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Will Future Resource Demand Cause Significant and Unpredictable Dislocations for the UK Ministry of Defence?

Dr Julieanna Powell-Turner and Peter D. Antill Centre for Defence Acquisition, Cranfield University, Defence Academy of the UK Published in Resources Policy Journal, Volume No. 45 (September 2015), pp. 217-226.

1. Introduction While it may sound a little simplistic, it is nevertheless true to say that one of the biggest challenges facing the defence sector is trying to predict the future; specifically in terms of resource availability, security and the imperative to achieve more sustainable and environmentally acceptable military capabilities (EDA, 2012; Hedrick, 2013; MOD, 2011). These challenges, combined with the questions as to the short-term availability of raw materials, widespread increases in raw material prices, a relatively small number of suppliers and the dependence on a limited number of politically unstable (or authoritarian) countries as sources of key materials, pose further risks and insecurities not only to business, but to defence as well. (Bradsher, 2011; KPMG, 2012) In particular, these factors have the potential to have a negative impact on the battlespace, as much of the new digital technology relies on strategically important, imported materials. Such a dependence on complex global systems and supply chains is only likely to increase both the risk of systemic failure as well as its impact. In the future, will the primary concern be about accessibility rather than availability? (Humphries, 2013) Furthermore the environmental impacts associated with resource availability are likely to increase as the most abundant reserves are exhausted in response to population growth, continuing industrialisation and higher material prosperity. (Ahmed, 2014) Even if substitutes are available (and in many cases they are not (Dennehy, 2013)) better overall environmental performance and a reduced environmental impact can occasionally be achieved through the use of materials with either greater environmental impacts or dangerous extraction methods. This paradox may be avoided by developing new material processing techniques that are less hazardous and have greater security, or utilising materials common in the wider economy that have exceptional performance characteristics and lower environmental costs, in order to satisfy demand from the defence and security sectors. (Powell-Turner et al, 2011) This paper focuses on the drivers which may affect future trends in material availability for defence, in particular, the availability of rare earth elements (REE). These include tighter regulatory policy and its enforcement, export policies, promoting greater efficiency in resource use, efforts to mitigate resource depletion and more efficient resource extraction while reducing its associated environmental impact. There is also the effect these factors might have on global systems and supply chains, the impact on material insecurity and how this may exacerbate the issue of their use in Western military equipment.

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2. Rare Earth Elements - Characteristics The REE are not rare, nor are they earths. They are a moderately abundant group of seventeen metallic elements (see Table 1) found in low concentrations throughout the earths crust and in oceanic sediments. For example, the most abundant REE is cerium, which is more prevalent than copper at sixty parts per million (ppm), while the least abundant elements, lutetium (0.5ppm) and thulium (0.5ppm), are more prevalent than antimony, bismuth, cadmium and thallium. REE includes fifteen elements from the group known as the lanthanides (which have atomic numbers ranging from 57 to 71), along with scandium (atomic number 21) and yttrium (atomic number 39). They are generally classified into two groups: lanthanides and actinides. (Hedrick, 2004; Vulcan, 2008) Table 1 Periodic Table, showing the Rare Earth Elements (Wikipedia, 2013)

What makes these elements scarce, is the difficulty with which they are extracted. The majority of the economic REE are derived from LREE ores. The production process is complex and expensive involving mining of the ore, separating the ore into individual oxides, refining oxides into metals (oxides can be dried, stored, and shipped for further processing into metals), forming the metals and processing into alloys and then finally, manufacturing into components. They are purified using solvent extraction and selective precipitation. (Grasso, 2013) Such work often involves "a great deal of research and development costs, high capital outlays, and require a highly trained and specialized work force." (Giacalone, 2012, p. 11) A factor that complicates this process even more is that unlike other metals such as gold and silver, the REE are found in much lower density concentrations, making the

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extraction process more difficult and in some cases economically impractical. The majority of deposits contain less than one percent or less of REE, while even the richest deposits contain only between four and nine percent. (Giacalone, 2012) As refined metals, REE are generally lustrous, vary between a dark metallic grey and silver in colour, are soft, malleable, ductile and reactive with an electron structure that gives them some unusual magnetic and optical properties. (Walters et al, 2011) 3. Rare Earth Elements: Demand and Use The demand for REE is what's known as a 'derived' demand, which differs from the demand for consumer goods as they are not demanding the minerals themselves, but the goods which rely on them as part of the manufacturing process. This demand is contingent on the demand for the final products that use REE, such as flat screen TVs, cars, smart phones etc. and an increase in the price of the minerals does not necessarily mean a decrease in the demand for those minerals. It depends upon how much of the increase can be passed onto the consumer, what proportion of the product's final price is accounted for by the cost of the mineral and the demand conditions for the final products (whether such demand is 'price elastic' or price 'inelastic' i.e. whether the demand for the goods strongly or weakly reacts to a change in price). (Humphries, 2013) Production of REE has steadily increased over the years as the digital revolution has taken hold. While truly accurate figures are difficult to obtain, it is estimated that world production of rare earth oxides (REO) grew quickly (at around 7% per year) from 1990 until 2006 when it peaked at just under 140,000 tonnes, having doubled in under twenty years. (Goonan, 2011) Production then started to fall back, with 124,700 tonnes in 2007, 127,600 tonnes in 2008, 132,100 tonnes in 2009, 122,000 tonnes in 2010, 110,300 tonnes in 2011 (Golev et al, 2014), 109,760 tonnes in 2012 (USGS, 2014) and 109,430 tonnes in 2013. It then picked up slightly, with 111,500 tonnes in 2014. (USGS, 2015) For the last few years, world demand has slightly outstripped production, the difference being made up by processing above-ground stocks and existing inventories.. The increase in global demand is a trend that is likely to continue, given that the consumption of REE was up in China, Japan and the USA (by 10.77%, 8% and 13.3% respectively) (Shen, 2015) and is forecast to increase by in excess of 5% a year between 2014 and 2020. (USGS, 2015) If China retains limits in place for output, which in 2013 was around 93,800 tonnes, then production in the rest of the world would have to expand substantially to cover the difference a source of concern for both the UK and USA, especially in terms of the provision of modern, technologically advanced defence equipment. (Humphries, 2013) Table 2. Rare Earth Elements (Lanthanides): Selected End Uses (Humphries, 2013, p. 3)

