Technology Moonshots Meet the Pull of Earthly Gravity
Many of you are familiar with the Open Systems Interconnection model (OSI model). You know it as a conceptual model, offered by the International Organization for Standardization, designed to provide a well-understood, common basis for coordinated standards development relating to computer-systems interconnection. The OSI model is like an ascending seven-layer interconnection cake comprising the physical layer (Layer 1), the data-link layer (Layer 2), the network layer (Layer 3), the transport layer (Layer 4), the session layer (Layer 5), the presentation layer (Layer 6), and, inhabiting the penthouse suite, the application layer (Layer 7).
The OSI model has been with us for a long time; the draft standard was published by the International Organization of Standards (ISO) in 1980, when, as fate would have it, I still had a full head of hair and spent an inordinate amount of time honing my billiards skills in seedy pool halls. From the inception of my career, going back about 35 years, I have consulted the OSI model to interpret and understand the functionality and purpose of countless information-technology products.
Now, I don’t intend this post to be unduly technical or to delve deeply into the intricacies of the OSI model and how its layers interact with one other. I merely want to use the model as a means of demonstrating that certain essential elements — I use the word figuratively and literally — remain unseen, seemingly invisible, even though they are foundational to electronic communication and to our current march toward an increasingly electified future of sustainable technologies and reduced carbon emissions.
My focus here is on minerals and metals such as nickel, cobalt, and copper, and rare-earth elements (REEs), of which there are 17. They must all be mined, then processed and refined, before they can be incorporated into various hardware devices that are synonymous with the information age. You personally use devices that contain these minerals and elements: flat-screen TVs and computer displays, self-cleaning ovens, laptops, and smartphones. These elements and minerals are also used for signal amplification in fiber-optic cables; they can be found in medical equipment, such as pacemakers and advanced imaging systems. They’re also used to produce the magnets embedded in a range of engines and wind turbines, satellites, and communications systems, as well as in a wide array of defense systems. Perhaps the greatest demand driver, though, will be electric vehicles.
Today, however, if you were to ask a hipster or a technology overlord about mining, that person would probably think you were discussing cryptocurrency, such as Bitcoin or Ether. Silicon Valley — inclusive of its entrepreneurs, venture capitalists, and investment bankers — is focused relentlessly on the moonshot valuations that accrue to platforms predicated on increasingly sophisticated software abstractions that rise above and disrupt the corporeal world. Pursuing such grand, lucrative schemes, the masters of the digital universe have scant time to devote to matters of primitive earthen extraction, and they would be doubtlessly appalled by the highly speculative, competitively exposed, low-margin business models associated with archaic old-school mining and processing of base minerals and elements.
Between A Rock and Hard Place
In China, though, where the economy and key industries are centrally managed and controlled, ample consideration was accorded to the importance and, yes, value of these earth-bound elements and minerals. Since the 1980s, when I was squandering the remnants of my youth, China defined and began aggressive pursuit of a comprehensive long-term strategy that addressed every facet of mining, refining, and processing the minerals and REEs that were deemed essential to the success of critical technologies. As a result, China now controls about 87% of global rare-earth refining capacity, according to the International Energy Agency, which also forecasts that demand for cobalt, copper, nickel, and REEs could more than double within the next 20 years.
Refining and processing is the key bringing it all together. That’s because the appellation “rare-earth elements” is a misnomer. In fact, REEs are relatively plentiful, scattered liberally around the globe. That is not to say that extracting and making use of them is a straightforward proposition. While the mining itself can be environmentally problematic, and the work done by miners perilous, the refining and processing is especially daunting, involving a series of highly complex processes. This is particularly true of REEs, which present themselves in entangled clusters of multiple elements that must be carefully separated from one another. What makes that task more onerous is that the elements are often of roughly the same size and atomic weight.
China has systematically invested in and developed REE processing acumen and capacity, ensuring that it has the wherewithal to address the full lifecycle of REEs, from discovery to mining to refining and processing. It’s a vertically integrated REE mining stack, an OSI-like model for base elements and minerals.
The result is that China can use the REE processing stages as veritable loss-leaders, manipulating pricing to encourage or discourage market behavior. This means, for example, that China can offer exceptionally low prices — which disaggregated competitors from Western countries cannot match — to maintain market domination. In Western capitalist economies, it’s already difficult to raise funds for mining ventures, and few have the stomach or wallets for an eternally long war of attrition against a domineering rival that is more than willing to tolerate, and even happily accept, razor-thin profit margins. If you’re in the rare-earth game in the US, Australia, or Canada, try navigating those roadblocks with prospective investors. The business case is tenuous, the exit strategies reaching so far into the future that they involve the expiration of generations rather than years.
Despite these formidable disincentives, Western governments, and a few major corporations, are committed to finding alternatives to China’s domination of the REE supply chain. They have no choice, squeezed on one side by the growing need for REEs and other essential minerals and metals, and similarly pressed by rising geopolitical tensions and the resulting fragmentation of a globalized industrial economy. With the looming threat of a Cold War 2.0, oppositional trade blocs, rather than unfettered globalization, have gained mindshare. This shift was given further impetus in July, when China announced that it would restrict exports of gallium and germanium, elements that are incorporated into space-related technologies, electronics, and some semiconductors.
No Quick Fixes
But how to break China’s iron grip (pardon the metallic pun) on the REE realm? One potential path involves strategic investment, by both governments and private-sector partners, intended to bolster Western capacities in the mining, refining, and processing REEs. Unfortunately, that’s a rocky road fraught with complications and potential pitfalls. Mining and processing of REEs pose environmental risks, including discharge of toxic waste and the contamination of water supplies. Governments and people in areas that host REEs understandably balk at the potential heavy sacrifices they would be forced to make for an electrified and digitized future. These concerns have led the cessation or suspension of several REE projects in Europe and North America already. In China, environmental factors were not foremost considerations in the formulation and execution of aggressive strategic plans for key industries and technologies. This is one of the factors that allowed China to move so assertively into REEs and related minerals and metals.
So, if land-based mining is problematic, what other options are available to Western countries and their industrial interests? One possibility involves technological innovation that potentially renders REEs and other essential minerals superfluous. This is where the entrepreneurs, engineers, and venture capitalists of the technology industry, if sufficiently incentivized, might play a role. Tesla is already moving along this path, announcing recently that it intends to produce EV magnets without recourse to rare earths. Meanwhile, the US government and a small number of startup companies are pursuing development of biomining, including the use of enzymes and bacteria to process REEs in a way that mitigates environmental pollution. Other initiatives tackle environmental challenges through utilization of biosurfactants and nanotechnologies. How far along are these developments? The consensus is that these more environmentally friendly processing alternatives remain years — perhaps a decade or more — away from production and extensive commercial application.
Beyond biomining, the US and other countries are considering the practicality of obtaining and refining rare-earth elements through seabed mining. This, too, is a long way from reality and is beset by questions of feasibility and environmental impact.
The costs, no matter how or where you calculate them, will be high. Goldman Sachs estimates that Western countries will need to invest $25 billion to match China’s rare-earth capacity. Further, in what truly qualifies as paradox, humanity, as it strives for an increasingly electric information age, might have to excavate more of the planet by 2050 than was mined during the past 70,000 years.
Still, certain minerals and REEs are required ingredients for the devices and machinery on which we depend for our modern lifestyles and economic growth. A potential trade war between superpowers complicates the picture, but even if that issue were satisfactorily resolved, the mining, refining, and processing these elements and minerals would entail potentially ruinous environmental degradation as market demand surges.
We face a rueful irony. Software might be eating the world, but the world remains weighed down by a gravity that pulls us back toward earth.