In Saskatchewan, Canada, the Saskatchewan Research Council (SRC), a government-funded scientific research and development institution, built a $74 million rare earth minerals processing plant that became the first rare earth processing facility in North America to operate at a commercial scale this summer. The facility can produce 10 tonnes of neodymium-praseodymium (NdPr) metals—which are used to create high-power magnets known for strength and durability—per month and is on track to increase its output to 40 tonnes by the end of December 2024. Once fully operational, its production of 400 tonnes of NdPr metals per year will be enough for 500,000 electric vehicles per year.
The SRC developed the plant intending to wane rare earth consumers off their dependence on Chinese refineries. China controls 85 percent of rare earth processing capacity and placed export controls on technologies for rare earth mining and refining in 2023, leading to fears that China could restrict exports further and place American defense and technology companies at a disadvantage. According to the facility’s chief executive, the facility’s design can be replicated and licensed across North America, creating the conditions for greater rare earth production as the demand for the metals is expected to increase by three to seven times by 2040.
The goal of moving production away from China explains why the project received funding from the U.S. Defense Department as part of the Defense Production Act, which allows the president to create incentives for securing critical supply chains. The Biden administration has used this authority to provide large subsidies for projects related to all levels of rare earth production as part of its “mine-to-magnet” initiative. This funding includes $45 million to MP Materials at Mountain Pass in California and more than $288 million to Lynas USA in Texas for rare earth processing, along with additional projects in the supply chain that were supported by Inflation Reduction Act funds.
The Defense Production Act considers Australia, the United Kingdom, and Canada as domestic sources of supply for critical minerals, allowing these countries to receive funding. Australia has about 5.7 metric tonnes of rare earth reserves, producing 18,000 metric tonnes in 2023, while Canada has an estimated 15.2 million tonnes of rare earth reserves. This potential for increased production along with international cooperation between the U.S. and its allies has made U.S. officials confident in meeting the goal of a “sustainable mine to magnet supply chain capable of supporting U.S. defense requirements by 2027.” However, significantly more rare earth production would be necessary to support the Biden administration’s goal of building 20 million electric vehicles per year by 2030 without relying on China.
Impediments to U.S. rare earth production
Chinese industrial policy and American overregulation have hindered commercial rare earth development, forcing the U.S. to rely on massive subsidies to rebuild its production capabilities.
Despite promises of increased demand, the price of rare earth has been falling since 2022—including a 20 percent decrease in the price of NdPr from January to July 2024—largely as a result of increased production quotas in China while domestic economic growth slows.
While China’s low labor costs and relaxed environmental standards created the conditions for growth in rare earth production, it also pursued industrial policy—issuing export tax rebates for rare earth exporters in the 1980s and placed export quotas on raw ores to encourage the export of processed rare earth in the 1990s—and declared rare earth elements as “protected and strategic minerals” in 1990 to exclude foreign companies from mining rare earth in China. These policies did not make China rich, but they allowed rare earth firms to increase their global market share.
The glut of rare earth produced by Chinese firms disincentivizes domestic production of rare earth because there is less profit to be had when prices are low, requiring rare earth consumers to rely on existing supply chains running through China. U.S. policy is trying to mitigate this advantage through targeted subsidies and international cooperation with rare earth-rich allies, but these policies will require significant costs to completely decouple from China.
However, U.S. policymakers have also contributed to the lack of American rare earth production through ill-conceived environmental regulations that have restricted the development of new mines. American refining lag is downstream of regulatory failures regarding U.S. mining. The CEO of MP Materials told the Wall Street Journal that his company only started refining when its mining became profitable.
The U.S. failed to foster a competitive environment for rare earth production by inhibiting mining through costly regulations. As rare earth mining was growing in 1980, the Nuclear Regulatory Commission and International Regulatory Agency decided to classify rare earth mining the same way as mining thorium (a radioactive element associated with some rare earths), which increased the costs of mining and refining rare earths and created an opening for China to take over.
Moreover, strict reporting requirements for mines make the U.S. less competitive than even Australia or Canada. The Securities and Exchange Commission uses the Industry Guide 7 code for investment in mines which requires a full feasibility study before mines can access capital. In contrast, mines in Australia and Canada can use a pre-feasibility study or another type of assessment. This difference makes mines look worse on American stock exchanges, discouraging domestic development.
Along with these requirements, U.S. mines also suffer from an inefficient permitting system that causes mines to take seven to 10 years to commence operations compared to an average of two years in Australia and Canada. American mines must acquire multiple permits at the local, state, and federal levels and complete lengthy environmental impact statements, as required by the 1969 National Environmental Policy Act, before operating. These delays lead to costs as much as 50 percent of a mine’s expected financial returns and lead to uncertainty about the success of projects, further discouraging investment and leading producers to find sources of rare earth supply elsewhere.
Conclusion
The commercial operating capacity of the Saskatchewan rare earth minerals processing facility is an attempt to shift rare earth minerals production away from China, but the evidence behind the failures of industrial policy indicates that it will have little impact. Significantly more domestic rare earth production would be needed for the Biden-Harris administration’s green energy goals without increasing reliance on Chinese firms. Instead of relying on expensive federal subsidies to prop up domestic mines and refineries, policymakers should look to reduce the regulatory burden on rare earth production that makes U.S. producers less competitive internationally.
