Is China The New OPEC For Green Energy?

The NY Times has an interesting article out today about China tightening its grip on rare earth metals. Some of these metals are essential in various types of green energy machinery like wind turbines. China's market share on these rare earth metals is analogous to the Middle East's dominance in oil reserves. In fact, China's share appears to be even greater. That's why, if it decides to limit production, the rest of the world's green energy aspirations might be in trouble.

The NY Times reports:

China currently accounts for 93 percent of production of so-called rare earth elements -- and more than 99 percent of the output for two of these elements, dysprosium and terbium, vital for a wide range of green energy technologies and military applications like missiles.

To put that into perspective, OPEC only controls around two-thirds of the earth's oil reserves. And yet, when it says "jump," the oil market still generally asks "how high?" So you can begin to imagine the effect China can have on the green energy market.

According to the Times, China might be creating stricter limits on the production of these rare earth metals -- right at a time when the U.S. is attempting to ramp up its efforts in the space. The Times reports:

Even tighter limits on production and exports, part of a plan from the Ministry of Industry and Information Technology, would ensure China has the supply for its own technological and economic needs, and force more manufacturers to make their wares here in order to have access to the minerals.


In each of the last three years, China has reduced the amount of rare earths that can be exported. This year's export quotas are on track to be the smallest yet. But what is really starting to alarm Western governments and multinationals alike is the possibility that exports will be further restricted.

China wants to be a leader in green energy manufacturing, which makes sense since it has the natural resources already. About a week ago I noted its endeavors in solar energy. U.S. firms will find it hard to compete with Chinese government efforts to support the industry.

But limiting supply of rare earth metals will also drive up the price that the rest of the world has to pay. OPEC knows all about how this works. Such limits will make already expensive green energy alternatives even less practical from a business investment standpoint. The government is providing generous credits on some forms of green energy production, but even that could turn out not to be enough if the price for the rare metals skyrockets due to supply constraints.

This could have a worrying result. Instead of Americans complaining about being reliant on the Middle East for oil, they will complain about being reliant on China for green energy components in the years to come. Sure, the energy might be cleaner, but the foreign reliance might be virtually the same.

For some more detail about China and its rare earth metals, check out this piece by Atlantic Correspondent Lisa Margonelli from our May 2009 print edition.