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ENERGY CRITICAL ELEMENTS: 

IDENTIFYING RESEARCH NEEDS AND 

STRATEGIC PRIORITIES 

HEARING 

BEFORE THE

SUBCOMMITTEE ON ENERGY AND 

ENVIRONMENT 

COMMITTEE ON SCIENCE, SPACE, AND 

TECHNOLOGY 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

WEDNESDAY, DECEMBER 7, 2011 

Serial No. 112–56 

Printed for the use of the Committee on Science, Space, and Technology 

( 

Available via the World Wide Web: http://science.house.gov 
(II) 

COMMITTEE ON SCIENCE, SPACE, AND TECHNOLOGY 

HON. RALPH M. HALL, Texas, Chair 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

LAMAR S. SMITH, Texas 

DANA ROHRABACHER, California 

ROSCOE G. BARTLETT, Maryland 

FRANK D. LUCAS, Oklahoma 

JUDY BIGGERT, Illinois 

W. TODD AKIN, Missouri 

RANDY NEUGEBAUER, Texas 

MICHAEL T. MCCAUL, Texas 

PAUL C. BROUN, Georgia 

SANDY ADAMS, Florida 

BENJAMIN QUAYLE, Arizona 

CHARLES J. ‘‘CHUCK’’ FLEISCHMANN, 

Tennessee 

E. SCOTT RIGELL, Virginia 

STEVEN M. PALAZZO, Mississippi 

MO BROOKS, Alabama 

ANDY HARRIS, Maryland 

RANDY HULTGREN, Illinois 

CHIP CRAVAACK, Minnesota 

LARRY BUCSHON, Indiana 

DAN BENISHEK, Michigan 

VACANCY 

EDDIE BERNICE JOHNSON, Texas 

JERRY F. COSTELLO, Illinois 

LYNN C. WOOLSEY, California 

ZOE LOFGREN, California 

BRAD MILLER, North Carolina 

DANIEL LIPINSKI, Illinois 

GABRIELLE GIFFORDS, Arizona 

DONNA F. EDWARDS, Maryland 

MARCIA L. FUDGE, Ohio 

BEN R. LUJA ́ N, New Mexico 

PAUL D. TONKO, New York 

JERRY MCNERNEY, California 

JOHN P. SARBANES, Maryland 

TERRI A. SEWELL, Alabama 

FREDERICA S. WILSON, Florida 

HANSEN CLARKE, Michigan 

VACANCY 

SUBCOMMITTEE ON ENERGY AND ENVIRONMENT

HON. ANDY HARRIS, Maryland, Chair 

DANA ROHRABACHER, California 

ROSCOE G. BARTLETT, Maryland 

FRANK D. LUCAS, Oklahoma 

JUDY BIGGERT, Illinois 

W. TODD AKIN, Missouri 

RANDY NEUGEBAUER, Texas 

PAUL C. BROUN, Georgia 

CHARLES J. ‘‘CHUCK’’ FLEISCHMANN, 

Tennessee 

RALPH M. HALL, Texas 

BRAD MILLER, North Carolina 

LYNN C. WOOLSEY, California 

BEN R. LUJA ́ N, New Mexico 

PAUL D. TONKO, New York 

ZOE LOFGREN, California 

JERRY MCNERNEY, California 

EDDIE BERNICE JOHNSON, Texas 
(III) 

C O N T E N T S 

Wednesday, December 7, 2011 

Page 

Witness List ............................................................................................................. 2 

Hearing Charter ...................................................................................................... 3 

Opening Statements 

Statement by Representative Andy Harris, Chairman, Subcommittee on Energy and Environment, Committee on Science, Space, and Technology, U.S. 

House of Representatives .................................................................................... 19 

Written Statement ............................................................................................ 20 

Statement by Representative Brad Miller, Ranking Member, Subcommittee 

on Energy and Environment, Committee on Science, Space, and Technology, 

U.S. House of Representatives ............................................................................ 20 

Written Statement ............................................................................................ 22 

Witnesses: 

The Honorable David Sandalow, Assistant Secretary for Policy and International Affairs, Department of Energy 

Oral Statement ................................................................................................. 24 

Written Statement ............................................................................................ 25 

Dr. Derek Scissors, Research Fellow, Heritage Foundation 

Oral Statement ................................................................................................. 28 

Written Statement ............................................................................................ 31 

Dr. Robert Jaffe, Jane and Otto Morningstar Professor of Physics, Massachusetts Institute of Technology 

Oral Statement ................................................................................................. 39 

Written Statement ............................................................................................ 41 

Dr. Karl Gschneidner, Senior Materials Scientist, Ames National Laboratory 

Oral Statement ................................................................................................. 46 

Written Statement ............................................................................................ 48 

Mr. Luka Erceg, President and CEO, Simbol Materials 

Oral Statement ................................................................................................. 51 

Written Statement ............................................................................................ 53 

Appendix: Answers to Post-Hearing Questions 

The Honorable David Sandalow, Assistant Secretary for Policy and International Affairs, Department of Energy ............................................................. 76 

Dr. Derek Scissors, Research Fellow, Heritage Foundation ................................ 86 

Dr. Robert Jaffe, Jane and Otto Morningstar Professor of Physics, Massachusetts Institute of Technology ............................................................................... 88 

Dr. Karl Gschneidner, Senior Materials Scientist, Ames National Laboratory . 89 

Mr. Luka Erceg, President and CEO, Simbol Materials ...................................... 90 

(1) 

ENERGY CRITICAL ELEMENTS: 

IDENTIFYING RESEARCH NEEDS AND 

STRATEGIC PRIORITIES 

WEDNESDAY, DECEMBER 7, 2011 

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON ENERGY AND ENVIRONMENT, COMMITTEE ON SCIENCE, SPACE, AND TECHNOLOGY, Washington, DC. 

The Subcommittee met, pursuant to call, at 10:03 a.m., in Room 

2318 of the Rayburn House Office Building, Hon. Andy Harris 

[Chairman of the Subcommittee] presiding. 
2 

PALPH M _'_' LL, '8<AS 

U.S. HOUSE OF REPRESENTATIVES 

COMMiTTEE ON SCIENCE, SPACE, AND TECHNOLOGY 

2,,21 RAYBURN HOUSE QFFICc K;lI:JlING 

WASHINGTO'-J, DC 20E16---f3Q' 

(2U2: 220-6371 

w""""""",ho, ... ,,,' 

SubcommiLLee ml Energy & Environment Hearing 

Energy· Critical Elements: Identifying Research Needs and Strategic Priorities 

Wednesday, December 07, 2011 

10:00 a.ill. to 12:00 p.m. 

2318 Rayburn House Office Building 

The Honorable David Sandalow, Assistant Secremry for Policy and International Affairs, 

Department of Energy 

Dr. Derek Scissors, Research fellow, Heritage FOlmdatioll 

Dr. Robert Jaffe, Jane and Otto Morningstar Professor of Physics, Massachusetts Institute of 

Tcchnology 

nr. Karl GschncidncJ:", Senior Materials Sci<:lntisl, Ames National T ,aboratory 

.Mr, L~l,a Erceg; Prcsidcrrt and CEO, Simhol Matexials 
3 

U.S. HOUSE OF REPRESENTATIVES 

COMMITTEE ON SCIENCE, SPACE, AND TECHNOLOGY 

Subcommittee on Energy and Environment 

HEARING CHARTER 

Energy Critical Elements: Identifying Research Needs and Strategic Priorities 

Wednesday, December 7, 2011 

10:00 a.m. to 12:00 p.m. 

2318 Raybnrn Honse Office Building 

On Wednesday, December 7, 2011, at 10:00 a.m. in Room 2318 of the Rayburn House Office 

Building, the Subcommittee on Energy and Environment will hold a hearing titled "Energy 

Critical Elements: Identifying Research Need~ and Strategic Priorities." The purpose of this 

hearing is to receive testimony on research needs and priorities relating to Energy Critical 

Elements (ECE) and examine H.R. 2090, "The Energy Critical Elements Advancement Act of 

2011." 

Witnesses 

• The Honorable David Sandal ow, Assistant Secretary for Policy and International Affairs, 

Department of Energy 

• Dr. Derek Scissors, Research Fellow, Heritage Foundation 

• Dr. Robert Jaffe, Jane and Otto Morningstar Professor of Physics, Massachusetts Institute 

of Technology 

• Dr. Karl Gschneidner, Senior Materials Scientist, Ames National Laboratory 

• Mr. Luka Erceg, President and CEO, Simbol Materials 

Background 

Energy Critical Elements 

A recent report published by the American Physical Society (APS) and Materials Research Society 

(MRS) defines Energy Critical Elements as a "class of chemical elements that currently appear 

critical to one or more new, energy-related technologies. A shortage of these elements would 

significantly inhibit large-scale deployment, which could otherwise be capable of transforming the 

way we produce, transmit, store, or conserve energy.") 

1 American Physical Society & Materials Research Society, "Energy Critical Elements: Securing Materials for 

Emerging Technologies," February 2011. Accessible at: http://ww\\.aps.org/policY/rcporls/poparcports/uploadiclclllcl1tsreport.pdf 
4 

ECEs are generally not widely extracted, nor is there a mature, commoditized ECE market. The 

APS-MRS study also notes ECEs may not be domestically available and "many potential ECEs are 

not found in concentrations high enough to warrant extraction as a primary product.,,2 

As indicated by their name, ECEs are key components in many energy technologies. For example, 

neodymium is used for high-field permanent magnets required in wind turbines and hybrid cars. 

Tellurium is necessary for a new photovoltaic solar cell technology. Included as potential ECEs, 

the APSIMRS report identifies the platinum group of elements, located in the center of the periodic 

table, as well as elements frequently used in photovoltaic solar cells such as gallium (Ga), 

germanium (Ge), selenium (Se), indium (In), and tellurium (Te). 

Rare Earths 

Of particular interest and importance within ECEs is a family of elements known as rare earth 

elements (REE). Rare earth elements consist of yttrium, scandium, and the 15 elements contained 

within the Lanthanide series on the periodic table of elements with atomic numbers ascending 

from 57 to 71. 

