The vulnerability of electric-vehicle and wind-turbine supply chains to the supply of rare-earth elements in a 2-degree scenario

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The vulnerability of electric-vehicle and wind-turbine supply chains to the supply of rare-earth elements in a 2-degree scenario Benjamin Ballinger , Diego Schmeda-Lopez , Benjamin Kefford , Brett Parkinson , Martin Stringer , Chris Greig , Simon Smart PII: DOI: Reference:

S2352-5509(19)30471-3 https://doi.org/10.1016/j.spc.2020.02.005 SPC 292

To appear in:

Sustainable Production and Consumption

Received date: Revised date: Accepted date:

4 December 2019 6 February 2020 6 February 2020

Please cite this article as: Benjamin Ballinger , Diego Schmeda-Lopez , Benjamin Kefford , Brett Parkinson , Martin Stringer , Chris Greig , Simon Smart , The vulnerability of electric-vehicle and wind-turbine supply chains to the supply of rare-earth elements in a 2-degree scenario, Sustainable Production and Consumption (2020), doi: https://doi.org/10.1016/j.spc.2020.02.005

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Highlights  The electric vehicle market is vulnerable to rare earth supply in a 2°C scenario  In 2025, electric vehicle demand for dysprosium and terbium exceeds 2017 supply  A reduction in electric motor rare earth use will mitigate supply chain risk  Diversification of permanent magnet production will also reduce supply chain risk  Decarbonisation pathways should consider supply chain risks to increase realism

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Title: The vulnerability of electric-vehicle and wind-turbine supply chains to the supply of rare-earth elements in a 2-degree scenario Authors: Benjamin Ballingera,b – [email protected] Diego Schmeda-Lopeza - [email protected] Benjamin Kefforda - [email protected] Brett Parkinsona,c - [email protected] Martin Stringera - [email protected] Chris Greiga – email – [email protected] Simon Smarta,* - email: [email protected] a) Dow Centre for Sustainable Engineering Innovation, Department of Chemical Engineering, The University of Queensland, St. Lucia, QLD, 4072, Australia b) Universiti Sains Malaysia, School of Chemical Engineering, Nibong Tebal, Penang, 14300, Malaysia c) School of Chemical Engineering, Imperial College London, Kensington, London SW7 2AZ, United Kingdom * Corresponding author

Abstract Decarbonation of the energy system is required at an unprecedented scale to prevent global temperatures rising more than 2°C. A suite of low carbon technologies will be required for this transition. Two of these technologies, wind turbines and electric vehicles, utilise rare earth elements that are sourced from a monopolised supply chain. This could pose a risk to attaining global climate targets. Using demand forecasting, this study shows that 2-degree targets are indeed vulnerable to the rare earth element supply chain. It was found that the consumption of rare earth elements in the electric vehicle industry is unsustainable under current market conditions, while wind turbines are relatively invulnerable to the supply risk of rare earth elements. The stark contrast in risk exposure of these technologies is clearly at odds with the economically optimal deployment projections given in the IEA 2DS scenario. Failure to incorporate these risks in future models will likely impair climate change mitigation efforts.

Keywords Rare earth elements;

Supply chain; Low carbon technology; Wind turbine; Electric vehicle;

Abbreviations IEA – International Energy Agency 2DS – 2-degree scenario

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EV – Electric Vehicle PEV – Plug-in Electric Vehicle HEV – Hybrid Electric Vehicle NiMH – Nickel Metal Hydride REE – Rare Earth Element

1.

