The Rise of a new geopolitical risk (3/3): Climbing out of the dependency trap

Maxime Sommerfeld Antoniou is a master student in Geopolitics, Territory, and Security at King’s College London. His academic interests range from the geopolitics of rare earths to green industrial policies.

Abstract: In order to liberate itself from its dependency on foreign supplies of rare-earths elements (REE), the European Union (EU) needs to decarbonize its economy and become what Mazzucato names a Green Entrepreneurial State. A Green Entrepreneurial European Union (GEEU), as I will call it, needs to set a mission for the union, give a direction to its internal market, and use patient capital, notably via the European Investment Bank, to drive innovation in the risky sector of REE. While providing a full spectrum of solutions for the entire REE supply chain is beyond the scope of this article, I will argue that the first priority for the GEEU is to secure EU-based raw REE and to ensure their basic processing within the EU. To achieve this end, the GEEU will need to structure its REE politics around four key components: (i) set a mission, (ii) open REE mines, (iii) uncover how to process the extracted REE, and, finally, (iv) to enhance REE recycling. While some of them are taking substance, much remains to be done.

Introduction:

Between the 24th and the 27th of November 2020, the German Federal Ministry for Economic Affairs and Energy organized a European Conference on Batteries for renowned politicians, scientists, and scholars to discuss how the EU could reclaim control over the battery supply chain. While attending the conference, one speaker emphasized the existence of a missing link in this new agenda, namely the access to critical raw materials. The implication of this remark was the idea that the EU ought to aim at greater self-sufficiency and stop over-relying on foreign imports. One could draw a parallel with the EU’s complete dependence on China’s production of REE, and, therefore, wonder how to diminish it.

This grand challenge will be the subject of this third and last article. As providing an overview of solutions for the entire REE supply chain would be overly ambitious, I will focus on the first two steps of the REE supply chain. I will explain (i) how the EU could secure EU-based raw REE resources and (ii) how the EU could ensure their basic processing on the continent. Doing so would transform the EU into what Mazzucato coined a Green Entrepreneurial State.

The Green Entrepreneurial European Union (GEEU), as I will call it from now on, needs to set a mission to the EU and a direction to its internal market by being both a market-creator and shaper. In order to do so, the EU will need to use the public sector and, for example, the European Investment Bank (EIB) as a form of patient capital to mitigate the high innovation risks and uncertainties that surround the creation of new REE mines and implementation of their processing. Only such kind of public-funded long-term investments embedded into a long-term vision will enable the continent to reconquer a strategic positioning within the REE supply chain. This understanding of the role of the public sector is very much in line with the work of Karl Polanyi who demonstrated how capitalist markets have always been heavily shaped by state actions. Finally, the construction of the GEEU will require both an internal and an external dimension.

The strategy of the GEEU must rely on five major steps. It must (i) set a mission, (ii) invest in EU-based mining projects, (iii) uncover how to process them. As being self-sufficiency based only on EU-based raw REE supplies is highly unlikely, the GEEU must also (iv) develop REE recycling technics.

Setting the mission for the GEEU

Faced with the prospects of climate change spinning out of control over the next decades, the GEEU needs to set itself a mission. Such a mission needs to be broadly defined as a “grand challenge” and aim to address the major social, economic, and environmental challenges of the 21st century. The EU has already stepped up its game over the last few months by embracing the idea of carbon neutrality by 2050 and promoting an EU Green Deal. Just like the United States mobilized the entire country to be the first ones to send a man to the moon, Ursula von der Leyen, the president of the European Commission, declared that the carbon-neutrality objective is the EU’s “men on the moon moment”.

As the previous article of this series explained, this mission can only be successful if REE are sufficiently available for the EU and its green industry, and outside of China’s grip.

Investing in EU-based REE mines     
In the wake of the embargo imposed by China on its REE exports to Japan in 2010, the price of many REE spiked worldwide. As a result, the cost of wind turbines skyrocketed, increasing from 80,000$ to more than 500,000$ in 2010. Even if the prices returned to normal a couple of months later, the fear of future REE supply shortage remains significant. Diversifying REE supplies has become a question of economic sovereignty for the Old Continent. To this end, the EU launched the EURARE project in 2013. It was co-founded by the European Commission (EC) under the “2012 Cooperation Work Programme for Nanotechnologies, Materials and new Production Technologies” and the “New environmentally friendly approaches in minerals processing”. It operated for five years and aimed at moving the base for the development of a sustainable rare-earths industry into the EU. Thanks to this project, many rare-earths deposits have been discovered in the EU (see table below), the largest ones being in Norra Kärr, Sweden and in Kvanefjeld, Greenland. 