2 APSIMRS Report, p. 5 

3 Ibid. 

2 
5 

Despite their moniker, REEs are not rare, but rather abundant in the Earth's crust. However, the 

concentrations ofREEs are generally low, limiting the opportunity to economically mine and 

separate elements for processing and use. Some REEs are obtained as byproducts of mining more 

abundant ore, such as copper, gold, uranium, phosphates, and iron. 4 

REEs are generally classified as either light rare earth elements (LREE) or heavy rare earth 

elements (HREE). LREEs, elements with atomic numbers 57 to 63, are more abundant, more 

widely used, and easier to separate with mining techniques. HREEs, elements with atomic number 

64 through 71, are generally less available and more difficult to extract. HREE's ability to 

withstand higher temperatures than LCEEs makes them more suitable for specific energy 

applications and the United States Geological Survey (USGS) describes HREEs as "particularly 

desirable. ,,5 

Figure 2 - Rare Earth Elements: Selected End Uses6 

metal alloys permanent magnets 

Cerium auto catalyst, Dysprosium permanent 

petroleum refining, magnets, hybrid 

metal alloys engines 

Praseodymium magnets Erbium phosphors 

Neodymium auto catalyst, Yttrium red color, 

petroleum refining, fluorescent lamps, 

hard drives in ceramics, metal 

laptops, alloy agent 

headphones, hybrid 

engines 

Samarium magnets Holmium glass coloring, 

lasers 

Europium red color for Thulium medical x-ray units 

television and 

computer screens 

Lutetium catalysts in 

petroleum refining 

Ytterbium lasers, steel alloys 

Gadolinium magnets 

4 Congressional Research Service. "Rare Earth Elements: The Global Supplv Chain, ,. September 6.2011. p. 8 

5 Department of Interior. United States Geological Survey Fact Sheet 087-02. "Rare Earth Elements - Critical 

Resources for High Technology." 2002. Accessible at: http://pubs.usgs.goy/fs/2002/fs087-02/ 

6 CRS Report. p. 3 

3 
6 

The unique physical and chemical characteristics of REEs make them attractive for use in a 

number of key specialty applications. For example, alloys of numerous rare earth elements are key 

components of strong, penn anent magnets desired in a wide range of hi-tech applications. End-use 

applications range from automobile catalysts to cell phones and televisions to medical devices. 

REEs are also of great imp011ance for defense applications, such as jet engines and satellite 

systems. 

Beyond rare earths, several other ECEs are also important to energy technologies. Examples 

include: lithium and lanthanum for use in high performance batteries; helium for cryogenics, 

advanced nuclear reactor designs, and energy sector manufacturing; platinum group elements for 

fuel cell catalysts; and rhenium for use in an alloy for advanced turbines. 7 

Production and Supply Chain 

The rare earth production and supply chain involves numerous phases, each with its own complex 

market dynamics. This begins with mining ore, followed by separating the rare earth oxides, 

refining the material, turning the oxides into a metal alloy, incorporating alloys into components 

and manufacturing end-use products. As a result of the complexity, the location ofREE geologic 

deposits and mining facilities is a major factor in determining where manufacturers produce goods. 

For example, neodymium, gadolinium, dysprosium, and terbium are all key components in 

permanent magnets. Current mining and production of those elements is almost exclusively 

located in China. As a result about 75% of all current pennanent magnet production also located 

there8 

Market Conditions Impacting Energy Critical Elements 

The United States was a dominant global producer ofrare earth elements from the 1960's through 

the 1980's; however, downward price pressure from China and more restrictive environmental 

regulations in the United States drove REE production out of the United States and almost 

exclusively to China. 

Prior to establishing market dominance, China developed a long range strategic action to exploit its 

rare earth natural resources. In 1992, Deng Xiaoping, a key figure leading China's economic 

reforms sil}naled this strategic direction, saying "there is oil in the Middle East; there is rare earth 

in China." As China produced an increasing percentage of global REEs, the country began 

implementing policies to strengthen its market position . 

. APS/MRS Report. p. 6 

, CRS report. P. 2 

9 Peter Foster. "Rare earths: Why China is tecthnologies." The Telegraph. March. 19, 

2011. Accessible at: !illJl1.!J0Ji.\IJ!;l£.!WllillJ;QJ.!~;jQl££I'lU!illJi2iRill:£.::£ill1!!!§::lllll:.:QIilll;J:i§::£!!liillg;:9.;w.;;Uli:fl1!£illl: 

to-Wcslcm-tcchl1ologics.htmt 

4 
7 

Figure 3 - Global rare-earth-oxide production trends 10 

Today, REEs are almost exclusively produced in China. The USGS estimates China produced 

130,000 metric tons (mt) of rare earth ores, oxides, and metals in 2010, or 97% of global REE 

production. I I While China currently produces almost all of the global REE supply, other countries 

have notable REE reserves yet to be extracted, including the United States, Australia, Brazil, India, 

Russia, South Africa, Malaysia, and Malawi. 12 As REE prices have risen, companies in numerous 

countries have announced plans to re-start and expand production. 

However, China's stranglehold on current REE production has allowed it to disproportionately 

impact market prices and exploit their resource abundance through geopolitical means. Following 

a 2009 dispute with Japan on an unrelated matter, China suspended REE exports to its neighbor. 

Japan's high-tech economy is highly dependent on the availability of REEs and the country was 

forced to relent to China, resolve the incident, and resume REE imports. 13 

Soon thereafter, China reduced its export quota by 37 percent in 2010 from the prior year, 

ostensibly to limit the environmental impacts of mining REEs. Reducing the export quota placed 

10 Pui-K"an Tse, "China's Rare-Earth Industry," USGS Report 2011-1042, 2011. Accessible at: 

1l USGS Mineral Commodities Summaries 2010. Accessible at: 

12 CRS Report p. 9 

13 Yuko Inoue, "China !ilL' rare earth exporl ban to Japan." Reuters, September 29,2010. Accessible at: 

5 
8 

further supply constraints on a market in which global demand already exceeds supply. 

Additionally, China levies a 15 to 25 percent tax on REE exports]4 These policies drove up the 

price of products manufactured outside of China and exert great pressure on companies to locate 

manufacturing facilities in China for a price advantage. For example, Intematix, a Californiabased producer of phosphor materials and LED lighting, moved manufacturing to China to directly 

purchase rare earth materials, rather than pay higher prices for exports. Intematix Director of 

Worldwide Operations said, "We saw the writing on the wall we simply bought the equipment 

and ramped up in China to begin with .... 1 think this is what the Chinese government wanted to 

happen."lS 

Market Reaction 

China's policies led to significant price 

increases in REEs in the global market. 

The average September 2011 price for 

Chinese REE exports was 752 percent 

higher than the previous year. 1 However, 

as prices increased, the global market 

began to react. A number of companies 

announced their intention to open new 

production facilities and REE prices fell 

approximately 40 percent from the peak in 

July. 17 

In reaction to falling REE prices, China 

has again sought to take advantage of its 

market position to manipulate supply and 

maintain artificially high prices. In 

October, the Chinese state-owned 

company Inner Mongolia Baotou Steel 

Rare Earth Hi-Tech Company declared it 

would suspend production ofREEs for 

one month "in an effort to prop up 

prices." 18 

In 2010, REE demand was estimated to be 

136,000 mt while global production stood 

14 USGS 2011-1042 p. 8 

UPI, "Production shifts to China for rare earths," 

Rare Earth Prices Drop in September 

Chinese export price of rarlHlarth 

14 percent in September from the 

so, 1I1e price was 752 percent 

September than 12 months earlier, 

Average monthly Chinese export prices per kilogram 

of rare earths. January 2007 to September 2011 

$3(JO 

250 

200' 

"'",UV1'VH,U",,", "China's Monopoly on Rare-Earth materials: implications for u.s. Companies, " Bloomberg 

Government, November 16, 2011. 

]; Derek Scissors, "Rare Earth :\{arket Fine Withoul Government Inlerforence, " Heritage Fonndation, November 2, 

20 II. Accessible at: http://www.heritage.orglrescarchlreports/2() I IJI lIrare-earth-markcl-finc-withoul-govcrnmcnl6 
9 

Today, REE; ,lfe ;ilinost exclusively proJuc~J in China, The USGS c.slintatc~ China produced 

130,000 metric tons (mt) of rare earth ores, oxides, and metal~ in 201 0. or 97% of global REE 

production. I I 'While China currently produces almost all of the global REE supply, other countries ha,e notable RHt: re,erve, yet to be extracted, including the Cnited Slates, Australia, Brazil, India., 

Russia., South Africa., Malaysia, and Malawi. 12 As REE prices bave risen, ~ompanies in numerous 

countries have announced plans to re-start and expand produ("iion. 

However, ebina's stranglehold on c1.1rrent REE production has allowed it to disproportionately 

impact markd pric~s and exploil their resource ablmdancc lhr0l1[;h geopolitical means. rollowing 

a.2009 dispute with Japan on an unrelated maller, China suspended REE exports to its neighbor. 

Japan's high-tech economy is highly dependent on the availability of lli:Es and the counlr}' \\las 

forced to relenl lo China. resolve the incident, and ""wne REB imporls. 11 

Soon thereafter, China reduced it~ export quota by 37 percent in 201 0 frum thc prior ~Cllr. 

ostensibly to limit the environmental impact5 of mining REEf;. Reducing the export quota placed 

lOPui_;Cwan Tsc. "China', Rare_Earth lndu.tJy" USGS Report 1011·1042. 20tl. Accc"ible at 

hrtp·'/puh •. ~,%.aQV/Qf!2QT 1 11 Q4210f7QT 1_1 Q42.pdf 

11 USGS M"mc-rnl Commodities Summaries 20 10. Accessible 1ft 

hrtp://minerals.u,;"".~o"J:rninetal&'pub"Jmc • .'20 1 limcQOII.!ld[ 

"eRS Report p. 9 

"Yuko Inoue, "Ch;na litis rare eanh export b"" roJapan," Reutero. S"I'tembeT 29, 20lO. Acc~"iblo at; 

hUD,'i1V"i"".,.mer;;.comia"iob'101 [)/U'!/:lWus-j!WaIl-objna-exoon-idUS D{£68S0BT201 00929 
10 

metals is a global automotive industry using rare-earth pennanent magnets. That industry will 

engineer this stuff OUt.,,25 

Federal Activities 

A number of Executive Branch agencies are actively addressing ECE challenges. Since March 

2010, the White House Office of Science and Technology Policy (OSTP) has coordinated an 

Interagency Working Group on Critical and Strategic Mineral Supply Chains. OSTP created a 

new Subcommittee on Critical and Strategic Mineral Supply Chains, with the purpose to "advise 

and assist [OSTP) on policies, procedures and plans relating to risk mitigation in the procurement 

and downstream processing of critical and strategic minerals. Functions of the Subcommittee 

include identifying critical and strategic minerals and identifying cross-agency research and 

development opportunities.,,26 

Participants in the working group include the DOE, Department of Defense (DOD), USGS, 

Department of Commerce, Environmental Protection Agency, Department of Justice, Department 

of State, and the U. S. Trade Representative. 

