An Unprecedented Investment in US Rare Earth Elements, with Tom Moerenhout

Notable quotes:

• China has a monopoly on heavy rare earth elements: “For heavy rare earths, the United States is fully reliant on China. For some of the other ones, the lighter rare earths, it’s a little bit different, since the United States is also a producer.” (7:50)
• An unprecedented deal to secure resource independence: “The government made a deal that we haven’t seen before. It includes an equity investment, an offtake agreement for the rare earths, and an offtake agreement for the final magnet. So, it’s really a deal that focuses on trying to create a homegrown United States mine-to-magnet supply chain.” (12:43)
• The US government takes the financial risk: “We need to accept that we’re going to invest and not make back all of that money. Some of that is going to be lost forever, but you have to be willing to do that to actually get to the deposits that allow you to diversify your supply chains.” (24:00)

Top of the Stack

• “MP Materials Deal Marks a Significant Shift in US Rare Earths Policy” by Tom Moerenhout
• The Case Study of A123 Systems
• “Clean Energy Innovation in China: Fact and Fiction, and Implications for the Future” by Anders Hove

The Full Transcript

Daniel Raimi: Hello, and welcome to Resources Radio, a weekly podcast from Resources for the Future (RFF). I'm your host, Daniel Raimi. Today, we talk with Tom Moerenhout, a professor at the Columbia University School of International and Public Affairs and leader of the critical minerals initiative at Columbia's Center on Global Energy Policy.

Recently, the US Department of Defense announced a major investment into a private company to increase production, processing, and manufacturing related to domestic rare earth elements. Building up domestic supply chains for these elements (which are crucial for defense, energy, and other sectors) has been a bipartisan goal for years. But this move marks a new and unprecedented approach for how the US government is looking to secure rare earth supply chains in the years and decades ahead.

In today's conversation, Tom will help us understand the rationale for the investment, its potential benefits and risks, and whether it's a one-off or the beginning of something bigger. Stay with us.

All right, Tom Moerenhout from the Center on Global Energy Policy at Columbia University, welcome to Resources Radio.

Tom Moerenhout: Thank you for having me.

Daniel Raimi: We're thrilled to have you. I'm really excited about this conversation. It's a topic that we've never really dug into before because I don't know if it's really ever happened before—which is the US Department of Defense investing directly in a mine in the United States. I'll ask you about the precedence of this action, but before we get into the details, Can you let us know just how you became interested in working on energy or environmental topics?

Tom Moerenhout: Yeah, sure. So very early on, I got interested in environmental issues. I'm from a small village in Belgium, where there was a big factory historically linked to a lot of asbestos and pollution, and which was very energy intensive, as well.

So, in that classic village, and I think the United States knows these types of stories, where a lot of labor in the village is linked to the factory, but there are environmental consequences there. And from there on, I just ended up working a lot on hard-to-abate sectors. This is what I was interested in as a very nerdy teenager.

And then, later on, I went to study energy and environment and spent quite a bit of time in resource-rich countries. That's how I ultimately tumbled into the critical minerals, extractive sectors, and sustainability issues around them.

Daniel Raimi: That's really interesting. What did the factory produce?

Tom Moerenhout: They produced building materials. They were very much linked to asbestos in the past. Even today, they still produce building materials.

Daniel Raimi: Interesting. So, the factory is still running?

Tom Moerenhout: It's still operational. Yeah, absolutely. Right next to the canal where I swam in as a kid and came out with some weird-colored skin and so forth, so really that type of story.

A lot of empathy for the difficulty that some of those manufacturing sectors are going through, but at the same time an understanding (or a feasible understanding) of some of the environmental consequences that go with manufacturing.

Daniel Raimi: Yeah, that's really interesting. Well, I feel like I could interview you just about your childhood and the factory, but we'll move along and get into our main conversation about rare earths.

We've talked about rare earth elements before on the show, but can you just remind us briefly, What are they? How are they distinct from this broader concept of critical minerals? And then help us understand how rare earths specifically are used in the energy and defense sectors.

Tom Moerenhout: Yeah, absolutely. So, rare earths is a combination term. It's actually 17 different elements that are rare earth elements. What those rare earths are most important for are magnets.

That's sort of the application that they're most known for, especially permanent magnets. If you want to create permanent magnets that are highly important for whatever kinetic energy you want to translate into electrical energy, or vice versa.

