Rare earth elements, industrial policy in middle income countries and the future of the energy transition

Dr Jojo Nem Singh is an Assistant Professor in International development at the International Institute of Social Studies working on an ERC-funded five-year project about the political economy of rare earth elements (REEs).

Specifically, his research will examine the extraction, production and trade of rare earth elements in relation to new industrial policies of resource producers and as a key to the transition towards the green economy. He will also analyse how REEs can play a vital role in the current and future relationship between China and the Western world.

Can you explain what your research project is about and why this topic is relevant?

‘The transition to green technology will be facilitated by the sustained use and trade of REEs. They are used for the production of important industrial goods such as LCD screens, smartphones, wind turbines, electric vehicles, and efficient lighting. In short, rare metals play a major role in today's modern life, and it will play an even wider role in our transition to green energy. Because most countries want to place more wind turbines and solar panels, the demand for rare earth metals will accelerate. There is also another use for REEs: rare metals are used in specific industries like missile and defence systems and thus of geopolitical importance. So ironically, REEs are critical resources for both the green technology transition and for countries with big military and defence industries, like the U.S. and China.’

And what is the problem?

‘Well, 90-95% of rare earth metals production is currently found in China. The separation and processing of ‘heavy REEs’ from their ores are also controlled by China; there is only one factory outside of China that can process heavy REEs. We have thus arrived at a situation where the supply chain is dominated by a single producer. That is, to say the least, an interesting situation.

In our research, we look at three countries which have substantial rare earth metals reserves: Brazil, China and Kazakhstan – and we will examine how different governance arrangements in these countries are going to affect the world supply. We will also look at whether the governance arrangements can serve as an opportunity, or bottleneck, to the green transition.’

By 2002, we became extremely dependent upon China’s willingness to supply high-tech manufacturing firms and advanced industrialized countries with these minerals.

From a global perspective, these metals are important in lowering our carbon emissions and strengthening our response towards climate change. But the European Union is well aware about their lack of secured access to these minerals. Since 2010, the EU has been looking into different possibilities to diversify the supply chain and is also investing in recycling and substituting rare earth metals. However, the reality is that we are still far from succeeding.’

How are you going to conduct research?

‘The research project takes a global value chains approach. I will follow the minerals, so to speak, from the moment we extract them from the ground in Brazil, China, and Kazakhstan, all the way to the process of chemical separation, refining and processing. And eventually we will look at how they end up in advanced industrialized markets as inputs for high tech products.

From a development point of view, we will look at the question how resource producing countries can take advantage of the situation. How can they use REEs as an instrument for industrialization, and as leverage to regional powers which seek access to these minerals? The demand side will also be examined: what are advanced industrialized countries doing to secure their access to these minerals?’

And what do you expect to find out?

‘What we will see in the next five years, is an interaction between the industrial policy from resource producing countries on the one hand, and the push for access to reduce the criticality of these minerals from the side of advanced industrialized countries on the other hand.

In our project, we place special emphasis on how important China's role is in the transition to green technology. In 2010, the Chinese government began to implement an ‘export restriction’ policy by imposing quotas on the amount of minerals that can be sold in the world market. Nowadays, they only want to export limited amounts and try to rationalize them for domestic uses. They are actively securing their own resources for their own industrialization.’

So is the transition towards green energy not possible without these rare earth metals?

‘Yes, and an important question is: how much rare earth metals do we really need? When we look at the research on mining and extractive industries, usually we see questions related to human rights, child labour issues, environmental impacts, or who pays for the collateral damage.

In my research, we are looking at middle income countries including Kazakhstan, China, and Brazil: countries with fairly strong bureaucratic institutions and state capacity to coordinate and implement sophisticated industrial policies. These countries could find a way to design appropriate development plans to create a long-term strategy for sustainable economic development.

Having said that, there are also studies that examine how mining communities in these countries, in China for instance, pay the cost of all of this. Because the people working in the industry have to bear the brunt of extraction: they are directly faced with the health and environmental hazards. I think there is a strong ethical dimension involved when we study these resource producing communities. We have to ask ourselves: how much are we willing to pay for the costs of extracting these minerals? And if we create an alternative supply chain outside of China, who pays for these costs?’

It is a sad story, in the end?

‘A lot of people thought the green technology was the answer to everything. However, more and more studies are showing there are other problems so it’s not so straightforward. We cannot uncritically say: "Okay, let's produce more wind turbines and solar panels!" The simplistic assumption that technology can solve the green energy transition without creating other problems, is actually not true.’