DOE Critical Materials Strategy 

In December 20] 0, the Department of Energy released its "Critical Materials Strategy" to 

examine the "role of rare earth metals and other materials in the clean energy econom;;" and focus 

on the "role of key materials in renewable energy and energy-efficient technologies." 7 DOE 

describes plans to "(i)develop its first integrated research agenda addressing critical 

materials ... (ii)strengthen its capacity for infonnation-gathering on this topic; and (iii) work closely 

with international partners, including Japan and Europe, to reduce vulnerability to supply 

disruptions and address critical material needs.,,28 

DOE's strategy is supported by three key points. Namely: 

1. A"diversified global supply chain [is) essential." Supply risk must be mitigated by 

sourcing of critical materials from multiple sources. To achieve this, steps must be taken to 

"facilitate extraction, processing and manufacturing here in the United States, as well as 

encourages other nations to expedite alternative supplies;" 

2. "[S)ubstitutes must be developed." Research and development of materials of equal 

material and technology veracity will allow the clean energy economy to satisfy their 

material needs, and; 

3. "[R)ecycling, reuse and more efficient use could significantly lower world demand for 

newly extracted materials." 

DOE's strategy only focused on the needs for REEs in the context of the energy sector. It did not 

consider the importance of REEs for other sectors, including defense, nor did it address material 

concerns beyond REEs. DOE will release an update to the report prior to the end of 2011. 

Ibid. 

20 Critical Materials Strategy, p. 58. 

Critical Materials Strategy p. to 

28 Critical Materials Strategy, p. 6 

8 
11 

DOE Research and Development Activity 

DOE funds ECE-related research through numerous programs. Within the Office of Science, the 

Basic Energy Sciences' Materials Sciences and Engineering Division provided $5 million in Fiscal 

Year (FY) 2010 for materials research at Ames National Laboratory. 

The Advanced Research Projects Agency Energy (ARPA-E) funds high-risk, high-reward, 

transformational energy research. ARPA-E has funded 11 targeted research areas to date, 

including the Batteries for Electric Energy Storage in Transportation (BEEST) to develop new 

battery technologies that are less reliant on ECEs. ARPA-E also provided $2.2 million to General 

Electric Global Research to develop "next-generation permanent magnets with a lower content of 

critical rare earth materials" The new magnets would be more efficient and increase power density, 

while reducing the quantity of ECEs29 

Within the Office of Energy Efficiency and Renewable Energy (EERE), the Vehicle Technologies 

Program, Industrial Technologies Program, and the Wind Technologies Program fund ECE-related 

research. The research includes exploring new battery technologies, researching next generation 

materials research, and producing higher efficiency permanent magnets for increased performance 

in wind turbines30 

Critical Material5 Energy II/novation Hub 

The Administration's budget request proposed creating a new Energy Innovation Hub on Critical 

Materials to be overseen by EERE's Industrial Technologies Program. According to DOE: 

"The hub will fund R&D on novel approaches to reducing our dependencies on 

critical materials. The hub will focus on R&D leading to material and technology 

substitutes that will improve flexibility and help meet the material needs of the 

clean energy economy. Additional R&D goals include strategies for recycling, 

reuse, and more efficient use that could significantly lower world demand for 

newly extracted materials. ,,31 

The House-passed Energy & Water Appropriations bill included $20 million in FY 2012 for the 

Critical Materials Hub. 

Department of Defense 

In September 2011, DOD delivered its Annual Industrial Capabilities Report to Congress32 The 

report assessed the importance ofrare earth materials to national security and concluded that: 

Advanced Research Projects Agency - Energy, "GE Global Research: Tnmsfonuational Nanostmctured Penuaneut 

Mal,>nets." Accessible at: htlp:llaroac.encrgv.goylProgramsProjccts/OtherProjectslVchiclcTcchnologicsITnmsformationalNal1ostmcturcdPcnnancntMagnc 

is.aspx 

3u For more information on current DOE critical materials R&D. sec Chapter 4 of the Critical Materials Strategy. 

Department of Energy. "FY 2012 Congressional Budget Request: Volume 3,." p. 257. Accessible at: 

http://vv,, y\. cf 0 .doc. goy/budget! l2budget/Contcn1iV olume). pdf 

"Office of Mallufacturillg & Industrial Base Policy. "All1lual industrial Capabilities Report to Congress," Department 

of Defense. September 20 II. Accessible at: http://\\\\w.acq.osd.millmibp/docs/allnual illd cap rot to congrcss2011.pdf 

9 
12 

"The Department relies on RE materials in the production of many of its weapon 

systems and needs to ensure their continued availability to meet national security 

objectives and military superiority ... It is essential that a stable non-Chinese 

source of REO be established so that the U.S. RE supply chain is no longer solely 

dependent on China's RE exports. It is also essential to develop non- Chinese RE 

sources that in total create an RE supply that meets the U.S. demand for both 

heavy and light rare earth elements (REEs)" 

The report also recommended that DOD: 

• "develop and implement risk mitigation strategies for the heavier elements, especially 

dysprosium, yttrium, praseodymium, and neodymium."; 

• "identify and priorities [rare earth] product applications in order to mitigate/diminish 

supply and scheduling disruptions to selected DOD systems."; 

• "partner with the domestic [rare earth] companies to determine what assistance may be 

needed to retain or obtain [rare earth] processing capabilities."; and 

• "continue monitoring the health of the domestic [rare earth] companies in the supply 

chain." 

Congressional Proposals 

In the 112'h Congress, ten bills have been introduced to address various ECE and REE issues 

(Appendix A). Additionally, multiple Congressional Committees, including the Science, Space, 

and Technology Subcommittee on Investigations and Oversight,33 held hearings to consider ECE 

oversight issues and legislative proposals. 

To date, one rare earth proposal has seen legislative action. On July 20,2011, the House Natural 

Resources Committee passed HR. 2011, the "National Strategic and Critical Minerals Policy Act 

of2011," sponsored by Rep. Lamborn. RR. 2011 currently awaits consideration by the full 

House. 

RR. 2090, the "Energy Critical Elements Advancement Act of2011" was introduced by 

Representative Randy Hultgren on June 2 (Appendix B). The legislation directs the Department of 

Interior and DOE to improve resource assessments through direct coordination. The bill also 

designates USGS as the Principal Statistical Agency to gather ECE resource information. RR. 

2090 authorizes a DOE research program to "establish advance basic knowledge and enable 

expanded availability of designated energy critical elements; and develop and update biennially an 

integrated research plan to guide program activities.,,34 Lastly, the bill requires OSTP to produce a 

report for Congress on recycling of energy critical elements. 

33 Committee on Science, Space, and Teclmology, Investigations 

Materials Strategy," June 14.201 L More information can be found at: lillJM,ru:ll9Uli!lllil~!.lli!£il!:i!JgLi!r@:i!JgJiQ]1§.:: 

and-m:crsight-subcommlttce-hearing-critical-matcrials-stratcgv 

34 Congressional Researcb Selvice Bill Summary. 

10 
13 

Appendix A 

Rare Earth-Related Legislation in the 112'h Congress35 

H.R. 1388, the Rare Earths Supply Chain Technology and Resources Transfonnation Act of2011 

Introduced by Representative Mike Coffman on May 6, 2011, and referred to the 

House Committee on Science, Space, and Technology, Subcommittee on Energy and 

the Environment, and the Committees of Natural Resources and Armed Services. 

The bill is also referred to as the Restart Act of 2011. The bill seeks to reestablish a 

competitive domestic rare earths supply chain within DOD's Defense Logistics 

Agency (DLA). 

H.R. 1540, the National Defense Authorization Act for FY2012 

Introduced by Representative Howard McKeon on April 14, 2011. Section 835 

would require the Defense Logistics Agency Administrator for Strategic Materials to 

develop an inventory for rare earths materials to support defense requirements, as 

identified by the report required by Section 843 of the National Defense 

Authorization Act for FY2011 (P.L. 111-383). 

H.R. 1314, the Resource Assessment of Rare Earths (RARE) Act of 20 11 

Introduced by Representative Hank Johnson on April 1,2011; referred on April 6 to 

the House Natural Resources Committee's Subcommittee on Energy and Mineral 

Resources. The bill would direct the Director of the U.S. Geological Survey through 

the Secretary of the Interior to examine the need for future geological research on 

rare earth elements and other minerals and detennine the criticality and impact of a 

potential supply restriction or vulnerability. 

H.R. 952, the Energy Critical Elements Renewal Act of2011 

Introduced by Representative Brad Mill er on March 8, 2011; referred to the 

Committee on Science, Space, and Technology. The bill would develop an energy 

critical elements program, amend the National Materials and Minerals Policy 

Research and Development Act of 1980, establish a temporaty progratn for rare 

earth material revitalization, and serve other purposes. 

S. 383, the Critical Minerals and Materials Promotion Act of2011 

Introduced by Senator Mark Udall on February 17,2011; referred to the Committee 

on Energy and Natural Resources. The bill would require the Secretary of the 

Interior to establish a scientific research and analysis program to assess current and 

future critical mineral and materials supply chains, strengthen the domestic critical 

35 Appendix A compiled by Congressional Research Sendee. Appendix in CRS Report R41347. 

11 
14 

minerals and materials supply chain for clean energy technologies, strengthen 

education and training in mineral and material science and engineering for critical 

minerals and materials production, and establish a domestic policy to promote an 

adequate and stable supply of critical minerals and materials necessary to maintain 

national security, economic well-being, and industrial production with appropriate 

attention to a long-term balance between resource production, energy use, a healthy 

environment, natural resources conservation, and social needs. 

H.R. 618, the Rare Earths and Critical Materials Revitalization Act of2011 

Introduced by Representative Leonard Boswell on February 10, 2011; referred to 

the Committee on Science, Space, and Technology. The bill seeks to develop a rare 

earth materials program and amend the National Materials and Minerals Policy, 

Research and Development Act of 1980. If enacted, it would provide for loan 

guarantees to revitalize domestic production ofrare earths in the United States. 

S. lIB, the Critical Minerals Policy Act of2011 

Introduced by Senator Lisa Murkowski on May 26,2011; referred to the Committee 

on Energy and Natural Resources. The bill would define what critical minerals are, 

but would request that the Secretary of the Interior establish a methodology (in 

consultation with the National Academy of Sciences, the National Academy of 

Engineering and various Department Secretaries) that would identify which 

minerals qualify as critical. The Secretary of the Interior would direct a 

comprehensive resource assessment of critical mineral potential in the United 

States, including details on the critical mineral potential on federal lands. S. 1113 

would establish a Critical Minerals Working Group to examine the permitting 

process for mineral development in the United States and facilitate a more efficient 

process; specifically, that would require a performance metric for permitting 

mineral development and report on the timeline of each phase of the process. The 

Department of the Interior (DOl) would produce an Annual Critical Minerals 

Outlook report that would provide forecasts of domestic supply, demand, and price 

for up to ten years. The proposed Annual Critical Minerals Outlook would also 

assess critical mineral requirements for national security, energy, and economic 

well-being, and provide analyses of the implications of potential supply shortfalls. It 

would provide projections for recycling and market penetration of alternatives and 

international trends associated with critical minerals. Section 109 proposes greater 

international cooperation with allies on critical minerals and supply chain issues. If 

it was determined that there is no viable production capacity in the United States, a 

series of activities may occur with allies, led by the Secretary of State and Secretary 

of the Interior. 

