Legal & Regulatory

Will Critical Materials Become a Green Roadblock?

Lack of supply security for crucial minerals could slow or derail development of cleaner energy technologies, according to a recent report from the U.S. Department of Energy (DOE). Today, China has a monopoly grip on many of these minerals. It controls about 95% of their global supply and appears to be manipulating the control to its benefit. For example, late last year, China imposed a 35% cut in rare earth exports and raised export taxes dramatically.

Facing that threat to the global supply chain, the DOE is formulating what it calls a "strategy" for dealing with the impact of critical materials on the development of new energy technologies. But some China analysts say the nation is playing the minerals monopoly game poorly and cannot sustain its market hegemony.

In its "Critical Materials Strategy" report, the DOE looks at 14 minerals that can drive technology developments in crucial areas that include permanent magnets, batteries, thin-film photovoltaic films, and phosphors. It concludes that the minerals are "at risk of supply disruptions in the short term (0-5 years). Those risks will likely decrease in the medium (5-15 years) and long term."

Of the 14 minerals the DOE studied, it found that five—dysprosium, neodymium, terbium, europium, and yttrium—are most critical, which the energy agency defines as a measure "that combines importance to the clean energy economy and risk of supply disruptions." Dysprosium is needed for the magnets used in wind turbines and electric vehicles, as is neodymium, which is also needed for vehicle batteries. Terbium is also used in wind turbine and vehicle batteries, while europium and yttrium are necessary as phosphors in advanced lighting technologies.

In the 166-page report, the DOE outlines its plans for obtaining the materials critical to new energy technologies. According to the report, clean energy technologies "currently constitute about 20 percent of global consumption of critical materials." This percentage, says the report, is likely to grow.

The DOE report is based on three technical workshops that it held in late 2010. The department says it hopes to unveil a full critical materials strategy, drawing on the report and the results of the workshops, by the end of this year. It says it will beef up its capacity to gather information on the topic and work with international partners, including Europe and Japan, "to reduce vulnerability to supply disruptions and address critical materials needs." The agency says it will also work closely with other interested parties, including other federal agencies, Congress, and the public, to better understand the issue and its implications.

Rare earth minerals, notes the DOE, "are not in fact rare. They are found in many countries, including the United States, Canada and Australia. However, at present, more than 95% of production for rare earth metals is currently in China. Bringing new mines online requires long lead times and large capital outlays."

The DOE says three fundamental concepts drive its critical materials strategy:

  • Diversified global supply chains. "To manage supply risk," says the report, "multiple sources of materials are required. This means taking steps to facilitate extraction, processing and manufacturing here in the United States, as well as encouraging other nations to expedite alternative supplies. In all cases, extraction and processing should be done in an environmentally sound manner."
  • Developing substitutes. "Research leading to material and technology substitutes will improve flexibility and help meet the material needs of the clean energy economy."
  • Recycle. "Recycling, reuse and more efficient use could significantly lower world demand for newly extracted materials. Research into recycling processes coupled with well-designed policies will help make recycling economically viable over time."

Developing a strategy for using critical minerals in clean energy need not mean steep cost increases for the new technologies, says the report. "Critical materials are often only a small fraction of the cost of clean energy technologies," it says. "Therefore, price increases for these materials may not have significant impact on price of the final product or demand for the technologies. The lack of response to price signals suggests the possibility of supply shortages."

The DOE report cautions that its scope "is limited. It does not address the material needs of the entire economy, the entire energy sector or even all clean energy technologies. Time and resource limitations precluded a comprehensive scope."

The editorial page of the Wall Street Journal used the DOE report to take a swipe at the agency and the Obama administration’s policies favoring allegedly green technologies. "Remember how one advantage of green technology would be to make America less dependent on foreign sources of energy? Oops. A Department of Energy report released last month to little fanfare inadvertently blows this idea away." The newspaper editorial observes: "Reliance on global markets for energy supplies has never been as terrible as energy independence believers argued—at least so long as the global market in question is as broad and deep as that for oil and other hydrocarbons. The U.S. is also capable of producing more of its energy if it could muster the political will to expand oil and natural gas drilling. So we suppose thanks are in order to DOE for reminding everyone that not even a windmill can free American from the need to trade with others for energy."

More to the point, an article in the Journal’s Asian edition suggests China may be pursuing the wrong course with critical materials. China’s government appears to be following an "old-fashioned industrial policy" on minerals, by using its monopoly position to persuade manufacturers of goods containing them to move production to China. Current export quotas and taxes aren’t imposed on goods made in China and exported. "It sounds clever," says the newspaper article. "But it could backfire in several ways."

Facing rising prices and a fragile supply chain, manufacturers could rework their designs to minimize the materials, says the article by Joseph Sternberg, editor of the Business Asia column. General Electric, for example, is attempting to reduce the use of rare earths in wind turbines by 80%. Also, mining companies are developing ways to mine the minerals with less environmental impact, which could bypass China’s supplies. Sternberg argues that "by effectively making foreign companies work harder than Chinese entrepreneurs, Beijing may be increasing the chances that the next big technological breakthrough will occur somewhere other than China."

Japanese auto giant Toyota is working on an electric motor that doesn’t rely on rare earth minerals. The minerals are used in magnets in the motors of Toyota’s hybrid gas-electric cars, including the popular Prius. Toyota is working to make motors that use conventional electromagnets, instead of permanent magnets that need neodymium, one of the more common rare earths.

California company NovaTorque last fall rolled out a series of advanced motors based on ferrite (iron) magnets, the Wall Street Journal reported. The motors are designed for refrigerators and HVAC equipment, but the company says it is testing scaled-up versions that could be used in wind turbines.

—Kennedy Maize is MANAGING POWER’s executive editor.

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