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Light Rare Earths (More Abundant)

Major End Use Heavy Rare Earths (Less Abundant)

Major End Use

Lanthanum Hybrid engines, metal alloys

Terbium Phosphors, permanent magnets

Cerium Car catalyst, petroleum refining, metal alloys

Dysprosium Permanent magnets, hybrid engines

Praseodymium Magnets Erbium Phosphors

Neodymium Car catalyst, petroleum refining, hard disk drives in laptops, headphones, hybrid engines

Yttrium Red colour, fluorescent lamps, ceramics, metal alloy agent

Samarium Magnets Holmium Glass colouring, lasers

Europium Red colour for TV and PC screens

Thulium Medical x-ray units

Lutetium Catalysts in petroleum refining

Ytterbium Lasers, steel alloys

Gadolinium Magnets

For most Western countries, including both the UK and USA, the major uses of REE are varied (see Table 2) and include catalytic converters in cars, catalysts in petroleum refining, their use in phosphors in televisions and other flat panel displays (such as smart phones, tablets, portable DVD players and laptops), electrical components and rechargeable batteries used in electric and hybrid vehicles and many medical devices (such as dental lasers). They are also found in permanent magnets (which contain neodymium, gadolinium, dysprosium and terbium) which are used in numerous electrical and electronic components and subsystems (Humphries, 2013) and have a major role to play in 'green' carbon-reducing technologies such as wind turbines alternators and catalytic convertors. (Walters et al, 2011) Such uses can be split into market sectors that are considered 'mature' (i.e well-established) and those that are considered 'developing'. The mature market sector includes catalysts, the glass industry, metallurgy (except battery alloys) and phosphors. These sectors mainly use the oxides of cerium (45% of the total used), lanthanum (39%) and yttrium (8%), while the remainder is made up of dysprosium, gadolinium, neodymium and praseodymium. The developing market sectors include ceramics, magnets, battery alloys and high technology related to the defence and aerospace industry. These sectors tend to use the oxides of neodymium (41% of the total used), lanthanum (16%), cerium (15%), praseodymium (14%), yttrium (10%) and dysprosium (2.5%), while the remainder is made up of gadolinium and samarium. (Goonan, 2011) Such metals are important strategically for the UK as "Rare earth elements are integral to the transition to a low carbon manufacturing economy and are also important to other key UK industry sectors such as transport, defence and security." (HCSTC, 2011, p. 12) Even though defence only uses a relatively small amount of REE (for example, in the USA it amounts to about five percent of the domestic consumption), much of it

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mirrors that of the wider economy. REE's are used due to the benefits they confer on the system in question, such as speed, performance efficiency, agility and thermal stability. For example, one of the more important uses within the defence sector is the manufacture of permanent magnets. There are two types samarium cobalt (SmCo) and neodymium iron boron (NdFeB) magnets. (Grasso, 2013) Samarium cobalt magnets were developed in the 1960s, but have now been replaced by neodymium magnets in most applications, the exception being where high temperatures are involved. This is because they have a magnetic energy up to two-and-a-half times that of their samarium cobalt counterparts, but also have iron as their main constituent, which is significantly cheaper than cobalt. In addition, they offer improved performance with a physically smaller footprint, thus have wide applications in miniaturised form. (Walters et al, 2011) Overall, the uses of REE in defence include: (Grasso, 2013; Hedrick, 2004; Hedrick, 2010; Walters et al, 2011; Green, 2012)

Fin actuators in missile guidance and control systems. Examples include the AIM-9X Sidewinder, AIM-54 Phoenix, AIM-120 AMRAAM, AGM-84E SLAM, AGM-88 HARM and BGM-109D Tomahawk missiles.

Disk drive motors installed in computer equipment inside armoured vehicles, aircraft, missile systems and C3I (Command, Control, Communications and Intelligence) systems.

Lasers for rangefinders (for example, on the M1 Abrams main battle tank), mine detection, friend-or-foe interrogators, underwater mines and mine countermeasures.

Satellite communications, radar systems (for example, the phased array radar systems in J-STARS, Patriot, Aegis and BMEWS) and sonar systems.

Optical equipment and speakers.

For use in functional ceramics such as semiconductor sensors, microwave dielectric and piezoelectric ceramics.

Superalloys and coatings that are used to protect engine parts in gas turbine and jet engines (for example, in the F-15 Strike Eagle) or as a defensive measure against certain types of radiation (for example, gadolinium).

Phosphors that are used in TVs and computer displays (for example, aircraft avionic systems).

