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March 21, 2012

Obama's Plan For More Energy Dependence on China

March 21, 2012
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“President Obama’s plan creates a much stronger dependence on China’s virtual monopoly on rare earth production.”

President Obama’s energy policy is a bit confused. He touts reducing the use of foreign sources of oil at the same time he promotes policies which dramatically increase the dependence on Chinese sources of minerals.  A key ingredient to President Obama’s wish of more windmills and more battery-powered cars is rare earth elements. But 97 percent of these minerals are supplied by the Chinese. President Obama might argue that we need to reduce our use of foreign sources of oil, but his plan only creates a much stronger dependence on China’s virtual monopoly on rare earth production.

Two rare earths, dysprosium and neodymium, are needed for the generators and motors of electric vehicles and wind turbines. They have configurations of electrons orbiting their nuclei that result in very powerful magnetic properties. Finding substitutes for these rare earth minerals would be difficult because making the magnets from other materials would make the turbines and vehicles either heavier,  less efficient or both.[i]

MIT Study

Researchers from the Massachusetts Institute of Technology (MIT) evaluated the amount of these rare earths that would be needed if Obama’s energy program came to fruition shifting electricity generation away from coal and toward renewable generation. These researchers found that using current technologies and meeting those demands would require an increase in the supply of neodymium and dysprosium of more than 700 percent and 2,600 percent respectively during the next 25 years. To match the growth projections would require neodymium supplies to increase by 8 percent per year and dysprosium to increase 14 percent per year. The supply of these rare earth minerals are currently increasing at only 6 percent per year.

U.S. Rare Earth Resources

The United States currently does not mine rare earth minerals, but has large deposits of rare earth elements. Environmental regulations closed down the last rare earth mine in the United States at  Mountain Pass in California. In 1966, the Mountain Pass mine had become the world’s largest producer of rare earth elements. From the mid 1960s through the mid 1980s, the United States was the largest source of rare earth elements and was self-sufficient in their production. By the mid 1980s, environmental and regulatory issues at Mountain Pass led to its near shutdown and eventually its demise as a working mine while the Chinese ramped up production. By 1999, 90 percent of rare earth elements required by U.S. industry came from Chinese sources.

China’s Dominance in Rare Earths

China controls 97 percent of the world’s supplies of rare earth metals, despite having only 36 percent of identified rare earth reserves.  China views itself as the OPEC of rare earth metals because the country can affect the supply and price by limiting exports to countries dependent on its rare earth metal resources. China’s ability to control the market stems from enforcing fewer regulations on mining rare earths than other countries. Because China can control the market at lower cost, it has put other competing sources out of business. China has cut export quotas, increased export taxes and even banned exports of rare earths to Japan following a maritime territorial dispute.  As a result, countries are concerned about supplies of rare earth elements.

On March 13, the United States, the European Union and Japan filed a formal “request for consultations” with China about restrictions on exports of rare earths at the World Trade Organization.[ii] The request for consultations is the first step in a process that could lead to a legal case at the trade organization in 60 days unless China agrees to the demands. However, the European Union has been trying for two years to persuade China to abandon its export taxes and export quotas on rare earths without success.

China claims to have imposed limits on its rare earth industry to protect the environment, including actions to tighten environmental restrictions on rare earth processors. The limits on rare earths that China has imposed, however, include export restrictions that have increased prices for rare earths in foreign markets to several times the level of prices in China.[iii] The result is that lower prices for rare earth metals in China are an incentive for foreign companies needing rare earth metals to move their factories to China, creating additional jobs there.

Foreign Competition to Chinese Rare Earth Production

A new refinery of rare earth elements is expected to open in Malaysia later this year built by the Australian firm Lynas.  Lynas plans to mine ore from the Australian desert and ship it to the Malaysian refinery where rare earth metals will be separated from radioactive material by using powerful acids at high temperatures.[iv] The refinery was expected to open last fall, but the current expected opening date is the second quarter of this year. The Malaysian refinery, once opened, will be the world’s largest producer of rare earth metals and its expected opening has brought down the price of rare earths that increased 30-fold when China suspended exports to Japan in 2010. However, prices still remain several times higher than when China began severely restricting exports in 2009.

Conclusion

Rare earth elements join coal and oil as another area where President Obama is not using our own domestic resources. It seems like our President does not mind losing jobs and industry to the Chinese, whose economy has grown to the point of being the largest consumer of energy in the world, the largest emitter of carbon dioxide, and the second largest consumer of oil. We can do more here to create jobs and provide secure energy if only the Administration would step aside from creating impediments.



[i] The Economist, In A Hole?, March 17, 2012, http://www.economist.com/node/21550243

[ii] Politico, Obama hits China’s hold on minerals, March 13, 2012, http://www.politico.com/news/stories/0312/73975.html


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