UNU-MERIT Working Papers Series
An introduction to the economics of rare earths
Eva Bartekova #2014-043The aim of this paper is to examine the supply risk of rare earths and
its impact on low carbon technologies deployment. Bringing together
seemingly disconnected strands of scientific literature, this
multidisciplinary approach allows to provide an overarching overview of
the economics of rare earths. In terms of supply risk, as opposed to the
common belief, it is not China’s dominant position per se, but its
industrial policies which distort the rare earths market. On the demand
side, the results of this paper disprove the widespread allegation that
availability risk impedes deployment of offshore wind. Contrary to this,
a potential supply shortage of rare earths would disrupt the further
development of the automotive industry and its electrification.
Ultimately, uncertainty about volatile prices and threat of supply
shortages induce manufacturers to shift away from technologies
containing rare earths, and thus render innovation in these economically
nonviable.
JEL Classification: L11, L72, O31, Q31, Q34, Q37, Q42, Q53
Keywords: rare earths, supply risk, wind turbines, advanced technology
vehicles, innovation, social costs
Download the working paper (PDF)