Multi-spectral targeting systems (for example, on the Predator and Reaper UAVs).

Rechargable batteries and fuel cells. Examples include nickel metal hydride (NiMH) batteries that power many mobile products (a mixed REE alloy is used as

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an anode in the battery) and solid oxide fuel cells (SOFC), which is a clean, low-pollution technology that electrochemically produces electricity highly efficiently.

Water purification Molycorp, along with the US Army, have produced a portable device to purify water through selected absorption. (Molycorp, 2010)

At present, a small percentage of raw REE is used to produce components in the UK. It is in the use of semi-finished and finished goods and components, and the devices and systems created from them, that companies in the UK defence industry generally interact with the rare earths supply chain.1 This, as stated above, could conflict with future accessibility if defence continues to increase the use of REE in the 'digital battlespace'. This concept, linked to what has become known as the latest 'Revolution in Military Affairs' (the idea that Information Technology (IT) has had a revolutionary impact on the conduct of warfare), is related to how current and future military operations are to be conducted. The last two decades has seen an increasing use of IT by military forces on the battlefield and this integration of IT into the provision of defence capability (known as Network Enabled Capability) has enabled military forces (especially those of the West) to generate, distribute and share information at much greater speed, something which is a major advantage: "The resulting NEC should provide a step-change in military effectiveness as a result of combining precision weapons and the latest sensor technology into IT networks. Radically improved IT and communications capabilities will enhance situation awareness by combining and rapidly distributing information from many sources". (Hambleton et al, 2005, p. 51) According to the Ministry of Defence (MOD), the defence manufacturing base will, for the foreseeable future, continue to require REEs for the production of battle-winning technology and expresses its concern over the future dependability of supply in the latest Global Trends doctrine paper: "The availability of natural resources such as rare earth elements (a group of 17 metals often vital for many technologically advanced products) and other critical materials are likely to remain key to enabling technological progress. However, they are often only available from a limited number of sources. Although physical depletion is not generally considered a threat to supply, other factors such as access, environmental impact and ethical issues (such as exploitative mining practises) are concerns." (MOD, 2014) 4. Rare Earth Elements: Supply and Production REE mineral deposits occur in a wide range of igneous, sedimentary and metamorphic rocks. For deposits to be enriched (so theres the possibility that they become economically attractive to mine) they have to occur in deposits that are 1 The National Security Strategy of 2010 published the results of the first ever National Security Risk Assessment (NSRA) by

the UK National Security Council (NSC). After identifying fifteen generic risk types, they were allocated into one of three tiers, in order of priority. They considered that the short-to-medium term disruption to international supplies of resources (minerals) essential to the UK was classed as Tier 3. Although considered to be Tier 3, it is still a significant area of concern and requires government action to prevent or mitigate the risk. (HM Government, 2010)

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associated with either igneous and hydrothermal processes (known as primary deposits) or those associated with sedimentary processes and weathering (known as secondary deposits). In fact the "most commercially important REE deposits are associated with magmatic processes and are found in, or related to, alkaline igneous rocks and carbonatites." (Walters et al, 2011, p. 3) The variety of REE-bearing deposits has meant that a wide-range of extraction and processing techniques have been used to exploit them across the globe. In many instances, the extraction of REE occurs as a by-product of the mining of other metals, which tend to dictate the overall economics of the operation and the extraction methods used. Such methods include surface mining, in-situ mining and underground mining. (Walters et al, 2011): REE primarily comes from Australia, USA, Brazil, China, India, Malaysia, Russia, and Thailand, with China being the dominant world producer and largest commercial exporter. In China, there are currently eighteen rare earth enterprises producing REE and metals in eighty varieties and 200 specifications. The Chinese are however, undertaking a state-driven consolidation of REE suppliers which result in a substantial reduction in their numbers, to as few as six (China Daily USA, 2014), or even, according one source, two regional monopolies in the north and south of the country. (Zhuoqiong, 2014) But this hasnt always been the case. For example, yttrium was originally discovered in Sweden and between the 1960s and the 1980s, the USA was the global leader in rare earth production. This all changed in the late 1980s, when processing and manufacturing of the worlds supply of rare earths, as well as downstream value-added forms such as metals, alloys, and magnets started shifting to China, in part due to lower labour costs and lower environmental standards. (Grasso, 2013) The United States has for many years, lacked any substantial refining, fabricating, and alloying capacity to process rare earth elements and is dependent on imports. This is slowly changing however, as China continues to dominate production and reduces exports. Mining operations have restarted at Molycorp's Mountain Pass facility in the United States, which has also seen multi-million dollar investments in value-adding operations such as separation and alloying. It is this 'vertical integration' model that Molycorp is pursuing. (Humphries, 2013) Additional mining operations have also been recently started up by Lynas (Mount Weld, Australia), SARECO (Kazakhstan) and Indian Rare Earths Ltd. (Golev et al, 2014) Geologists also think that there are enough deposits in Afghanistan to "fulfil the world's desire for rare-earth and critical minerals and end opium's local stranglehold in the process" with potential reserves worth "billions or even trillions of dollars." (Simpson, 2011) However, it needs to be remembered that the level of investment and expertise required by such specialist processes, and their capacity to expand quickly may present a short-term barrier to entry. Another such barrier is the geo-political stability of any such country that discovers it has significant deposits of any such mineral resource. In Afghanistan's case, the country has been in a state of almost constant conflict for the past thirty-six years, effectively preventing it exploiting such resources. If such operations go ahead, the UK and the West in general, will be less reliant on the eastern hemisphere for REE, something which will reduce the risks to the provision of future defence capability. (Szamaek et al, 2013)