So, wind turbines producing electricity, or batteries producing movement in electric vehicles, that's what rare earth elements are very important for—to improve their efficiency and to improve their resistance to demagnetization. Imagine you just want a really, really good magnet, that's what you need rare earths for. In the defense sector, they're also often used within missiles, airplane technology, fighter jets, and so forth. And these rare earths, they really improve your product.

Again, they improve the electrical and magnetic properties, but also others. Without them, you just don't get as solid a product. What's often interesting, and I think sometimes maybe a bit misunderstood of rare earths, is you don't need a lot of them. You actually need a very small amount, but that small amount. So it's not even that costly, but that small amount is hyper-, hyper-important to the efficiency in the performance of your final products. So, it can be wind turbines, electric vehicles, missiles, missile defense systems, and so forth.

Daniel Raimi: That's really interesting. Maybe this is getting beyond your area of expertise, but when you say improve the performance of the product (I'm imagining a missile that's going to shoot somewhere), What is the aspect of performance that the rare earths would play a particularly important role in? Would it be like the precision of the guidance system? Would it be something else?

Tom Moerenhout: It's definitely the precision system, and often they can also be used as sort of catalysts. So, specific rare earths applications where they're used as catalysts for different things can be auto refinery and defense systems, to improve the efficiency of a process that is going on within these systems.

Imagine you have a missile, and you have magnets that are operating within that missile. Missiles get very, very warm. They are exposed to the elements, and there are other magnetic influences happening around them, such as lots of electricity and lots of high temperatures going on. So the ability to screw up your magnet is very high, and this is what rare earths protect against.

Daniel Raimi: That's really interesting. Many of our listeners probably have a sense of the answer to this question, but can you give us just a quick reminder, Where do most of the rare earths that get used in the United States—where do they come from? And why does that raise concerns for policymakers?

Tom Moerenhout: Basically, the United States is a very heavy importer of rare earths, and it's not just the United States of America; it's the whole world. We import most of them from China right now, and within rare earths—and I don't want to go too technical, but basically—you have two types of rare earths: You've got the heavy rare earths, and you've got the light rare earths.

In both, China is absolutely dominant, period. But for the heavy rare earths, which is the stuff that you need more for defense applications, China just has basically a 100 percent monopoly. So, for heavy rare earths, the United States is fully reliant on China.

For some of the other ones, the lighter rare earths, it's a little bit different. The United States is also a producer itself—the Mountain Pass Rare Earth Mine is something we can talk about later on. But in addition to that, the United States also imports lighter rare earths from China and other countries abroad, but especially China.

To understand that import reliance, you need to sort of understand how the rare earths supply chain works. And I'm at risk now of boring your listeners too much, but it's kind of interesting.

Daniel Raimi: No, this is great. Let us know.

Tom Moerenhout: You get them out of the ground, and they're all kind of stuck together. As I mentioned, they're sort of 17 compounds and you can kind of distinguish them into big groups—these heavy and these light rare earths.

They come out stuck together. So it's not just about extracting them, which is already—number one—is difficult to do. And, number two, you get a lot of waste involved, as well, so there are challenges there.

But once you get them out of the ground, you need to separate them, so that you have every element of those 17 rare earths separately. Because if you're going to put it into a specific magnet, or if you're going to put it into a missile system, or whatever it is, you need to have a very specific combination of rare earths. So, you need to be able to separate them. And that separation process—that is very complicated to do, that's actually high-tech stuff.

Daniel Raimi: And that separation process leads to lots of waste, right?

Tom Moerenhout: A lot of waste, yeah. And we are talking about the worst type of waste, including radioactive waste and so forth.

And this is something that China currently has a monopoly over. That's not only because it's dirty, but because it is quite a complicated process, and they're just better at it than any other country right now in the world.

Daniel Raimi: Really interesting. You just mentioned the Mountain Pass mine in California. Tell us a little bit more about the Mountain Pass mine. And specifically, the reason that we wanted to talk to you on the show is because the Department of Defense in the United States has made this major investment into the mine itself. So, tell us about the mine and what the Department of Defense is trying to accomplish by investing in it.

Tom Moerenhout: Yeah, absolutely. So basically, the Mountain Pass mine is the only operational rare earth mine in the United States of America. It used to produce rare earths a long time ago. And then, in the 1990s and the 2000s, a lot of that activity was outsourced to China. And eventually, that mine went bankrupt. It was restarted a couple of years ago, and they're the only producer of rare earths—mostly those light rare earths—in the United States.

So, the stuff that you can use for permanent magnets, but more in the direction of wind turbines and electric vehicles and maybe a little bit less the defense applications where you have these super-high temperatures that require a bit more of heavy rare earths. Anyway, Mountain Pass produces that.

