By John Kemp
LONDON, Jan 31 (Reuters) - Critical minerals like rare earths, lithium and tellurium are becoming ever more essential to the modern economy, yet production in the United States remains limited, leaving the country relying on imports from just a handful of countries led by China.
For many of these materials, there are few substitutes, raising obvious concerns about supply security.
It wasn't always this way. The United States was once the world's leading producer of rare earth elements (REEs). However, mining at its Mountain Pass facility was largely suspended between 1998 and 2010 owing to environmental concerns.
China came to dominate production in the 2000s. Beijing's decision to impose export restrictions on REEs, tungsten and molybdenum in 2011 and 2012 to reserve more of them for domestic manufacturers underscored the supply chain's vulnerability and drew protests from the United States, the EU, Canada and Japan, as well as a complaint to the WTO.
Since then, Mountain Pass has reopened, following the construction of a new $1.55 billion processing facility by its owners Molycorp. New sources of supply are also becoming available from Mount Weld in Australia. The market is rapidly moving from tight supply into surplus.
But many policymakers, as well as rare earth producers and high-technology firms, remain concerned about import dependence, and want to do more to encourage the production of rare earths and other scarce but important materials within the United States.
Congress is currently considering two pieces of legislation that take contrasting approaches to the problem.
"The National Strategic and Critical Minerals Production Act" (HR 761), approved by the House of Representatives largely along party lines, aims to boost supply by streamlining the process for obtaining mining permits.
It contains no new funding for minerals-related research and production, but is opposed by the Obama administration and environmental groups because it might weaken environmental regulations.
By contrast, the "The Critical Minerals Policy Act" (S 1600) being considered by the Senate Committee on Energy and Natural Resources, has bipartisan support from 19 senators (10 Democrats and 9 Republicans) including the chairman and highest-ranking Republican on the committee.
S 1600 would authorise spending up to $60 million for new studies of domestic mineral resources and research into recycling and substitutes. It funds a review of the permitting process but does not mandate any changes.
The administration has not yet expressed a formal view on S 1600. But at a hearing on Tuesday, the bill won strong support from producers like Molycorp, as well as trade organisations representing users like the Semiconductor Association and automakers, and the leading academic researchers working in the field.
Whether either of these bills would be a good piece of legislation depends on what the fundamental problem is that has been holding back production of rare earths and other critical minerals.
Writing in December 2013, I described the Critical Minerals Policy Act as the sort of special-interest legislation which deserved to die in Congress. This is because it fails to identify a good reason for the critical minerals industry to receive special help from taxpayers rather than leaving provision up to the market..
That drew a sharp rebuke from Colin Hayes, a former staffer on the Senate Energy and Natural Resources Committee who helped write the legislation, and who described it as a "cynically misguided reaction."
"Just imagine the benefits of replicating America's natural gas boom for even a fraction of the other commodities needed to keep our economy growing," Hayes argued. "We can and should pursue that outcome."
"I couldn't agree more with Kemp's enthusiasm for the free market, but we don't live in an Ayn Rand novel" he concluded ("Don't belittle Congress's attempts to enhance mineral production," Jan 3).
The problem is that Congress has been trying to pass legislation on critical minerals, and sometimes succeeding, for at least 40 years.
A quick search of Congress's legislative database shows the U.S. House of Representatives in 1974 considering a "joint resolution requiring the President to submit to Congress a report concerning importations of minerals which are critical to the needs of U.S. industry."
None of these issues is new. Several laws have been passed since then in a bid to stimulate domestic production of rare earths and other critical minerals.
The fact all this legislative activity has still not provided secure and reliable domestic supplies suggests the problems are more fundamental.
It is generally agreed government should only intervene where there is some reason to believe the market will not supply enough of a product, or any at all, because of some "market failure."
For all the talk about some minerals being "critical" to the modern economy, only one of the experts who testified to the Senate tried to identify market failures that prevented secure domestic supplies.
Roderick Eggert of the Colorado School of Mines suggested the government's appropriate role included encouraging undistorted international trade; improving the regulatory approval process; facilitating the provision of information and analysis; and facilitating research and education.
Eggert, who is also deputy director of the Critical Minerals Institute, argued that private firms might fail to invest heavily enough in analysis, research and education because it is hard to capture all the benefits rather than share them with competitors.
The argument is a sound one. And the $60 million of spending that the S 1600 would authorise is less than 20 cents per inhabitant of the United States.
But Congress is inundated with hundreds of such demands for special assistance each year; the combined impact is significant. Moreover, special spending directions by Congress make it harder for federal agencies to manage their budgets effectively.
"Many of the activities called for in S 1600 are already authorised by existing authorities," the U.S. Geological Survey and Department of the Interior noted carefully in their response. "Any activities conducted to fulfil the objectives of this bill would require substantial resources and would need to compete for funding with other priorities."
Justified or not, spending an extra $60 million will not make much difference to the supply of critical minerals in the United States. Molycorp has just spent more than $1.5 billion on a new rare earth processing facility, so $60 million is a tiny amount.
In any event, plenty of mineral resources have already been identified in the United States. The problem is not finding them but developing them.
Molycorp told to the Senate re-starting Mountain Pass took "15 years and more than 500 permits". The company emphasised the need for "more certainty in permitting and the overall regulatory framework."
Testifying to the House Committee on Natural Resources back in March 2013, the National Mining Association was much blunter.
"The United States has one of the world's greatest mineral repositories, but our ability to get these minerals into the supply chain ... is threatened," the mining association complained.
The main obstacle is "the length of time consumed in obtaining permits," it went on. Permitting delays have been identified "as among the most significant risks and impediments to mining projects in the United States."
The United States has the world's lengthiest permitting process, averaging 7-10 years, compared with 2 years in Canada.
The House bill was designed to streamline the process. Similar steps have been taken in Alaska and a number of other states.
But every one of those permits is important to some environmental or community group who lobbied hard to put it in place. So eliminating them is immensely controversial.
For that reason, the Senate bill shies away from the issue, allocating $8 million for a review of the permitting process and requiring the relevant departments to report back to Congress, but not mandating any changes.
Without permitting reform, however, the extra spending is unlikely to make any more difference to the supply of critical minerals than any of the other pieces of legislation Congress has passed on the issue over the last four decades.