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Should DOE Pump Up Rare Earth Metals With Loan Guarantees?

Rare earth element mine in Mountain Pass, Calif.

Senators Lisa Murkowski (R.-Alaska) and Evan Bayh (D.-Ind.) have led a group of 20 senators urging the Department of Energy to open its loan guarantee program to projects meant to increase U.S. production of rare earth elements, a group of metals used in hybrid vehicle batteries, wind turbines, compact fluorescent light bulbs and magnets for electric vehicle motors, as well as consumer electronics and many defense technologies.

In a letter sent to Secretary of Energy Steven Chu last Friday, the legislators warn that a “crisis” in the supply of these metals could “jeopardize our ability to deploy key clean energy technologies and reach our broader energy policy objectives.”

But given the wide array of technologies for which these materials are used, and the clean energy goals of the loan guarantee program, the feds should tread very carefully at this point to avoid letting mining operations (which may mainly supply other industries) slip by under the guise of greentech — especially if awards to this industry would come at the cost of technologies that fit more closely with the program’s aims.

Rare earth elements, or REEs, aren’t actually as uncommon as the name implies. Some of them are about as abundant as industrial metals like nickel, copper, zinc and lead. In fact, the two least-abundant REEs (thulium and lutetium) are nearly 200 times more common than gold, according to the U.S. Geological Survey. What is rare is for these metals to become concentrated in deposits that are easy to tap, and as a result, most of the world’s supply comes from just a few sites.

A company called Molycorp, which in April filed with regulators to raise up to $350 million in an initial public offering, controls one of those sites: a project in Mountain Pass, Calif. that has been around for more than 50 years. Molycorp stopped removing ore at the site in 2002, and will need an estimated $450 million to $500 million to start mining again.

In Murkowski’s state of Alaska, Ucore Uranium and its subsidiary RareEarth One aim to drill 5,000 feet of new core samples in 2010 at their Bokan Mountain site on Tongass National Forest land, which has deposits of uranium and REEs. According to 2008 estimates from UCore, some of the REEs that may be concentrated at the site could be worth more than $1,000 per pound if the company ends up being able to mine them (according to Foreign Policy, most of the market value for REEs is added in the refining process).

Graphic courtesy of USGSDespite having some of the planet’s largest known deposits of REEs, the U.S. has been importing a vast majority of the metals from China since the 1990s, according to the U.S. Geological Survey. That’s partly due to Molycorp shutting down mining operations at its Mountain Pass site (in the wake of problems with radioactive waste spilling into a nearby lake).

At the same time, new Chinese companies have come online and ramped up production, helping to drive down prices to a point where U.S. companies have found it difficult to compete.

The prospect of China’s government limiting exports of the metals has captured the attention of U.S. lawmakers and government authorities in recent months. In particular, Murkowski and Rep. Mike Coffman (R.-Colorado) introduced companion bills in Congress this year that are meant to boost the rare earth elements industry through creation of a national stockpile and loan guarantees for mining, refining, alloying and manufacturing projects related to the REE , among other initiatives. Coffman’s bill calls in particular for support of processing and production of “heavy” rare earth elements (such as europium, used in liquid-crystal displays), which are generally more scarce and valuable than elements in the “light” group.

Assistant Secretary of Energy David Sandalow announced in March that the DOE would develop its “first-ever strategic plan for addressing the role of rare earth elements” and other materials in clean technologies, focusing on research into substitutes (funded through programs like ARPA-E) and promotion of recycling, re-use and more efficient use, while also “encouraging our trading partners to expedite the environmentally sound creation of alternative supplies.”

Sandalow also said efforts to rely less heavily on China for these materials would include encouraging stateside extraction, refining and manufacturing.

In the letter sent Friday to Secretary Chu, Murkowski, Bayh and the other Senators say the DOE’s strategic plan needs to go further, faster. They call for the DOE to “expeditiously consider any application under the Loan Guarantee Program that would help to rebuild the domestic rare earth supply chain and manufacturing sector.” According to the letter, that would mean expediting applications related to a number of “downstream steps,” including:

“creation of high purity rare earth oxides; production of rare earth metals; fabrication of rare earth alloys; and the manufacture of permanent magnets, advanced batteries, and other rare earth components of clean energy technologies.”

Awarding loan guarantees to companies in these areas would typically enable them to finance projects with a better interest rate and at a lower cost than would otherwise be available to them. A loan guarantee serves essentially as promise by the government to back a loan if the company can’t make good on it, which lowers financial risk for lenders and represents a vote of confidence from Uncle Sam that can help a company attract equity investors.

The stated goals of the loan guarantee program have to do with supporting nuclear power facilities and generating renewable energy — which funding for the REE industry seems to only tangentially promote.

But as the Government Accountability Office pointed out in a recent report, the DOE has awarded guarantees (on a conditional basis) for energy efficiency projects, which don’t fit squarely into those goals and therefore present challenges for assessing the program’s progress.

In response to the GAO’s findings, the Energy Department has said it’s revisiting the loan guarantee program’s performance goals to bring them more in synch with the larger goals of spurring growth in the “green economy” and reducing greenhouse gas emissions from power generation. Staying true to those goals with every dollar of a loan guarantee seems to be a simpler matter when the project is meant to crank out solar panels, for example, that enable electricity generation without fossil fuels. Doing that with REE projects, however, would present a trickier thicket of questions about how to assess how much a mine or refinery supplying materials for end-uses ranging from radar systems and missiles to wind turbines is really moving us toward a lower-emission economy.

Graphics courtesy of the U.S. Geological Survey

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