Source: http://nora.nerc.ac.uk/id/eprint/518729/1/EURAREbrochure_vfinal%20%281%29.pdf

Nevertheless, the absence of REE mines in the EU illustrates the need of a GEEU. As explained in a report by the European Rare-Earths Competency Network (EURECON), even if essential for the European economy, mines can be economically unattractive if the costs are too high. This can be due to their remoteness of their geographical location, the potentially high infrastructural and manpower costs to run the mines, or the sometimes-exorbitant capital needed to start the mining operations. Moreover, these are long-term projects: it takes between ten to fifteen years to open a mine. Because of this risky investment landscape, the mines in Sweden and Greenland were initially developed by non-European contractors. The mine in Sweden was owned by a Canadian company until its license was revoked in 2016, while key regulations were recently passed in Greenland to ensure the continuance of mining projects financed by an Australian company. The absence of European players is both unsurprising and alarming. The creation of a GEEU would ensure long-term European investments into these mining projects through the EIB. In the EU, this form of patient capital can only be delivered by the public sector due to the initial high costs and uncertainties. In substance, the GEEU’s investments would serve as a catalyst, enabling the subsequent creation of a public-private parentship with the European mining sector to make these mines a European asset.

Contrary to conventional beliefs, relocating REE mines in the EU would be both a forceful environmental and geopolitical move for at least four reasons. Firstly, it would conscientize raise European consumers’ awareness on the fact that 21st century green technologies are not immaterial but are on the contrary based on extractive activities. Secondly, because civil society is a very strong component of the EU political landscape, pressure would likely be exercised on the EU-based REE mines to respect environmental standards, forcing mine-owners to make sure that the surrounding environment would not be polluted. One can imagine that in long-run, European citizens would reject goods based on polluting REE extractivism – as currently occurring in China. This leads to the third reason. Since the EU is one of the main markets for China, the latter would have to level-up its environmental REE mining standards to be able to compete with EU-based mines. Fourthly, European companies which outsourced their production to China because they feared a REE supply-shortage could repatriate their industries back on the European continent.

Processing REE          

Once REE are extracted, they still need to be processed in order to be used for industrial purposes. The separation of individual REE from one another and from other rocks is crucial step in the REE supply chain. As explained by Wall et al. (2017), this is achieved by using solvent extraction (the only process used at industrial scale so far). The challenge lies in the fact that every REE deposit has a unique mineralogical composition which means that each chemical process must also be individually designed. So far, China is the only country in possession of the know-how and large-scale infrastructure to process REE. Even the separation of critical REE from the mine in Greenland is planned to occur in China.

The EU has taken first steps concerning the processing of REE. In this sense, it funded the EURARE project and partnered with MEAB Chemia Technik GmbH in Germany, the Katholieke Universiteit Leuven in Belgium, and the Swedish University of Agricultural Sciences. This partnership achieved great technological breakthroughs in REE separation. EURARE managed to create successful “resource-efficient REE processing technologies specially tailored for European REE ore deposits”. Nevertheless, the need to up-scale these discoveries into a proper processing industry.

Hence, the GEEU needs to invest in programs to alleviate the current lack of mining and metals professionals. A first step in this direction has been the establishment of masters recognized by the European Institute of Innovation and Technology in “European Mining”, “Geo-resources Engineering”, or in “Functional Advanced Materials and their Engineering Innovation”. However, to effectively spread awareness for these niche topics, the GEEU needs “to bring romance and prestige to toiling with metals”. One way to do so would be for the GEEU to embed them within its mission and provide attractive professional opportunities by creating a REE processing market.

To create this market, the GEEU would have to invest into the required infrastructure, namely processing facilities. Recently, the EU created a European Raw Materials Alliance. It aims at finding processing projects within the EU which could be operationalized by 2025. However, the GEEU would need to make long-term investments, via the EIB, into physical infrastructures. Since China is still very much in control of the REE supply chain and can set REE prices (see the second article of this series), young EU-based processing facilities are at risk of bankruptcy due to REE price volatility. So far, one of the only processing facilities in the EU is situated in Sillmäe, Estonia. Its installations are decrepit, dating back from the Soviet era, and currently processing only 3% of rare earths produced outside China. As David S. Abraham said, after conducting fieldwork in Sillmäe, “I would argue that it is time for an upgrade”. In this sense, the GEEU must act as a market-creator for REE processing and make long-term investment into processing facilities to alleviate the early-stage innovation risks associated to it.