Now, as we just mentioned, in the rare earth supply chain, what often happened with Mountain Pass was that they extracted the rare earths and then they actually sent them to China for separation, and for processing, and refining, and so forth.Then, the United States would reimport these processed elements, or magnets, from China.

Now, one of the things that the United States wanted to do, of course, was become more self-reliant, and I think that's a very good objective to have.

So, what we have is the United States actually exports the rare earths to China, where they are separated and where they are processed, and refined, and sometimes they're already turned into magnets. And then, the United States reimports that material, either the final magnets or the refined rare earths.

The goal here of the administration was, “No, we want to do that more domestically.” And the timing of the deal is interesting because the timing of the deal comes at a moment when two things overlap.

The first one is the Trump administration and the Biden administration before that wanting more self-reliance for rare earths, which is a good thing.

The second thing was the Trump tariffs and China’s retaliation during that trade war meant that the Mountain Pass was not really able to export to China anymore. This brought the Mountain Pass facility into very difficult waters as they just lost their biggest client.

Those two things together meant that something had to happen. And so the Trump administration saw a very good moment where a deal was both good to achieve that self-reliance, and at the same time necessary because here there was a threat of potentially Mountain Pass going bankrupt again. And the government clearly said, “We're not going to let it come that far.” That was smart.

So in response to those two drivers, the government made a deal that we haven't seen before. It includes an equity investment, it includes an offtake agreement for the rare earths, it includes an offtake agreement for the final magnet. So, it's really a deal that focuses on trying to create a homegrown United States mine-to-magnet supply chain.

Daniel Raimi: Does that mean that this investment will enable the company to build some of those separation and processing facilities? Or will they still need to export the kind of raw material somewhere to get it processed?

Tom Moerenhout: An excellent question.The goal for the separation is indeed that it would start happening in the United States as well.

So basically there were four big deals in the MP [Materials] deal.

The first one was critically important as sort of an equity investment. The government decided they were going to put 400 million into shares and stocks, and were going to become a co-owner of MP Materials—the company operating the Mountain Pass mine.

The second one was the price floor for rare earths oxides. And so that already shows it has been mined and it has gone through the first stages of processing.Today, the price is very low because China produces so much, and so many people have said China produces so much to actually lower the competitiveness of other countries. And so the government here said, “Actually, we're going to offer a floor price for 10 years to the rare earths that are produced at Mountain Pass.” So, very good.

The third one, which is kind of similar, is kind of an off-take guarantee. The government is going to be buying your magnets at the end of the supply chain.

And then part of the deal, which we'll still need to see more details on, is that this loan also supports the expansion of that separation process we were talking about.

Daniel Raimi: Interesting. Do we know yet whether those facilities would be built sort of at the mine site? Or could they be built in some other place?

Tom Moerenhout: So, part of that is being built at the mine site. A big magnet facility is actually being built in Texas, but the mine site is in California. So some of the separation will be done there, and the magnet production will be done in Texas.

Daniel Raimi: Really interesting. So, we've talked about this a little bit, Is there precedent for this sort of public investment in the mining sector? We've been talking about industrial strategy a lot over the last four to six years in the United States, but this seems to me to be really taking it a step further. Do you see it that way?

Tom Moerenhout: Oh, it's absolutely a step further. Now, there's two things that I think are very important to highlight here.

Number one, this is as ambitious as industrial policy can get. This is the government coming in (actually more coming out swinging) and saying to China, “We're going to protect this. This is going to work, and we are offering all of these four different elements.” It's sort of maximalist in scope. Each one of those would've gotten a crazy amount of attention as well, because each one of those would've almost been unprecedented in the last 10 to 20 years. And now all four of them came together.

The size of this deal was just something that you see and you're just impressed by since it's going to be expensive. Maybe it wasn't all necessary, but it very clearly shows the US government standing up and saying, “This is going to work, period.” And so, in terms of precedent, we hadn't seen this in the last couple of years.

Now, the second thing that I think is important to point out is that this was not born out of nowhere. Some officials in the Biden administration were already looking at how to put something like this, sort of that floor price and contracts for difference, together. We're not going to go in on specifics, but they were already trying to investigate what type of legal authorities they could use to have a system like this.

And what the Trump administration did was kind of turn it on its head. They said, “We need this. We're committing to it, to MP Materials, and then we'll figure out afterwards how we are exactly going to fund this, and where the legal authority is going to come from.”

So Biden’s folks were already very interested in and were looking at this. I'm not saying it would be the same deal, but part of this deal might've been happening with the Biden administration as well.

