In a seeming paradox, the production of solar panels, wind turbines and Prius batteries all begin in Chinese mines. Fears about rare earth shortages remind us that dirty mining necessarily precedes green technology.

China currently controls 95% of the production of rare earth metals, which are vital to cutting-edge technologies in clean energy, national defense and to electronic devices ranging from computer screens to satellites.  With China limiting rare earth minerals exportation, will American and European green technology firms risk facing shortages?

Image courtesy of NASA Earth Observatory, © 2006, some rights reserved.

Image courtesy of NASA Earth Observatory, © 2006, some rights reserved.

The term ‘rare earth’ is a misnomer. Rare earth metals are actually far from rare. The phrase refers to seventeen chemically similar metallic elements found scattered throughout the globe, though often in concentrations too low to justify extraction. If anything, a dearth of producers, not reserves, leads to the growing impression that the minerals are scarce. In fact, only 40% of rare earth reserves are in China.

From hybrid cars to laptops, rare earth metals are vital to maintaining our high-tech lifestyle and making a transition to a renewable energy economy. How is it that China obtained a near monopoly on materials vital to cutting-edge industries?

The answer lies in environmental outsourcing. The United States once dominated rare earth production, producing up to 70% of the world’s supply in the 1970s and 1980s. This was due in, large part, to the large reserves at California’s Mountain Pass mine.  European companies, such as French Rhodia, once played a larger part in the separation of rare earths. This separation process, however, requires the use of contaminating chemical substances and produces radioactive waste. In 1998, chemical processing at Mountain Pass was halted after radioactive water waste spilled into the Ivanpah Dry Lake. The mine spent the next few years trying to develop environmentally friendly practices, but was ultimately unsuccessful because it couldn’t compete with Chinese prices. Would it have been worth it for the US to invest in safer practices in order to prevent Chinese dominance?

The Chinese, recognising their geological advantage in rare earths, simultaneously enacted a strategy to become frontrunners of the industry. In 1992, Deng Xiaoping, China’s former Communist Party leader recognised that ‘the Middle East has oil, and China has rare earths’. Through state planning, China hoped to become the OPEC of rare earth metals.

China flooded its rare earth industry with funding and aid for research, development and training programs. Largely thanks to its Bayan Obo mine in Inner Mongolia, China was able to obtain dominance over the production of the minerals. Government policy ensured that Chinese industry conquered the supply chain, from extraction to the separation and transformation of the base materials. Cheap labor and lax environmental laws put China at a competitive advantage.

This, however, was not without its costs. In order to obtain its stronghold on rare earth minerals, China sacrificed its environmental health, shown by the mining waste now readily found in the Yellow River. Bayan Obo mine labourers have been found to have an alarmingly high rate of cancer. However, to the Chinese leadership, these negative externalities were of little consequence.

The Chinese strategy was successful. Outside firms could not compete with China’s low prices, and U.S. production stopped altogether in 2002 with the closure of the Mountain Pass mine. The world was more than happy to let China do the world’s dirty work as long as prices remained low and supply remained ample. The Chinese acquisition of the rare earth monopoly is a notable example of centralised planning that would have been rejected by western capitalism.

The Chinese dominance over rare earth minerals was hardly noticed until it because a threat.

In 2010, China showed that it would not hesitate to use its monopoly as a diplomatic arm. It cut off rare earth shipments to Japan following a territorial dispute over the Senkaku/Diaoyu Islands, posing a threat to Japanese industry.

Even before the Japan trade ban made headlines, the new ‘OPEC of rare metals’ attempted to do what Arab oil producers did in 1973 – restrict supply and raise prices. Since China began restricting exports in 2005, the US Department of Defense has cited dependence upon China as a threat to military technology innovation while the American Department of Energy has cited rare earth shortages as a threat to green technology production. In explaining the cutbacks, China, hardly known for eco-friendly policies, made the somewhat dubious claim that it restricted exports in order to protect its own environment.

More likely though is the hypothesis that rare earth export quotas are key to transforming China into a high-tech leader. Chinese industry is moving up the supply chain, not only exporting raw materials and cheap goods but also electronics, high-speed trains, airplanes and cars. Quotas ensure that rare earth minerals remain plentiful and cheap within China. This ready supply, in turn, incites upmarket technology firms to relocate to China.

To the horror of many Americans, many already have. US companies Applied Materials, IBM and Dow Chemical, among others, have relocated solar energy research facilities to China. The ample supply of rare earth minerals is one of many factors giving China a leg up on ‘green’ economic development. It also has sixteen state-owned industries researching areas from LED lighting to hybrid vehicles. China has been able to dominate the green technology sphere like no other, becoming the leading producer of wind turbines in 2009. In 2011 it unveiled a plan to allocate £1.1 trillion to green and high tech sectors – the equivalent of Italian GDP.

In March 2012, the United States, Japan and the European Union reacted assertively to China’s rare mineral quotas, claiming at the W.T.O. that China’s policies are in violation of free trade agreements. The case reveals the extent to which the claimant countries find China’s monopoly to be a threat and unveils the fears of industrial decline on the part of the United States, Japan and the EU.

The WTO case also appears contradictory. Rare earth minerals only became ‘strategic’ weapons in the hands of the Chinese because the world allowed them to become so. The industrialised world wants an ample supply of rare earth minerals, provided that they do not come from our own backyard. We laud green technology innovation, but fear it when it comes from China.

Yes, the Chinese hold over rare earths does represent a potential, though limited threat to green technology innovation. This is because over the next 25 years, demand for elements required for wind turbines such as dysprosium could increase by 2,600 percent, while it often takes ten years to open new mines. Yet targeting China as the reason the US, Japan and certain EU countries are lagging behind in green technology is akin to blaming Chinese lenders for burgeoning debt in the US. It will be more effective for the claimants to focus on developing their own green technology strategies than on condemning China.

No matter the outcome of the case, whose decision will be revealed in May or June 2013, the world will seek to shatter the Chinese rare earth monopoly. The Mountain Pass mine in California has reopened and mining firms are now looking to Australia, Canada, Kazakhstan and Indonesia for potential sources. Though this may be beneficial for green technology innovation, more mining will mean more environmental and human health hazards. In order to develop green technologies in a way that is truly clean, producers need to develop cleaner refinement processes that ensure safe disposal of radioactive residue. Industry should also focus on ‘urban mining’, or recycling rare earth minerals found in landfills.

However, China will not relinquish its rare earth dominance without a fight. China is attempting to obtain rights for rare earth exploitation in Greenland, and unsuccessfully ventured to acquire the American Mountain Pass mine in 2005. Whether or not rare earth mining remains dominated by China, it will be important for the industry to expand in environmentally conscious ways, so that green innovation doesn’t originate from a dirty source.