Introduction

Broad scientific and business consensus indicates that carbon dioxide (CO2) emissions will cause widespread changes to the global climate system over coming generations under a business-as-usual scenario [1-6]. Limiting the world to a temperature rise of 2°C above pre-industrial levels is generally accepted as the maximum limit to maintain global economic and environmental prosperity. Major global modelling agencies are unanimous in their assessment that early, decisive decarbonisation action is needed to meet 2°C targets [2, 7, 8]. Failure to act early could render these targets infeasible, or only feasible at substantially higher economic, social and political costs [9, 10]. The deployment of low carbon technology is essential to global decarbonisation, and accounts for 60% of carbon reductions in the International Energy Agency’s (IEA) 2016 2°C scenario (2DS) [2, 11-14]. However, a growing body of literature suggests that a rapid change in the deployment of low carbon energy technologies may be constrained by the strength and stability of supply chains [15, 16]. Permanent magnets, which require significant quantities of rare earth elements, are critical components in many low carbon energy technologies. However, the supply of rare earth minerals has not been stable over the last decade. Chinese export restrictions on rare earth elements (REEs) between 2010 and 2011 resulted in an order of magnitude price increase for many rare earth elements, including neodymium and dysprosium, two of the key REEs used in low carbon technologies [17-19]. Furthermore, the growth in the supply of rare earth elements has stagnated in recent years with production peaking in 2006 [20]. All of this has been fundamentally caused by a lack of competition in the REE supply chain and has fuelled speculation about the future vulnerability of reliant industries [17, 21-28]. Chinese firms have a monopolistic hold over each step of the rare earth supply chain, from extraction to permanent magnet production, as shown in Figure 1. This dominance, along with a) China’s favourable environmental policies [29, 30] and superior ore composition [29, 31, 32], b) the high economic and intellectual capital barriers to market entry [29] and c) the willingness of the Chinese government to protect its REE interests via tariffs and geopolitical policies [27, 28] mean that supply chain diversification is unlikely in the short to medium term. In fact, a report by the United States Government Accountability Office estimated that building a reliable supply chain in the U.S. would take up to 15 years due to these reasons [21].

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Figure 1: Market share of each stage of the NdFeB magnet supply chain in 2015, segmented by geographical location [33]. *Minimum Chinese market share. More accurate data could not be sourced. The current dearth of diversity in the REE supply chain along with the rapid deployment of low carbon technology required in the short to medium term to meet 2°C targets pulls into question the feasibility of meeting short-term deployment targets. Despite this, academic studies investigating the demand of rare earth elements for low carbon technologies tend to focus on long-term forecasts. This is highlighted by three prominent papers in the field, Alonso et al. [23], Hoenderhaal et al. [24] and Habib et al. [34] which forecast demand over 25 - 40 year timeframes. Given the need for short-term action in global decarbonisation to maintain the feasibility of 2°C climate goals, shorter-term forecasts are also needed. Further, short-term forecasting allows a far more comprehensive analysis of supply side risks, given the long-time horizons needed for substantive change in the REE supply chain [21]. This work aims to highlight the exposure of low carbon deployment to the REE supply chain. An upper bound of REE demand and a lower bound of REE supply will thus be considered. A 2°C scenario is thought to represent the upper bound for REE demand as i) prominent low carbon technologies utilise rare earth elements in significant quantities [24, 34, 35] and ii) current climate efforts show that low carbon technologies are unlikely to be deployed in excess of 2°C goals [10]. The demand forecasting of rare earth elements for low carbon applications is restricted to wind turbines and electric vehicles as these technologies represent the vast majority of rare earth element demand in this sector [24, 3441]. The supply of rare earth elements is set to remain at 2017 values [42], a feasible lower bound given the uncompetitive supply chain and the lack of growth over the past decade. These supply and demand scenarios are not internally consistent by design. It is hypothesised that the demand forecasting will show a significant gap between the demand and supply of REEs, thus highlighting the lack of consistency between the current state of the rare earth element supply chain and a 2°C climate goal.

2. Methods 2.1. Wind Turbine Demand Forecasting Data Variable speed, grid connected wind turbines are responsible for greater than 98% of electricity generation within the wind sector, totalling 2.7% of global electricity supply [14, 43-45]. There are many mainstream designs within this category of wind turbines; numerous review papers provide a