DOE would lead research and development on critical minerals and workforce 

development that would support a fully integrated supply chain in the United States. 

Title II of the bill recommends mineral-specific action (led by DOE) for cobalt, 

helium, lead, lithium, low-btu gas, phosphate, potash rare earth elements, and 

12 
15 

thorium. For example, there would be R&D for the novel use of cobalt, grants for 

domestic lithium production R&D, and a study on issues associated with 

establishing a licensing pathway for the complete thorium nuclear fuel cycle. Title 

III would repeal 1980 Minerals Policy Act and Critical Minerals Act of 1984 and 

would authorize for appropriation, $106 million. 

H.R. 2011. the National Strategic and Critical Minerals Policy Act of2011 

Introduced by Representative Doug Lamborn on May 26, 2011; referred to the 

Committee on Natural Resources. The bill would direct the Secretary of the 

Interior to prepare a report on public lands that have been withdrawn or are 

otherwise unavailable for mineral exploration and development, mineral 

requirements of the United States, the nation's import reliance on those minerals, 

a timeline for pemlitting mineral-related activities on public lands, and the 

impacts of litigation on issuing mineral permits, among other things. The bill 

provides an authorization for appropriation, to the Secretary of the Interior, of $1 

million for fiscal years 2012 and 2013. The House Committee on Natural 

Resources marked up and reported out HR. 2011 on July 20, 2011. 

HR. 2090, the Energy Critical Elements Advancement Act of2011 

Introduced by Representative Randy Hultgreen on June 2, 2011. The bill would 

require collaboration between the Secretary of the Interior and Secretary of 

Energy to improve assessments of "energy critical elements throughout the supply 

chain, supply, demand, disposal and recycling." Additionally it calls for more 

R&D on materials use substitution, recycling, and life-cycle analysis. The bill 

provides a list of energy critical elements. 

HR. 2184, the Rare Earth Policy Task Force and Materials Act 

Introduced by Representative Mike Coffman on June 15, 2011. The bill would 

create a Rare Earth Task Force within the DOl and be composed of the Secretary 

or designees from DOE, DOC, DOS, DOD, USDA, OMB, and CEQ, chaired by 

the Secretary of the Interior. The task force would examine impediments to 

domestic development of a REE supply chain. The Secretary of the Interior would 

prepare a Materials Program Plan of R&D that would support and help ensure 

long-term viability of a domestic rare earth industry. The plan would support 

numerous activities related to improved assessment and development technology, 

processing technology, and end-use applications. The bill would encourage 

expanding opportunities for higher education in that it would support the buildout of the rare earth supply chain 

13 
16 

Appendix B 

H.R.2090 

Energy Critical Elements Advancement Act of 2011 

I 12th CONGRESS 

1st Session 

H. R. 2090 

To improve assessments of and research about energy critical elements, and for other purposes. 

IN THE HOUSE OF REPRESENTATIVES 

June 2, 2011 

Mr. HULTGREN (for himself, Mrs. BIGGERT, and Mr. UPINSKI) introduced the following bill; 

which was referred to the Committee on Science, Space, and Technology, and in addition to the 

Committees on Natural Resources and Energy and Commerce, for a period to be subsequently 

determined by the Speaker, in each case for consideration of such provisions as fall within the 

jurisdiction of the committee concerned 

A BILL 

To improve assessments of and research about energy critical elements, and for other purposes. 

Be it enacted by the Senate and H01lse ClfRepresentatives of the United States of America 

in Congress assembled, 

SECTION 1. SHORT TITLE. 

This Act may be cited as the 'Energy Critical Elements Advancement Act of2011'. 

SEC. 2. INFORMATION GATHERING, ANALYSIS, AND DISSEMINATION. 

(a) Establishment- The Secretary of the Interior, acting through the Director of the USGS, 

and the Secretary of Energy, acting through the Administrator of the Energy Information 

Administration, shall collaborate to improve assessments of energy critical elements that 

includes--

(1) discovered and potential resources; 

(2) production; 

(3) use; 

(4) trade; 

14 
17 

(5) disposal; and 

(6) recycling. 

(b) Duties- The entity within the USGS that gathers the information for the assessments 

under subsection (a) shall--

(1) regularly survey emerging energy technologies and the supply chain for 

elements throughout the periodic table necessary for those technologies in order to 

forecast potential supply dismptions; and 

(2) make available such infornlation in the aggregate, with appropriate protection of 

proprietary information, to the United States scientific community, including 

industry, institutions of higher education, and the United States Department of 

Energy National Laboratories and Technology Centers. 

(c) Designation- The Director of the USGS shall designate the entity within the USGS that 

gathers the information for the assessments under subsection (a) as a 'Principal Statistical 

Agency'. 

SEC. 3. RESEARCH. 

(a) Establishment- The Secretary of Energy, in coordination with the Secretary of the 

Interior, shall establish a research program to advance basic knowledge and enable 

expanded availability of energy critical elements, including research on basic materials 

science, chemistry, physics, and engineering associated with energy critical elements, 

including materials characterization and substitution, recycling, and life-cycle analysis. 

(b) Research Plan- In consultation with the Critical and Strategic Mineral Supply Chain 

Subcommittee of the National Science and Technology Council, the Secretary shall 

develop and update biennially an integrated research plan to guide program activities. 

(c) Limitation- Research under subsection (a) shall be limited to areas that industry is not 

likely to undertake due to technical and financial uncertainty. 

SEC. 4. REPORT. 

Within 1 year after the date of enactment of this Act, the Critical and Strategic Mineral 

Supply Chain Subcommittee of the National Science and Technology Council shall submit 

to the Committee on Science, Space, and Technology of the House of Representatives and 

the Committee on Commerce, Science, and Transportation of the Senate a report on the 

recycling of energy critical elements, including--

(1) the logistics, economic viability, and research and development needs for 

completing the recycling process; 

(2) options for both the Federal Government and industry, including an assessment 

of the strengths and weaknesses of such options, for improving the rates of 

15 
18 

collection of post-consumer products containing energy critical elements; and 

(3) an analysis of the methods explored and implemented in various states and 

countries, such as Japan and South Korea. 

SEC. 5. DEFINITIONS. 

In this Act, the following definitions apply: 

(I) ENERGY CRITICAL ELEMENT- The term 'energy critical element' means 

each of the following: 

(A) Helium. 

(B) Lithium. 

(C) Scandium. 

(D) Cobalt. 

(E) Gallium. 

(F) Germanium. 

(G) Selenium. 

(H) Yttrium. 

(I) Ruthenium. 

(J) Rhodium. 

(K) Palladium. 

(L) Silver 

(M) Indium. 

(N) Tellurium. 

(0) Lanthanum. 

(P) Rhenium. 

(Q)Osmium. 

(R) Iridium. 

(S) Platinum. 

(T) Cerium. 

(U) Praseodymium. 

(V) Neodymium. 

(W) Samarium. 

(X) Europium. 

(Y) Gadolinium. 

(Z) Terbium. 

(AA) Dysprosium. 

(BB) Ytterbium. 

(CC) Lutetium. 

(DO) Any other element designated as an energy critical element by the 

Critical and Strategic Mineral Supply Chain Subcommittee of the National 

Science and Technology Council. 

(2) USGS- The term 'USGS' means the United States Geological Survey. 

16 
19 

Chairman HARRIS. Good morning. The Subcommittee on Energy 

and Environment will come to order. 

Welcome to today’s hearing entitled ‘‘Energy Critical Elements: 

Identifying Research Needs and Strategic Priorities.’’ In front of 

you are packets containing the written testimony, biographies and 

Truth in Testimony disclosures for today’s witness panel. I now recognize myself for five minutes for an opening statement. 

Good morning, and welcome to today’s hearing. The purpose of 

this hearing is to examine the importance of and issues surrounding energy-critical elements, particularly as they relate to the 

government’s role in supporting research and development. 

Energy-critical elements are elements, including rare earths, 

which are of increasing importance to energy-related technology 

areas from high-performance magnets to photovoltaic solar cells to 

next generation batteries and fuel cells. They are also important to 

high-tech applications such as computers and cell phones and key 

defense uses such as jet engines and weapons systems. 

While energy-critical elements encompass a broader set of elements beyond just rare earths, the growing demand for rare earths 

amidst a volatile market warrants particular attention and concern. China currently produces 97 percent of the global supply of 

rare earths. This is a result of a deliberate and decades-long strategy to develop its geologic reserves, undercut market price and 

drive out competition. The strategy succeeded, and China has recently reduced export quotas and increased levies on exported rare 

earth oxides in an attempt to exploit its position and manipulate 

the market. As a result, the rare earth marketplace of the last two 

years has suffered from instability, wild price swings, and uncertain supplies. 

There are indications, however, that price spikes resulting from 

China’s behavior have triggered positive market developments. In 

light of higher prices, producers in the United States and ally nations have announced plans to develop rare earth reserves around 

the world, and companies such as Toyota and General Electric are 

pursuing demand reductions through R&D on recycling, substitute 

materials and increased use efficiencies. This led one investor analyst to conclude that ‘‘the principal customer for rare earth metals 

is a global automotive industry using rare earth permanent 

magnets. That industry will engineer this stuff out.’’ 

While a responsive market will continue to drive toward solutions, there are reasonable and proper steps the Federal Government can and should pursue in this area. I believe Representative 

Hultgren’s Energy Critical Elements Advancement Act sets forth 

the appropriate structure and direction to this end. 

For example, a national resource assessment of potential geologic 

reserves would deliver key information to the market and benefit 

both producers and consumers of energy-critical elements. With respect to R&D, focusing federal efforts in basic material science and 

chemistry related to energy-critical elements will complement private sector efforts and enable accelerated innovations. By focusing 

limited taxpayer resources on basic science research, we can secure 

the greatest return on investment, while avoiding the common 

problem of picking technology winners and losers. 
20 

I look forward to hearing from the witnesses today on these and 

other policy issues related to this important topic. 

[The prepared statement of Mr. Harris follows:] 

PREPARED STATEMENT OF CHAIRMAN ANDY HARRIS

The purpose of this hearing is to examine the importance of and issues surrounding Energy Critical Elements, particularly as they relate to the government’s 

role in supporting research and development. Energy Critical Elements are elements, including rare earths, which are of increasing importance to energy-related 

technology areas from high-performance magnets to photovoltaic solar cells to next 

generation batteries and fuel cells. They are also important to high-tech applications 

such as computers and cell phones and key defense uses such as jet engines and 

weapons systems. 

