A recent report from the BBC talks about Cornwall becoming one of the UK’s most prospective mining areas as an industrial site in central Cornwall has drilled into Geothermal waters leading to a discovery of a precious natural resource.
The Gwennap engineers who have been pumping water have found trails of lithium within the substance which is a metal essential for the production of electric batteries for electric vehicle production.
The demand for electric vehicles is predicted to ramp up in the coming years as several economies around the globe, especially the UK with the Paris agreement, are moving towards carbon neutrality.
To achieve this environmental objective, the UK government has decided to issue a ban on the sale of new petrol and diesel cars in 2030 to reduce consumption of fuel within the transport industry, the UK’s highest polluting sector.
The goal of this policy is to make petrol and diesel cars insignificant and inferior to their electric counterparts as an entire ban on the sale of new petrol and diesel cars means that producers of petrol and diesel cars will have to change their production towards electric vehicles as to not experience a massive loss in demand for their products as consumers will begin to favour their more efficient electric counterparts.
So, to ensure that these firms retain their profits in the long term, the ban on the sale of new petrol and diesel cars signals and incentivises firms to change their factor inputs towards producing electric vehicles.
And this increase in the production of electric vehicles will likely drive innovation as firms such as General Motors, who have already announced their expansion into the market, results in competition for existing firms such as Tesla who in recent years have likely developed a first-mover advantage to a certain degree.
This increased competition drives innovation as these two firms have to fight with one another on quality and price as firms aim to maximise profits and these profits only come from demand and consumers only purchase products with the most utility.
Consequently, firms are beginning to expand into electric vehicle production and this expansion is going to drive up demand for lithium on a global scale due to the importance of the raw materials in battery production.
As a result of this, the discovery of lithium within Cornwall is extremely good news for the UK economy as the nation is now in the possession of a key raw material, one which is so important that it is arguably the new gold rush.
The discovery of this raw material likely means that electric car manufacturers such as Tesla, are going to start looking into setting up in the UK much further than they already are as constructing a Gigafactory within the UK, a country which has access to lithium, means that transport costs for raw materials will be significantly reduced.
At the same time, due to the UK’s good relations with Australia, the worlds largest lithium miner, the nation may be also able to produce a trade deal with Australia to secure more lithium.
And this prospect of FDI means that Cornwall’s economy, as well as the UK economy, will likely see the generation of a new specialised industry whose focus is on the production of lithium or lithium-ion batteries.
The construction of such an industry within the UK will have massive benefits as it will likely yield a significant boost in employment as high paying jobs are created aimed at specialists within the industry.
A boost in employment will help move us closer to the government objective of full employment whilst also yielding a multiplier effect as newly employed specialists and engineers spend their disposable incomes in local businesses
At the same time, excess production from the specialised industry can be exported industries which once combined with the multiplier effect, will yield a significant boost in aggregate demand as exports, a component of net trade which is part of aggregate demand, rise.
However, the FDI from firms setting up in the UK will not only yield short term growth through aggregate demand expansion but an overall increase in productive capacity as the gross investment due to FDI creates new capital within the UK economy which can be used to produce more goods and services thus yielding long term growth.
Written by Hubert Kucharski