The Future Battlefields: Rare Earth Elements
By Ariel Cohen, Alum of The Fletcher School of Law and Diplomacy at Tufts University
Sweden’s state-owned mining enterprise LKAB may have given the West hope in its quest for energy independence and containing China. Two weeks ago, LKAB announced it had discovered nearly one million metric tons of rare earth elements (REE).
REEs include 17 elements that are vital for advanced batteries, lasers, electronics, and all emerging technology of the 21st century, including the energy transition.
After the end of the Cold War, a series of US and EU policy failures resulted in China nearly monopolizing REE production and refinement, with the EU importing 98% of its REE from China. The US is not much better, with 78% of its imports coming from China.
With the West decoupling itself from Russian energy, its overwhelming reliance on China for REEs has been rightfully identified as a cause of concern. Many of the same red flags which should have prompted European disentanglement from Russia in the 2010s, especially after 2014’s invasion of Crimea and Donbas, apply to contemporary China.
China’s escalating threat to Taiwan, confrontation in the South China Sea, construction of artificial islands, bellicose rhetoric, an increasingly active “String of Pearls” strategy, “continental strategy” in Central Asia and the Middle East, and economic power projection in Africa and Latin America and more lead many geo-strategists to shudder at the thought of China dictating the green energy architecture of the future.
China achieved its monopolistic dominance in the sector when its savvy investment converged with Western complacency and incompetence. Despite their name, some REEs are not rare at all. While China does have notable deposits of REEs in Xinjiang and Inner Mongolia, China is not a natural “Saudi Arabia” of REEs. Wise policy can displace them. It was only in the mid-1990s when America entered recession and China “strategically flooded the global market” that the modern REE supply chain emerged.
Many have tried and failed to displace China’s dominance. In 2011 Brazilian mining giant Vale announced they had discovered a cache of REEs, helping to catapult their stock price up and ultimately attract interest from the US Department of Defense. Rio Tinto (RIO) made a similar discovery, partnering with the United States Geological Service, ultimately producing a trickle of REE element Scandium. However, these past discoveries and many similar ones were always hampered by the small scale of production and a lack of political will or strategic vision. That is changing.
The US is now moving more rapidly to reestablish its lost dominance, albeit imperfectly. MP Materials bought the failed Mountain Pass mine in California (whose 2002 closure ended America’s REE competitiveness) restarting production in 2017 with the assistance of multiple government grants. However, Shenghe Resources, a Chinese mining company, still owns a stake in MP Materials. Nevertheless, the company aims to improve US refining, separation, and magnet-making by 2025, and progress is reportedly faster than expected.
The Biden administration is tackling the issue through investments in climate change technology, including a $30 million initiative to research and secure the U.S. supply chain for domestic rare earth and battery-making minerals and signing an executive order to review gaps in the domestic supply chains for rare earths, medical devices, chips, and other key resources. This may be too little, too late.
Other ideas proposed to solve the REE issue include extracting rare earths from coal, recycling old batteries or disk drives, and utilizing shipping services like Amazon or USPS to set up a recycling system. While all vital steps, dysfunctional American politics, and reticence to use domestic mineral sources mean America’s energy security will likely involve some foreign actors.
“Friendshoring”, the latest term for ensuring one economically only relies on allies, has been championed by US Treasury Secretary Janet Yellen for REEs as a way of shifting sourcing of REEs away from unfriendly authoritarian regimes while expanding allies’ manufacturing capacities. LKAB’s discovery could lead to more friendshoring, helping the West become more energy secure while strengthening the transatlantic alliance, and bolstering the West’s ability to compete with China.
However, Sweden alone cannot realistically replace Chinese REEs. China accounts for 36.7% of the world’s REE reserves, 63% of its mining capacity, and over 90% of its refining capacity. The US is already cooperating with one of the largest processors of REEs outside China, such as the Australian-owned Lynas Corporation to build both light and heavy REE separation facilities in Texas, which will begin operations in 2025. American efforts to close the REE gap can already be seen, as the percentage of China’s share of the world’s REE production declined from 80% in 2020 to 60% in 2021.
The two key REE issues the West must contend with going forward are timing and processing. Sweden’s recent discovery is not effective in the short term. LKAB’s CEO Jan Mostrom says it will take 10 to 15 years before Sweden’s materials hit the market. This stems from the greater issue: REE processing. While the materials themselves are abundant, extracting, processing and refining are difficult for technical and environmental reasons.
American success in securing REE supply chain depends on whether the US can accelerate processing and refining, but building a solid processing chain could take almost a decade. China conducts 85% of the world’s REE processing and 92% of REE magnet production. While Lynas’s mines are in Australia, the company still sources heavy REEs from China. Many European countries have REEs but lack processing expertise as the NIMBY is the King of Europe.
While LKAB’s discovery is a strong long-term solution, it may not be enough. It also is not an effective short-term solution. Within that time, China could apply REE blackmail against the West and plough export revenues earned from trade with Europe to fulfill its geopolitical designs.
For friend-shoring to seriously reduce China’s monopolistic hold over the global REE market, the West needs to not only invest in US and Europe’s REE extraction but also in processing and refinement. This can be done by sharing knowledge and expertise on processing and production and extensively engaging the European private sector to invest in enhancing these capacities around the world. Companies like Lynas can expand their partnerships to Europe and develop mines and processing plants in Africa and Latin America.
Allies are important in strategic competition and the US has many allies. It will serve the US better to strengthen its allies’ capacities to secure the REE supply chain. This is the true essence of friend-shoring, and one of the most important strategic trade problems of our age.
This piece is republished from Forbes.