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detailed overview of their configurations [45-47]. The majority of wind turbine installations (76.8%) do not utilise components containing rare earth elements, with the most common technology, doubly fed induction generators accounting for 57.5% of the market [48]. On the other hand, the market share of wind turbines that utilise permanent magnets (contain rare earth elements) was 23.2% in 2013. The portion of wind turbines that utilise permanent magnet generators can be further broken down into geared and direct drive wind turbines, which represent 6.9% and 16.3% of the global wind turbine market, respectively [48]. 70.3% of wind turbines containing permanent magnets are directly driven. Trends show the market share of permanent magnet wind turbines are increasing due to their higher capacity factors (especially in low-speed winds) and lower maintenance requirements, which is a particularly important attribute for offshore wind farms [47, 48]. However, a study conducted by the U.S. Department of Energy suggests that this trend has a large uncertainty over the medium term. They estimated the permanent magnet generator market share would be between 15% and 75% in 2025 based on a range of possible scenarios [49]. Global deployment of wind turbines has been relatively stable since 2014. The most installations (63.6 GW) occurred in 2015 and deployment has averaged 55.6 GW/y between 2014 – 2017 [50]. According to the IEA, an average of 79.7 GW per year is required to be deployed between 2017 and 2025 for wind energy to meet its contribution towards global 2°C targets [2]. Wind turbines with permanent magnet generators utilise neodymium (Nd) (17.5 – 157.1 t/GW), praseodymium (Pr) (5.8 – 52.4 t/GW), dysprosium (Dy) (1.7 – 30.4 t/GW) and terbium (Tb) (0.4 – 6.8 t/GW) [24, 35-38]. An order of magnitude variance in rare earth element intensity exists due to the various powertrain configurations that are used by different wind turbine manufacturers. Direct drive turbines, which do not contain gearboxes, require a large generator and thus use large quantities of rare earth elements (~250 kg/MW) [35]. Geared turbines are equipped with a smaller generator, with the generator size relative to peak power based on the number of gears employed. Geared turbines have a REE intensity in the range of 25 – 45 t/GW [35]. Table 1 lists the quantity of rare earth elements utilised by permanent magnet wind turbines assumed by this study. Material intensities for geared and direct drive turbines are based on the low and high values quoted above, respectively. Table 1: Quantity of rare earth elements contained in wind turbines used in demand forecasting [24, 35-38]. Rare Earth Element Nd Pr Dy Tb

Material Intensity (t/GW) Geared Direct Drive 17.5 157 5.8 52.4 1.7 30.4 0.4 6.8

2.2. Wind Turbine Scenario Development Three scenarios were developed to forecast the REE demand of wind turbines. A baseline scenario is constructed where current wind turbine market shares remain unchanged through the forecast period. A low scenario is constructed where the market share of permanent magnet generators decreases such that only the geared technology is deployed by the end of the forecast period (2025). This scenario represents a lower bound where REE shortages exist but wind turbine deployment remains fixed in order to meet 2°C climate goals. A high scenario is also created where the market share of permanent magnet generators increases such that only direct drive technology is installed in 2025. This scenario represents an upper bound to rare earth demand and represents a scenario where

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rare earth deployment is heavily dominated by offshore installations. The REE demand in each scenario was calculated using the following four equations: 𝐼𝑇𝑂𝑇 × 𝐹𝑃𝑀 = 𝐼𝑃𝑀

Eq. 1

𝐼𝑃𝑀 × 𝐹𝐷𝐷 = 𝐼𝐷𝐷

Eq. 2

𝐼𝑃𝑀 − 𝐼𝐷𝐷 = 𝐼𝐺

Eq. 3

𝐼𝐷𝐷 × 𝑀𝐷𝐷 + 𝐼𝐺 × 𝑀𝐺 = 𝑀𝑆

Eq. 4

where ITOT, IPM, IDD and IG are the installation rate of all, permanent magnet, direct drive permanent magnet and geared permanent magnet turbines in GW/y. FPM and FDD are the fraction (market share) of turbines that use permanent magnets, and the fraction of those that use direct drive technology. These values are listed in Table 2 for all scenarios. MDD and MG are the neodymium, praseodymium, dysprosium and terbium material demand for a direct drive and a geared permanent magnet turbine, in t/GW and are listed in Table 1. MS is the total demand of rare earth elements forecast for each year in the scenario, in t/y. Table 2: Market shares underpinning the low, baseline and high scenarios Parameter Fraction of PM turbines Fraction of PM turbines that are direct driven *values in 2025

(FPM) (FDD)

