Last week, Chinese news outlets reported that China plans to cut export quotas for rare earth metals by 30 percent next year. How critical are these materials to U.S. renewable energy production? Is China using its monopoly over rare earths production for political gains? During today's OnPoint, Yaron Vorona, director of the Technology & Rare Earth Metals Center at the Institute for the Analysis of Global Security, explains how Congress and the Obama administration can address the issue and discusses the state of U.S. rare earths production.
Monica Trauzzi: Hello and welcome to OnPoint. I'm Monica Trauzzi. With me today is Yaron Vorona, director of the Technology and Rare Earth Metals Center at the Institute for the Analysis of Global Security. Yaron, thanks for joining me.
Yaron Vorona: Thanks for having me.
Monica Trauzzi: Last week Chairman Markey wrote a letter to the administration asking for more information about China's alleged restrictions of rare earth materials. The issue has really hit a boiling point recently. What are the allegations against China at this point?
Yaron Vorona: Really it's coming from partially a World Trade Organization investigation that was petitioned by the United Steelworkers. The allegations are that they are illegally supporting their domestic industry, taking actions that are not considered legal under their accession into the WTO.
Monica Trauzzi: So, that means basically that they are not exporting the percentage of materials that they should be?
Yaron Vorona: Well, they have the choice whether or not to export. It's the resource…from what we see, there are three distinct actions that China has taken and they have separate motivations. First, there's been a large-scale consolidation within the Chinese bare earth industry, as well as reduced production. In 2008 and 2009 they produced 120,000 tons of rare earths. In 2010 it's looking more like 89,000. So there's been a pullback in production. Second action is a decrease in their export quotas, a certain amount is allowed to be exported. They do it as a mass, rather than specifying individual rare earths. And so they've reduced the export quotas to try to maintain more material domestically for their own use. And, finally, there is reported and frequently denied by Chinese de facto export bans through hold-ups in customs to both Japan and to the U.S. And so there are different motivations behind why they might be doing each one of these actions.
Monica Trauzzi: OK and so for the viewers who aren't familiar with rare earths, why are they so important? How are these materials being used?
Yaron Vorona: Sure. Focusing on renewable energy, which is clearly of importance to the audience, any time you put up a wind turbine, any time you have an electric car, in any application where you have magnets you're using, generally speaking, rare earth magnets because they're more powerful per unit weight. As well, compact fluorescent light bulbs use rare earth phosphorus to emit light at different frequencies and so in batteries, also in solar photovoltaics, solar PV, rare earths are used in the optics as well. So rare earths are widely used across the energy spectrum. Of course, there are also defense applications for rare earths wherever you have a motor. So it really is, it becomes a national security issue.
Monica Trauzzi: And China produces, what, 90 ...
Yaron Vorona: Ninety-seven percent of the world's rare earths right now. The U.S. used to be a great producer. The mine was shut down. It's down in Mountain Pass. It's in the process of being reopened. It will take another couple of years, at least a year, until it's reopened and producing. Currently estimated that it will be producing at 20,000 tons a year.
Monica Trauzzi: And in the broader picture, that means what? Are we still going to need to export or import a certain percentage from China, even if that's reopened?
Yaron Vorona: Not only from China. There are activities all over the globe, certainly domestically in the U.S. there are other projects. There are a number of projects in Canada, Australia as well have a few companies developing their resources. It's going to take some time and there are significant policy issues that need to be overcome before all of those mines come online.
Monica Trauzzi: OK, so what impact is this having on the renewable energy industries? Are they seeing price fluctuations? How are they being impacted?
Yaron Vorona: These metals generally take up a very small percentage of the cost of the end product. In terms of let's say weight and consumption, the Department of Defense consumes only half a percent of the world's rare earths, but it is a strategic metal. Without even that small amount you can't make the end product. So while it might not be an overall component of the cost, it is strategic. The prices of the rare earths themselves, as a result of China's various announcements and actions, have been rising rapidly. In some cases, for some specific rare earth oxides it's gone up as much as 7 to 900 percent.
Monica Trauzzi: Do you believe that China is using their monopoly over these materials for political gains? Is it basically a bargaining chip for them?
Yaron Vorona: There are a number of reasons. As I said, it's not just one action are taking. There are three distinct actions. The official party line and is often quoted in the press is that it's to help them remediate their own environment, as well as to maintain their resource for a longer time. That might make sense for capping production, I can see that, though by my calculation, at their production and their reserves of 27 million tons of rare earths, they've got a lot in the ground. They do have a need to control the industry a little bit more to have less of an environmental impact. That said, restricting exports and having two prices, internally and for the international community, is a separate issue entirely. That's largely to raise revenues, as well is to try to convince foreign firms to do business and start factories locally in China. A condition of that is often transfer of intellectual property into Chinese companies hands, which is also a significant problem if we're talking about American intellectual property. And, finally, there is the de facto ban and that really is geopolitical muscle flexing. With Japan it's over the East China Sea. There is also the U.S.-backed claims of the Association of Southeast Asian Nations over the South China Sea. And what you've got there is the entire trade corridor into Asia. China is also - it was in the news recently that they're investing into Greek shipbuilding. They're building their own shipbuilding facilities and grabbing resources internationally in order to build a navy. And so I see a proto-geopolitical play here.
Monica Trauzzi: So, the House is expected to have a hearing on this in November after the midterms. How should Congress and the administration be addressing this issue and can Washington sort of break China's monopoly on these materials?
Yaron Vorona: There are a number of policy priorities that need to be addressed. There is a problem that there is not the investment into research and development and the raw science domestically here in the U.S. China has invested heavily over the years. They have thousands of rare earth scientists. Of course, they have a very large population. But we don't have anywhere near that number of people. So there is going to be production problems, having the expertise come online at the same time as the mines and production facilities. So an investment into research and development is really important. Also making sure that it's not viewed just as a one-dimensional problem of making sure that there is enough resources. It's the entire supply chain that is at risk here. You need to obviously take the ores out of the ground, but then you need to process them, develop them into components and finally integrate them into the end technologies. And a lot of that knowledge is missing from the U.S. supply chain, so there needs to be investment into that. And the other issue is, of course, that it's not just rare earths that are at risk. There are other strategic materials that haven't yet come onto the radar that aren't such a priority because they're not being restricted now. But, for example, for lithium-ion batteries cobalt is used. Cobalt comes primarily from the Democratic Republic of Congo. Cuba has a large supply, so there are geopolitical issues there. So it's both looking laterally and vertically in the supply chain of technology metals to develop a domestic industry.
Monica Trauzzi: So lots of moving parts in this area.
Yaron Vorona: Exactly.
Monica Trauzzi: Lots to watch. Thank you for coming on the show.
Yaron Vorona: Thank you for having me.
Monica Trauzzi: Thanks for watching. We'll see you back here tomorrow.
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