Stop artificially increasing demand for rare earths

Trade wars with China over rare earth minerals have sparked a number of policy responses, ranging from good ideas like streamlining the permitting process for domestic rare earths mining projects to bad ones like imposing retaliatory trade measures such as price controls. But one free-market idea should top the list: ending federal subsidies for uneconomic technologies that depend on rare earths.

Much of the Biden administration’s alternative energy agenda involves technologies that require considerably more rare earths than their conventional counterparts, especially wind and solar energy as well as electric vehicles (EVs).  

As is nearly always the case with subsidized energy alternatives, these technologies don’t make much economic sense. Electricity generated from wind and solar is intermittent and thus of considerably less value than reliable, dispatchable sources like coal, natural gas, hydroelectric, and nuclear power – which also happen to be less dependent on rare earths. Battery storage is also quite costly and adds further to the rare earths requirements.

 Similarly, absent generous tax credits (and even with them), EVs are too expensive and inconvenient relative to gasoline-powered vehicles to break out of their niche status of less than 10 percent of the new vehicle market. And, unlike an internal combustion engine, EV batteries have considerable rare earths requirements.

Mind you, it is not the fact that these alternatives require relatively more rare earths that makes them uncompetitive, but their increased rare earths dependency makes a bad deal even worse and is one more good reason for the feds to stop tilting the playing field in their favor.

Many of these subsidy programs received a major boost from the 2022 Inflation Reduction Act. Thankfully, the One Big Beautiful Bill Act pared them back substantially, but not completely. For example, the wind and solar tax credits will drag on for several more years and lead to more such facilities being built. 

As Congress and the Trump administration consider how to respond to China’s current market dominance in rare earths, they should first and foremost target any remaining subsidies that create additional demand.

Granted, even without the inflated demand for rare earths created by regrettable policies, wind, solar, and EVs would still attain some market share. In addition, there are many other technologies, like cell phones and other consumer electronics, that use rare earths. But eliminating the artificially higher subsidized demand for them would be a sensible step in the right direction.