Over the past few months, elected officials, military personnel, and political and industry observers began to question whether the United States should lessen its reliance on Chinese “rare earths.” Now, with China having just announced steep cuts in its export quota for these materials for the second half of 2010 and the foreseeable future, the United States, and the rest of the world, will have little choice.
Rare earths are some of those elements with the funny names that you ignored in high school chemistry: yttrium, scandium, and the 15 lanthanides (one of those long rows of elements that often gets separated from the rest of the periodic table). They are now emerging from obscurity because of the crucial role they will play in the green economy. From wind turbines to hybrid cars, superconductors to televisions, rare earths are present throughout current and future industry. Moreover, the U.S. dependence on Chinese production is real, with 91 percent of U.S. rare earths imports in 2005–08 originating there. Last year, China produced 97 percent of the world’s rare earths.
China plans to reduce its export quota for rare earths by 72 percent in the second half of 2010 compared to the second half of 2009. For the first time, demand outside China will exceed supply. And global demand, especially for use in metal alloys and magnets, will continue to grow rapidly; annual growth over the next four years is projected at 8-11% .
The reduction of the quota is only part of China’s reorganization of its rare earths mining industry. The government has also announced that only a few state-owned enterprises will be given mining rights and that it will crack down on what it describes as “rampant” illegal mining and exporting. In part because of this illicit trade, Chinese officials claim, the price of rare earths is too low, and legitimate producers have seen losses of profit. China will also be introducing a unified pricing mechanism for rare earths in the main production regions.
Other factors may be in play as well. Mining rare earths has a significant environmental impact, and the operators of the unregulated mines that are common in China are presumably not very concerned with limiting the damage. At least one industry observer believes that once China has effectively reined in illegal mining and crafted more effective environmental regulations, it will resume competing on the international rare earths market. Other analysts aren’t so sure. Some see China’s export cuts as a move to strengthen the position of domestic companies in these growing industries. The drop in supply combined with export tariffs of up to 25 percent could make it impossible for clean energy companies—for example, electric car manufacturers—outside China to compete without the development of alternative sources of rare earths.
China’s rare earths reserves constitute only roughly one-third of the world total, so there are other known rare earths out there, and undiscovered resources are thought to be large as well. The United States has the second largest reserves after China, and Australia and India have significant deposits as well. It is almost unanimous among analysts in the field that the United States, and the rest of the world, can meet their long-term rare earths needs even with the decreased supply from China.
It is the short term that is raising concern. The United States has no national stockpile of rare earths, and active mining stopped years ago, due largely to high labor costs and the increased costs associated with environmental regulations. And the actions that the U.S. government is considering—initiating a World Trade Organization dispute with China and passing legislation subsidizing domestic mining—wouldn’t have an immediate effect. It will take time for domestic mines—including the Mountain Pass mine in Southern California (once the world’s largest) and possible sites in Idaho and Wyoming—to begin producing, and the supply chain needed to turn the raw materials into useful products is completely absent. There are private stockpiles that U.S. companies can draw from, and production in Australia, Malaysia, India, and other supplier countries will likely increase to cover the immediate shortfall. With supply having outpaced demand for so long, there should be enough rare earths to go around. But it seems inevitable that prices will rise.
It also seems inevitable that rare earths mining will return to the United States sooner rather than later. Molycorp Minerals, the owner of the Mountain Pass mine has already announced plans (backed by Goldman Sachs) to reopen the mine. Developers in Wyoming believe that the location can be producing by 2015. With the U.S. military in need of a reliable supply of rare earths, these ventures seem unlikely to fail. Rising prices will allow U.S. operators to again become competitive, and it’s hard to imagine money—or environmental regulations—standing in the way of extracting minerals of such strategic importance to the military.
All of this will likely happen in spite of major environmental concerns. Chemical processing at Mountain Pass was stopped in 1998 after a federal investigation discovered 60 unreported radioactive wastewater spills. But the reopening may not be something that the environmental community should fight. Of course, there should be careful monitoring of the mine’s activities. But if the United States is going to rely on advanced technology to mitigate climate change and reduce fossil fuel consumption, then it can’t refuse to do the dirty work.
There are currently no viable alternatives to rare earths, and being unwilling to mine in the United States—especially if the country can effectively monitor it and it is economically viable—seems like the worst kind of NIMBYism. This isn’t Drill, Baby, Drill; this is being realistic about what widespread adoption of clean technology will require. And looking at environmental quality in the aggregate, regulated mining in the United States is undoubtedly better than illicit and haphazard mining in China.
While China’s decision to drastically cut its rare earths exports is not likely to trigger a worldwide shortage in the long run, it will cause an industry transformation. Prices of rare earths will rise, which will in turn affect prices of many technologies that we are counting on to build a clean energy future. All the more reason to start mining.
Worldwatch has begun to examine the issue of strategic material inputs as part of its Energy Security 2.0 initiative. You can find our first policy paper on implications for U.S. national security here.