To Trump’s folks, their prioritization of their objectives is very sound with respect to rare earths. And they just said, “Look, let's just get this done, period.” The moment is here, and it is necessary for MP Materials to survive as well. It is happening right now, and it's happening big.

Daniel Raimi: Really interesting. This kind of fits a pattern with the Trump administration, which is that, in some cases, they take a major step and then worry about the legalities of the action later. Is there any sort of legal risk to this strategy where someone could sue them and say, “No, US government, you don't have the authority to do this,” and it could put some kind of wrench in the works?

Tom Moerenhout: So, it's a good question. I think you're asking the wrong guy, I do not have exactly much of a legal background here. What I will say is that the move had tremendous bipartisan support.

There are several critical minerals where realities are more difficult than rare earths. Rare earths are hyper-important, they're not that costly, and China is just monopolizing that sector. All the elements are there to basically have broad-based public and political support. I think that's why the deal was generally praised, even though some people have rightly asked the question, “Was all of this necessary?” since it seems very expensive.

If you're going to do this for several other critical minerals, there's going to be questions about cost efficiency. And these are good questions, we need to engage with them, but with respect to whether the agreement could be challenged legally, I'm not a hundred percent sure.

Daniel Raimi: That makes sense. So, you've mentioned a couple of times this distinction between lighter rare earths and heavier rare earths, and that the Mountain Pass mine is primarily a producer of the lighter kind.

Does that mean that the United States, regardless of what happens with this Mountain Pass effort, will remain heavily reliant on China for those heavier rare earths? Or do you think this is the first step into a multipronged effort where the United States is trying to take control of the full spectrum of rare earths supply chains?

Tom Moerenhout: I'll give my own opinion, which is probably somewhat limited as well, but whether you have light rare earths or heavy rare earths actually depends on the type of rock you have.

In East Asia, you have a lot of very good deposits with a lot of heavy rare earths. We have that less in the United States, but we have much more light rare earths concentrations.

It's kind of funny, rare earths are not called rare earths because they're rare—ou have them absolutely everywhere. Rare earths are called rare because the concentrations are low. If you want to extract something economically, you need a higher concentration because you need to make money. And so the United States has that for light rare earths, just much less for heavy rare earths. What we have seen with the deal, and now with MP Materials saying this as well, they are going to work on their ability to produce heavy rare earths.

There's some other companies in the United States that are working on heavy rare earth supply as well. I think that is very good, but the truth is that the rock that you're working with is just less good than the rock that China has to extract rare earths from.

The good element is that China is not the only one who's got access to heavy rare earth deposits, Brazil has that as well. So, Brazil could be a very interesting partner for the United States because it could help us secure a greater supply chain of all types of rare earths—including both light and heavy rare earths.

Right now, Trump’s administration is threatening to slap a very hefty tariff on Brazil because they don't like what's happening with former President of Brazil Jair Bolsonaro, and these are not exactly the type of conversations or political dynamics that encourage collaboration.

But in time, the United States will realize that there is a cost curve, and that it's going to be very expensive and difficult to produce heavy rare earths at scale. The United States will probably be starting to cooperate with other countries around the world, and I think Brazil is going to be an important one of them.

Daniel Raimi: That's really interesting. It makes me wonder about the extent to which we actually understand the subsurface resources for rare earths in the United States.

I remember when Secretary of the Interior Doug Burgum was in his early days in office, one of the things he said was that, “We’re going to map, baby, map,” which I kind of liked. It suggested to me that there were maybe opportunities for economical resources that we just aren't aware of yet, and that new mapping technologies (maybe using generative AI or other technologies) could actually help us discover stuff that we didn't know we have. Do you think there's much possibility there?

Tom Moerenhout: Oh, you're hitting the nail on the head. I think there's a whole lot of possibilities out there with respect to exploration. I think what people often get wrong about exploration is that it sounds so self-evident. Okay, you're going to explore, check what's under the ground to know what concentrations you have, and so forth. But it's not self-evident at all, and exploration is basically losing money.

You lose money because the only time you can make up money is if you hit a good deposit and develop it. But some companies, especially western mining companies right now, are in a difficult moment. Prices are quite low and there’s heavy competition from China, so they are struggling. The first thing that they are going to do is not drop a ton of money in exploration because, again, exploration is a sector (or part of the sector) where you just lose money.

So you need public support, which I think is very evident in China, for example. For the last couple of years, they have spent billions and billions of dollars on public investment in critical mineral exploration from the government. We don't do investment at that level yet.