While energy critical elements encompass a broader set of elements beyond just 

rare earths, the growing demand for rare earths amidst a volatile market warrants 

particular attention and concern. 

China currently produces 97% of the global supply of rare earths. This is a result 

of a deliberate and decades-long strategy to develop its geologic reserves, undercut 

market price and drive out competition. The strategy succeeded, and China has recently reduced export quotas and increased levies on exported rare earth oxides in 

an attempt to exploit its position and manipulate the market. As a result, the rare 

earth marketplace of the last two years has suffered from instability, wild price 

swings, and uncertain supplies. 

There are indications, however, that price spikes resulting from China’s behavior 

have triggered positive market developments. In light of higher prices, producers in 

the U.S. and ally nations have announced plans to develop rare earth reserves 

around the world and companies such as Toyota and General Electric are pursuing 

demand reductions through R&D on recycling, substitute materials and increased 

use efficiencies. This led one investor analyst to conclude that, ‘‘the principal customer for rare-earth metals is a global automotive industry using rare earth permanent magnets. That industry will engineer this stuff out.’’ 

While a responsive market will continue to drive toward solutions, there are reasonable and proper steps the federal government can and should pursue in this 

area. I believe Representative Hultgren’s ‘‘Energy Critical Elements Advancement 

Act’’ sets forth the appropriate structure and direction to this end. 

For example, a national resource assessment of potential geologic reserves would 

deliver key information to the market and benefit both producers and consumers of 

energy critical elements. With respect to R&D, focusing Federal efforts in basic materials science and chemistry related to energy critical elements will complement 

private sector efforts and enable accelerated innovations. By focusing limited taxpayer resources on basic science research, we can secure the greatest return on investment, while avoiding the common problem of picking technology winners and 

losers. 

Chairman HARRIS. I yield back the balance of my time and recognize Mr. Miller for his opening statement. 

Mr. MILLER. Thank you, Mr. Chairman, and I thank you for calling this hearing. 

When the Committee first looked at shortages in rare earths in 

2010, we had hearings in the Subcommittee on Investigations and 

Oversight, which I then chaired, we were concerned because China 

had made it very clear that they would use their monopoly supply 

position to manipulate markets, to capture manufacturing jobs and 

extract excessive profit from a world that was just then discovering 

the critical nature of rare earth elements. 

We wrote a bill that established the Office of Science and Technology Policy as the center for an interagency process designed to 

establish a continuing research effort. We wanted to ensure that 

our country and our employers and our consumers would not be 

held hostage by the Chinese government’s manipulation of rare 

earth markets. The Department of Energy was also an important 

part of the response with responsibilities for research and for pro-
21 

ducing a new generation of experts who could contribute to work 

in this area. 

That bill was introduced by my then-Vice Chair, Kathy 

Dahlkemper from Pennsylvania. It was marked up in Committee. 

It was passed by the House with 332 votes, obviously a bipartisan 

vote. And in this Congress, I have introduced that bill again, the 

bill introduced by Kathy Dahlkemper, with minor changes, and I 

hope that the Committee can take this matter up and consider that 

bill as well as Mr. Hultgren’s and we can move forward in time for 

Senate action. 

As I said, I am not the only member with a bill in this Congress 

or even on this Committee. My colleague, our colleague from Illinois, Mr. Hultgren, also has a bill, and there are some broad areas 

of agreement between us. We both put DOE at the center of a research effort. His bill is stronger than mine in its definition of critical materials and I prefer his language on that point. But my bill 

has some advantages as well, for example, its assignment of interagency responsibility to OSTP. I strongly believe that we would 

work out a compromise bill on an issue that affects every American 

and does not appear to straddle any of the many partisan fault 

lines in American politics. Surely neither party would want our 

leading frenemy to have a stranglehold on materials critical to our 

national security and to our economy. 

I am glad that we are having this hearing, but I am surprised 

it has taken so long. 

If we don’t act, it may not matter in the short run. The Obama 

Administration deserves credit for quick and effective steps to establish an interagency planning and coordination process. They 

have also asked the Department of Energy to look aggressively at 

steps it can take to spur research and support emerging American 

supplies of critical materials. I am confident that the President, Dr. 

Holdren, and Secretary Chu are doing all they can in this area. 

But my concern is what happens moving forward. Our government is sometimes quite good at responding to a sudden crisis. 

What we need is an ability to keep watch on critical materials, anticipate problems and create policies that head off rather than respond to a crisis only after it is upon us. I think that both Mr. 

Hultgren and I agree on this, though we structure the authorities 

for standing watch somewhat differently. 

And there is ample evidence of market failure here. The argument that the market is working is based on the fact that prices 

for various rare earths have dropped, but we have seen that before. 

In the 1990s, prices dropped because the Chinese government was 

controlling its production and setting global prices to drive competitors, and the price rose because the Chinese government began to 

exploit the monopoly it had gained by pricing out competitors and 

then immediately drove prices up and used that stranglehold on 

supplies to coerce manufacturers who needed the materials to set 

up their manufacturing in China. 

Even if current price drops were not mainly the result of a global 

recession, there is no reason to think that if we are not smart 

about how we support those industries, the Chinese government 

won’t just make the same moves all over again. To believe that 

markets can work, when the greatest player in a particular indus-
22 

try is a hybrid Communist-capitalist state, a mixture of command 

and a market economy, is to cling to ideology in the face of ample 

evidence that it just ain’t so. 

I hope we can all work together to move a bill in this area. This 

Committee now has no bills that have been passed the House. Zero. 

None. And for this Committee, that is unprecedented. I encourage 

the majority to consider working on a bipartisan bill on critical materials as a strong candidate for markup and for being the first bill 

that this Committee gets passed by the House. 

I yield back the balance of my time. 

[The prepared statement of Mr. Miller follows:] 

PREPARED STATEMENT OF RANKING MEMBER BRAD MILLER

I want to thank the Chairman for calling this hearing. When the Committee first 

looked at shortages in rare earths in 2010 we were concerned because China had 

made it plain that they would use their monopoly supply position to manipulate 

markets, capture manufacturing jobs and extract excessive profit from a world that 

was newly discovering the critical nature of rare earth elements. 

We wrote a bill that established the Office of Science and Technology Policy as 

the center of an interagency process designed to establish a continuing research effort. We wanted to ensure that our country and our employers and our consumers 

could not be held hostage by the Chinese government’s manipulation of markets. 

The Department of Energy was also an important part of the response with responsibilities for research and for producing a new generation of experts who could contribute to work in this area. 

That bill, introduced by my then-Vice Chair, Kathy Dahlkemper, was marked up 

in Committee and passed by the House with 332 bipartisan votes in support. In this 

Congress, I have introduced that bill again, with minor changes, and I hope that 

the Committee can take this matter up and move it forward again in time for Senate action. 

I am not the only Member with a bill in this Congress or even on this Committee. 

My colleague from Illinois, Mr. Hultgren, also has a bill. There are some broad 

areas of agreement between us. We both put DOE at the center of a research effort. 

His bill is stronger than mine in its definition of critical materials and I prefer his 

language on that. However, my bill has some advantages, for example, in its assignment of interagency responsibility to OSTP. I strongly believe that we could work 

out a compromise bill on an issue that affects every American and does not appear 

to straddle any of the many partisan fault lines in American politics. Surely neither 

party would allow our leading frenemy to have a stranglehold on materials critical 

to our national security and to our economy. I am glad we are having this hearing, 

but I am surprised it has been so long in coming. 

If we don’t act, it may not matter in the short run. The Obama Administration 

deserves credit for the quick and effective steps it has taken for establishing an 

interagency planning and coordination process. They have also asked the Department of Energy to look aggressively at steps it can take to spur research and support emerging American supplies of critical materials. I am confident that the President, Dr. Holdren, and Secretary Chu are doing all they can in this area. 

However, my concern is what happens going forward. Our government is sometimes quite good at responding to a sudden crisis. What we need is an ability to 

keep watch on critical materials, anticipate problems and create policies that head 

those off rather than respond to a crisis only after it is upon us. I think that both 

Mr. Hultgren and I agree on this, though we structure the authorities for standing 

watch somewhat differently. 

And there is ample evidence of market failure here. The argument that the market is working is based on the fact that prices for several rare earths have dropped. 

Of course we have seen prices drop before. In the 1990s the prices dropped because 

the Chinese government was controlling its production and setting global prices in 

such a way as to drive competitors out of business. And then the price rose because 

the Chinese government began to exploit its monopoly position to drive prices up 

and use its strangle-hold on supplies to coerce manufacturers who needed these resources to set up their manufacturing in China. 

Even if the current price drops were not mainly the result of the global recession, 

there is no reason to think that if we are not smart about how we support these 

industries the Chinese government won’t just make the same moves all over again. 
23 

To believe that markets can work, when the biggest player in a particular industry 

is a hybrid Communist-capitalist state, is to cling to ideology in the face of ample 

evidence that it just ain’t so. 

I hope we can all work together to move a bill in this area. I would just close 

by noting that this Committee currently has zero bills that have been passed by the 

House. Zero. None. For this Committee, that is unprecedented for the first session 

of a Congress, at least going back to Chairman Roe. I would encourage the Majority 

to consider a bipartisan bill on critical materials as a strong first candidate for 

markup and passage on the floor of the House. 

Chairman HARRIS. Thank you very much, Mr. Miller, and I assure you that in the tradition of the Science Committee that we 

look forward to working with you and the minority on crafting a 

bipartisan deal to deal with this very important issue. 

If there are members who wish to submit additional opening 

statements, your statements will be added to the record at this 

point. 

At this time I would like to introduce our witness panel. Our 

first witness today is the Hon. David Sandalow, Assistant Secretary for Policy and International Affairs for the Department of 

Energy. Prior to being confirmed as Assistant Secretary, he was an 

Energy and Environment Scholar and a Senior Fellow in the Foreign Policy Studies Program of the Brookings Institution as well as 

the Energy and Climate Change Working Group Chair at the Clinton Global Initiative. 

Our next witness is Dr. Derek Scissors, Research Fellow at the 

Heritage Foundation. Dr. Scissors is also an Adjunct Professor at 

George Washington University, where he teaches a course on the 

Chinese economy. Before joining Heritage in August 2008, Dr. Scissors was an Economist at Intelligence Research with a specialty in 

Chinese economics. 

