of high-quality lithium carbonate in 2022. Although both are relatively new firms, their plans are ambitious: CL plans to extract 10,000 tons of lithium every year (12.5% of UK demand) by 2030,^[13] while BL aims to extract 20,000 tons of lithium per year (two-thirds of UK demand) by 2030.^[14] Estimates suggest there is enough lithium in Cornwall to extract 50,000 tons per year for over twenty years.^[15]

Public Support, Private Gains

The potential market for lithium is vast and is predicted to reach $230 billion by 2040.^[16] In 2024, the world’s biggest lithium producer, Australian firm Albermarle, had a market capitalisation of nearly $14 billion.^[17] Given the expected growth of the global lithium market, the UK could see significant gains from this sector. Through CL’s mine alone, over 20 years, their activities could generate £800 million (GVA) for the local economy.^[18] The final outputs of these processes — exportable commodities like battery grade lithium hydroxide and lithium carbonate, fetching (on recent prices) around $9,130 per ton and $9,261 per ton, respectively^[19] — will be sold by these firms at international market prices, generating significant profits. Prices of lithium are expected to be volatile but to increase in the coming years: assuming an average (nominal) price increase from $10,000 per ton to $15,000 per ton over a twenty-year period, producing 50,000 tons per year would generate an average of $625 million in revenues per year or a total of $13.1 billion (not accounting for costs or inflation).^[20] 

Under the sector’s current private ownership arrangements, the main beneficiaries of this growth will be the firms selling these minerals. The returns to the state and public, in the form of local and central government revenues, will occur mainly through the various taxes and payments (e.g. corporation tax, etc.) made by firms in the sector, alongside any employment benefits in the region.^[21] However, privatising the gains from British lithium implies that all the work, investment and risk in developing this sector is being done independently by private firms. This is not the case. Take BL which started as a joint venture in 2023 with the French mining firm Imerys,^[22] BL has received state funding via various mechanisms, including £2 million from the Automative Transformation Fund.^[23] State support has been even more important for CL: in 2020, the firm was awarded £4 million from the Government to set up a pilot lithium extraction project,^[24] before securing a further £53.6 million from the UK Infrastructure Bank in 2023 (now the publicly-owned National Wealth Fund), in a funding package worth up to £168 million (alongside private firms Energy & Minerals Group and TechMet) to bring their project to commercial scale.^[25] Although privately run, the UK lithium sector relies on vital support from the public sector to develop; while public finance is used to derisk investments for the private sector, socialising the risks and privatising the benefits,^[26] the environmental and social risks posed by such extractive activities are also likely to be borne by the public sphere too.^[27]

When lithium producers could earn billions, the way the UK lithium sector is being developed — requiring state support, ceding control and accompanied by significant negative implications — could put all the risks and costs on the public with little return. If the Government is serious about earning its fair share and promoting a broader green industrial transformation of the economy through domestic lithium, it is vital to exert greater control through a (part) public ownership of the sector.  

Far better would be to exert greater control through (part) public ownership to reap the benefits from this sector’s development more effectively.

Establishing a Public Mineral Development Fund

To address these imbalances, this briefing proposes the establishment of a Public Mineral Development Fund (PMDF) operating under the umbrella of the UK National Wealth Fund (NWF). This new fund will be inspired by the rich tradition of public financial institutions, which make use of public finance to make investments that support government policy goals,^[28] and that operate across scales and geographies (e.g. Germany, China, Brazil, etc.) to manage huge sums of assets ($49 trillion in 2021).^[29] Such institutions can act as powerful (off-balance sheet) mechanisms for the state to direct investment and provide patient finance to support innovation as part of development policy.^[30]

The German KfW is a notable example. One of the largest public development banks in the world (total assets of £580 billion), the KfW plays a key role in Germany’s green transition, raising finance cheaply by issuing bonds backed by the government and with stakeholder participation built into its governance structure.^[31]

Upon the launch of the UK’s NWF, Energy Security and Net Zero Secretary Ed Miliband spoke of the ambitions the Government had for this new public financial institution:

Our Mission to make Britain a clean energy superpower is about investing in Britain. Our National Wealth Fund will help create thousands of jobs in the clean energy industries of the future to boost our energy independence and tackle climate change. We’re acting immediately, wasting no time and working in lock-step with industry to unleash private investment and grow our economy.^[32]

