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It's Not Easy Being Green

As you will recall from our earlier discussion of the growing scope of government regulation and its general intrusion into the private sector, one of the major socioeconomic objectives propelling this activity is the advancement of a green economy. One of the largest conduits for this industrial policy that has been pushed by the Obama administration is the U.S. government's 60% ownership of General Motors. GM recently announced its plans to, in the words of its North American president, "become the greenest car company in the world." As it turns out, a good bit of rare earth material is required to manufacture many green energy technologies, including hybrid automobiles and wind turbines. For example, the electric motor of the most popular hybrid vehicle, the Toyota Prius, requires between 2 and 4 pounds of the rare earth metals neodymium and dysprosium. Its battery uses 20 to 30 pounds of the rare earth lanthanum. The same will likely apply to the much-ballyhooed Chevy Volt when it hits the streets with its reported 230-miles-per-gallon fuel economy, because it too will require a considerable amount of rare earth material. Table 11.2 shows how prevalent rare earths are in the construction of the Prius, along with its broad assortment of applications.

Table 11.2. The Toyota Prius and Its Many Applications of Rare Earths

Rare Earth



Glass and mirrors polishing powder, UV cut glass, diesel fuel additive, hybrid NIMH battery, catalytic converter, LCD screen


LCD screen


Diesel fuel additive, hybrid NIMH battery, catalytic converter


Hybrid electric motor and generator, magnets for more than 25 motors throughout the vehicle


Hybrid electric motor and generator


Hybrid electric motor and generator


LCD screen


Catalytic converter

Just as important as the Prius's overall consumption of rare earth is the growing consumption of the Prius by drivers around the world. Figure 11.2 shows the Prius's growing popularity; its U.S. sales grew 52% from 2000 to 2008. As we just said, the green movement has become a significant secular trend in the United States and other high-income nations, and many consumers participate by purchasing goods that contribute to the movement or at least announce their support for a green lifestyle.

Figure 11.2

Figure 11.2 U.S. sales of the Toyota Prius (unit volume)

Source: U.S. Department of Energy

Because of the popularity of the Prius, and the copycat nature of the auto industry, nearly all the manufacturers are following suit with their own hybrid vehicles. This spells even further future demand for rare earth materials. Based on projections by Goldman Sachs2 (and shared by others), the market for hybrid vehicles is expected to reach ten million units by the year 2020 (see Figure 11.3). This represents a compound annual growth of 27%. Although this growth may seem robust, industry forecasters are largely taking their cue from the auto manufacturers themselves, because they are making capital investments that could support this level of volume in 2020. Based on Toyota's success in the market, they plan to produce over one million hybrids per year after 2010. The underlying logic of reaching ten million hybrid vehicles in 2020 is that hybrids will compose 10% of global auto sales at that point. Viewed in this light, the projection does not appear unreasonable. If this does not come to fruition, it will not be from a lack of trying on the part of developed-market governments through regulation and developed-market consumers further embracing green lifestyles. In May 2009, President Obama announced that the preexisting Corporate Average Fuel Economy (CAFE) standards that were in place for 2020 would be pulled forward to 2016. This means that fuel efficiency standards will need to improve by 40%, to 35 miles per gallon from the current 25 miles per gallon. Given that this standard is too onerous for conventional engines, these new regulations should push manufacturers to sell a higher percentage of hybrid vehicles. In fact, even meeting the previous CAFE standards was too hard and led to lighter, less-safe cars rather than the desired innovations in fuel efficiency. Unfortunately, several studies have demonstrated that the first CAFE standards increased annual traffic fatalities by 2,000 people per year. In any event, in keeping with the manufacture of additional hybrid vehicles, we can anticipate an accompanying relative surge in demand for rare earth materials.

Figure 11.3

Figure 11.3 Hybrid vehicle market forecast through 2020

Source: Goldman Sachs

Meanwhile, the Prius and other hybrid vehicles are not the only green technologies starving for rare earth applications. A utility-scale wind turbine reportedly uses over 700 pounds of neodymium. In line with its green makeover for the economy, the U.S. government is also pushing hard and fast toward a substantial build-out of wind turbine-generated energy for electricity (see Figure 11.4). The U.S. Department of Energy published a report titled "20% Wind Energy by 2030" that details this ambition. Naturally, it parades a host of economic benefits, ranging from the number of newly created green jobs to new tax revenues on the properties occupied by the turbines. Although they are well and good, these plans will help push rare earth demand into overdrive, especially when combined with the natural growth in the technology devices and hybrid vehicles mentioned earlier. According to an estimate by rare earth industry consultant Jack Lifton, an efficient wind turbine requires one ton of neodymium per megawatt of generating capacity. This implies that the government's wind turbine construction plans alone would soak up approximately 60% of the annual production of neodymium based on the current level of production. The program will hit its stride in 2017 to 2018. Although this is unlikely to happen, for a number of reasons, it just provides another view of how hungry the world is for rare earths.

Figure 11.4

Figure 11.4 Annual and cumulative wind installations by 2030

Source: Department of Energy

Another bright idea from the regulators was to phase out the use of incandescent light bulbs in the United States by 2012. Based on regulations set forth in the Energy Independence and Security Act of 2007, the good old trusty light bulbs invented by Edison will no longer be available. Instead, consumers must turn to the more efficient (and expensive) compact fluorescent light (CFL), along with its neurotoxic levels of mercury and its necessary rare earth materials of yttrium/europium and lanthanum/cerium/terbium. The good news is that this too will help propel demand for rare earths, because tungsten bulbs will also be phased out in Europe, Australia, and some developing countries in Asia. The bad news is that consumers might also become irritated by having to double-bag burned-out CFL bulbs in Ziploc bags before putting them in the trash, or having to take them to a recycling center. Perhaps Kermit the Frog had it right when he said, "It's not easy being green."

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