Tightening the screws on China14 Sep 2023 15:13
EU and US have started to tighten the screws so that domestic industries, who are bearing the costs of emissions reduction cannot be undercut by more-polluting/subsidised foreign competitors.
Significant developments in the last few days that the the EU and US will shortly (Oct 23) begin the first phase of the Carbon Border adjustment Mechanism (CBAM), implementing 25 to 40% tariffs on 6 initial import sectors, so that the exporters effectively pay the same rate of carbon taxes on their output as do EU and US compliant domestic suppliers. This first step requires the external suppliers to declare what amount of greenhouse gases (GHG) is embedded per unit of imported goods.
Initially this will cover 6 carbon intensive industries - cement, iron and steel, aluminium, fertilisers, electricity and hydrogen.
By 2026 the tariffs will become operational and cover all carbon-intensive imports.
Rare earths are very significant GHG sources in transport, refining, metal extraction and magnet making - involving calcination, acid-roasting and electrolytic/thermal reduction. China is far and away the largest extractor/refiner/producer and its energy is predominantly coal-fired and this will increase until peak-CO2 in 2030, according to China itself. One study states that between 2010 and 2020, the use of permanent magnets has resulted cumulatively in 32 billion tonnes CO2-equivalent of GHG emissions globally.
Therefor RE metals/ores/magnets/EV and wind turbine products will certainly be included in the carbon border taxes/tariffs in the future.
China has immediately gone on the offensive against this threat to its market domination, and Beijing has threatened to make WTO appeals/rulings.
Additionally, the EU this week launched an anti-subsidy probe into China’s electric car industry in an attempt to shield European manufacturers before they are priced out by Chinese rivals. If the commission finds that domestic EV production will be harmed by EV subsidies in China, it may levy tariffs on Chinese EV imports of up to 10 to 15%. Any non-EU EV production is also liable, such as TESLA vehicles manufactured in China and imported to the EU.
China's response will probably be along the lines of its EV battery strategy - to secure as much non-China mineral sources worldwide as it can, build Chinese-owned/financed factories/refineries within the US and EU, and offset the loss of export markets by saturating its domestic EV and wind turbine programme based on the marginal costs of its existing internal rare earths industry.
The emphasis will be on low-emissions RE/EV/wind power supply chains, and for once China will be on the starting block along with competing nations in the race. Pensana has about a 4-year lead in its efforts to establish an ESG compliant and vertically integrated rare earths industry so must be very well-placed to attract investment right now. All IMHO and you should DYOR, this is not investment advice just opinion.
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