A global shortage in semiconductor chips has been wreaking havoc on diverse sectors, including the tech, automotive, consumer electronics industries, and everything in between. After years of tepid demand, the COVID-19 pandemic spurred a huge tech buying spree, with manufacturers of personal computers, tablets, laptops, and gaming consoles caught off guard. The automotive industry has so far been the hardest hit by the chip shortage, leading several leading automakers to slash production. But the pandemic and the green energy revolution have now triggered yet another commodity crisis: a global shortage in rare earths.
Indeed, a recent report by the International Energy Agency (IEA) warned the world will fall short of its climate goals unless there is a sharp increase in the supply of metals required to produce solar panels, wind turbines, electric cars, and other clean energy technologies.
The U.S. depends heavily on China for its supply of rare earth elements (REE) vital in the manufacture of solar panels, windmills, electric car batteries, cellphones, computers, national defense systems, medical equipment, and even in oil and gas technologies.
Luckily, the U.S. political class appears to be up to the challenge of boosting local REE production.
Last week, U.S. Congress introduced a bipartisan bill that would provide tax credits for the domestic production of permanent rare earth magnets.
Democratic representative Eric Swalwell and his Republican counterpart Guy Reschenthaler introduced the “Rare Earth Magnet Manufacturing Production Tax Credit Act,” that would give a tax credit of $20 per kilogram of rare earth magnet produced domestically, with the tax credit increasing to $30 per kilogram if all rare earth material used are produced or recycled in the country.
Breaking China’s REE Dominance
Rare earth minerals, also known as the “vitamins of chemistry”, are a group of 17 elements used in the manufacture of a wide range of equipment in small doses to produce powerful salutary effects. These minerals are extensively used in smartphones, batteries, turbines, lasers, electromagnetic guns, missiles, advanced weapon sensors, stealth technology, and jamming technology. For instance, lanthanum is used in lighting equipment and camera lenses; neodymium in hybrid vehicles; praseodymium in aircraft engines; europium in nuclear reactors and gadolinium in MRIs and X-rays. Oil refiners also use rare earth catalysts to process crude oil into gasoline and jet fuel.
Related: China’s CNPC Looks To Revive Oil Projects In Venezuela The generous tax credits could translate into substantial tax savings for fledgling REE producers here in the U.S.
For instance, USA Rare Earth, could receive $40 million to $60 million in tax credits once it goes fully operational and hits its target of at least 2,000 metric tons of rare earth magnets a year.
But the rare earth magnet tax credits aren’t the only tool under consideration by the lawmakers. The “Reclaiming American Rare Earths (RARE) Act,” yet another bipartisan act, would put in place permanent tax deductions for the domestic REE miners.
Both the tax deductions and production tax credits have a similar end-game: To level the playing field with China’s highly dominant REE industry.
Although a less dominant player in this space than it was a decade ago, China has maintained a stranglehold on the industry over the years, exporting more than 70% of the world’s supply of rare earths over the past few years. China’s Bayan Obo mine alone supplies close to half the world’s rare earth elements.
Indeed, China is a rare earth monopoly, supplying 80% of the rare earths elements (REE) used by the United States. This leaves the U.S. in a particularly vulnerable position in the event of a trade war, something that’s not lost on China with the Global Times once gloating that “U.S.’ need of rare earths is an ace on Beijing’s hand”.
Some kind of tax incentives are absolutely necessary if U.S. REE firms like USA Rare Earths hope to become competitive on a global stage. After all, Beijing has never shied away from using a variety of tax tools to support its REE industry, ranging from tax rebates in the 1980s to exports taxes in the 1990s. Currently, China has imposed a 13% value-added tax on rare earth products, with exports of rare earth magnets eligible for a VAT refund. That gives China’s rare earth magnet makers a 13% raw material cost advantage over their foreign competitors.
And, the U.S. is not exactly lacking in REE resources, either, with a mountain in Wyoming called Bear Lodge holding about 18 million tons of REE, enough to supply the country for years.
Recycling rare earths
Other than tax breaks to boost internal production, the U.S. has ample potential to develop REE recycling facilities.
Currently, only around 1% of REE are recycled from end-products at the end of their life cycles.
Yet, the potential of recycling rare earths is huge.
A 2013 paper says that simply boosting the collection rate of batteries, bulbs, and magnets could improve the recycling rate of REE from one percent up to 20-40%. That would amount to up to 5% of global REE mine production, or nearly half of the U.S. annual mine supply. But we could do even better. As Simon Jowitt, assistant professor at UNLV’s Department of Geoscience, has told ArsTechnica, much more than 40% of REE could be recycled depending on adoption rates of technologies like EVs.
To be fair, recycling that amount of rare earths would not be a walk in the park.
The diverse types of electronics being recycled would not necessarily contain enough rare earths and in the right proportions to make recycling those elements profitable. In many cases, the manufacturers usually are not responsible for running recycling operations, meaning they might not even be privy to which components contain what materials.
The United States’ REE industry needs to borrow a leaf from Europe.
The EU’s Waste of Electrical and Electronic Equipment WEEE requires manufacturers of electronic devices to not only finance or perform the recycling of those devices but also requires sellers to offer free e-waste collection.
But ultimately, it might all boil down to political will--or lack thereof.
The permitting process in the U.S. is ridiculously long and can take up to three decades compared to just two years in countries like Australia and Canada. Navigating a regulatory minefield of labyrinthine, local, state, and federal rules stifle U.S. mining companies compared to their Chinese competitors.
But given the latest bipartisan moves on the industry, the U.S. REE industry might finally be ready for takeoff.
By Alex Kimani for Oilprice.com
More Top Reads From Oilprice.com:
- OPEC+ Ignores Biden, Keeps Output Plans Unchanged
- How To Capitalize On Guyana’s Oil Boom
- 3 Distinct Futures For The Oil Industry