Low 0.15* 0*

Scenario Baseline 0.232 0.703

High 0.75* 1*

For each scenario, annual wind turbine installations were increased at a constant compound annual growth rate (CAGR) (of 9.2%) such that the total installed wind capacity in the IEA 2DS was achieved (55.6 GW/y in 2017 to 106 GW/y in 2025). Similarly, constant CAGRs were used to model the transition of PM turbine and direct driven generator market shares. It was assumed that decommissioned wind turbines have negligible impact on the required deployment rates due to the long operating lifetime of turbines compared to the growth rate of the industry and the short time frame considered. This is supported by installation and cumulative capacity data provided by the Global Wind Energy Council which differs by less than 0.1% over the last 15 years [48]. 2.3. Electric Vehicle Demand Forecasting Data There are three main electric vehicle types that exist in the global electric vehicle (EV) market. These can be separated into two different categories based on how they are fuelled. Battery electric vehicles and plug-in hybrid electric vehicles, collectively known as plug-in electric vehicles (PEVs), can be recharged by electricity. Plug-in hybrids can use petroleum products as fuel in varying quantities depending on the vehicle’s powertrain configuration, while battery electric vehicles are powered solely by electricity. PEVs will be analysed as a combined group in this study since IEA 2DS projections aggregate both BEVs and PHEVs into a single category. Hybrid electric vehicles (HEVs) contain a battery which is used to improve fuel efficiency, though petroleum products are the sole energy source for this vehicle class. PEVs exclusively utilise lithium ion batteries whilst HEVs either use lithium ion or nickel metal hydride (NiMH) batteries [35]. Hybrid electric vehicles dominate the electric vehicle market, accounting for approximately 70% of sales in 2017 [51]. Being a relatively mature market, growth of HEV sales followed a linear trend between 2012 – 2017, increasing at roughly 200,000 vehicles per year [51, 52]. Annual growth in HEVs with lithium ion batteries outpaced NiMH sales 157,000 to 44,000 from 2012 – 2015 [51, 52]. This has resulted in a falling NiMH battery market, from approximately 100% in 2010 to 75 – 78% in 2013 and

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68% in 2015 [35, 52]. This seems to be part of a longer-term trend driven by the rapidly decreasing cost of lithium ion batteries [52], however more recent data could not be found in the literature. The IEA reports that the PEV market grew at a rate of 66% per year between 2012 and 2015, far in excess of the HEV market during this period [53]. This high growth rate is typical of emerging industries as they are expanding from a small base. Growth in PEV sales reduced to 46% between 2015 – 2017 [53]. Rare earth elements are contained within the majority of electric motors and within NiMH batteries. Permanent magnet electric motors are the dominant technology used in PEVs and HEVs alike. Estimates range between 80 – 90% market penetration for this technology across all electric vehicle types [54]. The mass of rare earth elements within the permanent magnet motors of electric vehicles range from 0.6 – 2 kg, with lower values for hybrid vehicles and higher values for fully electric vehicles [35, 55-57]. This range will be applied uniformly to all types of electric vehicles, even though battery electric vehicles typically have larger electric motors than the other EV types. This assumption has been made as data relating to specific electric vehicle types has not been found in literature. The rare earth elements contained in permanent magnet motors are neodymium, praseodymium, dysprosium and terbium, the same as wind turbine generators. However, permanent magnet motors have different elemental concentrations to meet the different requirements of electric vehicle applications [35, 49]. For HEVs, the anode of NiMH batteries contains the rare earth elements neodymium, praseodymium, lanthanum and cerium in an alloy called mischmetal. The average weight of rare earth elements in HEV NiMH batteries is approximately 3.5 kg per vehicle [35]. Table 3 displays the quantities of rare earth elements assumed for each vehicle design in the three scenarios developed in the next section. Table 3: Quantities of rare earth elements assumed for PEVs and HEVs [35, 49, 55-57]. Rare Earth Element Nd Pr Dy Tb La Ce

Low

Rare Earth Element Intensity (kg/vehicle) Medium High

0.25 (0.65) 0.36 (0.86) 0.06 (0.16) 0.11 (0.26) 0.06 0.12 0.01 0.015 0 (0.6) 0 (0.9) 0 (1.7) 0 (1.8) *Bracketed values replace non-bracketed values (when present) for HEVs containing NiMH batteries.

