Challenges of the green transition: with or without China?

The elements of the periodic table from lanthanum to lutetium are known as lanthanides. With yttrium and scandium, they make up the so-called rare earth metals. The physical properties and applications of these elements are highly diverse. They first came to the attention of the international media in the 2010s, before which they were only of importance in certain segments of the mining and technology industries. The turning point was the naval incident between China and Japan off the coast of the Senkaku (Diaoyu) Islands in September 2010, which resulted in China halting exports of rare earth to Japan as a means of exerting pressure. This incident was not only a major milestone in China’s global ambitions, but the international shockwave that followed the embargo highlighted the fact that 70 percent of essential rare earth processing capacities are controlled by the People’s Republic of China.

The extraction of rare earth elements rose to prominence in the second half of the 20th century. At that time, the United States was still in the lead, but from the mid-1980s China entered the market. The turn of the millennium saw a radical change in the extraction of rare earth metals. As the U.S. was steadily losing market weight due to its deposits nearing exhaustion, China began monopolizing the market. This seemingly insoluble and insurmountable development has become one of the greatest challenges facing the Wwestern world, which is currently on the upward slope of the green transition. Rare earth metals are essential raw materials in our modern world and have a wide range of applications, including electronics and electrical engineering, hybrid vehicles, wind and solar power, aircraft jet engines, missile guidance system, and as components of battery cells for electricity storage. They have revolutionized magnetic design, especially in the case of electric motors and generators, and the list of other potential uses is almost endless.

The 2010 rare earths crisis outlined above is likely neither the first nor the last of its kind. The trade war and power rivalry between the United States and China could lead to similar or more violent situations in the near future.

The U.S. is seeking to locate alternative deposits and apply innovative solutions, as evidenced by the Energy Innovations Center it set up for this purpose in 2013. The establishment of the Center was effectively an informal admission that the battle for the rare earths market is lost in the short time. A new global supply chain “far away” from China will require additional processing and manufacturing capacity, time, money, and investment, given that geological surveys indicate that China (more specifically, Inner Mongolia) accounts for some 37 to 48 percent of the world’s rare earth metal reserves and 70 percent of processing capacity. China’s monopolistic market position is therefore not a global economic anomaly, but the result of focused, long-term planning and strategy, which has consistently been neglected by Western capitalism.

China’s position was further reinforced by the 2015 COP21 conference in Paris, which saw parties officially recognize climate change as a global challenge. The rapid ramp-up of renewable energy was seen by participating countries as essential to tackling climate change. However, a further sharp increase in renewable energy capacities depends on unconstrained access to rare earth elements.

Alongside the undoubtedly positive role played by rare earth elements, unfortunately there are also negative consequences. The extensive use of rare earth metals raises unavoidable environmental and human health dilemmas. Certain rare earth metals are harmful to human health through direct contact, while industrial activities involving their extraction and refining are highly damaging to the environment.

By-products of these activities include carcinogenic heavy metals such as thorium and uranium, which are stored in huge artificial lakes near extraction sites. An alarming example is the area around the town of Baotou in Inner Mongolia, which has been completely ravaged in just a few years and now resembles a lunar landscape.

Despite certain efforts to do so, circumventing China on the market of rare earth elements is a near impossibility, since, as explained above, the center of gravity of the supply chain of these metals is China itself. The European Union’s Green Deal and commitments towards carbon neutrality agreed upon at the 2015 COP21 conference are meaningless without Chinese rare earth stocks. In summer 2023, China introduced a registration requirement for companies producing and trading gallium and germanium.

As a result of this, the export of these rare earth elements, used in high-speed computer chips, electric vehicles, fiber-optic cables, military radars, as well as night vision and heat-tracking equipment, was brought under state control. As has been the case in the past, China is unhesitant to impose trade restrictions if its economic, political, or diplomatic interests so require. Rare earth elements from the People’s Republic of China, like gas and oil pipelines from the Russian Federation in the period prior to the Russia-Ukraine war, are an essential component of European countries’ energy supply and the diversified energy mix in the uphill green transition.

One could argue say that due to the lack of alternatives, the green transition could turn Europe’s dependence on Russian gas into a dependence on Chinese rare earth elements.