Jonathan Harman
Over the past year, China has begun more heavily regulating rare earth exports critical to U.S. national security. While unsurprising given U.S.-China tensions, it underscores America’s need to decouple its defense supply chains from China.
To ensure it can maintain a ready rare earths supply, the U.S. government has made efforts to decouple from China. These efforts—including friend-shoring with U.S. allies, invoking the Defense Production Act (DPA), and adding provisions in the Inflation Reduction Act to fund and provide some low-cost loans to domestic rare earths producers—have helped better secure rare earth supply chains and spur American production. However, though not the only factors, drawn out litigation and high capital costs continue to make it difficult for U.S.-based rare earth mining and refinement facilities to set up shop and compete with Chinese producers.
To facilitate U.S. rare earth production, the federal government should reevaluate its permitting litigation processes and offer more low-cost loans to American rare earth companies.
In August, the Chinese Communist Party (CCP) began requiring all Chinese businesses get state permission to export select gallium and germanium products. These products are necessary for many widely used products like semiconductors, fiber optics, and infrared sensors—all of which are critical to national security.
The United States currently imports about half its germanium and gallium supplies and 80 percent of its total rare earth oxides from China, which is a significant liability.
The U.S. government is aware it is dependent on Beijing’s good will for rare earth imports and has made some meaningful progress in decoupling.
In 2022, the Pentagon developed a program to recycle optical-grade germanium to make America less reliant on germanium imports for infrared technology. The defense department, starting in the 1980s, also began developing a national germanium stockpile. Since then, it has created other rare earths stockpiles and began rapidly increasing their supplies in 2022.
However, while stockpiles and recycling programs are necessary, they are not sufficient to maintain or expand U.S. military capabilities long term.
Contrary to what the name implies, rare earths are not rare. They are abundant in the earth’s crust and the United States has the sixth largest concentration of mineable rare earths deposits in the world.
So why is America so reliant on China?
While U.S. rare earth reserves are abundant, rare earth extraction and refinement are both environmentally hazardous and expensive.
One major reason China dominates rare earth production is because the CCP has a weak environmental regulation regime. Because rare earth production, especially during refinement, poses significant dangers to the environment, the U.S. government stringently regulates it. Yet, so long as China maintains a monopoly on rare earth production, there will never be innovation to make production cleaner.
While U.S. environmental regulations are necessary, the federal government’s permitting requirements have historically been excessively redundant, making building rare earth production facilities nearly impossible in the United States. Though a company may meet all federal regulations, it still typically needs to wait at least ten years to receive a permit.
Rare Earth production is also expensive.
A single mining and processing facility costs around one billion dollars and ten years to build. Beginning in the 1980’s, China’s cheap labor and production costs drove nearly all competing rare earth producers in the United States and abroad out of business. Because China is still the cheapest source, it is difficult for American companies to compete.
To promote domestic production, the federal government should streamline its permitting procedures and reduce bureaucratic hurdles for rare earth production.
The United States has some of the longest mining permitting timeframes in the world, with wait times often ranging from ten to thirty years—compare this to Canada and Australia which take about two years while maintaining similar environmental standards to the United States.
Earlier this year, the President signed the Fiscal Responsibility Act, which included provisions that require hard two-year deadlines for environmental reviews and that agencies work on reviews simultaneously to avoid delays. This is a positive first step.
However, even with these reforms, litigation can add several years to the permitting process. As it now stands, parties can sue a mining company up to six years after its permit was approved. After the court reaches a verdict, it may choose to send the permit back for further review, which can take as long as issuing the permit from scratch.
To further speed up permitting timeframes, Congress needs to pass judicial reform to streamline the filing, case, and remedy processes. In May, Senator Joe Manchin (D-WV) proposed judicial reforms such as 150-day statutes of limitations for court challenges, expedited court considerations for energy projects, and a requirement for agencies to act on remand in 180 days or less if ordered by a court.
In July, several witnesses, including representatives from major energy companies and the Maryland Public Service Commission, testified before Congress that such reforms would help speed up permitting timeframes.
Such judicial reforms are bipartisan with Senator Bill Cassidy (R-LA) introducing his own judicial reform bill in October. However, Congress still has yet to pass such legislation.
While the federal government already offers multiple multi-million-dollar funding contracts to domestic rare earths producers through the DPA, the President could provide more economic incentives by directing the Department of Energy’s Loan Programs Office (LPO) to offer low-cost loans. As a major component in electric vehicles and clean energy, rare earth production qualifies for LPO loans under LPO’s Title 17. So far, the LPO has not offered such loans to rare earth producers.
With increasing U.S.-China tensions, the United States cannot rely on China for materials critical to U.S. defense. If America is to remain a major world power, it must secure its defense supply chains by decoupling from its greatest competitor.
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