0.47 (1.07) 0.16 (0.36) 0.17 0.02 0 (1.2) 0 (1.9)

2.4 Electric Vehicle Scenario Development Scenarios were developed to forecast the demand of rare earth elements in electric vehicles in a world progressing towards 2°C climate targets. The IEA 2DS modelling sets a global PEV stock of 72 million in 2025. This equates to a constant growth in PEV sales of 45.8% per year, assuming a vehicle retirement age of 8 years (typical warranty length for PEV batteries [58]. Hybrid electric vehicles are not included in the IEA’s 2DS pathway, despite their superior fuel efficiency compared to internal combustion vehicles and their relatively large market size compared to PEVs. It is evident that the sale of HEVs will have a large impact on REE markets in any 2-degree scenario given that i) consumer demand for HEVs will likely increase in a carbon constrained future and ii) the components in HEVs use significant quantities of rare earth elements (see Table 3). Along with the market share of permanent magnet motors in electric vehicles, the sale of HEVs are thought to be the

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most influential factor within the vehicle market that will affect REE markets in a 2-degree scenario. Thus, three scenarios have been developed to forecast a range of REE demand based on HEV sales, keeping permanent magnet market share constant at 85% across all electric vehicle types. Following this analysis, the influence of permanent magnet market share on REE demand will be investigated. The low scenario, which aims to provide a lower bound for REE usage, extrapolates the HEV sales trends from between 2012 to 2017. This method results in 4.1 million HEV sales in 2025, and a total HEV stock of 22.3 million in 2025, matching well with industry forecasting conducted by Navigant Research [59]. Given the continual delay of significant global environmental reforms over the last 20 years, industry forecasts tend to be more conservative than growth forecasts driven by proposed climate policies. The similarity between the low scenario and industry sales forecasts thus indicates that this scenario can be indeed be interpreted as a lower bound to REE demand from the electric vehicle industry. For the high scenario, the total amount of HEVs on the road in 2025 was set to 72 million, the same value as PEVs in the IEA 2DS, combining for an electric vehicle stock of 144 million in 2025. Electrification of the transportation system is vital to keep within a 2-degree carbon budget [53, 60]. With the major focus on PEVs in a 2-degree scenario, a scenario where the same number of HEVs are on the road in 2025 is thought to provide an upper bound to total EV deployment. For this to be achieved, a year-on-year growth in sales of 31.7% would be required between 2017 and 2025. The ratio of NiMH to lithium-ion battery PEV sales over the forecast period has been set based on their relative rates of growth from 2012 – 2015 (i.e. lithium ion sales exceed NiMH sales at a ratio of 157:44). This equates to a 7.2% annual growth in NiMH HEV sales and a 45.7% growth in lithium-ion sales. The medium scenario sets the total on road HEVs in 2025 to be 47.1 million. This value is an average of the low and high scenarios and requires a HEV sales growth rate of 23.2% per year. In this scenario, the same NiMH and lithium-ion methodology as the high scenario was used. Thus, NiMH battery HEV sales fell by 1.5% annually in this scenario, whilst lithium-ion battery HEV sales grew at 36.6% each year. Similar to the PEV calculation, these growth rates assume a decommissioning of vehicles 8 years after their sale. The REE intensity of electric vehicles in each scenario is given in Table 3. The range of rare earth element values across the scenarios were kept within the range of values found in literature; the low scenario was allocated the lowest REE intensity, the high scenario the highest, and the medium scenario the average.

3. Results 3.1. Wind Turbine Scenario Analysis Figure 2 displays the proportion of the global REE production required for wind turbine deployment in each of the three scenarios. The demand of REEs by wind turbines in 2017 ranges from 8 - 17% of global supply for neodymium, praseodymium, dysprosium and terbium [42, 61]. In 2025 the demand for these four elements increases to 18 – 33% of 2017 supply for the baseline scenario. The growth in deployment accounts for the entirety of the increase in REE demand in the baseline scenario since this scenario maintains REE market share and intensities for wind turbines at 2013 levels. The increase in REE demand from wind turbines in this scenario would likely have a significant impact on REE markets if supply is not increased. This is due to the fact that demand for rare earth elements in the non-low carbon sector is expected to increase at 5 – 15% per annum over this period [62]. Adding to this, the baseline scenario is a relatively conservative forecast of REE demand in a 2⁰C scenario since it doesn’t account for the current trend of increasing REE market shares.