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Despite continued dominance in rare earth production, Chinas share of world production slipped from 97% in 2010 (HCSTC, 2011) to 86% in 2013 and is expected to fall to 75% in 2015. (Dixit, 2015) As the demand for high technology goods continues to grow, so does the desire for REE. This is because many of these new technological goods are reliant on REE. China seized this opportunity and has quickly become the largest global producer. Because of this it is likely that the West will start to experience material security problems. This is particularly so when raw material supply is controlled by a small number of countries or even a single country. Here the risk of interruption down the supply chain could be catastrophic (supply risk). Indeed, such supply issues are prompting the search for alternate sources of supply, and even research into the possibility of recycling (see below). Such a search was rewarded with success, when in 2011, a team made up of scientists from Japan's Agency for Earth-Marine Science and the University of Tokyo, led by Professor Yasuhiru Kato, discovered deposits of REE in the Pacific Ocean seabed, in the area of Minami-Torishima Island, within Japan's Exclusive Economic Zone. These are estimated at between 80bn and 100bn tonnes, equating to between 700 and 1,000 times that of all known land-based reserves, which the US Geological Survey puts at about 110 million tonnes. (BBC News, 2011; Evans-Pritchard, 2013) Another area could be the greater use of waste material and by-products from the production of other metals. For example, Indonesia has a long history of mining cassiterite ore (a source of tin). Tests indicate that the waste produced during the mining, as well as post-processing slag, are potential sources of critical metals. These waste products from Bangka Island "contain significant amounts of monazite, xenotime, zircon, rutile, anatase, pseudorutile, and ilmenite, together with residual cassiterite. Apart from REE's, niobium and tantalum were identified in slag formed during tin smelting". (Szamaek et al, 2013, p. 74) Most of China's REE production takes place in the provinces of Fujian, Guangdong, Jianxi, Sichuan and the Nei Mongol Autonomus Region, although REE has been found in twenty-seven provinces. In the first decade of the Twenty-First Century, Nei Mongol accounted for the majority of China's rare-earth concentrate output (between 50% and 60%) with Sichuan in second place (between 24% and 30%). The rest came from Fujian, Guangdong and Jiangxi, which are also import for their HREE production. In 1990, the Chinese Government declared REE to be a protected and strategic mineral, which meant that foreign investors are prohibited from mining these minerals and restricted from undertaking smelting and separation processes, unless it's done in partnership with Chinese firms. While trying to tackle illegal mining for many years, in 2006, China began to crack down on such operations that had poor environmental records in the provinces of Guangdong, Jiangxi and Sichuan. This also ties in with the Chinese efforts to consolidate the number of REE suppliers in order to increase efficiency. It may however have the reverse effect of stimulating illegal mining as smaller companies and private mines struggle to survive in competition with state-run enterprises. (Sternberg, 2014) The amount of rare earths imported from China that have been mined illegally, according to foreign customs authorities, has been substantial in recent years (Information Office of the Chinese State Council, 2012). Given the unregulated nature of illegal mining, it is likely that environmental impacts in the surrounding areas are high, which is undermining Chinas mitigation attempts to reduce environmental impacts. With rising demand for REE and limits on how much can be produced, illegal mining is likely to keep rising

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unless more efficient controls are put in place. (Information Office of the Chinese State Council, 2012) As well as production quotas, China has in the past, set quotas for REE that can be exported. Before 2003, such quotas were set by the State Development and Planning Commission (SDPC), and distributed by the State Economic and Trade Commission (SETC), while the Ministry of Foreign Trade and Economic Cooperation (MOFTEC) issued the licenses. After MOFTEC and SETC were abolished, the Ministry of Commerce (MOC) took over the issuing and distribution of export licenses. Different export quotas are granted to domestic REE producers and joint-venture REE producers, who are also allowed to export their products under a licensing system. The increase in domestic demand has seen the Chinese Government reduce export quotas over the years. In 2006, there were forty-seven domestic REE producers / traders and twelve joint venture producers. By 2011 this had dropped to twenty-two domestic producers and nine joint venture producers. (Tse, 2011). In 2013, actual export volumes fell short of the quotas with China exporting only 22,493 tons, while that years quota was set at 30,996 tons. It had been said that export quotas were not working, according to the China Daily, while Bloomberg have said that the tariff on rare earths is expected to be removed in May 2015. This step may result in lower prices for rare earth elements and boost stagnant demand. The removal of the export quotas followed a year of regulatory changes in the rare earth industry, such as the formation of the Bataou Rare Earths Products Exchange in March 2014 and the consolidation of smaller producers, including illegal mining operations into two state-owned regional monopolies. (Dixit, 2015; Stringer, 2015) In addition to quotas, in the mid-2000s the Chinese government imposed export taxes on REE products. This was managed by the General Administration of Customs (GAC) and State Administration of Taxation. Since their introduction, the scope of REE products included in the export tax system widened and tax rates have been raised to between 15-25% (Roskill, 2014). On 21 January 2015 the Chinese Ministry of Commerce announced that it will remove taxes on export sales of REE from 2 May 2015 according to Roskill (2015). Instead REE exports would be subject to an export licensing regime. China was widely expected to abolish the quota system and taxes following a World Trade Organisation (WTO) ruling in March 2014. It is expected that the removal of export taxes on rare earth products would be a significant step in opening up the Chinese domestic REE market to the rest of the world. This may prove beneficial for non-Chinese consumers, increasing access to Chinese REE producers and lower price REE experienced by the domestic Chinese industry. In 2010, China began to keep a crucial link of the supply chain in country. In addition to consolidating the number of domestic and joint venture firms and setting production and export quotas, it started to encourage the export of high-value downstream (finished) products and discourage the export of raw material. This change in emphasis towards the export of finished products has been reflected in the way the export quota was released. In 2008 and 2009, the quotas allocated by the Chinese Government to domestic REE producers fell by 21.6% and 2.5% respectively, while the quotas for joint venture firms were unaffected. In 2010, export quotas as a whole fell by 37.1%. This has resulted in keeping more raw materials in

