The Paris Agreement, a legally binding international treaty on climate change, set the goals to hold “the increase in the global average temperature to well below 2 degrees Celsius above preindustrial levels” and to pursue efforts “to limit the temperature increase to 1.5 degrees above preindustrial levels”.

Pursuing net zero emissions requires political commitment to drive policies in all energy-related sectors to transform business-as-usual energy infrastructure into clean and sustainable energy infrastructure, with clean fuels and renewables playing key roles.

Scaling up all clean and renewable technologies and production requires a massive amount of rare earth minerals, also called rare earth elements (REE), as critical inputs of production for all clean technologies and renewables, such as wind turbines, battery storage and electric vehicle batteries, electrolyzers and all smart technologies used in smart grids and telecommunications. REE are also used in the production of military weapons.

To meet the net zero emission scenario, demand for critical minerals is estimated to grow around sixfold from 7.1 megatonnes (Mt) in 2020 to 42.3 Mt in 2050. This jump in demand has raised concerns over energy security in global sourcing in the supply chain, dominated by China (International Energy Agency, 2022).

China is the biggest global rare earth player in terms of REE mine production and reserves, with 140,000 tonnes of annual mine production and 44 million tonnes in reserves, representing around 35 percent of global reserves. The United States is the second biggest, after it reopened REE mining in 2018 and gradually increased production to 38,000 tonnes in 2021, with 1.5 million tonnes in reserves. Australia ranks third, with annual production of 17,000 tonnes and around 4.1 Mt in reserves.

Vietnam and Brazil respectively have the second and third highest reserves with 22 million tonnes and 21 million tonnes, but their mine production is among the lowest at only 1,000 tonnes per year each (US Geological Survey, 2022).

China has a strong foothold in the global supply chain, accounting for 80-85 percent of global supply, with the US heavily dependent on China for around 80 percent of its rare earth imports. Security of supply is an issue, underlining the need to develop new rare earth sources in North America and elsewhere, such as Australia, Vietnam and Indonesia.

China's dominant role allows it to control global production and the availability of these valuable metals. Prior to the 1980s, the US held a majority stake in the REE market, but that changed as foreign production grew, environmental pressures mounted at home and cheaper labor shifted production overseas.

China’s dominant position has sparked supply concerns. It has used REE for political leverage and used its monopoly as a diplomatic tool in 2010, when it severely limited REE exports to Japan during arguments over disputed territory. This showed the world it saw its monopoly as a strategic tool in foreign policy. More recently, China also threatened to cut REE supply to the US during their trade war.

What we know is that there are few players in the global REE supply chain. Recognizing the importance of supply chain security, the US has made several attempts to reemerge as a major player. This has seen renewed focus under the Joe Biden administration, with massive investments in climate change technology and taking a hard-line on geopolitical rivalries and the national security threat posed by China.

As a result, Australia, Indonesia, Vietnam and India could be new supply chain sources in the near future. Australia’s resources sector is well-placed to develop a cost-competitive domestic processing sector that meets environmental, social and governance considerations. This includes drawing on high labor and environmental standards, reliability as a supplier and technical expertise to drive production efficiency. Australia’s high standards and strong resources record give it a major advantage in the global critical minerals market.

However, Australia, Indonesia and Vietnam will all need to address barriers facing miners and processors, including skills and expertise to meet the technical challenges of production, processing and refining, and managing the sustainability of the critical minerals industry.

It is important for the governments of these three countries to look into issues that can help de-risk projects at all stages of development to overcome barriers and attract private investment.

This can be done through facilitating projects, providing technical support and making strategic investments to scale up processing and lock in finance and offtake for production. There is a need to invest in research and development (R&D) for this sector to grow, just as China did for decades through its own R&D investment.

Finally, it is crucial to build relationships with key countries other than China, such as the US, Japan, the Republic of Korea, the United Kingdom, India and European Union countries, to secure offtake contracts of these critical minerals.

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The writer is a senior energy economist at the Economic Research Institute for ASEAN and East Asia (ERIA). The views expressed are his own.