Our third witness today is Dr. Robert Jaffe, Jane and Otto 

Morningstar Professor of Physics at the Massachusetts Institute of 

Technology. He is a fellow of the American Association for the Advancement of Science and the American Physical Society, where he 

chairs the energy and environment subcommittee of the APS Panel 

on Public Affairs. In 2010 to 2011, Professor Jaffe chaired a study, 

‘‘Energy Critical Elements: Securing Materials for Emerging Technologies,’’ jointly sponsored by the APS and the Materials Research 

Society. 

Our fourth witness is Dr. Karl Gschneidner, Senior Materials 

Scientist at Ames National Laboratory. He is considered the 

world’s foremost authority of rare earth science, technology, application and utilization. He has published over 488 papers in peerreviewed journals, holds 15 patents, and given 303 invited presentations. 

Our final witness today is Mr. Luka Erceg, President and CEO 

of Simbol Materials. Prior to founding Simbol Materials, Mr. Erceg 

worked in the oil and gas industry. He brings 12 years of transaction advisory experience, predominantly in the energy and energy technology sectors. 

Thank you all for appearing before the Subcommittee today. As 

our witnesses should know, spoken testimony is limited to five minutes each after which the members of the Committee will have five 

minutes each to ask questions. 
24 

I now recognize our first witness, the Hon. David Sandalow, Assistant Secretary for Policy and International Affairs at the Department of Energy. 

STATEMENT OF HON. DAVID SANDALOW, 

ASSISTANT SECRETARY FOR POLICY AND 

INTERNATIONAL AFFAIRS, DEPARTMENT OF ENERGY 

Hon. SANDALOW. Thank you very much, Mr. Chairman. Thank 

you, Ranking Member Miller and members of the Subcommittee. I 

appreciate the opportunity to testify today. I would like to take the 

opportunity to speak about critical materials and the work that the 

Department of Energy is doing on this topic. 

Earlier this year, I visited the Mountain Pass Mine in southern 

California. I was impressed by the facility and its potential to provide a domestic source of rare earth metals. According to the mine’s 

owners, the mine will have a production capacity of about 19,000 

tons of rare earths by the end of 2012 and 40,000 tons by early 

2014 using modern technologies at a globally competitive cost. That 

is an important step in the right direction. 

Now, the issue of critical materials is important and needs priority attention in the months and years ahead. The Department of 

Energy shares the goal of establishing a stable, sustainable and domestic supply of critical minerals, and we look forward to discussions with the Congress on ways to address this issue as we move 

forward. 

Last year, the Department of Energy released its first Critical 

Materials Strategy. The report found that four clean energy technologies—wind turbines, electric vehicles, photovoltaic cells and 

fluorescent lighting—use materials at risk of supply disruptions in 

the next five years. In the report, five rare earth elements—dysprosium, neodymium, terbium, europium and yttrium—as well as indium, were assessed as most critical in the short term, and for this 

purpose, criticality was a measure that combined importance to the 

clean energy economy and the risk of supply disruption. 

Now, our 2010 Critical Materials Strategy highlighted three pillars to address the challenges associated with critical materials in 

the clean energy economy. First, substitutes must be developed. 

Second, recycling, reuse and more efficient use can significantly 

lower global demand. And third, diversified global supply chains 

are essential, and within diversified global supply chains, domestic 

sources are the most important. 

With all three of these approaches, we must consider all stages 

of the supply chain from environmentally sound material extraction 

to purification and processing, the manufacture of chemicals and 

components, and ultimately end uses. 

Now, DOE’s research and development with respect to critical 

materials aligns with these three pillars of our strategy. In the 

past year, the department has increased its R&D investment in 

magnet, motor and generator substitutes focused on reducing the 

rare earth usage in these applications. 

In September of this year, the department’s Advanced Research 

Projects Agency for Energy, known as ARPA–E, announced funding 

in a 36-month program for 14 early-stage technology alternatives 

that reduce or eliminate the dependence on rare earth materials by 
25 

developing substitutes in two key areas: electric vehicle motors and 

wind-generators. DOE’s Vehicle Technologies and wind energy programs have also issued relevant funding opportunity announcements this year. 

These activities build on DOE’s longstanding expertise on these 

topics. For example, our Office of Basic Energy Sciences has funded 

research at Ames Laboratory on the production of high-quality rare 

earth magnets, magnetic technology, synthesis technologies and 

superconductors for many years. 

Now, an important point: R&D is also an excellent route toward 

developing the next generation of human capital and technical 

knowledge required for a sustainable rare earth supply chain. To 

succeed in the global marketplace, we need to develop not only our 

mines but also our minds. 

Developing expertise in these areas depends in part on private 

and public sector research support. The research programs supported by DOE and other organizations provide valuable opportunities for post-docs, for graduate students, for mid-career scientists 

and more. 

This month, DOE will issue its 2011 Critical Materials Strategy. 

In that report, DOE will update its analysis in light of rapidly 

changing market conditions. DOE will also report on the results of 

our analysis on rare earth elements in petroleum refineries and 

other applications not addressed in last year’s report. Our 2011 

Critical Materials Strategy will include updated criticality assessments and market analyses to assist in addressing critical materials challenges, and it will also include the R&D plan that we 

have discussed. 

Now, I want to stress that DOE’s work is closely coordinated 

with other federal agencies and, as mentioned, the White House 

Office of Science and Technology Policy leads an interagency effort 

on critical materials within the Administration. The Administration is currently reviewing H.R. 2090, and DOE has no comments 

on the specific content of this bill at this time but we share the 

goal of improving assessments and supporting a research agenda 

for materials critical to our future energy economy, and we look 

forward to discussing with Congress ways to address any issues as 

we move forward. 

Thank you. 

[The prepared statement of Mr. Sandalow follows:] 

PREPARED STATEMENT OF THE HON. DAVID SANDALOW, ASSISTANT SECRETARY FOR

POLICY AND INTERNATIONAL AFFAIRS, DEPARTMENT OF ENERGY

Chairman Harris, Ranking Member Miller, and Members of the Subcommittee, 

thank you for the opportunity to testify today. The Administration is currently reviewing H.R. 2090 and has no specific comments on it at this time, but I would like 

to take this opportunity to speak about the critical minerals that underpin the transition to a clean energy economy and the Department of Energy’s (DOE) ongoing 

work on this topic. 

Earlier this year I visited the Mountain Pass Mine in southern California. I was 

impressed by the facility and its potential to provide a domestic source of rare earth 

metals. According to the owners, the mine will have a production capacity of about 

19,000 tons of rare earths by end of 2012 and 40,000 tons by early 2014, using modern technologies at a globally competitive cost. That’s an important step in the right 

direction. 

The issue of critical minerals is important and needs priority attention in the 

months and years ahead. The Department shares the goal of establishing a stable, 
26 

sustainable and domestic supply of critical minerals, and we look forward to discussions with the Congress on ways to address this issue as we move forward. 

GLOBAL CLEAN ENERGY ECONOMY 

The world is on the cusp of a clean energy revolution. Here in the United States, 

we are making historic investments in clean energy. The American Recovery and 

Reinvestment Act was the largest one-time investment in clean energy in our nation’s history—more than $90 billion. At DOE, we’re investing $35 billion in Recovery funds in electric vehicles; batteries and advanced energy storage; a smarter and 

more reliable electric grid; and wind and solar technologies, among many other 

areas. We are aiming to double our renewable energy generation and manufacturing 

capacities from 2008 to 2012. We are working to deploy hundreds of thousands of 

electric vehicles and charging infrastructure to power them, weatherize a million 

homes, and help modernize our grid. 

Other countries are also seizing this opportunity, and the market for clean energy technologies is growing rapidly all over the world. For example, over $50 billion was 

invested in China in clean energy last year. They are launching programs to deploy 

electric cars in over 25 major cities; connecting urban centers with high-speed rail; 

and building huge wind farms, ultrasupercritical advanced coal plants and ultrahigh-voltage long-distance transmission lines. India has launched an ambitious National Solar Mission, with the goal of reaching 20 gigawatts of installed solar capacity by 2020. And Japan is introducing feed-in tariffs to support the scale-up of electricity from renewable sources. 

In Europe, strong public policies are driving sustained investments in clean en- ergy. Denmark earns more than $10 billion each year in the wind energy sector. 

Germany and Italy are the world’s top installers of solar photovoltaic panels, accounting for nearly three-quarters of a technologies are growing, helping create jobs, 

promote economic growth and fight climate change. These technologies will be a key 

part of the transition to a clean energy future and a pillar of global economic 

growth. 

DOE STRATEGY 

Last year, DOE released its first Critical Materials Strategy. The report found 

that four clean energy technologies—wind turbines, electric vehicles, photovoltaic 

cells and fluorescent lighting—use materials at risk of supply disruptions in the 

next five years. In the report, five rare earth elements (dysprosium, neodymium, terbium, europium and yttrium), as well as indium, were assessed as most critical in 

the short term. For this purpose, ‘‘criticality’’ was a measure that combined importance to the clean energy economy and the risk of supply disruption. 

The 2010 Critical Materials Strategy highlighted three pillars to address the challenges associated with critical materials in the clean energy economy. First, substitutes must be developed. Research and entrepreneurial activity leading to material and technology substitutes improves flexibility to meet the material demands 

of the clean energy economy. Second, recycling, reuse and more efficient use can significantly lower global demand for newly extracted materials. Research into recycling processes coupled with well-designed policies will help make recycling economically viable over time. Finally, diversified global supply chains are essential. To 

manage supply risk, multiple sources of material are required. This means encouraging other nations to expedite alternative supplies and exploring other potential 

sources of material in addition to facilitating environmentally sound extraction and 

processing here in the chain: from environmentally-sound material extraction to purification and processing, the manufacture of chemicals and components, and ultimately end uses. 

DOE’s research and development (R&D) with respect to critical materials is 

aligned to the three pillars of the DOE strategy: diversifying supply, developing substitutes and improving recycling. R&D is not the primary mechanism to encourage 

supply diversification. However, environmentally sound separation and processing 

innovations will require research and development. R&D plays a more central role 

in developing substitutes, which represents a large share of the current critical materials R&D portfolio. R&D challenges can also help to improve recycling and reuse. 

Across the three pillars, there is also the need for fundamental research—developing 

the modeling, measurement and characterization capability that is the basis for future innovations. Systems level engineering approaches—which would help inform 

R&D priorities apply throughout the supply chain. As DOE is ramping up its work 

in this area, critical materials R&D is integrated with other research objectives that 

are focused on clean-energy technologies or fundamentals. DOE’s R&D plan is informing an interagency R&D roadmapping effort led by OSTP. 
27 

In the past year, the Department has increased its R&D investment in magnet, 

motor and generator substitutes, focused on reducing the rare earth usage in these 

applications. In September of this year, the Department’s Advanced Research 

Projects Agency—Energy (ARPA-E) announced funding in a 36-month program for 

14 early-stage technology alternatives that reduce or eliminate the dependence on 

rare earth materials by developing substitutes in two Energy Programs have also 

issued relevant Funding Opportunity Announcements this year. 

