Trade and Investment

Will erasing economic ties hinder climate progress?

Employees work on photovoltaic solar panels at a factory of Risen Energy in Ningbo, Zhejiang province, China February 21, 2019. Picture taken February 21, 2019. Zhejiang Daily via REUTERS ATTENTION EDITORS - THIS IMAGE WAS PROVIDED BY A THIRD PARTY. CHINA OUT.

Churning out solar panels in Ningbo; 'de-risking' trade may risk hindering climate action. Image: REUTERS

John Letzing
Digital Editor, World Economic Forum
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  • A European official said recently that the region's green transition won't be possible without China.
  • The unravelling of global cooperation more broadly could slow the pace of climate action.
  • That points to possible downsides for policies like 'de-risking.'

13 paragraphs into this nearly-four-decades-old New York Times story, an academic discussing a scientific discovery in China made a seemingly incidental observation: the country was “extremely" rich in rare earth elements.

By that point, China was fully committed to the dirty and expensive mining and processing of those mineral resources, which are decidedly no longer incidental. They underpin technologies now deemed necessary to reduce carbon dioxide emissions and stave off a climate catastrophe, and China dominates the market.

That fact was alluded to recently by the Dutch trade minister when she said Europe’s much-needed green transition won’t be possible without China. Her remarks raise difficult questions about the prevailing push for “de-risking,” the latest way to describe limiting trade ties to mostly Western allies.

Europe is one of many parts of the world currently finding its way between two hardening halves of the global economy, with China anchoring one and the US another. A consequence of too much division and discord could be the handicapping of efforts to confront the climate crisis.

China dominates the global solar power industry, but other countries are trying to catch up.
China dominates the global solar power industry, but other countries are trying to catch up. Image: World Economic Forum

“The Middle East has oil. China has rare earth metals,” the late Chinese leader Deng Xiaoping allegedly said at some point in the 1980s. By 2020, China was providing 98% of the EU’s supply of rare earth elements used in everything from electric car motors to wind turbines. Globally, the country accounts for 60% of mined production.

It's a similar story with solar panels; China was the source of 89% of the EU’s imports in 2021, and home to three-quarters of global manufacturing capacity that year.

The European Green Deal approved in 2020 called for slashing car emissions by more than half and ensuring that renewable sources account for 40% of the EU’s energy mix by 2030. A more recent plan aims to increase that energy goal to 45% of the mix – by nearly doubling solar deployment between 2025 and 2030.

Finding ways around China to make these things happen is now an EU priority.

But in Europe and elsewhere, aggressively cutting commercial ties for reasons that may be political as much as practical could be self-defeating.

According to a study published by the University of California, San Diego, a Western decoupling from cooperation with China on clean-energy technologies would have a global impact on efforts to mitigate climate change. “The decoupling ‘cure’ is likely to be worse than the integration ‘disease’,” the authors wrote.

A cooperation dividend for the climate

China has used native strengths like its rare-earth abundance to leap decades ahead in the electric car battery market. But the country has also enjoyed its own benefits of relatively unfettered trade with the outside world, and may suffer from a dramatic reshaping of that system.

Foreign direct investment in China fell sharply last year amid growing geopolitical tensions, and weakened Western demand has exacted an economic toll. More withering of interest from abroad in Chinese green technologies and materials probably won't help anyone, ultimately.

The outlines of impending supply imbalances in these critical tools and resources have been visible for a long time. When Deng Xiaoping was rhapsodizing about rare earths in the 1980s, the US was the world’s biggest vendor. By the following decade, China had already surpassed it, on the way to becoming the de facto sole supplier of crucial ingredients not only in green technologies but also other more mundane but essential devices.

Now, as many countries put policies in place to undo extensive damage to the climate through innovation (some would say decades too late), they’re scrambling for the means to follow through. Some are focusing internally.

Rare earths are deemed essential for many green technologies.
Rare earths are deemed essential for many green technologies. Image: World Economic Forum

Canada, for example, has ambitions to exploit what it says are some of the largest reserves of rare earth elements in the world. Australia is also aiming to do far more with its extensive natural supply. Sweden recently discovered what’s been described as the biggest rare earth deposit in Europe.

In the US, production of rare earth mineral concentrates more than tripled between 2018 and 2021. So did the country’s solar panel shipments.

It’s true that at least to some degree, the materials now deemed essential for a green transition may yet change. Many electric carmakers are seeking out ways to develop new motors that don’t depend on rare earths, for example.

Meanwhile, we’re fast approaching the dreaded limit of 1.5°C in global warming. Beyond that, worsening impacts are expected to compound. And at this point, only an “immediate and colossal” effort could give us realistic odds of stopping short.

Experts say extensively rewiring supply chains and reducing dependencies to fit geopolitical preferences would be a long and costly process. Focusing on that, instead of figuring out ways to cooperate more constructively, may not be the best use of precious time.

More reading on trade, cooperation and climate change

For more context, here are links to further reading from the World Economic Forum's Strategic Intelligence platform:

  • Vying for the solar market of the future – this piece digs into efforts being made by some countries to potentially deploy solar power stations in space; one is already testing the concept. (ASPI)
  • Current tensions among developed countries would “pale in comparison” to divides that may form between the developed and developing worlds over green industrial policy, according to this analysis. (Observer Research Foundation)
  • “Any successful European green transition will necessarily extend beyond EU borders.” This piece outlines ways to encourage one of Europe’s biggest oil and gas suppliers to shift focus to renewables. (European Council on Foreign Relations)
  • “More modest and defensive aims.” This piece attempts to differentiate between the containment applied to the Soviet Union during the Cold War and the current push for de-risking. (The Diplomat)
  • “A better approach to de-risking trade.” Among the recommendations for a more nuanced approach in Europe laid out in this piece: strategic stockpiling of rare earth minerals. (Project Syndicate)
  • The world only began to wake up to the implications of a highly-concentrated global market for rare earth elements after a maritime dispute in 2010, according to this piece. (Pacific Forum)
  • This report puts forward one potential way to help Europe meet future demand for rare earths: recycling rare earth-based permanent magnets. (CEPS)

On the Strategic Intelligence platform, you can find feeds of expert analysis related to Trade, the Future of the Environment and hundreds of additional topics. You’ll need to register to view.

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