Power Hungry (22 page)

Although there's plenty of rhetoric about the evils of the biggest oil producers—countries such as Venezuela, Saudi Arabia, and Iran—the simple truth is that those nations are exporting much of their oil production because their domestic economies are not big enough or sophisticated
enough to utilize all of the oil they produce. Over the past several years, some vocal American neoconservatives have repeatedly demonized Saudi Arabia for what they view as the Saudis' excessive control over the world oil market and their influence on OPEC. Though it's true that the Saudis are influential, they only control about 10 percent of daily world oil production. These same neoconservatives hate OPEC—but OPEC only controls about one-third of world oil production.
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Now compare the diffused global oil market with the constricted market for the lanthanides—lanthanum, cerium, praseodymium, dysprosium, neodymium, and the others. China controls—depending on whose numbers you believe—between 95 and 100 percent of the global market in those elements. The fact that China sits atop such favorable geology for mining the lanthanides is pure luck. But the Chinese are aiming to make the most of that luck. Deng Xiaoping, the former Communist Party boss, once said, “There is oil in the Middle East. There are rare earths in China. We must take full advantage of this resource.”
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China is doing just that. It has about 1,000 Ph.D.-level scientists working on technologies related to the mining and separation of rare earth elements as well as on ways to turn those elements into salable products.
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At the same time that China is increasing its knowledge base on rare earths, it is cutting its exports of those same materials. In addition, China has raised export taxes on some of the rare earths and has prohibited foreign companies from investing in China's rare earth mining and processing sector. Meanwhile, it is encouraging the companies that need steady supplies of lanthanides to move their production facilities to China.
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China's control over the green elements has begun to attract attention, and few countries are more worried than Japan, which is heavily dependent on the lanthanides for its high-technology manufacturing. In May 2009, an official at Japan's Ministry of Economy, Trade, and Industry told the
Times
of London that “all green technology depends on rare-earth metals and all global trade in rare earth depends on China.”
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While all of the lanthanides are important, neodymium has particular significance. Neodymium-iron-boron magnets are powerful, lightweight, and relatively cheap—at least they are when compared to the magnets they replaced, which were made with samarium (another lanthanide) and cobalt. The Toyota Prius uses neodymium-iron-boron magnets in its
motor-generator and its batteries. Analysts have called the Prius one of the most rare-earth-intensive consumer products ever made, with each Prius containing about 1 kilogram (2.2 pounds) of neodymium and about 10 kilograms (22 pounds) of lanthanum.
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And it's not just the Prius. Other hybrids, such as the Honda Insight and the Ford Fusion, also require significant quantities of those elements.
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The American wind sector is almost wholly dependent on neodymium-iron-boron magnets, which are used inside wind turbines. General Electric reportedly buys all of the neodymium-iron-boron magnets used in its wind turbines from China. Other metals, including europium (a lanthanide) and yttrium (a non-lanthanide), are essential elements in video displays. As David Trueman, a Canadian geologist who has spent more than three decades finding, mining, and exploiting rare metal deposits, explained to me, “without rare earths, you wouldn't have color TV.” Trueman said that China is not only cutting its exports of rare earths but also reducing exports of other key elements, including tungsten, antimony, and indium. The Chinese, said Trueman, “are the world's oldest capitalists. They'd rather build the TV for you than sell you the metals” needed to make the unit.
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China's increasing grip on the rare earths is coming at the same time that the Chinese are capturing a bigger and bigger share of the global high-tech manufacturing business. Between 1985 and 2005, China's export volume of high-technology goods went from near zero to about $450 billion.
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During that same period, China's share of global high-tech manufacturing grew from about 1 percent to about 16 percent.
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China's low-cost labor, lax environmental policies, and abundance of rare earths have allowed it to surpass both Japan and the United States in terms of the export value of high-tech manufactured goods. According to data from the National Science Foundation, China surpassed Japan as a leading high-tech manufacturer in about 2001. And by 2005, China's high-tech exports were twice as valuable as Japan's.

