Rare earths in the grey zone
Rare Earths in the Grey Zone
WRITTEN BY MICHAEL BRODKA
17 May 2021
The race to zero carbon emissions by 2050, an ambitious undertaking pledged by more than 110 countries, including the European Union, Japan, and the Republic of Korea, has grown the demand for green energy production and storage. Clean energy relies heavily on specific minerals to build wind turbines, solar panels, and energy storage devices. To meet the zero-emission goal outlined in the Paris Climate Agreement, a report by the World Bank projects increases in demand “up to nearly 500 per cent for certain minerals, especially those concentrated in energy storage technologies, such as lithium, graphite, and cobalt”. Moreover, the global defence industry relies on a range of minerals for several applications, all triggering increased demand as technology improves. However, the increase in demand for these rare earth elements is not the issue — supply is.
China has established itself as the dominant global supplier of these elements and has recently used its position to target-dependent countries through economic coercion. That grey zone activity — competitive actions beyond those associated with routine statecraft and below means related to direct military conflict — creates strategic dilemmas for several Indo-Pacific countries. Some of those affected, such as Japan and the United States, recently took steps to identify supply chain alternatives. Additionally, during its virtual summit in March, the Quadrilateral Security Dialogue (the Quad) discussed opportunities to partner in supply chain diversification and created an emerging technologies working group. Countering the Chinese rare earth monopoly and its weaponisation threats are strategic priorities that require cooperation from several countries in the Indo-Pacific, where almost 75 per cent of all rare earth reserves are located.
Rare earths and their strategic implications
Rare earth elements (REEs), 17 elements that primarily reside near the bottom of the periodic table, are used to manufacture components used in a wide array of technological devices. REEs are used in consumer products like smartphones and flat-screen televisions and are key ingredients of clean energy components such as lithium-ion batteries used in electric vehicles. REEs also play a significant role in the defence industry, where elements are used to create critical components to submarines, missile guidance systems, and jets. The United States, for example, requires half a tonne of rare-earth material for each F-35 strike fighter, 2.3 tonnes for each Arleigh Burke destroyer, and 4.1 tonnes for a Virginia-class submarine. Japan, another country heavily reliant on REEs, imported more than 16,000 tonnes of minerals in 2019, almost 36 per cent of China’s total REE exports.
Diversification policy and supply chain alternatives provide the mechanisms for Indo-Pacific countries to lessen their dependence on Chinese REEs; however, further action is necessary. Any long-term REE strategy must also contain plans to reduce consumption, improve the efficiency of the resource, and emphasise recycling.
China controls the global REE market due to its extraction and refinement capacity. The process is notoriously time-consuming, expensive, and harmful for the environment, which led to a decline in production within market economies like the United States in the early 2000s. China has exploited its position to use REEs as a strategic economic tool. As China’s former leader Deng Xiaoping said in 1992, “While the Middle East has oil, China dominates rare earth”. In support of that claim, China accounted for 58 per cent of global REE production and over 85 per cent of all REE exports in 2020. Chinese facilities produced 100,000 more tonnes of REEs than the United States, their closest competitor.
Japan’s overreliance on Chinese REEs was exposed in 2010 when China briefly restricted rare earth exports during a bilateral dispute. Japanese industry felt the squeeze which alarmed other Indo-Pacific countries. Afterwards, Japan began to shift its reliance away from China and started the first efforts at REE supply chain diversification. In 2011, Japan’s Sojitz Corporation and government-owned Japan Oil, Gas and Metals National Corporation (JOGMEC) invested $250 million in Australia’s Lynas Corporation. The financial boost helped Lynas to become the only supplier outside of China capable of processing rare earths, and the company now supplies Japan with nearly one-third of its rare earth imports. In 2018, the United States deemed 35 minerals — including all 17 REEs — critical to national security. A year — later, amidst trade tensions, China threatened escalation to a trade war and imposed sanctions against United States defence companies following the proposal of a $1.8 billion arms deal with Taiwan that included weapons containing REE components. That put the United States in a similar dilemma as Japan and influenced the Biden administration’s executive order in February 2021 to explore supply chain alternatives.
Overcoming the Chinese rare earth monopoly
China continued its coercive rhetoric in April 2020 when President Xi Jinping called for enhancing global supply chains’ dependence on China to “develop powerful retaliation and deterrence capabilities against supply cut-offs by foreign parties”. To counter China’s growing rare earth grey zone activities, the Quad and other like-minded countries in the region must develop REE alternatives. Actions such as reopening critical mines, increasing refinement capacity, and providing REE companies with government subsidies and tax incentives can offset losses and decrease reliance on Chinese exports. Australia unveiled its REE strategy in early 2019 to position itself as a world leader in the extraction and refinement of critical minerals. In the United States, the government recently invested $30.4 million in Australia’s Lynas Rare Earths Ltd to open a Texas processing facility. M.P. Materials, the Mountain Pass rare earth mine owner in California, is expected to relaunch its onsite processing facilities by 2022, providing the foundation for a self-sufficient rare earth industry for the United States.
India is another crucial REE partner. Sitting atop an REE reserve of 6.9 million tonnes, the world’s 5th largest, India is positioned to decrease its reliance on Chinese REE imports by increasing domestic extraction and refinement. However, Indian Rare Earths Limited (IREL), the country’s only REE company, produced just 2,265 tonnes in 2019. Part of the issue is capacity. IREL can only produce approximately 11,000 tonnes of REEs annually, a minuscule amount compared to its Quad partners, even though India’s REE reserves are twice as large as Australia’s. For India to play a more prominent role in global REE markets, researchers from the Takshashila Institution recommend deregulation to attract foreign investment and increasing the private sector’s role to stimulate competition and innovation. Furthermore, partnerships with other Quad countries, Japan, South Korea, Vietnam, and the European Union, will help expand global demand and investment.
And finally
Diversification policy and supply chain alternatives provide the mechanisms for Indo-Pacific countries to lessen their dependence on Chinese REEs; however, further action is necessary. Any long-term REE strategy must also contain plans to reduce consumption, improve the efficiency of the resource, and emphasise recycling. The United States Department of Energy assesses, “recycling rare-earth-containing products would provide a steady, domestic source of rare earths to manufacturers while also reducing waste”. Recycling also decreases the prohibitive costs of refining raw REEs, which was a significant factor that led to the global reliance on China’s more affordable processes beginning in the 1990s. REEs have since emerged as critical components of national security and economic growth. Making REEs more attainable, sustainable, and affordable should be the basis of any strategic response to Chinese economic coercion and associated grey zone activities.
DISCLAIMER: All views expressed are those of the writer and do not necessarily represent that of the 9DASHLINE.com platform.
Author biography
Michael Brodka is a US Army intelligence officer and writes about foreign policy and regional security issues in East Asia. He holds an MPS in Security and Safety Leadership from George Washington University and is an MPS in Applied Intelligence candidate at Georgetown University. Image credit: Wikimedia.
The views expressed herein are those of the author and do not reflect the official policy or position of the US Department of Defense.