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country (compared to manufactured components) rather than exporting it to other countries, and has therefore reduced the overall supply of raw materials for export. While the last couple of years have seen the actual amount of REE exported fall below that which is allowed by the quotas, the overall picture has been a reduction in the amount of REE that is allowed to be exported. If such scenarios continue to take hold there could be problems for defence over the next twenty-to-thirty years as they look to the operational development and upgrading of equipment using raw REE as its use broadens and develops. (Jacoby and Jiang, 2010; Tse, 2011) Europe and other western nations have become increasingly reliant on the next superpower to create raw materials and/or value added components for their high technological requirements both commercial and defence. For example, in the late 1980s the US magnet industry saw "more than 20 companies manufacturing a large variety of magnets. But then the 1990s witnessed a decline and eventually a wholesale migration of this industry to China". (Jacoby and Jiang, 2010, p. 2) The aim must be now for the UK Government and MOD to protect the UKs long term national interest in REE. This is largely because the UK is almost wholly dependent on a single national supplier as it has no production of rare earths, metals or alloys in the UK itself. Ultimately, this question about supply chain vulnerability may adversely affect the UKs ability to plan strategically for its national security, as highlighted by the UK Parliament in 2011: "There are, however, concerns about supplies to UK users. The fact that China currently supplies over 97% of the world's rare earth elements2 has highlighted the risk of monopolies and oligopolies in strategic metals . . . . We are also concerned by the reports of hedge funds buying up significant quantities of strategic metals. Furthermore, the increasing global demand for strategically important metals from emerging economies and new technologies will be a significant factor affecting their price, and therefore availability in the future." (HCSTC, 2011, p. 3) and the European Commission: "Raw materials are fundamental to Europes economy, growth and jobs and are essential for maintaining and improving our quality of life. While the importance of energy materials such as oil and gas has often been highlighted, historically the indispensable role of metals, minerals, rocks and biotic materials has had lower profile. However, more recently securing reliable, sustainable and undistorted access to crucial non-energy raw materials has been of growing concern in economies such as those of the EU, US and Japan . . . Non-energy raw materials are intrinsically linked to all industries across all supply chain stages, and consequently they are essential for our way of life everything is made from materials . . . All countries are dependent on raw materials. This is particularly true for Europe which is highly dependent on non-energy raw materials to sustain businesses and the economy. It has been estimated that 30 million jobs in the EU are directly reliant on access to raw materials. However, very little primary production occurs within Member States

2 As mentioned earlier, China's market share of REE production is expected to be around 75% in 2015, down

from 86% in 2013 and 97% in 2011. (Dixit, 2015)

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themselves, with the majority produced and supplied from third countries." (European Commission, 2014) As already mentioned, the United States is currently pursuing a strategy to address supply risk.3 This involves forging political alliances to secure supply and devising competition policy to discourage monopolies or oligopolies which "inhibit competition, reducing the benefits of free trade and leaving the market open to higher prices and unpredictable changes in price." (HCSTC, 2011, p. 19) It is clear there is a need for a comprehensive, cross-government policy conducted in conjunction with our major allies and trading partners to ensure the stability of the REE supply chain and support the high tech industries that rely on them. Such policies could follow a number of concurrent approaches such as (Massari and Ruberti, 2013):

Diversifying and globalising current supply chains by having a wider and undistorted access to raw materials on the global market;

Signing more bilateral trade agreements and encouraging contact through the World Trade Organisation (WTO) or Organisation for Economic Cooperation and Development (OECD);

Expanding national strategic reserves;

Investing in R&D to find suitable alternatives;

Adopting greener and lower energy extraction methods;

Researching ways to recycle and reuse these resources, especially from WEEE (waste, electrical and electronic equipment);

Encouraging resource efficiency;

Improving statistical information and its availability;

Identifying those producing countries that have lower risks associated with supply;

Promoting research into sustainable exploration and extraction methods and substitution exploitation (such as the EU's Seventh Framework Programme for Research and Development).

5. Supply Chain Vulnerabilities and Sources of Conflict If China continues to reduce the volume of REE to be exported and the rest of the world fails to expand and make up the shortfall, REE will naturally become scarcer. This increases the chance that the REE supply chain could fail, especially when they remain fragile given that REE production remains concentrated in China. When a supply chain fails it can exaggerate the discontinuity in the balance between supply and demand leading to a loss of material security. The impact will vary depending on the scale of the failure, the length of time it lasts, as well as the options available for dealing with it, such as reducing demand, re-routing supplies, finding alternate sources or material substitutes etc. Although non-Chinese mines such as those owned by the US-based Molycorp and the Australian company Lynas are producing various REE, supply chains will still remain fragile as these companies tend to send their REE to be processed in China. There are two reasons for this. Firstly the US

3 During the Cold War the United States protected materials by forming cartels. This would provide a sufficient supply of

materials if the supply chain was compromised.

