Rare earths, an essential raw material for wind turbines, electric cars, smartphones & more (click to enlarge image below), have a dirty, polluting and toxic supply chain. This is made worse by the rare earth black market. Yet, these ‘dirty’ issues are usually swept under the carpet, and the clean and green products made from rare earths are instead under the spotlight.
The black market & illegal mining of rare earths exacerbates environmental damage…
Since the mid-1990s, China has been the largest producer of rare earths globally. As a consequence, pollution is rampant in its major rare earth mining and processing cities. Illegal mining activities and the black market has meant that this pollution has grown even wilder and resources depleted quicker.
The black market has also meant that prices are kept low, as the “extra supply” it offers avoids all taxes, environmental costs and other related operational costs. Even legally mined and processed rare earths are priced low, as environmental costs are not factored in. Chinese officials say Chinese rare earths are sold at “cabbage prices” (as cheap as a cabbage).
… estimated clean up bill in Ganzhou city alone = RMB38 billion
Ministry of Industry and Information Technology
This price failure combined with the black market has created a vicious cycle in China that if left untreated will mean continued rampant pollution and resource depletion.
In 2012, China’s Ministry of Industry and Information Technology estimated that for Ganzhou city alone, the environmental bill to recover the heavily polluted rare earth mining areas would be as much as RMB38 billion.
Jiangxi province, where Ganzhou city lies, only accounts for a mere 8.6% of China’s national production quota. How much will it cost to recover all of the country’s rare earth mining sites? And how many of these sites were illegally mined and so paid no taxes that would cover some of the cost?
The Chinese government is paying nearly all of the clean-up costs and local communities are paying with their health due to unsafe drinking water and contaminated farmland. Neither these costs nor the black market have received enough attention. While the US, Japan and Europe were fighting for “free trade” of China’s rare earths in World Trade Organisation, these countries appear to have written these costs off as necessary evils in the name of “free trade”.
More on this in our recent report “Rare Earths: Shades Of Grey – Can China continue to fuel our global clean & smart future?”, (available in Chinese here).
Sizing the black market
Though the rare earth black market is an open secret, there is limited data on the scale of the market and its worth. On top of this there is conflicting data.
One of the disparities is the 32,980 tonnes production gap between USGS and China’s official data.
According to USGS, global rare earth production in 2015 of 124,000 tonnes was the same as in 2007. For the same period USGS reported that rare earth production in China dropped by 15,000 tonnes. However, according to China’s official data, during this period China‘s rare earth production quota actually increased by 17,980 tonnes. Hence, the 32,980 tonnes gap.
Though the rare earth black market is an open secret, there is limited & conflicting data…
Like the 32,980 tonnes gap between USGS & China data
And that volumes of rare earth products from China as collected by foreign customs were 35%, 59% & 36% higher than China’s official volumes in 2006 to 2008
Whilst the black market is assumed to be a main cause of this gap, it can also be assumed to include domestic Chinese producers that are under reporting in order to pay less resource tax.
The situation for China’s “Southern ore” (ion-absorbed rare earths), essentially the Medium & Heavy Rare Earth Elements (MHREEs), is even worse.
Another way to gauge the size of the black market is by comparing countries’ import data with that of Chinese customs. According to China’s State Council 2012 White Paper, the volumes of rare earth products imported from China as collected from foreign customs were 35%, 59% and 36% higher than the official volumes exported in 2006, 2007 and 2008, respectively.
An overlooked environmental crime
Like other black markets, the rare earth black market is driven by demand. However, it receives less attention and when discussed, tends to become ‘stuck’ due to issues of natural resources rights and trade disputes. Transnational trafficking activities of rare earth have neither gained action from World Trade Organisation, nor are regulated by the United Nations Office on Drugs and Crime.
“With little or no attention, the rare earth black market will likely continue and could proliferate as demand continues to rise.”
The rare earth black market shares many similarities to the illicit wildlife trade. But unlike the “global war” on ivory or rhino horn, there is no war on the rare earth black market, which is overlooked. Even with the war on ivory, only around 10% of illegal ivory is seized, according to the International Criminal Police Organisation. With little or no attention, the rare earth black market will likely continue and could proliferate as demand continues to rise.
However, in June 2016, the United Nations Environment Programme and Interpol released a report identifying trafficking in illegal rare earths as an environmental crime. Rare earths are mentioned under the “Illegal extraction and trade in minerals”, along with gold and diamonds. Impacts include resource depletion, livelihood challenges and loss of raw material for local industry. This is a good start but is late compared to the actions taken regarding other raw materials and minerals.
Top IT brands have promised to eliminate “conflict metals” but why do they continue to turn a blind eye to the “cancer villages” from rare earths?
As of August 22 2012, the US Securities and Exchange Commission requires companies to disclose the use of four particular minerals (known as “conflicting minerals”) that have been sourced from conflict areas in the Congo Basin and beyond. Top IT brands, like Apple and Intel, have promised to eliminate “conflict metals” from their supply chain, but why do they continue to turn a blind eye to the “cancer villages”, polluting drinking water and soil erosion due to the exploration of rare earths? With China’s determination on winning “the war against pollution”, will this add extra risks for the sustainable development of the booming IT industry, the clean energy sector and electronic industry?
