The Green Paradox: Is Our Race to Clean Energy Fueling Another Crisis?
by Michael Lamonaca 20 July 2025
As investors, we’re constantly looking for the next big opportunity, and for many, that’s undeniably green technology. Electric vehicles, solar panels, and battery storage solutions represent a massive shift towards a sustainable future, driving significant demand for crucial materials like lithium. But what if our push for a cleaner planet is unintentionally creating new environmental challenges, and what does that mean for your investments in this burgeoning sector?
It’s easy to get caught up in the excitement of new technologies and soaring demand, especially when the narrative is so positive. However, a truly savvy investor understands that every industry has its complexities, and sometimes, the solutions to one problem can inadvertently create another. Let’s take a closer look at the lithium rush in Chile’s Atacama Desert, a story that offers a vital lesson in sustainable investing and risk assessment.
The Cost of Going Green: A Ground-Level View
Imagine a once-lush wetland, the Vega de Tilopozo in Chile’s Atacama salt flats, now dry and cracked. Locals like Raquel Celina Rodriguez, whose family has raised sheep there for generations, recount a drastic change. “Before, the Vega was all green,” she says. “You couldn’t see the animals through the grass. Now everything is dry.” She points to the cause: lithium companies.
Beneath these vast salt flats lie the world’s largest lithium reserves. This silvery-white metal is fundamental for the batteries powering our electric cars, laptops, and renewable energy storage. The global demand for lithium has absolutely exploded: from about 95,000 tonnes consumed globally in 2021, it more than doubled to 205,000 tonnes by 2024, according to the International Energy Agency (IEA). By 2040, the IEA predicts this demand could skyrocket to over 900,000 tonnes, primarily driven by electric vehicle batteries.
This rapid increase in demand, while great for the green tech narrative, is raising critical questions from the ground up: Is the world’s urgent push to decarbonize inadvertently fueling another environmental problem, particularly concerning water scarcity?
Chile’s Lithium Rush: Opportunity Meets Environmental Concern
Chile stands as the second-largest lithium producer globally, right after Australia. In 2023, the Chilean government launched a National Lithium Strategy to significantly boost production, with some finance officials suggesting an increase of up to 70% by 2030 (though the mining ministry notes no specific target is set). A major step towards this goal was just achieved with regulatory approval for a joint venture between SQM and Chile’s state mining company Codelco, allowing them to extract at least 2.5 million metric tonnes of lithium metal equivalent per year until 2060.
The primary method for extracting lithium here involves pumping massive amounts of brine from beneath the salt flats into vast evaporation pools on the surface. This process demands immense quantities of water in an already drought-prone region.
Biologist Faviola Gonzalez, from a local indigenous community in the Los Flamencos National Reserve, has observed firsthand the environmental impact. “The lagoons here are smaller now,” she states, noting a decrease in flamingo reproduction and impacts on the microorganisms they feed on, affecting the entire food chain. While a slight reduction in water extraction in 2021 saw a “small reproductive success” in flamingo chicks (the first in 14 years), Faviola stresses, “Before, there were many. Now, only a few.” The underground water, replenished slowly, is being extracted faster than it can be replenished.
Furthermore, damage to local flora is evident. A 2022 report by the US-based National Resources Defense Council highlighted that almost one-third of native “algarrobo” (carob) trees on SQM-mined property had started dying as early as 2013 due to mining impacts. This issue, contributing to “ecological exhaustion” and potentially decreasing freshwater availability, extends beyond Chile, according to James J. A. Blair, assistant professor at California State Polytechnic University.
Mitigating Risk: What Companies (and Investors) Need to Know
No mining is without environmental impact. As political science professor Karen Smith Stegen notes, “It’s hard to imagine any kind of mining that does not have a negative impact.” The critical question for investors is how companies are addressing and mitigating this damage.
Mining companies are increasingly under pressure to demonstrate sustainable practices. SQM, a major player, states they are working closely with communities, conducting environmental impact assessments, and piloting new technologies. These include methods to extract lithium directly from brine without evaporation pools and technologies to capture and reinject evaporated water. Valentín Barrera, Deputy Manager of Sustainability at SQM Lithium, reports that a pilot in Antofagasta has recovered “more than one million cubic metres” of water, with plans to reduce current brine extraction by at least 50% starting in 2031.
However, locals remain skeptical, viewing the Salar de Atacama as a “natural laboratory” for unproven technologies. Sara Plaza, whose family also raised animals in the region, remembers water levels dropping as early as 2005, with mining companies continuing to extract. She fears for future generations, asking, “Without water, without agriculture. What are they going to live on?”
The Broader Investment Outlook: Beyond the Immediate Numbers
This situation in Chile highlights a global dilemma for investors: balancing the urgent need for climate change solutions with the on-the-ground environmental and social costs.
While some, like lithium consultant Daniel Jimenez of iLiMarkets, claim environmental damage is exaggerated by communities seeking financial payouts, Professor Stegen counters that community demands often go beyond just money. “That’s not particularly what a lot of indigenous communities want,” she says, emphasizing that traditional economies can be disrupted, affecting housing costs and traditional ways of life. Locals like Raquel and Faviola don’t speak of wanting more money; they want their water and their land back. “It’s our water that’s being taken. Our sacred birds that are disappearing,” says Faviola.
For you, the investor, this means:
- Due Diligence is Key: Don’t just look at a company’s green tech portfolio. Investigate their environmental, social, and governance (ESG) practices, especially their water management and community engagement. Are they truly innovating, or just greenwashing?
- Long-Term Sustainability: Companies that effectively manage these environmental and social risks are likely to be more resilient and sustainable investments in the long run. Reputational damage or regulatory crackdowns due to poor practices can severely impact stock value.
- Diversification of “Green” Investments: Recognize that the “green” label isn’t uniform. Understand the supply chain risks and extraction methods for various green technologies.
- Impact on Local Economies: Consider the broader implications of large-scale extraction on local communities. Social license to operate is increasingly vital for continued production.
The story of lithium mining in Chile serves as a crucial case study. As we push for a cleaner world, the burden mustn’t be borne disproportionately by a few. For investors, understanding these complex dynamics is essential for building a truly resilient and responsible portfolio in the rapidly expanding green technology sector.
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