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does not have the processing infrastructure in place to refine REE and secondly environmental regulations are too strict. Therefore for these reasons it is likely that China will to continue to be the global producer of REE for the next few years. As well as physical disruptions to supply, a further impact of such discontinuities can be economic, such as the value of lost production from industry, or it could lead to higher prices across the whole economy. Supply chain failures can happen for a wide range of reasons, including demand exceeding availability or the amount of materials exported, capacity constraints or where the infrastructure is insufficient to meet demand. (Hoggett, 2012) Small interruptions in supply are likely to cause volatile prices swings. A huge increase in price for a given commodity may lead to expedited innovation, which may exacerbate the problem, after all it is the new advanced and innovative technologies that are utilising REE. In addition to price increases there is also a challenge with an effectively closed system of limited natural resources. This is in contrast with the dominant assumption of what was essentially an open system (theres enough for everyone) approach to resource competition and cooperation. This has been invalidated by the physical demands and stresses on these resources, coupled with the exponentially increasing awareness of their limitations. (TSB, 2008; TSB, 2009) Such export restrictions have generated unease in the West as to China's future intentions. A WTO review in 2010 stated that "Whether intended or not, export restraints for whatever reason tend to reduce export volumes of the targeted products and divert supplies to the domestic market, leading to a downward pressure on the domestic prices of those products. The resulting gap between domestic prices and world prices constitutes implicit assistance to domestic downstream processors of the targeted products and thus provides them with a competitive advantage." (WTO, 2010, p. 44) Such restrictions initially caused a surge in REE prices. In May 2011, neodymium cost over $283 per kilogram (up from $24 a kilogram in early 2010), while samarium reached $146 per kilogram (compared to $18.50). (Bradsher, 2011) Overall, the average price of REE imports into the USA from China (based on the US Customs value per metric tonne) rose from $5,589 in January 2010, to $53,024 in January 2011, to $158,398 in September 2011. Thereafter prices have fallen back sharply, falling to $46,694 by February 2012 (Morrison and Tang, 2012) and $16,967 by June 2014. (Shen, 2014) Even this price is, however, still substantially above the price in early 2010. Such price increases provoked a reaction from industry with some moving an element of their manufacturing process to China, some noting the effect it was having on those high technology sectors that rely on REE (such as defence equipment, wind turbines and electric motor production) while others looked at increasing R&D into substitutes. Some even highlighted the issues with their respective governments, such as Peter Dent, the then Vice President of Business Development, Electron Energy Corporation. In testimony before the US Trade Representative, he stated that the practical cost of the soaring prices for REE was that there was less money to spend on "capital equipment, adding employees, workforce training and facilities expansion to enhance international competitiveness". Instead, it "sits in drums full of rare earth inventories and lost time and effort" and that the huge price difference between REE consumed domestically and REE exports put "Chinese industrial users of rare earths at a substantial structural

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competitive advantage over their competitors in the rest of the world." (Morrison and Tang, 2012, p. 25) Since late 2010, these measures introduced by China have resulted in continued clashes with other stakeholders (such as the USA, EU and Japan). In September 2010, the restrictions of REE were included in a Section 301 petition (which deals with unfair trade practices) filed with the US Trade Representative by the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union (AFL-CIO CLC (USW)). This petition sought to address a number of policies and practices that affected trade and investment in green technology, including export duties, quotas and licensing procedures that related to REE. The US Trade Representative decided to narrow their investigation to look at grants (i.e. subsidies) being given to Chinese manufacturers of wind turbines who had agreed to use components made in China rather than purchasing imported ones. In December 2010, it brought a dispute resolution case against China, who then agreed to remove the discriminatory subsidies. On 13 March 2012, the USA, EU and Japan filed a WTO case against China for its restrictive policies on REE, as well as tungsten and molybdenum. It raised such issues as export duties, quantitative restrictions (quotas), certain fees and procedural issues that restrict the right to export and the maintenance of a minimum export price system as well as the requirements for the examination and approval of export contracts and export prices by government officials. On 26 March 2014, the WTO ruled in favour of the USA, EU and Japan, a ruling that was upheld on appeal. This case was very similar to one brought against China in 2009 by the USA, EU and Mexico over export restrictions on raw materials. (Morrison and Tang, 2012; European Commission, 2014a; Gavin, 2013) Even more worrying for the UK (and MOD) must be the apparent willingness of the Chinese to use their near monopoly in REE exports as a tool of economic statecraft. In late 2010, a Chinese fishing trawler captain who had tried to fish in waters controlled by Japan and collided with two separate Japanese Coast Guard ships, was detained by Japanese authorities. Shortly thereafter, REE exports to Japan dropped dramatically, with many believing that this was being done to put political pressure on the Japanese (Bradsher, 2010; Looney, 2011; Smith, 2012), although some question whether that was the case. (King and Armstrong, 2013) At the time, China "officially denied that it imposed a Japanese embargo" while "China's own trade data released since then show that its shipments to Japan suddenly fell to zero in October for rare earth metals and to nearly zero for rare earth oxides". (Bradsher, 2011) Although the Captain was eventually released, the event "raises questions about China's willingness to engage in economic tactics such as boycotts and trade sanctions to achieve political ends." (Looney, 2011, p. 48) 6. Environmental Concerns The environmental debate around mining, extracting and the primary production of rare earths focuses on the resource extraction industries themselves, firstly because of their impact on the local ecosystems and their associated biodiversity (from pollution and contamination), secondly, the volume of waste created and thirdly, because the mining industries are large consumers of energy and hence contributors to global warming. Morley and Eatherley (2008) state that mining operations alone

