"The European Union's economic promise is as ambitious as they get: to turn itself into a smart, sustainable and inclusive economy. Under the title 'EU 2020 strategy', this is what member states have signed up to.
However, as always, high-flying hope soon meets down-to-earth obstacles. The immortal gods have placed sweat before the attainment of virtue, the Greek poet Hesiodos argued with his brother Perses over two and a half thousand years ago. In the EU's case read that as: the lack of rare earths and metals has been put before our industrial transformation to a high-tech low-carbon economy.
Could the European Union's industrial future really hinge on a few hitherto little known raw materials, the supply of which is increasingly uncertain? You bet it does. These materials, such as indium, lithium and the 17 rare earth elements, are the bread and butter for sustainable frontier technologies employed in catalysts, batteries, energy-efficient products or the renewable energy sector. They are the ones that, to this date, make the production of hybrid and plug-in cars, LED lights and solar panels possible.
Europe does not mine these materials. But without access to them, Europe will have to let the torch of the green industrial revolution pass on to other continents.
The facts are easily told. Many of the critical resources are currently only produced in a handful of countries. Can we rely on them to refrain from starting to consume the majority of their own production in order to compete against European companies on the international level with higher-value goods? One particular case in point is China.
Responsible for over 95% of global rare earth production, the People's Republic recently cut export quotas for rare earth elements by 72% for the remainder of this year. Beijing is well aware of its favourable position. Already in 1992 Deng Xiaoping aptly noted: 'The Middle East has its oil, China has rare earth.'
Had it not been all too easy in the past to rely on China and to fool ourselves that they would happily continue supplying us with low-cost resources, we would not have fallen asleep at the wheel.
Fortunately, the European Commission has at last caught up with the situation, publishing a critical raw materials report and planning to come out with a new raw materials strategy in November. What is less fortunate is that the Commissions raw materials report tends to obfuscate rather than elucidate the actual supply risk of these raw materials.
Using a narrow methodology based on the governance of producing countries and the substitutability and recyclability of a resource, the report fails to consider other crucial elements such as global reserves and time to market, as well as new developments in international production. This tends to distort the picture.
One result is that rare earths, for example, are listed as the most supply-prone resource and many commentators have started to infer that a supply crunch is likely in 2012. This, in spite of the fact that contrary to its name, rare earths are actually not that rare, with a third of the world's known reserves located in Greenland and deposits existing in the US, Canada, Australia, South Africa and even Sweden.
Within the next couple of years, production is already expected to come on-line in the United States and particularly Canada. As such, others argue that their supply risk is more of a medium to long-term issue.
These conflicting views need to be resolved as reliable data is a pre-condition for sound policymaking. With accurate statistics and information, we will be better able to objectively gauge the potential supply risks and consider to what degree open markets can deal with these situations and to what extent they require political support.
Secondly, the European Commission needs to be courageous enough to venture outside of its traditional bastion of trade policy to place a greater emphasis on domestic policies within the fields of recycling, substitution of materials and efficiency.
The recently leaked Commission paper calling for a raw materials tax is a move in the right direction, given that the EU's latest annual report on environment policy revealed that Europe is not taking enough action to improve its resource efficiency. However, it is imperative that this tax does not get bogged down in the general wrangling between the member states on the EU direct taxation proposal.
With the right set of policies, the European Union will increasingly be able to counter foreign supply risks via higher efficiency rates, substitution and the establishment of high-value recycling systems. The latter could particularly lead to the creation of powerful new business models that would not only enhance supply but also reduce carbon emissions and ultimately act as a buffer against rising prices.
In addition, it is a sleeper growth industry that if awakened could lead to great employment opportunities. But for that to happen, the EU needs to first and foremost get its facts right.
Hesiodos again: 'Long and arduous, steep and slippery is the path towards virtue. Only when you get to the summit, the going gets easier.' Better start climbing soon."
