Critical minerals, including lithium, copper, cobalt, and rare earth elements, are used globally in military equipment to cellphone batteries. Clean energy technologies, such as electric vehicles, battery storage, solar panels, and wind turbines are mineral-intensive. For example, the IEA notes that a typical electric car requires six times as many minerals as a gas-powered car.
Reserve to Production Ratios
Most discussions about rare earth mineral extraction simplify the overall process by assuming that access to raw materials plus technical capabilities to extract equal availability. This is not the case since the years of production depend on the current extraction rate, which is further complicated by known resource amounts and current technological capabilities, which can change. Therefore, the reserve to production ratios represent the globe's rare earth mineral extraction capabilities better.
One particular challenge is that the world economy often falls into shortages of many mutually dependent resources at precisely the same time. Geopolitical turmoil, like the current crisis in Ukraine, creates an environment in which world markets may experience shortages of fossil fuels, fertilizers, aluminum, copper, iron ore, nickel, tin, and zinc all at the same time. The International Energy Agency argued that rare earth minerals shortages would happen periodically throughout the next several decades before the Ukraine crisis even began. Hence, an unpredicted event further complicated an already existing resource problem.
Planning is also a crucial component. Most fossil fuel or mineral projects require years of planning. Oil wells and copper, rare earth, or lithium mines demand significant planning, investment, and logistical support. Labor, commodity, and supply line requirements further complicate these projects, and once a global challenge emerges, a well-planned project can quickly become a stalled failure. Diminishing returns due to severed supply chains and ballooning costs also hinder innovation and development and regulations that prohibit certain types of production. In short, a global economic crisis coupled with geopolitical turmoil, similar to the exact position the world is currently in, can significantly disrupt any meaningful projection for rare earth production over the coming decades.
Such a complicated and fragile scenario demands that countries preserve resource independence. Nearly all of the minerals used in the U.S. for powering phones, computers, household appliances, electric vehicles and batteries, smartphones, solar panels, wind turbines are imported from China.
Expanding domestic manufacturing of these products is crucial to U.S. national security and critical to the overall transition to clean energy.
The IEA report points to vulnerabilities within the world's critical minerals supply chain, predominantly that production and processing are primarily concentrated in a few nations. Most notably, China accounted for 60% of the global output of rare earth elements in 2019 and 50% to 70% of the refining capacity for lithium and cobalt, and nearly 90% of the refining capacity for rare earth elements.
China's stronghold on the critical minerals market has begun to cause alarm among U.S. policymakers of both parties. Many Republican lawmakers, along with some Democrats, are pushing policies to expand domestic mining of critical minerals, including proposals to speed up permitting and offering tax incentives.
In February, President Joe Biden signed an executive order directing federal agencies to determine vulnerabilities in U.S. supply chains, including critical minerals and batteries that power electric vehicles.
Biden has also met with bipartisan House and Senate lawmakers to discuss bolstering the U.S. supply chain.
Politicians in the U.S. have advocated for rare earth mineral independence, especially because “net-zero” will demand the whole of society's adoption of technologies and processes that require technologies that depend on rare earth minerals. The nexus between the green transition and the requirement to extract rare earth minerals creates a political minefield and several ideological contradictions. Although 'against' mining or dirty extraction processes, Democrats will need to accept that rare earth extraction may require going against their inclinations to fuel the green transition. For example, mining in the U.S. might need to be expanded to public lands to fuel rare earth mineral needs and independence. Republicans often label many natural resources as 'critical to national security.' Still, rare earth minerals might need priority to waiver environmental laws, especially post-Ukraine when China and Russia quickly freeze up supply chains.
Despite conscious pushes by the Biden administration, America is import-reliant for 31 of 35 critical minerals and has no domestic production for 14 of those minerals. According to the International Energy Agency, by 2040, demand for energy-related minerals such as lithium, cobalt, graphite, and nickel could grow by six times or more. Further, China controls the refining process for lithium, while Russia is a top nickel producer, which directly contributes to technologies related to energy storage. Russian supplies accounted for about 10 percent of global mined production last year.
There are voices in the U.S. that argue for the United States to be a competitive producer of critical minerals and energy, especially since Russia's invasion of Ukraine. However, the U.S. is behind and vulnerable as a result. Any genuine efforts to make the U.S. more independent have been slowed down by permit wait times and severe regulatory scrutiny. The current legal framework is far from agile.
China's Strategic Plans
The Chinese government designated rare earth as a strategic industry in 1990 and continued to underwrite its development ever since through subsidies and Research and Development (R&D) funding. In reality, the U.S. did not significantly start questioning its rare earth mineral dependence until China's rise and subsequent confrontation with the U.S. China controls most of the world's rare earth needed for new E.V. batteries and nighttime solar energy storage to recharge. And the U.S. lost the potential to extract rare earth minerals from Afghanistan after the American military withdrew. Now, Beijing is eyeing future projects in the Taliban-controlled country.
The semiconductor crisis foreshadows how brutal a global rare earth mineral crisis could look in many ways. Since the coronavirus pandemic, General Motors, Ford, Toyota, Volkswagen, Honda, Nissan, and Subaru have all had to adjust production due to the scarcity of semiconductor chips. This condition will only become more precarious as E.V. numbers multiply.
China also merged three state-owned rare earth mining firms to create a single conglomerate that controls about 40 percent of its rare earth reserves. The Chinese government's consolidation of the rare earth industry is also part of a strategy to move up the global raw materials value chain through developing advanced processing and new applications for rare earths. China previously used quotas to limit its rare earth exports but was frequently criticized by the World Trade Organization (WTO). Later, China implemented a new tax system to increase the state's control of the broader rare earth mineral industry. Currently, a 13 percent value-added tax (VAT) is levied on all rare earth products. Refunds of this VAT tax are only issued on products sold within China. If exported, the VAT is non-refundable. Therefore, Chinese firms that produce and sell domestically have a 13 percent cost advantage compared to exporters.
Ironically, the U.S. is also considering a tax policy on rare earth minerals proposed by a bipartisan bill introduced last summer. Regardless of Washington's next steps, China still controls over 70 percent of the world's lithium supplies and 85 percent of rare earth supply chains to dominate the global industries fueling the green transition. China also produced 70 percent of the world's solar modules and currently houses over 100 lithium-ion battery mega factories.
Therefore, projections for the future of the global green transition, and the rare earth minerals required to fuel such a feat, are uncertain. The United States will need to pursue independence, as China and Russia weigh the pros and cons of supplying much of the world with crucial minerals and energy sources still necessary for daily life. As President Biden suggested several times throughout his administration, the world is changing rapidly, and access to raw materials will certainly impact the geopolitical realities of the coming decades.