Despite having an abundance of geological resources, the United States depends on imports for its supply of the minerals needed to produce many important technologies. The United States meets its demand for several of these minerals, known as critical materials, with imports from countries whose industrial policies, often designed to favor domestic manufacturers, have the potential of restricting supply to the American industries and businesses that rely on these materials as key inputs. As a result, American manufacturers dependent on critical materials are forced to contend with turbulent global minerals markets and must often pay higher prices for raw inputs than competitors in materials-exporting countries. This could prove to be an obstacle to growth in several emerging high-technology industries, particularly in the energy sector, which is especially vulnerable to disruptions in the supply of critical materials.
Five materials—neodymium, europium, terbium, dysprosium, and yttrium—play an outsized role in the energy sector and are used to produce a variety of clean energy technologies, including photovoltaic cells, electric vehicles, wind turbines, and efficient lighting systems. These materials form part of a class of minerals known as rare-earth elements, or rare earths, on which the United States is 100 percent import-reliant for its supply. Import-reliance does not by itself represent a risk to manufacturers, but the market for rare earths is dangerously concentrated in China, which produces over 80 percent of global output and supplies 78 percent of American imports. China’s opaque and unpredictable trade policies have clouded the rare earths market with uncertainty, making long-term planning difficult for stakeholders in the clean energy system and exposing U.S. businesses to severe price spikes. Foreign countries like China can exert considerable control over our economy by restricting our supply of critical materials. This poses a threat to U.S. business and national security interests, particularly as the trading relationship between the United States and China sours amid an escalating tariff dispute. In 2010, China imposed stringent export quotas that caused prices for some critical rare earths to rise by more than 3,000 percent. As a result, the Department of Energy was forced to postpone the implementation of efficiency standards for certain kinds of fluorescent lamps until the rare earths required for their production could be procured at lower prices. Such volatility threatens to hinder the deployment of technologies essential to the transition to an advanced energy economy.
American manufacturers dependent on critical materials are forced to contend with turbulent global minerals markets and must often pay higher prices for raw inputs.
The energy sector’s exposure to critical materials supply risks may also prevent the United States from capturing multi-billion-dollar economic opportunities in burgeoning energy technology markets. The rare earths market is forecast to be worth more than $20 billion by 2024 as industries dependent on these materials mature. The solar and wind industries currently employ more than 370,000 and 100,000 Americans, respectively, and over 40,000 Americans are already employed in the electric vehicle industry. Each of these industries is projected to experience substantial growth. By 2040, electric vehicles are projected to account for 55 percent of global car sales and solar energy is projected to generate 29 percent of the world’s power. In both markets, however, China has taken the lead, manufacturing more photovoltaic cells and building more electric vehicles than any other country on earth.
If the United States is to defend its competitive advantage in these areas, we will have to significantly reduce our dependence on China for critical manufacturing inputs. To this end the Department of Energy’s Critical Materials Strategy has outlined three complementary avenues of approach. The first involves diversifying supply chains by creating economically viable domestic opportunities for critical materials extraction and processing. The second is the development of critical materials substitutes. The third entails reducing demand for critical materials by improving usage efficiency and expanding recycling capabilities. Innovation is central to each approach and will require sustained public investments in R&D.
The United States has already made some progress in developing novel ways to produce and substitute critical raw materials. In 2012, ARPA-E launched an initiative called REACT (Rare Earth Alternatives in Critical Materials) to develop alternatives for rare earth magnets in electric vehicle motors and wind turbines, but the last of its projects ended in 2016. The Critical Materials Institute, or CMI, one of DOE’s energy innovation hubs designed to accelerate the pace of energy technology development, was established in 2013 as a partnership between universities, national laboratories, and private industry to advance the research priorities set by the Critical Materials Strategy. CMI has achieved remarkable success in its short life. While it normally takes 20 years to develop a new material, it took CMI researchers only one year to create a replacement for the europium used in high-efficiency lighting. CMI has also published hundreds of papers, issued several invention disclosures, and even begun licensing its technologies for commercial use. While R&D efforts such as these are promising, they are not nearly ambitious enough considering the magnitude of the challenge and the scale of the opportunity. More public investment in critical materials research is required to maximize the potential for meaningful technological advances towards the materials solutions so crucial to our economic stability and national security.
The American energy economy cannot reach its full potential in the absence of a stable, reasonably-priced supply of critical raw materials. To reduce the energy sector’s dependence on China for these essential inputs, the United States will have to make critical materials a focus of its investments in R&D. If we fail to make needed investments in critical materials research, we not only risk compromising our ability to develop and deploy the next generation of cleaner, more efficient, and lower-cost energy technologies, but we forgo substantial opportunities for employment and economic growth. Of course, import-reliance on critical materials is not a vulnerability unique to the energy sector. Directly or indirectly, nearly every part of the economy faces challenges related to critical materials, which are indispensable in the production of many important technologies, including batteries, lasers, hard drives, and machine tools. Programs like CMI and REACT have had success addressing some of these challenges and provide an example of how future projects might be structured. Bolstering American competitiveness across the board is possible, but it will require that policymakers commit to making the necessary investments in critical materials research.