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Figure 2: Forecast rare earth demand in each wind turbine scenario The high and low scenarios represent the absolute bounds on REE usage in wind turbines in a 2⁰C scenario. The high scenario results in a 10-fold increase in REE demand, with dysprosium and terbium levels exceeding their production values. This is obviously an unrealistic demand if the supply of rare earth elements does not increase above 2017 levels. However, this highlights that uncompetitive market forces in the rare earth supply chain may restrict the wind turbine market from developing as it otherwise might. Conversely, the low scenario sees demand for rare earth elements drop significantly to 1 – 2% of supply in 2025. Although technologies are selected based on a multitude of factors, the high variance in REE demand across the three scenarios suggests the industry has considerable control over its risk exposure to the REE supply chain. Although an increase in REE demand from the industry has the potential to cause significant rare earth element shortages, technologies are ultimately chosen by market forces. Thus, if rare earth supply is not increased, it will be unlikely that the industry will support high permanent magnet market shares due to the higher prices for this technology. This may limit the competitiveness of offshore windfarms in the future. However, to complicate matters further, the majority of wind turbines which utilise permanent magnet generators are produced by Chinese companies [48]. This creates an interesting dynamic between the Chinese controlled REE supply chain and wind turbine suppliers and purchasers. Given the Chinese government’s policy of supporting value added products [48], the wind turbine industry may move in favour of Chinese companies who can access the materials more readily, driven by the current industry trend towards higher permanent magnet market shares. However, the relatively low penetration of rare earth generators in the market (23.2%) is of critical importance to climate targets. This is because it provides the industry plenty of flexibility to meet 2⁰C deployment targets using a range of technologies, whether they require rare earth elements or not. 3.2. Electric Vehicle Scenario Analysis Figure 3 presents the demand of rare earth elements from electric vehicles in each of the three scenarios. The low, middle and upper lines on each bar represent the specific value from the respective scenarios. The space in between these values represents the lower (blue) and upper (red) estimates of REE demand from electric vehicles in this analysis. Figure 3 shows the demand of neodymium, praseodymium, dysprosium and terbium increase significantly by the year 2025, even for the low scenario. It is clear that the demand for all of these elements in 2025 is prohibitive for any of

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these scenarios to be feasible if supply is not significantly increased. This is especially true for dysprosium and terbium whose values exceed 100% of production in even the lower range of estimates.

Figure 3: The demand for rare earth elements by EVs in a modified version of the IEA 2DS. The lower bound represents 0% HEV sales growth and low rare earth element usage per EV. The middle value represents 23.2% HEV sales growth and medium rare earth element usage. The upper bound represents 31.7% sales growth and a high rare earth element usage per EV. A relatively small change in demand is seen for lanthanum and cerium, as these elements are only utilised in NiMH batteries which have a low HEV market share in the forecasts. It would be unlikely that this change would significantly affect the market for rare earth elements. This point is further reinforced by the fact that the ratio of REE production is set by the elemental concentrations in the mined ore [32]. If REE production were to increase to meet the high levels of dysprosium demand, excess lanthanum and cerium would enter the market [63]. In fact, this is already an issue in current rare earth markets [64]. This, in addition to the increasing market domination by lithium-ion batteries, emphasises the point that lanthanum and cerium pose an insignificant supply risk to electric vehicle production. Although HEVs do not greatly influence lanthanum and cerium demand, they have a significant impact on the other four rare earth elements required in the EV powertrain. Table 4 shows the fraction of REE demand that is attributed to HEVs from the above EV forecasts. It can be seen that in 2017 HEVs are accountable for the majority of REE demand from the entire electric vehicle industry. This portion sharply decreases over the forecasts due to the high growth rate in PEV sales. However, in all cases HEV rare earth demand contributes significantly to the REE demand of the EV industry over the forecast timeframe. Table 4: The forecast portion of EV rare earth element demand attributed to HEV sales. Lanthanum and cerium are not shown as they account for 100% in all scenarios. Nd: neodymium, Pr: praseodymium, Dy: dysprosium, Tb: terbium Year

