Last December in Paris, an epic agreement on climate change was reached, setting the world on the long road towards de-carbonizing global economic growth. Promising technological innovations on clean energy, energy storage and efficiency are considered major drivers of the upcoming “clean, green & smart” revolution.

A deep-dive into the underlying new technologies however, leads to a severe yet overlooked problem. Rare earths, a cluster of 17 elements often called the “vitamins of industry”, may prove to be a bottleneck to such “clean, green & smart” innovations like wind turbines, smartphones, electric cars and more.

Rare earth mining and processing is a polluting and toxic process impacting China’s water resources and arable land. It is really only economically viable because environmental costs are not taken into account.

The question is, can we build a sustainable clean, green and smart future on the back of pollution and a black market? We take a close look at these issues in our new report, “Rare Earths: Shades Of Grey – Can China continue to fuel our clean and smart future?” Key highlights from the report below.

Key highlights:

• Current non-fossil fuel, highly smart and climate-friendly technologies do not work without rare earths;
• China has been the top global producer since the mid-1990s with 85-90% of global rare earth production;
• Southern China is where the majority of global Medium Heavy Rare Earth Elements (MHREEs) – the more strategic & less available compared to Light Rare Earth Elements (LREEs) – originate; some MHREEs are solely sourced from China;
• China has been paying the environmental cost of massive, unregulated rare earth mining and processing with low margins;
• Mines with their severely polluting extraction activities have contaminated drinking water sources and agricultural fields of local communities. China’s mega-cities further downstream like Guangzhou, Shenzhen and Hong Kong may be at risk from the toxic contamination upstream;
• A RMB38 billion environmental bill to clean-up mines in southern Ganzhou city was estimated by the Ministry of Industry and Information Technology remains unpaid with little media attention;
• Naturally the black market, an open dirty secret, hasn’t helped;
• Since 2006 China has been trying to regulate the industry; latest change in 2016 is the consolidation of the industry into six groups, which account for 99.9% of the country’s production quota for the first half of 2016;
• In July 2010, China cut its export quotas by 22.5%. This stirred protests from the largest recipients of China’s rare earth supply, the US, Japan and Europe. Complaints were brought to the World Trade Organisation; and
• Forecasts show rare earth demand increasing vastly, both in China & globally, but will China be able to continue to feed this demand?

Business leaders, policy makers and consumers, all need to rethink how we are going to achieve our low-carbon future in a more environmental and climate-friendly way. Especially since it appears that the only direction for global rare earth prices is up if environmental costs are factored in and remember China is fighting a war on pollution.

The report is available in English  & Chinese.