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are responsible for approximately 5% of global carbon dioxide emissions. They also state that the external costs are not fully accounted for and are more evident in developing countries where mining companies are increasingly operating. Even in China, there is growing awareness of the environmental impact these operations are having. (Kaiman, 2014). In particular the mining and processing of REE produces large amounts of thorium as a by-product ,which is radioactive. Exposure to thorium dust has been linked to an increased risk of developing lung, pancreatic, and other cancers. Scientists have been working on using thorium as nuclear fuel as opposed to uranium because it is more abundant, easier to mine, and, a by-product of mining REE. If thorium takes off as a nuclear fuel, rather than disposing of it rare earth mining companies could start stockpiling it safely rather than disposing to settling ponds or tailings storage facilities. (EPA ,2012) REE waste is categorized into two different types: tailings and waste rock stockpiles. It is the tailings that are of particular concern as they are full of small, fine particles that can be absorbed into the water and ground. However, regardless of whether a contaminant is deemed tailings or waste rock stockpiles, water is the main concern and can be contaminated in three ways: sedimentation, acid drainage, and metals deposition. (MIT, unknown) It is anticipated that future advances in technology may offset some of the environmental impacts by recycling such wastes. China has repeatedly said rampant overmining has caused untold ecological damage and that it no longer wants to pay the environmental costs of supplying the vast bulk of the world's rare earths. (Trotman, 2013). It may be that environmental concerns will restrict mining operations in the longer term due to higher labour costs and higher environmental standards. This is ultimately what happened in the USA in the late 1980s when tighter environmental regulations around mining operations were introduced along with tougher permit requirements. This is also the case today as US based Molycorp send their REE to be processed and refined in China (earlier ref new insert). The result of tighter environmental regulation in the United States provided an opportunity in China for the manufacturing of rare earths and downstream value added forms where environmental regulation was less stringent and labour laws less prohibitive. (Humphries, 2013; Butler, 2014) 7. Recovery, Recycling and Substitutes The main environmental issues that revolve around the recovery and recycling of REE are firstly, the infrastructure to collect and undertake the recycling is still in its infancy. Secondly, REE are difficult to recover, especially in applications where they are only used in small quantities. Thirdly, there is the question of not knowing which components contain REE and in what quantities, especially if the components are imported. As a result of these three factors, there is a lack of incentive for industry to enter into the field. It is therefore important that new technology and equipment (including that used in defence) has a through-life management plan in place (which includes the item's disposal) that identifies materials and their quantity and that the infrastructure to recycle the item is sustainable in the long term. An option being explored is recycling REE from used products. It would be expected that it would be

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easier to extract REE from existing products, rather than extract them from the ground, but it's not as easy as it sounds (Marshall, 2014). REE are present in small amounts in mobile phones for example. As parts get smaller, so do the amounts of REE used. In a touch screen, for example, the elements are distributed throughout the material at the molecular scale. Mobile phones are typically recycled by smashing, shredding and grinding them into powder. The powder then can be separated into component materials for disposal or recycling. However, smart phones contain approximately 85 elements which makes it very complicated to separate REE from the powder (Marshall, 2014). To separate these materials often means using very aggressive solvents or very high temperature molten metal processing. However, Hitachi and Honda are looking at technologies to recycle REE used in their products. Hitachi have announced the development of a magnet recovery machine for hard disk drives and air conditioners, with the intent to bring the technology into commercial operation. Honda announced in 2013 that it was beginning to recover the rare earth elements from its hybrid car batteries. (Marshall, 2014) The Green Alliance also notes that out of sixty metals analysed by the United Nations Environment Programme, only eighteen had end of life recycling rates of more than 50%, and over half, including fourteen REE, had recycling rates less than 1% (Hislop and Hill, 2011; Binnemans et al, 2013). The availability of REE for current recovery and recycling is likely to be limited and tied up in physical assets for a long time to come. For example, in defence, much of the equipment containing such materials has only recently started entering service with the UK Armed Forces, and such equipment can be in service for several decades. When taking account therefore of national stock availability, allowances need to be made for manufactured products that are at the 'in service' stage of their life cycle so that we can start to develop a picture of specific materials and quantities of REE being used in equipment. There could also be other problems with recycling REE. For example, if countries such as China continue to add value, and produce components rather than just raw materials, the end user may not possess the information from the overall manufacturer on the material makeup of the component (Morley and Eatherley, 2008). In the past, material shortages have often prompted the development of substitutes, for example, the development of cobalt-free magnets in the late 1970s after the civil war in Zaire interrupted supply or the development of rhenium-free superalloys in gas turbines. In many cases, it is not a metal for metal substitution but the development of an alternative material. In the case of REE, the substitution of these materials is not an easy option in most of the technology (including defence technology) being produced at present. This is due to the unique properties of REE. In order to substitute these materials, whole systems would have to be re-engineered, redesigned, potentially made larger, and possibly become less efficient. The US Department of Defense (DoD) and UK MOD have been actively working on making their militaries faster, more efficient and use less fossil fuels and resources. In furthering this objective, the use of neodymium and lanthanum in particular will continue to grow as the requirement for electric drive systems etc. will expand. One answer to the overall rise in REE material requirements and the desire for substitutes is the need for defence equipment to be designed to be as adaptable as possible so future agility is enabled. This should ensure a more resilient outcome. This is a crucial role for the defence industry and in particular manufacturers, who should be