HEV Contribution to Rare Earth Demand

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Low 2017 2025

Nd/Pr 82% 24%

Dy/Tb 68% 15%

Medium Nd/Pr Dy/Tb 81% 68% 40% 36%

High Nd/Pr 81% 53%

Dy/Tb 68% 49%

The usage of low REE intensive EV components (low scenario) results in infeasibly high demand for REEs over the forecast period (assuming supply cannot be significantly increased). Therefore, only two variables can be changed to reduce rare earth element demand to feasible levels while still achieving sales targets; (1) an increase in the market share of HEVs utilising Li-ion battery technology and (2) an increase in the market share of EVs utilising induction motors. It can be seen in Table 3 that HEVs utilising NiMH batteries use significantly more neodymium and praseodymium than EVs using lithium ion battery technology. However, the NiMH batteries only contribute to 8.9% of the rise in demand for neodymium and praseodymium between 2017 and 2025 in the low scenario, with the rest coming from the permanent magnet motor. Further, NiMH batteries do not contain dysprosium or terbium, the two rare earth elements with the greatest increase in demand. Therefore, the market share of permanent magnet motors in electric vehicles is the key parameter which dictates the exposure of the industry to REE supply. To investigate this, the market share of electric vehicles containing permanent magnets motors in 2025 was varied to see the impact on REE demand. The market share of permanent magnet motors was varied between 5% and 85% (current market share) without changing the total number of EVs sold by 2025. The results are displayed in Figure 4. This sensitivity analysis was performed for the low scenario in 2025 to determine the level of independence that the electric vehicle industry could achieve from the REE supply chain under ideal circumstances. It can be seen in Figure 4 that REE demand is strongly dependent on the market share of electric vehicles containing permanent magnet motors. The demand for dysprosium and terbium are the most sensitive to permanent magnet market share due to their high usage in electric vehicles relative to their supply. The extrapolation of neodymium and praseodymium demand curves do not intersect with the origin in this graph due to their use in NiMH batteries. A decreasing market share of permanent magnet motors must be accompanied by an increase in market share of EVs with induction motors to maintain the level of sales required to meet 2-degree targets. It can be seen that large sales growth rates for electric vehicles containing induction motors are required to minimise the exposure of the electric vehicle industry to REE supply risk.

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Figure 4: The sensitivity of rare earth element demand for electric vehicles to the market share of permanent magnet motors in 2025 for the low scenario. The dotted line represents the base condition for the low scenario (85% permanent magnet market share). To keep industry demand for all rare earth elements under 20% of their 2017 supply, the annual growth rate of electric vehicles equipped with induction motors would need to be 73.8%. This far exceeds the 45.8% annual growth rate of PEV (and linear growth of HEV) sales required to meet 2degree targets. As Tesla is the only major company producing electric vehicles with induction motors, most other major manufacturers would be required to change a fundamental component of their electric vehicle production line. In addition, a high level of consensus between manufacturers would be required to achieve industry wide change. This is unlikely in a competitive marketplace, especially in the face of short-term economic losses due to the technology swap. If drastic action to reduce the reliance of the electric vehicle industry on permanent magnets is not taken, companies will face a growing risk of over-exposure to REE markets. The predominant risk here is not related to the supply of rare earth ore; many new mining projects are coming online to meet future demand [65]. The key supply chain risk is the processing of rare earth ore into refined permanent magnets, a process monopolised by Chinese companies, and by extension, the Chinese government. Whilst this risk is difficult to quantify, the growing dependency on permanent magnets may favour Chinese EV companies in the future.

4. Discussion Wind turbines and electric vehicles face different levels of exposure to the REE supply chain prior to 2025 if deployed at levels consistent with keeping a rise in global temperatures below 2⁰C. The electric vehicle industry seems to be increasing its exposure as it expands, with 80 – 90% of EVs containing REE intensive permanent magnet motors. A switch away from rare earth elements becomes more difficult and will take longer as the electric vehicle market grows, since the flexibility of supply chains and manufacturing processes are inversely proportional to their size. HEVs also contribute significantly to the REE demand of the EV industry, even under low growth assumptions. Future investigations into EV supply chain constraints should thus include HEVs in their scope. This runs contrary to the IEAs 2DS pathway and reporting from other organisations who neglect HEVs from the low carbon debate [60]. The vulnerability of wind turbines to the REE supply chain is much less of an issue since their permanent magnet market share is relatively low (23.2%). However, the risk associated with the REE supply chain will increase for the wind industry if the market share of permanent magnet turbines continues to increase. Further, the vulnerability of the wind industry will increase if the demand for REEs increases for electric vehicles (and vice versa) since both industries are competing for the same resource. More broadly, rare earth elements used in the non-decarbonisation sectors are forecast to increase in the short-term which will have large impacts on the availability of rare earth elements for low carbon technologies if REE production is not increased. Despite their reliance on rare earth markets, the electric vehicle and particularly the wind turbine industry are somewhat impervious to global REE supply constraints. Chinese companies manufacture the majority of permanent magnet wind turbines and a growing share of electric vehicles, in large part due to tariffs on products which do not add value to rare earth ore [27, 28]. The Chinese government has shown a willingness to grow these industries and will have economic incentives to keep these industries unaffected by supply disruptions in the future. A consequence of this may be the growth of industries reliant on rare earth elements in China, at the expense of other countries. This would further reinforce and concentrate the REE supply chain in China, making a move toward rare earth diversification more difficult in the future.