In batteries and photovoltaic materials, DOE has historically supported broad 

technology portfolios including those that incorporate abundant materials. Investments in these core competency areas have continued. This diversity of materials 

makes over-reliance on particular materials less likely. 

Moving forward, additional R&D opportunities are present in: separations and 

processing; substitution for critical materials in phosphors for lighting; and recycling. DOE is already taking the first steps in this direction. The FY 2012 DOE 

Small Business Innovation Research (SBIR) solicitation has several topics relevant 

to Rare Earth Elements (REE)—specifically improving separation and processing. 

Anticipated R&D could support the first steps toward improving separation and 

processing technologies. 

These activities build on DOE’s longstanding expertise on these topics. For example, the Office of Basic Energy Sciences (BES) has funded research at Ames Laboratory on the production of high quality rare earth magnets, magnetic technologies, 

synthesis technologies and superconductors for a number of years. The Office of Energy Efficiency and Renewable Energy (EERE) has funded several projects at Ames 

Laboratory and Oak Ridge National Laboratory addressing alternate magnet and 

motor designs. 

R&D is also an excellent route toward developing the next generation of human 

capital and technical knowledge required for a sustainable rare earth supply chain. 

Developing expertise in these areas depends, in part, on private-and public-sector 

research support. The research programs supported by DOE and other organizations 

provide valuable opportunities for post-doctoral researchers and graduate students. 

They can also incentivize mid-career scientists in related disciplines to develop research programs which are relevant to critical materials. R&D funding not only supports innovation in clean energy technology, it also enables the development of the 

next generation of scientists and engineers. 

DOE will issue its 2011 Critical Materials Strategy this month. In that report, 

DOE will update its analysis in light of rapidly-changing market conditions. DOE 

will also report on the results of our analysis on rare earth elements in petroleum 

refineries and other applications not addressed in last year’s report. The 2011 Critical Materials Strategy will include updated criticality assessments and market 

analyses to assist in addressing critical materials challenges. It will also include the 

R&D plan described above. 

In support of this year’s analysis, DOE issued a Request for Information that focused on critical material content of certain technologies, supply chains, research, 

education and workforce training, emerging technologies, recycling opportunities, 

and mine permitting. We received nearly 500 pages of responses from 30 organizations, including manufacturers, miners, universities, and national laboratories. 

Many organizations shared proprietary data on material usage that will help us develop a clearer picture of current and future market conditions. 

Managing supply chain risks is by no means simple. At DOE, we focus on the research and development angle. From our perspective, we must think broadly about 

addressing the supply chain in our R&D investments, from extraction of materials 

through product manufacture and eventual recycling. It is also important to think 

about multiple technology options, rather than picking winners and losers. We work 

with other Federal agencies to address other issues, such as trade, labor and workforce, and environmental impacts. The White House Office of Science and Technology Policy has been convening an interagency effort on critical materials and 

their supply chains. 

The Administration is currently reviewing H.R. 2090, and the DOE has no comments on the specific content of this bill at this time. We share the goal of improving assessments and supporting a research agenda for materials critical to our future energy economy. We look forward to discussions with the Congress on ways to 

address any issues as we move forward. 

CONCLUSION 

One lesson we have learned through experience is that supply constraints aren’t 

static. As a society, we have dealt with these types of issues before, mainly through 

smart policy and R&D investments that reinforced efficient market mechanisms. We 
28 

can and will do so again. Strategies for addressing shortages of strategic resources 

are available, if we act wisely. Not every one of these strategies will work every 

time. But taken together, they offer a set of approaches we should consider, as appropriate, whenever potential shortages of natural resources loom on the horizon. 

So in conclusion, there’s no reason to panic but every reason to be smart and serious as we plan for growing global demand for products that contain critical minerals. The United States intends to be a world leader in clean energy technologies. 

Toward that end, we are shaping the policies and approaches to help prevent disruptions in supply of the materials needed for those technologies. This will involve 

careful and collaborative policy development. We will rely on the creative genius and 

entrepreneurial ingenuity of the business community to meet an emerging market 

demand in a competitive fashion. With focused attention, working together we can 

meet these challenges. 

Chairman HARRIS. Thank you very much. 

I now recognize our second witness, Dr. Derek Scissors from the 

Heritage Foundation. 

STATEMENT OF DR. DEREK SCISSORS, RESEARCH FELLOW, 

HERITAGE FOUNDATION 

Dr. SCISSORS. Thank you, Mr. Chairman, and thanks to the Committee for this opportunity. I want to especially thank the ranking 

member, Mr. Miller, because I am now going to skip my whole introduction and toss out my presentation because he has quite correctly gone to what for me is the heart of the matter, which is how 

this market works. Congressman Miller and I have points of agreement, and we have points of sharp disagreement, and I think it 

would be useful for the Committee to hear those. 

The points of agreement—the Congressman is absolutely right 

that short-term price movements are not what we should be looking at. Prices are going up, prices are going down. That should not 

be driving our decision making. This is a long-term issue. I would 

actually extend that and say that government intervention on the 

basis of short-term price movements is also a terrible idea. So 

when the Committee hears about how prices are spiking and we 

must do something, that is not a good argument, just like when 

prices are dropping, it is not like, ‘‘okay, everything is fine, we 

don’t have to do anything anymore.’’ That is not what we should 

be evaluating. 

I have completely thrown out my presentation, so pardon me for 

winging it here, but it is the ranking member’s fault for jumping 

ahead in where I was going to go. 

To get to his point, it is not that we trust the Chinese. I am 

going to talk a little bit about Chinese behavior in a second. It is 

that markets work on their own when new firms can enter. We are 

not trusting the Chinese, we are trusting the new firms that have 

come in in response to higher prices. We are not trusting the Chinese, we are trusting market clearing. Higher prices cause demand 

conservation. They cause substitution of other elements. They 

cause expansion of existing production. That is what we are trusting. 

Mr. Miller is exactly right about Chinese predatory behavior. The 

market was created in a sense, not created, but it was radically altered by Chinese undercutting prices, making everything rare 

earth cheaper, but simultaneously driving everyone out of the market. They then discovered right after they drove everyone out of the 

market that there is an ecological problem here and so we can’t ex-
29 

port as much as we used to. This is just predation. There is no 

question about it. So there is no disagreement that the Chinese are 

predatory pricers in rare earths. The disagreement is, their market 

power is temporary. The chairman quoted 97 percent of rare earth 

production being Chinese. That number is probably closer to 90 

now and it is dropping, and it is dropping for two reasons. One, the 

Chinese are restricting their own output because they want to 

charge everyone more money but also we are slowly getting more 

production from everywhere else, and the market is anticipating 

more production so that is what is driving prices down. 

On fundamentals, we have an issue here of where rare earths 

and ECEs are located. It is a rapidly changing market. You have 

to do a lot of survey work, which is exactly something Congress 

should mandate. But we know that Chinese holdings of rare earth 

deposits are far below their production level. That is unsustainable. 

You can’t produce more than you have for an extended period. So 

we know the Chinese market position is unsustainable. We know 

it is going to erode just on basics. 

Now, that is the situation in the market. What should the government do? I am going to start with what the government should 

not do. The market is working fine. We are getting substitute and 

demand. We are getting expansion and supply, exactly what we 

want. That makes subsidies, government interference immediately 

a bad idea. Loan guarantees are a bad idea too. Loan guarantees 

cost the government less. That is important. But the point is, they 

alter market conditions. They bias the technology path. They pick 

out firms that shouldn’t be picked out except by competition. So the 

difference between subsidies and loan guarantees is cost, which 

matters, but the interference in the market is the same. 

And now I am going to play my role as a Heritage Foundation 

market fundamentalist and say that even applied research can be 

subsidy. If applied research picks out a particular firm or picks out 

a particular technology, it is acting as a subsidy. That compromises 

technological dynamism and it compromises efficiency. 

So what should the government do? First, there is basic research 

that the private sector cannot do at present. The government 

should support that. Second, and I think all the bills do this and 

they are quite correct, it is a crucial role for the government to provide information, especially in a rapidly changing market where 

some of the information is not available to private firms. Private 

firms can’t just go survey global rare earth and ECE deposits 

around the world. The U.S. Government has to do this, and here 

is another point where Mr. Miller and I agree. This is a long-term 

process. We don’t need one survey. We need a long-term process 

where the government is providing needed information to market 

participants in a reliable and consistent fashion down the road so 

they know what is coming and they can operate accordingly. And 

the third thing the government might do is beyond my area of expertise but I will just throw it out there. Because this market is 

working properly, extending the market will bring a commercial return. That involves opening federal land to ECE exploration. I 

know there are many factors. I am not arguing for that. I am just 

saying it will bring a commercial return to do so, and the Committee will have to decide on those other factors. 
30 

Finally, I have a closing point to make. Thirty-five years ago, the 

supply of strategic minerals was threatened by conflict in southern 

Africa and apparent monopolization by a non-market economy, the 

Soviet Union. The private sector created rare earths as the response. When you are touting the importance of rare earths, you 

are touting the importance of private sector innovation. Now, as 

then, the market worked and we should let it work again. I am 

sorry for going ten seconds over. 

[The prepared statement of Dr. Scissors follows:] 
31 

PREPARED STATEMENT OF DR. DEREK SCISSORS, RESEARCH FELLOW, HERITAGE

FOUNDATION
32 

On the supply side, higher prices have encouraged new producers to enter the market and 

existing suppliers to expand. In the U.S. and elsewhere, new firms have been created, existing 

ECE firms have mushroomed in size, and new deposits have been discovered, as one would 

expect with the greater incentive to explore.4 The market response has progressed to the point 

where transnational alliances have been struck between established consumers and nascent 

producers, as in Molycorp's agreement in late November with Japan's Daido Steel and 

Mitsubishi.5 

It is not that a great deal of new physical supply has become available; that process has only 

started. In the same way, inadequate supply actually caused only some of the prior price 

explosion. Prices have been moving in large part in response to anticipation of future shortages, 

previously skyrocketing in anticipation of durable future shortage but correcting as the shortfall 

now seems less acute. 

Falling prices are the inevitable result of the demand destruction and new incentives in supply. 

By August, the prices of all REEs had begun to drop,6 a decline that has persisted through the 

end of November and brought costs down about one-third from their peak. This should have 

been no surprise: If permitted, markets naturally correct. 

Beyond the general downward trend, snapshots of the market are not very informative. Not only 

have REE prices been changing rapidly, but trading in some elements is not sufficiently 

developed to generate reliable estimates. Among those that are more heavily traded, Cerium has 

dropped over 40 percent in the past three months, while the decline for Samarium started later 

and has been smaller through the end of November. 7 This variation is natural due to differing 

supply (some REEs are not actually rare) and differing demand, especially between heavy and 

light elements. 