Non-lanthanide rare elements are also essential in the solar power sector. For instance, Arizona-based First Solar (2008 revenues: $1.2 billion), one of the biggest producers of photovoltaic cells in the United States, relies on the compound cadmium telluride. First Solar's business hinges on the availability of tellurium (atomic number 52) which is usually
produced as a by-product of the copper-refining process. In its 2009 annual report, First Solar says that if its suppliers could not obtain adequate supplies of tellurium, those suppliers “could substantially increase prices or be unable to perform under their contracts.” If such a shortage happened, First Solar admits, it could get squeezed, “because our customer contracts do not adjust for raw material price increases and are generally for a longer term than our raw material supply contracts. A reduction in our production could result.”
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FIGURE 18
World Share of High-Tech Manufacturing Exports, by Region/Country, 1985 to 2005

Source
: National Science Foundation, “Science and Engineering Indicators 2008: Presentation Slides,” January 2008,
http://www.nsf.gov/statistics/seind08/slides.htm
.

FIGURE 19
Export Volume of High-Tech Manufactured Goods, by Region/Country, 1985 to 2005

Source
: National Science Foundation, “Science and Engineering Indicators 2008: Presentation Slides,” January 2008,
http://www.nsf.gov/statistics/seind08/slides.htm
.

Though copper refining may be able to produce enough tellurium for First Solar and other producers of photovoltaic panels, it's apparent that China, once again, has an advantage. According to experts on rare metals, the Chinese have the world's only tellurium mine.
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And the Chinese are using their access to rare metals to pump out large quantities of solar panels. Several Chinese solar-panel factories have recently boosted their output of panels. The result: Between mid-2008 and mid-2009, the price of solar panels in the United States fell by about 40 percent.
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This is a critical issue for the United States when it comes to competitiveness: If U.S. policymakers decide to support an indigenous rare earths business as a way to hedge against Chinese supplies, China could simply drop the price of their rare earths, and in doing so make any upstart mining operation unprofitable.

At the moment, the only hope for the United States when it comes to domestic lanthanide production appears to be Molycorp Minerals, which owns America's only operable rare earths mine, located near Mountain Pass, California. In 2008, Molycorp was sold to a group of private investors, including Goldman Sachs. The mining outfit was purchased from Chevron, which took control of Molycorp when it bought Unocal. (By the way, the other suitor for Unocal was the Chinese National Offshore Oil Company.) Molycorp has begun processing some of the ore that was stockpiled at the mine, but the company says it won't be able to resume mining operations until 2011 or 2012. Even if the Molycorp mine can return to full output, company officials believe it will only be able to capture perhaps 15 percent of the world market.
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The availability of rare earths is not just about balance of trade, it's also about national security. The U.S. military is heavily reliant on high-tech weaponry, which means navigation systems, guidance systems, radios,
and computers—all of which require rare earths. Now, suppose the United States decided to impose trade sanctions on China, perhaps due to some type of dispute over carbon emissions. What might China do in retaliation? Well, one obvious way to retaliate would be to cut off the flow of rare earths to the United States and other countries, thus pinching the U.S. Defense Department's ability to obtain the high-tech equipment it needed.

China's near-monopoly control of the green elements likely means that most of the new manufacturing jobs related to “green” energy products will be created in China, not the United States. Chinese companies have made it clear that—thanks to huge subsidies provided by the Chinese government—they are willing to lose money on their solar panels in order to gain market share.
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And the government is subsidizing more solar-panel manufacturing capacity, which will likely allow the Chinese to undercut the prices of panel makers all over the world. Consider a deal that the city of Austin's municipal utility, Austin Energy, made in early 2009: The utility agreed to build a solar farm that will use 220,000 solar panels. All of them will be made in China.
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Or consider wind turbines: In late 2009, the backers of a $1.5 billion wind project in West Texas announced that they were planning to install 240 wind turbines on the 36,000-acre site. The project backers were seeking $450 million in federal stimulus money to make the deal happen. All of the wind turbines for the project are to be built in China.
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Environmental activists in the United States and other countries may lust mightily for a high-tech, hybrid-electric, no-carbon, super-hyphenated energy future. But the reality is that that vision depends mightily on lanthanides and lithium. That means mining. And China controls nearly all of the world's existing mines that produce lanthanides. These facts demonstrate, once again, the need to accept the interconnectedness of the global economy. Simply trading one type of strategic commodity import (such as oil) for another (lanthanides and lithium) makes little sense. The reality is that the United States, like every other country, will continue to depend on the global marketplace to obtain the commodities it needs.

Of course, the United States will need more of the green elements. But the good news is that even without huge increases in imports of the
lanthanides, the U.S. economy is steadily becoming more efficient in its energy use. In fact, over the past three decades, the United States has been among the best nations in the world when it comes to improving the efficiency of its economy.

FIGURE 20
The “Green Elements” and the Periodic Table