Keep Government Out of Rare Earth Elements

Yesterday, the House Science, Space, and Technology Subcommittee on Energy and Environment held a hearing on “Energy Critical Elements: Identifying Research Needs and Strategic Priorities”. The issue of these critical elements has become more relevant? in recent years due to periods of sharply increasing demand and prices.

Rare earth elements (REEs) refer to a group of seventeen elements that manufacturers use for numerous purposes not limited to technology and energy, and our government uses for military purposes. Although these elements exist in more abundance than some of the more familiar industry metals (ironically enough), REEs often concentrate in ore deposits over time. Possessing a significantly large ore deposit, the United States controlled a large portion of the global rare earth element production between 1950 and 2000. During the 1990’s, Chinese producers drove down market prices and America began to use Chinese ore almost exclusively.  As early as 1999, America drew over 90 percent of the REEs needed for industry from China.

The leading role of China in the REEs market spurred significant negative attention from American manufacturers and government officials alike, who now call for a combined effort to curb this role. The concern is understandable: unpredictable behavior from China in manipulating the REEs market could affect various sectors of our economy and the American defense industry, which uses a significant amount of REEs in their technology.

Derek Scissors, of the Heritage Foundation, outlines several steps Congress can take to avoid government intervention and subsidization in the REEs market while taking the needed steps to prepare for evolution of the REE market. Differentiating between allowing the domestic market to prosper and subsidizing the domestic market is crucial.

Particularly, Congress must avoid entering into the REE market, refusing to subsidize REE mining, production, or refinement of any kind. Although China dominates the REEs market, the market itself lacks stability. China only maintained its hold over these years by offering REEs at below-market prices. Ceasing this practice induced suppliers to hunt for alternatives. This is why prices for REE’s are now falling sharply. As long as suppliers can freely enter the market, the market can operate without the need for government intervention.

Moreover, Congress should understand that it can best help by providing information on REEs. Updated information on the location of deposits, for example, would prove valuable to private parties who would have far greater difficulty in compiling and updating it. On the international dimension of this information-gathering role, the United States Trade Representative should ask China for a list of recent actions and statements dealing with REEs. The information gathered could allow the United States to potentially bring action against China for distorting the global market and violating the principles of the World Trade Organization.

A measure introduced by Rep. Randy Hultgren (R-IL) – Energy Critical Elements Advancement Act of 2011 (HR 2090) – moves towards these steps in a positive direction and act in accordance with this information-seeking role. The measure works to assess non-fossil-fuel mineral potential of lands under Bureau of Land Management (BLM) and U.S. Forest Service jurisdiction and to encourage collaboration to improve assessments of energy critical elements.  A similar measure has also been introduced by Rep. Doug Lamborn (R-CO), the National Strategic and Critical Minerals Policy Act of 2011 (HR 2011).

As Scissors notes, “Government intervention based on current conditions will require years to take effect and risks marrying the U.S. to a high-cost path that turns out inferior products. The cries of rare earth crisis are loud, but the case for government action has little substance.”

Watch the hearing, including Scissors’ testimony on rare earth elements.

This post was written by Heritage Action intern Benjamin Finley

Related Links:
Rare Earth and Energy Critical Elements: The Market is Working

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