China can’t clean up or crackdown alone
Illegal mining and the black market mean long-term woes for the country but also the world, with global supply at risk. China has realised this and is acting but what about the rest of the world?
Since 2006 the Chinese govt has been trying to regulate the industry
Since 2006 the Chinese government has been trying to regulate the rare earth industry through various systems and policies. These include: industry and energy emissions standards, permit systems, Environmental Impact Assessments (EIA), industry consolidation, rehabilitation & restoration accountability mechanisms and others.
Meanwhile, industry groups like the China Rare Earth Association have been advocating for an increase in China’s production quota. They argue that the illegal mining activities are driven by the imbalance between demand and supply; demand is greater than supply. By increasing the legal production quota, there would be less need for rare earths from the black market. However, these views often fail to mention any environmental considerations related to an increased quota.
China has proposed building a traceability system
But for this to work downstream countries & businesses need to be involved too
In December 2015, China’s State Council proposed building a rare earth traceability system. This aimed to improve supply chain ownership and crackdown on the black market. However, to implement such a system and ultimately shift the global rare earth industry into a sustainable one, downstream countries and businesses need to be involved too.
Germany by 2014 had installed 24,867 wind turbines, how much of the rare earths in those turbines were supplied by the black market?
Brands like Toyota are benefiting from a ‘green’ image with electric cars like the Prius, but are rare earths used in their production legally sourced? Was there environmental damage and were lives impacted in China as a result of these products? (click to englarge image)
As we can see China is already moving towards much more stringent management on rare earth industry. However, unless countries, business and consumer downstream act and work to enhance the transparency along the supply chain, the black market will never end and neither will the pollution.
The low prices and market failure are a hotbed for the black market; these issues need to be addressed quickly. The cabbage prices of Chinese rare earths will no longer be so low if environmental costs are factored and with China’s war on pollution this is more and more likely, especially with an already sizeable RMB38 billion clean-up bill in Ganzhou.
The time to act is now as demand is only growing
Are we not all responsible?
The time to act is now as demand for clean and smart products is only growing with the Paris Climate Agreement, increasing populations & more. China’s domestic demand is increasing and so it may not be able to continue to fuel the global demand for much longer.
Can we build a sustainable clean, smart and green future off the back of pollution, cancer villages and black markets? Are we not all responsible?
- Can We Build A Clean & Smart Future On Toxic Rare Earths? - Almost all smart, green & clean tech need rare earths to work, but mining & processing these are highly polluting. Lead author Liu of China Water Risk’s new report: “Rare Earths: Shades Of Grey” explores this paradox. It is time to rethink our clean & smart future
- E-Waste: Downside to the Tech Revolution – China is one of the largest producers of e-waste globally. Faced with mountains of toxic e-waste, Green Initiatives launched the [WE] Project in Shanghai. Co-founder, Nitin Dani on this easy, safe & scalable way to recycle phones, home appliances & more
- BWS-China: WRI’s New Water Stress Map - With more granular data from the Chinese government, WRI China upgraded its Aqueduct Baseline Water Stress (BWS) maps for China. BWS China developers Wang, Zhong & Long explain key differences
- Wind & Sun: Relief For China’s Dry North - China’s North is parched but is home to a significant amount of coal reserves & arable land. Can wind & solar power help bring relief? CWR’s Thieriot on how but be warned, challenges remain
- China’s Water Resource Tax Reform – The recently launched water resource tax reform will ultimately supersede the existing resource fee system. China Water Risk’s Yuanchao Xu on how the two systems compare and why Hebei is taking lead as the pilot city
More on rare earths & water risks
- China Water Risk’s 5 Trends for 2016 - As China moves to re-balance its economy and environment, Beijing will shepherd the nation towards water, food & security. For the Year of the Goat, it is better to be the surefooted goat than the sacrificial lamb so check out our top 5 trends in water for 2015
- Wind & Solar: Hidden Water Risks - China is looking at aggressive renewable expansion with wind & solar set to soar. But could this intensify toxic hidden water risks from rare earth mining? Also some solar technologies require more water than coal to generate power. We explore these hidden risks in our report “Towards A Water & Energy Secure China”
- Towards Water & Energy Security - China Water Risk published report titled “Towards A Water & Energy Secure China”. Tough choices lie ahead in power expansion with limited water. Find out what strategies are employed and get a comprehensive overview of water risk exposure across China’s power landscape
- China’s Soil Ten - With ~1/5 of China’s farmland polluted, the Soil Ten Plan could not come sooner. See impacts to the “Hateful Eight” polluting industries & get the distilled version of the 231 actions in our review
- Beautiful China 2020: Water & The 13 FYP – China wants to exert tireless efforts to build a Beautiful China where the sky is blue, the land is green and the water runs clear. Find out what this means for water, the environment and the economy in the next five years in the upcoming 13th Five Year Plan