Recycling REE in the EU

In the second article of this series, I argued that the international system might soon be in a situation in which the demand for REE might far exceed the available supplies. This could occur because of the temporal dimension of supply and demand: opening mines are long-term projects, taking up to ten to fifteen years, while the demand for REE is based on the immediacy of market needs. In addition to this, China still controls most of REE production. Since EU-based mines might only become a reality in the next decade, the GEEU must recycle wastes containing REE to enhance its production capacities. 

Currently, REE are scarcely recycled due to their end-of-life recycling rate of less than one percent. The recycling market is therefore non-existent, at best. To understand why REE are so hard to recycle, two factors must be taken into consideration. Firstly, REE are found in very small quantities in numerous and different wastes. Furthermore, they are alloyed with other metals in many green technologies (e.g., wind turbines) which makes it particularly hard to recycle. Recycling, therefore, entails dealloying REE from other metals and finding techniques to do so for each waste – which are very long and costly innovations. Secondly, one needs to sufficiently concentrate wastes in one geographical location to achieve large economies of scale and remain competitive with regards to Chinese mined REE.

What ought to be done? Firstly, metallurgical processes to de-alloy REE from other metals must be developed. Various projects, supported by the EU, have already moved in this direction. On the one hand, the EURARE project has summarized the various techniques to recycle REE magnets. Among the solutions are hydro- and pyro-metallurgical techniques Without going into technical details, these methods are already being tested in pilot-projects in Wallonia, Belgium which has recently aimed at becoming a new recycling valley. The pilot-projects carried out by the platform, Reverse Metallurgy, are funded by the EU. Nevertheless, they remain pilot-projects. What is needed are long-term investments made by the GEEU to ensure the upscaling of such projects and to protect them from REE price fluctuations due to China’s quasi monopoly. In other words, the GEEU needs to create a new market for REE recycling and support companies aiming at doing so. The weakness in leaving this to the private sector alone is exemplified by the Belgian chemistry multinational, Solvay. After REE prices spiked in 2010, Solvay opened REE recycling plants in France in 2012. However, due to the REE price volatility and Chinese pressure to drive prices down, Solvay was forced Solvay to stop its recycling activities in 2015.

Secondly, the problem of economies of scale for recycling REE must be solved. For example, the hydrometallurgical technique proposed by EURARE and experimented by Reverse Metallurgy is suitable for all types of materials but will undoubtedly need large quantities of wastes to be profitable. A possible solution would be that the GEEU stops the annual exports of 1.3 million of tones of electronic wastes from Europe to Africa and Asia. Indeed, the GEEU must consider garbage dumps throughout Europe as urban mines since they contain thousands of tons of REE. Comparatively, the Japanese government has already understood the potential of these mines and has started organizing vast national collection campaigns. These are the kind of broad policies that must be launched by the GEEU. If the GEEU decides to behave as a market shaper both to innovate the current metallurgical processes to de-alloy REE from other metals and to concentrate large quantities of wastes in pre-determined geographical locations, a profitable recycling of REE might very well become a reality.

Conclusion

This concluding article has aimed to demonstrate how transforming the EU into a green entrepreneur could enable the continent to move towards greater self-sufficiency with regards to the production of REE and its basic processing. Because of uncertainties and innovation risks, the private sector alone will not be able to respond to this pressing need. Consequently, the GEEU must behave as a market-creator and market-shaper by making long-term investments into five key domains. Initially, it must set a mission. Then, based on existing explorations of profitable REE deposits in the EU, the GEEU must investment into EU-based REE mines and into the development of techniques to extract and process REE. Lastly, the GEEU would need to take advantage of the recycling potential of REE.

While the solutions proposed in this article are far from exhaustive and only capture a limited overview of the EU’s response to end its dependency on foreign REE supplies, they are vital in building a strong European presence in the REE supply chain and in ensuring its transition away from our current carbon economy.

N.B. The Risk-O-Meter is available in the first article of this series.

Featured image: photo-1580544859986-05322c53b1d4 (1500×1000) (unsplash.com)

Acknowledgement: A special thanks to Archishman Ray Goswami, King’s GPRIS Editor-in-Chief, and Julia Hoffmann who helped me in writing and

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