De-Risking China’s Critical Mineral Supply Chains: A Comparative Analysis of EU and US Industrial Policies Towards the Lithium and Rare Earth Elements Industries in the Clean Energy Transition

Abstract

The decarbonization of the global economy has triggered a global competition to secure access to critical minerals (CMs) that are base products for applications used in almost all sectors of the economy. The demand for high-performance batteries used in electric vehicles and other clean energy technologies has prompted an exponential increase in demand for lithium, rare-earth elements, cobalt, graphite, and other minerals. Minerals will need to increase six-fold by 2040 for the US, the EU, and major countries to reach net-zero greenhouse gas emissions and to fully embrace renewable energy, making the market value of minerals to be over $400 billion. While resource depletion of a mineral is not yet an issue, supply chain disruptions are becoming increasingly common due to trade wars and unforeseen events such as the COVID-19 pandemic and the Russia-Ukraine war. While critical minerals are found in a handful of resource-rich countries predominantly in Africa and Latin America, China has emerged as a one-stop-shop for critical mineral extraction, processing, and manufacturing of technologies. China’s near monopoly over CM supply chains is a major concern for the US, the EU, and other major industrial nations due to economic and national security concerns associated with disruptions in access to those minerals.

The 2010 China-Japan REE dispute served as a wake-up call for major industrial nations to assess CM supply chain vulnerabilities due to over reliance on a singular country. The US’ 2022 Inflation Reduction Act (IRA) and the EU’s 2023 Green Deal Industrial Plan are two of the most recent and most comprehensive industrial policies to secure supply chains and to diversify sources. Both the US and the EU aim to de-risk their relationships with China through building up a domestic manufacturing base, establishing partnerships with allies, and promoting recycling programs. Through process-tracing developments in the CM industry and through comparative analyses of industrial policies, this thesis seeks to understand: First, how did the US and the EU first recognize the issue of CM dependency on a single country? Second, how has the US and the EU responded to this dependency and what are they doing to diversify and to strengthen supply chains? Third, how has and how does the increasing need for critical minerals influence global geopolitics? The findings from this thesis illuminates the evolution of US and EU CM strategies and similarities and differences in their approaches to securing vulnerable CM supply chains.