China announced this week that it would tighten production and exports of rare earth minerals – a misnomer for a category of about 15 metallic elements on the periodic table that are, in fact, not actually scarce. The rarity of these elements comes from their concentration in only a few parts of the world, mainly Australia, North America, and China. According to a recent NY Times article, China produces 93 percent of rare earth elements, many of which are used for green technologies, including wind turbines and hybrid vehicles.
The Toyota Prius is one of the largest consumers of these rare earth minerals: each car uses around 2.2 pounds of neodymium — a key component used to make the powerful and lightweight magnets in the electric motor — and 22 to 33 pounds of lanthanum, which is used for the battery. With Toyota’s plans to increase the Prius’s fuel economy, the amount of rare earth elements required will double. Jack Lifton, an independent commodities consultant and strategic metals expert, said in a Reuters article that the Prius is “the biggest user of rare earths […] in the world.”
So as China considers limits on rare earth exports, the cost of production for hybrid vehicles – as well as other green technologies – could be affected.
Why is China tightening its grip?
Although official regulations by the Chinese government have yet to be released, the NY Times cited stricter environmental regulation of mines as a reason for the potential export restrictions. The Ministry of Industry and Information Technology has plans to decrease the target output from rare earth mines by 8.1 percent this year. Other sources, such as Bloomberg, have suggested that this is more of a protectionist move to prevent rare earth minerals from being sold cheaply on the market and to ensure stockpiles for domestic use, given the current global recession.
A Good Thing?
Although Toyota and other green technology manufacturers may have cause to worry, is this move by China necessarily a bad thing? China initially obtained its competitive advantage in rare earth elements by ignoring the environmental harms of rare earth extraction. According to Alex Pasternack on treehugger.com, to extract these elements, potent acid is pumped down bore holes, where it dissolves the minerals into a slurry, which is then pumped into “leaky artificial ponds with earthen dams.” While most of China’s production is concentrated in a single mine in Baotou, Inner Mongolia, much of production still occurs in small, unregulated mines.
It is an ironic Catch-22 that the very elements needed to produce “green” technologies to improve the environment exact such a large environmental toll. There’s an even bigger irony in nervous producers of hybrid vehicles who fear these steps by China to clean up its environment will affect their economies of scale. If these regulations actually do result in noticeable environmental and social welfare gains, then perhaps we should be applauding China’s efforts to restrict production of rare earth elements, instead of grumbling at a new higher pricetag of Priuses.