Yet, on its current course, the UK NWF looks unlikely to achieve these ambitions. At present, the UK NWF is tiny (capitalised with only £7.3 billion to support decarbonisation and infrastructure development) and is structured primarily as a derisking tool, using public money to crowd-in private investment (subsidising future profits for private investors), but receiving few returns, taking on the risks, and spreading macroeconomic instabilities.^[33] To meet, and indeed, go beyond, the ambitions of the Government, the UK NWF needs to evolve, drawing on the rich history of successful public financial institutions described above. This is a crucial prerequisite for it to most effectively act as the umbrella organisation for new funds like the PMDF. To effectively support a green industrial transformation and create a supportive institutional architecture for developing CMs like lithium, the UK NWF needs a significant increase in capitalisation, its governance must be democratised, and its strategic priorities must be broadened to not just derisk investments for the private sector but to help coordinate state-led green industrialisation efforts and promote public and mixed-economy ownership models across sectors.  

Under this expanded NWF, the new PMDF — state-owned, democratically governed, and mission-led (shaped by policy goals aimed at addressing both pressing challenges and new opportunities for development) — would be capitalised by taking an equity stake in any of those companies that the state has supported (e.g. loans and grants, provision of land, capital or technology, etc.) in developing the lithium sector and minerals more broadly.^[34] The returns generated from this stake — earning the state a portion of the revenues from the growing minerals industry — would then be reinvested to support the development of domestic sectors along the mineral supply chain (e.g. battery production, renewable energy technologies, etc.).  

In return for public finance and support, these firms would also provide an equity stake to the PMDF, helping to create a state-coordinated virtuous cycle of finance, green industrialisation, and innovation. As an example, from lithium alone, if the state were to take a ten per cent overall stake in the industry while the industry earned £10 billion over a twenty-year period, this would provide it with £1 billion re-invest into the development of domestic industries along the supply chain, supporting green industrialisation and sustainable long-run growth.

Simultaneously, alongside the equity stake (e.g. ten per cent) in the industry taken by the state, a smaller equity portion (e.g. one per cent) could be allocated to and owned by a regional community development fund, in this instance, for Cornwall.^[35] Ownership shares in this fund would be reserved for a combination of regional local authorities and residents. The funds would be managed through democratic and stakeholder-led mechanisms, involving local citizens, trade unions, government and firms. And these funds would be used exclusively to reinvest in the productive potential, sustainability, and social cohesion of the region. Mineral extraction processes can cause social conflict and environmental harm, this would help to ensure that members of the local community get a material buy-in (through their ownership stake) to these processes.    

This proposal is not about supplanting the private sector with the state. Rather, it supports the creation of dynamic mixed-economy enterprises that better reflect and support the important roles state, community and market play in the development of new industries. It is oriented by a publicly-coordinated industrial strategy, given stability through the (unique) risk-bearing capacity of the state, which lays the well-structured foundations for private sector dynamism to meet national green industrialisation priorities. Creating a new PMDF to help coordinate the investment of rents from domestic lithium would serve two vital functions. First, it would provide an effective industrial policy framework to support the development of an important new domestic industry in the UK. Second, the equity stakes in these firms would provide a crucial source of revenue for the central state and regions involved. When the public purse has been required to derisk investments in lithium and would likely bear the burden of its broader environmental and social harms (the private sector is rarely motivated to do so alone), the returns from this fund will provide a sustainable and effective way for the public to earn its fair share in return for supporting this industry’s growth, and that in the long term, would support the sustainable growth of the whole economy, rather than simply increase the profits of a handful of private companies and their shareholders.  

Conclusion

In the context of rising geopolitical competition around CMs and the urgency of the green transition, the UK’s efforts to develop its own CM industry are crucial. The development of this industry has already and will in the future, require state support, both directly and indirectly. To ensure that the public receives its fair rewards, that any environmental or social impacts from development can be adequately addressed, and that broader efforts towards green industrialisation and sustainable regional and national economic development can be financed, this briefing proposes the establishment of the PMDF, operating under the umbrella of a reformed UK NWF, and smaller regional community development funds owned by local authorities and residents. This offers the most fair, effective and sustainable way of supporting critical mineral industrial development in the UK and ensuring the returns from its growth are managed most effectively, sustainably and equitably.