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BW Businessworld

The Rare Advantage

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Many wouldn't have heard the name of the metal dysprosium. Even the most enthusiastic chemistry boffin is likely to have missed out on this rare-earth metal. But dysprosium is one of the most magnetic materials known to humans and which is what makes it a miracle substance. Tiny quantities of dysprosium can make magnets in electric motors lighter by 90 per cent! And thus it finds its way into a variety of clean technology products like Windmills, Electric vehicles and Hybrid vehicles. It has the power to pack in more megawatts per windmill and squeeze more miles for every electric unit in electric vehicles at lower costs. Clean technology is a term used for a range of technologies like renewable energy, energy efficiency, alternative transportation (electric vehicles, fuel cells) etc- which pretty much reads like a list of futuristic technologies. In short rare earth metals like dysprosium will fuel our future.

And as the global commitments towards clean technology scale up commodities like dysprosium will find more and more favour. Clean technology future is not even dependent upon what happens of the global climate treaty. It is also a market reaction to changing global dynamics. There is no other reason why legendary investor Warren Buffett figures at the top of green investors list released by Times online in 2009. Commodities like dysprosium represent a range of rare earth metals which have interesting properties and therefore have the potential to cut costs, encourage innovation and accelerate clean technologies.

But what makes this situation interesting is that China produces 99 per cent of the world's dysprosium output as the New York Times reports. And that doesn't stops at dysprosium. A range of rare earth metals- terbium, neodymium, europium and yttrium (sounds like a tongue twister!), all known to be very essential although in small quantities in a range of electronics and clean technologies. Again, China produces more than 95 per cent of all these metals.  The near complete monopoly means that China can regulate the world prices of these commodities. It goes without saying that the clean technology future we're slowly inching towards will increase the prices of these commodities several times. But the strategic advantage of holding the supplies of these metals is not in exporting these commodities at no matter what level of zoomed up prices. Instead the strategic advantage lies in producing the value added clean technology goods with domestic supplies of these metals. The total amount of dysprosium used in an electric car may cost a mere $100 but a value added electric car would cost upwards of $30,000.

The clean tech goods using such metals would be very competitive in the world markets in terms of either cost or performance. Therefore these metals could emerge as a key component in boosting competitiveness of clean technology goods and therefore decide to some extent as to who will emerge as the leader in global clean technology race. China is well aware of the fact and its recent policy decisions well illustrate the point.

Uncontrolled export of these commodities has long been discontinued by China instead it has introduced export quotas that decide the maximum amount of these commodities that can be exported. Therefore the clean technology goods manufacturers in countries other than China can only access a part of the metal supplies. The rest of the supplies can only be availed by the manufacturers within China.  Recently China has expressed its desire to further trim these export quotas.

As Reuters report in 2011 China plans to cut the rare earth export quota by 35 per cent. This doesn't comes as a surprise as China seems to have realized well the tremendous potential of these metals and the role they can play in making China the leader in global clean technology race. As these quotas diminish - it will lead to lower access to these metals to manufacturers outside China while the manufacturers inside China will have greater and greater access to these metals. It would mean that either the manufacturers outside china compete with Chinese manufacturers without using such metals in their products or simply invest and set their shop in China. That could mean exodus of a lot of clean tech manufacturing to China.

This exodus would mean that clean tech innovations around the world would move into China for manufacturing purposes where IPR laws are weak and reverse engineering/copying of technology by local manufacturers is known to happen. The prospects of this could well take the steam out of the innovation wave that cleantech sector is witnessing and could make governments across the world wary of investments in cleantech R&D. In last two years US government has invested roughly $450 million in its ARPA-E program for R&D in energy as reported by the agency.

Although the time is too early to tell if the strong hold of China on these metals would continue. As the world community has recently woken up to this reality. During a recent diplomatic standoff with Japan, China shut its export lines of rare earth metals to Japan. As Businessweek reported this adversely affected Japan's manufacturing. Similar shipments were also stopped for Europe and US. It has spurred US and Japan to widen their supply sources for rare earth metals. They are talking to Russia, India and a host of other world countries now to avoid this spectre.

The juggernaut of clean technology is certain to keep rolling and it will be hard to tell if the world community would be able to avoid China taking over the race. But if China is adamant to capitalise this situation then there is pretty little that can stop China— as it fully understands that this leadership means billions of dollars in export revenues- except until we innovate our way out of it, or mine the alternatives or throw the WTO book out of the window.
Yash Saxena is a sustainability consultant with Emergent Ventures, a climate change mitigating consultancy. He also works on innovation evangelism with Techpedia