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leading the quest for sustainable solutions for equipment throughout its entire life cycle. The need to find such solutions is for example, already pushing electric motor manufactures to develop alternatives to REE and to go back and re-examine older designs. (Graedel et al, 2013; Spindell, 2013) 8. Through Life Solutions The UK Defence Industry is required by the MOD to provide through life solutions for military capabilities that are sustainable and resilient to potential disruptions in their supply chains, for example, the scarce commodities included in Tier 3 of the National Security Strategy. (HM Government, 2010) It is therefore paramount that industry moves towards the establishment of sustainable long term solutions, in order to identify future threats that may impact on the operational effectiveness of capability. However, finding such solutions can sometimes take years. One of the issues when selecting substitutes is to ensure that the substitute material itself is not insecure. So a sustainable approach would be to substitute an insecure material with a more available one in this case. It may be that nanotechnology can play a future role in facilitating substitution. Researchers at the Tokyo Institute of Technology have adapted aluminium oxide in place of indium which has similar properties and is less rare. Aluminium oxide at the nano level was sliced into thin membranes. This enabled it to become transparent and conduct electricity, and so could be substituted for indium (Garber, 2007). The Japanese have also started to recycle insecure and rare REE. (Butler, 2014) In 2008, scientists in Japan used molten metals to extract neodymium (Morley and Eatherley, 2008) however silver, which is the sixth most insecure element (Graedal, 2007) was selected for use in this process. This is an ironic situation where other insecure elements are being used for the recycling of other insecure elements. As technological change continues, the demand for new technology, even defence-related technology, to become better environmentally will increase. The global economy will generate an ever-greater demand for materials that are rare either in terms of their overall occurrence in the earth's crust or that they are concentrated in areas which are politically unstable. Rare earths are used in many defence-related technologies, including yttrium and thullium in lasers, neodymium in high strength magnets and praseodymium in aircraft. (Hedrick, 2010; Green, 2012) It is here a paradox exists better environmental performance is often achieved through the use of materials with greater environmental impacts and the use of scarce materials. As stated above, this paradox could be substantially shifted if new material processing techniques were developed such as the use of nanotechnology where less insecure materials are utilised. 9. Conclusions Given the increasing use of advanced, digital technology in global society, especially in the area of defence and security, the demand for ores, alloys, oxides and other materials related to the production of such technology (in this case, REE) will increase. Unless alternate means are found to increase the supply of those materials, by increased recovery and recycling, the development of substitutes from more widely available alternatives or increased production from additional sources,

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this demand will increase the potential vulnerabilities within the exiting supply chain, as around 75% of the available REE is produced in China. (Dixit, 2015; Parker, 2013). Two approaches suggest themselves. The first would be to develop new technological approaches that produce the desired outcome but circumvent the need for scarce materials. The second, is to develop better beneficiation and metal-reduction techniques that will allow more geographically diversified (and greater) production of REE. It is likely that a simple substitution will lead to decreased performance. However, functional substitution could be considered which is different. Functional substitution is where one type of technology is substituted for another for example moving from an electric motor which uses a rare earth magnet to one that does not. What we must not forget is that REE have unique properties that provide for speed, performance, efficiency, thermal stability and agility unlike other current materials. Therefore, equipment needs to be designed to be as adaptable as possible so future agility is enabled.

Added to the above, China's domestic market is itself increasing its demand, and the Chinese, whose past practices have included the use of export quotas and tariffs, have been accused of trying to distort the market in favour of domestic producers and have been the subject of a number of actions within the WTO. The importance and growing scarcity of REE's may even aggravate regional tensions as counties compete to find new deposits. (Brennan, 2013) In addition, there is the possibility that China could use its position as a weapon as part of economic statecraft in future economic disputes with its trading partners or in diplomatic conflicts with its territorial neighbours. Taking this into consideration, the UK MOD, in conjunction with the broader defence and security sector, other government departments (such as the Department for Business, Innovation and Skills) and the UK defence industry needs to strengthen its network of bilateral ties with new partners as well as traditional allies, recognising that many developing countries put a premium on direct relationships. This paper has indicated some future issues for defence and the use of REE in the digital battlespace. There is a lot of work to be done in this area and a lot of effort is required to research the areas of material substitution, domestic production, recovery and recycling, infrastructure availability, vulnerability, dependence, as well as economic and national security. In deciding how to proceed, any research needs to take into account the environmental question and the desire to move towards environmental sustainability without inhibiting economic and social growth, especially in relation to defence. The defence and security sector may face serious but different challenges in terms of sustainability that pose potential threats to current and future operations and global security. Another concern is the sustainability of consumption patterns across the global economy. The move towards network centric warfare and the digitised battlespace will mean that defence may exert additional pressure on the carrying capacity of the planet if they continue or expand current consumption patterns. 10. References Ahmed, N. (2014) 'Exhaustion of Cheap Mineral Resources is Terraforming Earth Scientific Report' in The Guardian, 4 June 2014, located at

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