Critical Minerals & the Energy Transition

The global transition to clean energy has created unprecedented demand for critical minerals, particularly rare earth elements essential for electric vehicles, wind turbines, and renewable energy infrastructure. As of 2024, global rare earth production has surged to 390,000 metric tons annually^[1], nearly triple the 132,000 metric tons produced in 2017—a dramatic increase driven by the rapid electrification of transportation and expansion of renewable energy generation.

However, this growth has been accompanied by increasing concentration in supply chains. China now controls approximately 70% of global rare earth production^[2] and an even more dominant 91% of separation and refining capacity^[3]. This dominance stems from decades of deliberate industrial policy: beginning in the 1990s, China invested heavily in rare earth processing infrastructure while accepting the environmental costs that Western nations were unwilling to bear^[4]. The concentration extends to downstream products, with China accounting for 94% of sintered permanent magnets production^[5]—up from just 50% two decades ago.

Looking ahead, the International Energy Agency projects that demand for critical minerals will need to triple by 2030 and quadruple by 2040^[6] to meet stated climate policy targets. For rare earth elements specifically, demand is expected to grow sevenfold under sustainable development scenarios^[7], driven primarily by electric vehicle motors (which require 1-2 kg of rare earth magnets per vehicle) and wind turbine generators (where a single 3 MW direct-drive turbine can require up to 600 kg of rare earth materials)^[8].

Rare earth elements (REEs) are a group of 17 metallic elements: the 15 lanthanides (lanthanum through lutetium) plus scandium and yttrium. Despite their name, most are not actually rare in the Earth's crust—they're called "rare" because they rarely occur in concentrated, economically exploitable deposits and are difficult to separate from one another due to their similar chemical properties.

This report focuses on the rare earth elements most critical to the clean energy transition:

The map reveals a striking geographic concentration. While nine countries actively produce rare earth elements, just three nations—China, the United States, and Myanmar—account for nearly 90% of global output^[9]. This concentration is even more pronounced than it appears, as most producing countries, including the United States, export their raw materials to Asia for processing and refining. The U.S., despite being the second-largest producer at 45,000 metric tons annually, ships over 95% of its rare earth concentrates to China for separation and refining^[10]—effectively making China the beneficiary of American mining operations.

Interestingly, production concentration doesn't align with reserve distribution. Vietnam and Brazil hold the world's second and third-largest reserves respectively (22 million and 21 million metric tons)^[11], yet produce minimal quantities—300 metric tons and 20 metric tons annually. This disparity exists for several interconnected reasons. First, rare earth processing is extraordinarily capital-intensive, requiring $500 million to $1 billion in upfront investment for a commercial-scale separation facility^[12]. Second, the environmental costs are substantial: processing one ton of rare earth ore generates approximately 2,000 tons of toxic waste containing radioactive thorium and uranium, acids, and heavy metals^[13]. Vietnam's largest rare earth project, for instance, faced years of delays due to concerns about radioactive waste disposal near populated areas. Third, China has developed proprietary expertise in rare earth metallurgy over three decades that other nations cannot easily replicate^[14]—the specialized knowledge of separating chemically similar rare earth elements remains concentrated in Chinese research institutions and companies.

While mining concentration is significant, the real bottleneck lies in refining and processing. China's dominance escalates dramatically in downstream activities—controlling 91% of rare earth separation and refining, 85% of global processing capacity, and 94% of permanent magnet production^[15]. This vertical integration didn't happen by accident. China deliberately pursued a "resource nationalism" strategy in the early 2000s, consolidating hundreds of small miners into six state-controlled enterprises while simultaneously investing billions in downstream processing technology^[16]. Western companies, facing strict environmental regulations and declining profit margins, largely abandoned rare earth refining in the 1990s and 2000s—the last major U.S. separation facility closed in 2015. China filled this vacuum, willing to accept the environmental externalities that Western nations regulated away.

The situation is particularly acute for heavy rare earth elements (dysprosium, terbium, yttrium), which are crucial for high-performance magnets in electric vehicles and wind turbines. Until 2023, China held a virtual monopoly at 99% of heavy REE processing^[17]. Heavy rare earths are disproportionately found in ionic clay deposits in southern China, giving the country both geological advantage and processing expertise. Lynas Corporation's Malaysian refinery briefly provided minimal competition at less than 1% of global heavy REE capacity, but technical challenges and local opposition to radioactive waste storage have limited its expansion^[18]. This means virtually every electric vehicle motor and wind turbine generator globally depends on Chinese-processed heavy rare earths.

Recent export controls implemented by China in December 2024 on gallium, germanium, antimony, and rare earth processing technologies have heightened concerns about supply security^[19]. Unlike previous restrictions that focused on raw materials, these measures explicitly target dual-use technologies and equipment essential for establishing alternative processing facilities. By controlling both the material flows and the technological know-how, China has created a self-reinforcing dominance that will take competitors a decade or more to challenge—even with substantial government support like the U.S. Defense Production Act's $450 million in funding^[20].

The clean energy transition is driving explosive growth in critical mineral demand. According to the International Energy Agency, overall demand for critical minerals will need to triple by 2030 and quadruple by 2040 to achieve stated climate policies^[21]. Under more ambitious net-zero scenarios aligned with limiting warming to 1.5°C, demand would need to increase six-fold by 2040^[22]. This unprecedented growth stems from the fundamental material requirements of clean energy technologies: a typical electric car requires six times more minerals than a conventional vehicle, while an onshore wind plant requires nine times more mineral resources than a gas-fired power plant^[23].

Electric vehicles and battery storage are the primary demand drivers, accounting for approximately half of projected mineral demand growth^[24]. The mathematics are stark: with global EV sales reaching 14 million units in 2023 and projected to exceed 40 million annually by 2030 under current policies^[25], each requiring 1-2 kg of rare earth magnets, EV motor demand alone will consume 40,000-80,000 metric tons of rare earth elements annually—roughly 20% of current global production. Wind power expansion compounds this pressure, with offshore wind farms (which use larger turbines with more rare earth content) expected to grow from 75 GW of global capacity in 2024 to over 370 GW by 2030^[26]. For rare earth elements specifically, the IEA projects demand to triple under current policies and increase more than sevenfold under net-zero scenarios by 2040^[27].

Recent demand growth has already accelerated beyond historical trends. In 2024, lithium demand surged by nearly 30%, far exceeding the 10% annual growth rates seen in the 2010s^[28]. Demand for rare earth elements increased 8-15% in 2023-2024, with particularly strong growth in neodymium and dysprosium used in high-performance magnets. This acceleration reflects policy-driven EV adoption mandates: the EU's ban on new internal combustion engine vehicles by 2035, California's similar 2035 target, and China's goal of 40% EV market share by 2030 are creating regulatory certainty that's spurring investment. Yet even this rapid growth may prove insufficient—the gap between announced mining projects and projected demand suggests potential supply shortfalls of 30-50% for key minerals by 2030^[29], raising questions about whether the energy transition's timeline is feasible without major supply disruptions.