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It is important to remember here that despite all the uncertainty and risk to future deployment, rare earth elements are currently facilitating global decarbonisation by making wind turbines and electric vehicles more affordable. Although rare earth elements used in permanent magnets are relatively expensive per unit mass, their use benefits electric vehicles and wind turbines by increasing efficiency, power density and reducing weight [47, 55]. Strategies that reduce the exposure of these technologies to REE markets will diminish the risk for these industries, perhaps in exchange for cost competitiveness. Further research needs to be conducted to determine the lowest risk strategy to meet climate goals. Should the market be left alone to determine the appropriate selection of technology or should policy guide a technology mix which favours some degree of supply stability at the expense of higher technological capital costs? Recycling rare earth elements, utilising technologies of similar performance that use less rare earth elements and having large rare earth element inventories are strategies being investigated or already employed to reduce business vulnerability [30, 66-68]. A tax on technologies containing rare earth elements and subsidies for those that don’t may also be worth investigating. Governments should also consider backing investments into developing a REE supply chain outside of China to overcome the significant barriers to enter the market. This is a longer term solution, but one that makes significant economic sense given that the mining and sale of rare earth ore is worth in the realm of USD 1-10 billion per annum while the value of rare earth dependent goods exceeds USD 7 trillion per annum [29]. These values do not include the additional costs associated with not meeting climate goals. Either way, there will be a significant risk to the deployment of wind turbines and electric vehicles if exposure to the REE supply chain is not reduced. This exposure may well end up hindering global decarbonisation rather than facilitating it.

5. Conclusions Broad scientific consensus indicates that low carbon technologies need to be deployed at unprecedented rates in the near future to limit global warming to 2°C. However, the deployment of these technologies may be constrained by access to critical materials, namely rare earth elements. Wind turbines and electric vehicles were identified as the low carbon technologies most exposed to the REE supply chain. Permanent magnets containing rare earth elements are used in both wind turbines and electric vehicles, with a portion of the EV market (hybrid electric vehicles (HEVs)) also requiring rare earth elements for nickel metal hydride batteries. The demand for rare earth elements from these technologies was forecast up to 2025, with their deployment at levels compatible with a 2°C future. Potential supply risks were assessed with the assumption of no growth in the production of rare earth elements to highlight the possible risk factors of the currently monopolised REE supply chain. Scenarios were created to project the REE demand of electric vehicles and wind turbines. For electric vehicles, the demand of neodymium, praseodymium, dysprosium and terbium exceeded feasible limits for all scenarios when no growth in supply was assumed. This is largely due to the high market share (80 – 90%) of EVs utilising permanent magnet motors. A decrease in the market share of permanent motors by 2025 can alleviate exposure to REE markets but requires rapid expansion of electric vehicles containing induction motors. The feasibility of this solution remains to be seen given that the current appetite of the industry is to maintain the status quo. Further, other supply risks may manifest from industry wide changes in technology. In contrast, the wind turbine industry was found to have low exposure to REE markets. A combination of utilising technology with low or no rare earth elements could keep, or even decrease REE demand between 2017 and 2025. This is mainly due to the much lower rate of expansion required for the industry (9.2% per annum) compared to electric vehicles (>30% per annum), and the much lower market share of permanent magnet generators (23.2% vs. >80%).

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The high vulnerability of electric vehicles raises doubts to the feasibility of the 2DS decarbonisation pathway as outlined by the IEA. Current methods to determine such pathways use economic methods, which do not adequately reflect the risks that material availability and supply chain diversification pose to technological deployment. Integration of these issues is necessary to add rigor and real-world applicability to the decarbonisation pathways. This is particularly vital considering the central role of the IEA in the global decarbonisation debate.

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Declaration of interests

☒ The authors declare that they have no known competing financial interests or personal relationships that could have appeared to influence the work reported in this paper.

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