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Rare Earth Dispute Hampers Renewables

John Seaman | IFRI | November 2010

China’s trade policy could force the renewables sector to its knees – an industry that has registered 230% growth in global investments since 2005 and generated $162 billion in investments last year alone. After all, this successful sector suffers from a crucial weakness: Rare earth elements are essential ingredients in the production of many key technologies such as specialized magnets for hybrid vehicles. China controls 97 percent of the world market in rare earth and has announced that it will reduce exports by 72 percent in the second half of 2010. The West urgently needs to act in order to maintain its competitiveness.

The exploitation of rare earths is tremendously harmful to the environment. This is the case in particular in China, where numerous small actors engage – largely illegally – in their production. It is hence not entirely justified to suspect that China’s export restrictions are primarily geared toward hurting the West. Rather, the official Chinese policy needs to be seen in the context of a nationalization and better control of the production process within the country itself. It is crucially important for Beijing to rein in these environmentally destructive production methods that will prove enormously costly in the long run. Moreover, China wants to share in the global renewables boom and upgrade its production capacities. The country is attempting to use its near monopoly in order to become more attractive as a production site for green technologies. It is in this context that Chinese efforts to buy up rare earth deposits outside of China need to be seen as well. China itself possesses only 37 percent of worldwide deposits. Not least because of its lax environmental standards, the country has been able to exploit its resources more cheaply and hence dominate the world market up to date.

The West must succeed in becoming less dependent upon Chinese rare earth supplies, in order to gain greater autonomy in the development of renewables. The Japanese firm Toyota for instance has already begun securing its own sources abroad by investing in a Vietnamese mine. Like Japan, Europe also lacks deposits domestically. However, Europe has not undertaken any steps to assist industry in facing the challenges to be expected from the coming resource scarcity. By contrast, the United States is attempting to make domestic mines, which have been unprofitable in the past, attractive once again to investors. However, it is up to research and development efforts to come up with alternatives to rare earth elements for the high-tech sector. Recycling efforts must also be stepped up in order to guarantee a better exploitation of the rare earth elements available. After all, this is not merely a question of economic competiveness, but also one of national security, since the military depends on rare earth elements for numerous high-tech gadgets as well.

This summary was prepared by the Atlantic Community editorial team from “Rare Earth and Clean Energy: Analyzing China’s Upper Hand” published here by the Institut Francais des relations internationales.