So when we say “Map, baby, map,” this is absolutely what we need to do. And as a society, and as sort of a political system as well, we need to accept that we're going to invest and not make back all of that money. Some of that is going to be lost forever, but you have to be willing to do that to actually get to the deposits that allow you to diversify your supply chains.

Daniel Raimi: Yeah, that’s really interesting. So obviously the US Department of Defense is taking a financial risk here, the US government is taking a risk. If everything goes well, the government will presumably earn some kind of return, gain access to more domestic rare earths, and enhance supply chain resiliency. What are some of the big downside risks you see? Is it just the money we're talking about, or are there other downside risks?

Tom Moerenhout: I think there's two. So yes, there is the financial risk. They're putting in money and a price floor for the minerals, and I think that's a good thing. Actually, it's more than the price floor—it’s a contract for difference, meaning that if the price goes above what the government has offered, the government is going to recuperate part of that money.

So that's actually a good thing since they're really helping the financial position of MP Materials here by managing that risk. I think they've done that well, though they're paying a lot and are taking a risk.

For example, MP Materials wants to do mine-to-magnet production, but the company actually has very little experience in magnet manufacturing. Within the United States, they're definitely a very important company doing and working on that, but they're still constructing their first big facility for magnet production.

The deal is already helping to set up a second facility. Normally, if the private market operates the way it does, you would actually first check the results of that first facility and see if they have the appropriate personnel, economics, and so forth before investing in more facilities. I, for one, actually think it's good that the government is taking that risk, I'll be honest about that. I think we need that, and we really need a diversification of supply chains with respect to magnets. However, there is a financial risk.

The second part (which worries me a little bit more) is that if something does not work out, there could be huge political backlash. That's exactly what we had with Solyndra, which was a solar panel manufacturer that the Obama administration armed with some subsidies, and then it went bankrupt.

Now, we learned a lot from Solyndra. There were some things that went wrong with Solyndra, but it was also politically abused and used to undermine any type of public investment into renewable energy manufacturing. And 10 years later, I think we are regretting that because China is dominating all of the supply chains, and the United States’ position has gone from bad to worse every other year.

Let’s say this MP deal does not work out, or they struggle to actually reach their operational targets and so forth. I hope that, politically speaking, we have the conversation of how we should rethink industrial policy rather than thinking we should have never done this in the first place. That's the second risk, which I hope both political parties have a more mature conversation about than they have had about this type of issue in the last 20 years.

Daniel Raimi: Right. Yeah, that's kind of what I was thinking with Solyndra and solar. There's clearly not equal levels of support for the solar industry across the different parties, whereas for rare earths supply chains, there seems to be more agreement that this is a goal that the government should be investing in.

Tom Moerenhout: I think so too. They could have done one of those four parts in the deal, but they did it all. So they really came out strong, and I think the goal is to really make this work at whatever cost, which is maybe not the worst way of thinking about rare earths. I actually think it's a pretty sound strategy.

Daniel Raimi: Really interesting. Well, Tom Moerenhout, again from Columbia University and the Center on Global Energy Policy. It's been a fascinating conversation. I've learned a ton, and I'm sure our listeners have too.

I'd love to ask you now the same question we ask all of our guests at the end of each episode, which is to recommend something that you think is great. It could be related to rare earths, energy, or something else entirely. It could be something you've read, watched, or heard. So Tom, What's at the top of your literal or your metaphorical reading stack?

Tom Moerenhout: What I would recommend to anybody is to look into two cases that I think are sort of indicative of why we need to do industrial policy better, and why we need to think about critical minerals in maybe a different way.

The first one that I want to say is A123. A123 was a company that was working on a specific battery chemistry that, back in the day, was novel and created in the United States. There were some problems with it, and it wasn't the best battery chemistry. The government thought of supporting it, but decided not to. Eventually, A123 patents were brought (or the control over those were brought) to China, and currently it's the biggest and second most important battery chemistry in the world. This is a result of a failure in our industrial policy.So, I think that's a very interesting standpoint.

The second one that I think would be good for people to read about a little bit more is a critical minerals case study. There's one paper, and I think it's very good. It's by one of our competitors—the Oxford Institute for Energy Studies— and it looks specifically at how China developed its industrial policy around critical materials over the years, which I think is absolutely fantastic as well.

Daniel Raimi: Really interesting. Well one more time, Tom Moerenhout from the Center on Global Energy Policy, thank you so much for joining us on Resources Radio. It's been a great conversation.

Tom Moerenhout: Super. Thank you very much.

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