In our website bulletin-board posts, we have more than once discussed the recent decision by the Obama administration to increase the Corporate Average Fuel Economy (CAFÉ) standards by about 40% in the coming decade. Previous editorials have discussed consequences associated with choices that are made (e.g., November 2007). Let’s track the possible consequences of this choice.

In a May news story, Reuters said, “To improve fuel efficiency by as much as 40%, major automakers will need to order a lot more turbochargers, more advanced lithium-ion batteries and more electric motors for cars and trucks already under development.”

Hybrid technology is one way to get there, and the government is choosing to subsidize some of these green technologies. As a result, vehicles like the Prius, Insight and Focus have become very politically correct as green vehicles. But did you know that the Prius is a major consumer of rare-earth (RE) metals? One of these metals, neodymium, is a key component in the alloy used to make the high-power, lightweight magnets for the electric motors of today’s hybrids. Each motor uses 2.2 pounds of neodymium. Dysprosium, another RE, is used to dope these magnets to help them withstand the high operating temperatures of this application. These magnets are also used in the generators for wind turbines.

Another RE called lanthanum is a major ingredient in hybrid-car batteries. In fact, each battery uses 22-33 pounds of lanthanum. That number will double as Toyota plans to boost the fuel economy of the Prius. An industry expert indicates that manufacturing the battery pack of a second-generation Prius requires 60 pounds of assorted RE metals. These same materials are used to make the LCD screen in the navigation system of the Prius as well as our television and computer screens, computer hard drives, fiber-optic cables, digital cameras and most medical imaging devices.

With all of this usage, and the automotive demand largely generated by the choice made by our government, we must have a very dependable supply of RE metals, right? Well, China accounts for 97% of global RE production – 139,000 metric tons in 2008. It’s estimated that worldwide demand for REs will soon exceed supply by 40,000 metric tons unless new production sources are developed. But don’t invest just yet. Even if other sources of raw materials are initiated (new mines), China completely controls the production pipeline (ore-to-metal). That means that any company manufacturing anything using REs is at the mercy of the Chinese government’s production and pricing.

Natural-resources analyst Sean Brodrick believes China has a “1-2-3 plan to dominate the world’s RE market for decades to come, and with it, the energy technology of the 21st century.” The first step involves limiting exports. In spite of the growing global demand, this year’s export quota will be the smallest yet with plans for future restrictions. The second step involves forcing manufacturers that use REs to move to China. It’s essentially bribery because while companies that want REs can get them, they must move their production facilities to China. Thirdly, China is buying up other RE resources around the world.

The U.S. once was the world’s largest producer of REs before the Chinese undercut prices and put a large California mine out of business in the 1990s. Environmental regulations put the nail in the coffin of the RE business here in the states. It’s interesting that what is now being required by the green movement and our government was run out of this country by the same folks just over a decade ago.

New RE raw-material sources in the U.S., Canada, Australia and Vietnam are being explored to help increase supply and ease dependence on Chinese RE metals. These ventures may be profitable as long as the price of REs stays high due to the demand. Since China controls the price, however, how long will it be before they put any new producer out of business by dropping prices?

One more thing to consider is that strong magnets (made with neodymium) are critical to the guidance systems of every missile in the U.S. defense inventory. So, the U.S. government’s choice to subsidize the green industry (and impose regulations) has increased our dependence on REs, which has increased our dependence on China, who now controls our ability to be green and maybe our ability to defend ourselves. Looks like many of the promised green jobs could head to China in search of RE metals. If not, they could be held hostage because of our complete dependence on China for this technology. Do you think dependence on foreign oil is a problem? It pales in comparison with our dependence on foreign rare earths – the green-economy staple. IH