The trend of broadly declining prices will continue until further supply expansion, recycling, 

conservation, and substitution are no longer commercially appealing. When that happens is less 

Could Halve as Hybrid Makers Find Alternatives." Mining.com, September 29. 20 II. at 

httr://wu1t'.mining.com/2011/09J29/m·ice-of-ahundan'-rare~earths-c01I1d-halve-as-hl'hrid-makers-find-alternativesl 

(December 2, 2011). 

4 "Lynas Raises 170m in Capital Raising," Associated Press, October 28, 2009, at 

http://metalsplace.com/news/articles/30854/Ivnas-raises-l70m-in-capital-raising! (October 31, 2011); Press release, 

"USMMA Welcomes New Member Companies Texas Rare Earth Resources and Stans Energy," Business Wire, 

July 19,2001, at http://wwH..businesslVire.comlneH.slhomel20110719006647IenIUSMMA-Welcomes-MemberCompanies-Texas-Rare-Earth (October 31, 2011); and Daniel Grushkin, "Alaska's Billion Dollar Mountain," 

Bloomberg Businessweek, October 27, 201l, at httr://H'11'w.busim!sslveek.com/magadne/alaskas-billiol1-dollarmOlintain-10272011.html (October 31,2011). 

5 Dorothy Kosich, "Molycorp, Daido, Mitsubishi Form Next Generation Rare Earth Magnets JV," Mineweb, 

November 29, 2011, at 

http://,,,,w.minell·eb.comlmineweh/viewlmineweblenlpar:e72102?()id~14()588&sn~Detail&l'id~ 1 02055 (December 

2,2011). 

6 Yu Xi, "Prices of Rare-earth Metals Drop in July," Global Times, July 7, 2011, at 

http://wlvw.globaltimes.cn/NEWS/tabid/99/lD/665156/Prices-o(..rare-earth-metals-drop-in-Jlllv.aspx (October 31, 

2011). 

7 "Cerium Metal Prices, News, and Information," Metal-Pages, December 1, 2011, at http://ll.11'l1'.metalvages.comlmetalslceriumlmetal-prices-news-infimnationl (December 2, 2011). 
33 

important than the fact that it ultimately should happen: ECE prices should rise when market 

forces drive them in that direction. Without scarcity and high prices, responsive research and 

innovation will not occur and technological stagnation will ensue, perpetuating the very 

conditions that prompted concerns over ECEs. 

Are ECEs Different? 

In this way, government intervention is typically self-defeating. It prevents the market from 

clearing away problems used to justity intervention in the first place (for example, the temporary 

lack of substitutes for scarce REEs). There are, of course, those who believe the government 

should act whenever prices are high or low-in natural resources, houses, farm goods, health 

care, stocks, and so on. The outcome is always that the vast majority end up subsidizing a very 

small group. 

In addition, there are more sophisticated claims that market principles should not apply to ECEs, 

as they are thought to be exceptional. These claims do not stand up well to scrutiny. 

Certain ECEs are important to the U.S. military, but most are not. Further, within the group that 

is important, some materials have long life cycles and no supply shortage is anticipated.8 It is 

misleading to insist that an assured supply of ECEs is vital for national security without 

demonstrating shortfalls that rely both on known resources and on specific forecasts of military 

demand. Otherwise, the potential national security importance of a small subset of ECEs will be 

used to justity much broader, harmful government interference. 

The other feature of ECEs, and REEs in particular, often cited to support government action is 

Chinese supply dominance. This dominance is not important in American trade figures. Raw and 

refined REEs do not fit seamlessly into existing trade categories, but the U.S. spent at most $1.4 

billion on their import in 2010 (fish imports from China were almost $2 billion).9 At that level, 

the cost of imported REEs cannot be important either in the defense budget or in commercial 

energy. 

In terms of production, China is said to account for more than 90 percent of REEs, though this 

figure may now be declining. The reason for a possible decline is also a reason for worry: The 

Chinese government and its state-owned enterprises have consistently behaved in predatory 

fashion with respect to REEs. The first phase of this behavior was actually sharp reductions in 

prices that drove competitors out of business. 10 This occurred for most of the past decade and 

gave China its leading position. 

8 B. R. Arvidson, "The Many Uses of Rare-Earth Magnetic Separators for Heavy Mineral Sands Processing," 

International Heavy Minerals Conference, June 2001, at 

http://H'WW.0lItokumputeci1nologr.com/filesITecl1no/ogyIDocuments/Phrsical%20Separation/TecJmical%20Papcl's/ 

ManyusesotREBA. pdt{October31, 2011), and Jack Lifton, "Heavy Rare Earths In America, Crystal Balls & Brass 

Balls," Technology Metals Research, August 4, 2011, at http://11'ltOl'.techmeta/sl'csearchcom/2011/08/heGly-rareearths-in-america-Clystal-balls-brass-balls! (October 31, 2011). 

9 U.S. Census Bureau, "U.S. International Trade Statistics," at http://censlats.census.gol'!naic36!naics36.shlll1l 

(December 2, 2011). 

to Jack Dini, "China's Monopoly on Rare Earth Metals," Canada Free Press, October 30, 2011, at 

httV:!/wWlV.canadafi'ecpress, com!il1dex. nhl'!arlic/eI41856 (December 2, 2011). 
34 

When Beijing stopped undercutting the market, prices rose sharply and the global hunt for 

alternatives began, which is now bringing prices down. China's response to the ongoing price 

decline has been to cut supply further. l

! This has reintroduced some fear of shortage but is also a 

further spur to global market development. Indeed, the PRC has been cutting supply to no avail 

throughout the period during which prices have been dropping. Chinese production dominance in 

REEs is unfortunate, but it is also unstable. 

The PRC's share of reserves is also unstable. While the viability of deposits varies with market 

prices, the U.S. Geological Survey claims that China has over one-third of known REE reserves. 

The share falls when all ECEs are considered and, even for REEs, will fall as exploration 

continues. 12 As with all other mineral resources when prices rise, there are likely vast sources of 

ECEs yet to be discovered. If prices remain high, and with them the incentive to explore, the size 

and distribution of known reserves will change considerably.13 

An aspect of the functioning of markets that is often omitted in discussing ECEs, therefore, is 

that Chinese dominance can last only as long as Beijing is willing to sell REEs at below-market 

prices. Because alternative suppliers can freely enter when prices are high, the market can adjust 

to any Chinese predation. 

Further, REEs will not always be as important as they are seen to be now. The uses ofREEs are 

not timeless; they arose in the 1970s from a private-sector response to unreliable supply of 

strategic minerals from southern Africa. 14 Nor was the prominence ofREEs anticipated: Some 

environmentalists who opposed Molycorp's mine a decade ago now call for REE subsidies for 

environmental equipment. China's price cuts actually spurred mass use ofREEs and many 

assume REEs will grow further in importance. But if conditions are reversed so that prices are 

high and it is REE supply that is unreliable, other ECEs will again arise as substitutes. 

What To Do ••• 

In light of these facts, the House must first decide the extent of any true national interest that 

might justify government intervention. Examining market developments and the nature of ECEs 

show no broad national-interest justification right now (although there may be a national interest 

11 Shivom Seth, "More Rare Earth Companies in China Suspending Production as Prices Slide," Mineweb.com, 

October 27, 2011, at 

http://www.mineweb.com/mineweb/view/mineweb!en/page7 21 02?oid~ 138362&sn~ Detail&pid= 1 02055 (November 

30,2011), and "Baotou Rare Earth Shares Plunge After Decision to Halt Production," Xinhuanet, October 19, 2011, 

at http://news.xinhuanet.com!english2010IchinaI2011-JOI19lcI31200285.htm (November 30, 201/). 

12 U.S. Geologieal Survey, "Mineral Commodity Summaries," January 2011, at 

http://minerals.usgs.gol'imineralslpuhs!commoditvlrare earthslmcs-20J l-raree.pdf(October 31,2011). 

13 Geology.com, "REE: Rare Earth Elements and Their Uses," at http://geo!ogy.com/articles/rare-earth-e!ements/ 

(March 18,2011); Abhishek Shah, "Toshiba Leads Japanese Search for Rare Earth in Mongolia, Kazakhstan and 

Uranium Processing," GreenWorldlnvestor.com, November 29, 2010, at 

http://greeml'Orldim'estor.comI20JO// JI29Itoshiba-!eads-japanese-search-for-rare-earth-in-!I1oJ1goliaka=akhstanand-uranium-rrocessinr:! (December 2, 20 II). 

14 Aaron Sichel, "The Story of Neodymium: Motors, Materials, and the Search for Supply Security," Chorus Motors, 

Autumn 2008, at hltp:!lwww.cilorliscars.comICho11ls NED WhitePaper.l'd(December 2,2011). 
35 

concerning a small subset of ECEs used by the military). The ensuing question is whether future 

government intervention might be justified. 

In seeking to address this question, the House has multiple options, ranging from research to 

recycling to retread industrial policy. When the market is working properly, as it is now, the 

most helpful government policy is to extend the size of the market through deregulation. An 

obvious way to inhibit Chinese or any other monopoly position in ECEs is for the U.S. to make 

more of its own resources available. To this end, modifications of federal restrictions on land use 

should be studied. 

A second core government role is information provision. Pursuant to the committee's instruction 

to testifY regarding H.R. 2090, The Energy Critical Advancement Act of 2011, the resolution 

correctly acts to fulfill this role. One clear government responsibility is to ensure that U.S. 

military equipment demand is not affected by surprise ECE market shifts, and information 

relevant to these specific requirements should be compiled on a regular basis. 

In energy, the dynamic exploration and production processes in REEs in particular are altering 

the distribution of American and global production and reserves. This information is very 

difficult for a private actor to compile and update, making it a government responsibility to do 

so, one rightly taken up in H.R. 2090. A number of other proposals also do this, offering 

different mechanisms and different priorities. 

Beyond information provision, government can be involved in basic research, as H.R. 2090 

indicates. Basic research should be focused on areas of clear government responsibility, and all 

opportunities to shift work to the private sector should be examined . 

... And What Not To Do 

In contrast, active interference in a functioning market is self-defeating. Some proposals and 

actions concerning ECEs pick out seerningly important materials for what is unavoidably longterm action on the basis of short-term conditions. Supporting ECEs in light of current use risks 

warping research incentives and generating inferior technology. Supporting individual 

companies risks elevating the inefficient over superior present or future competitors. A 

combination of weak firms and inflexible technology kills any industry. Picking winners, 

including technological winners, in a rapidly developing market increases the odds of a losing 

industry in the future. 

A brief description of certain Department of Energy programs that utilize ECEs provides 

examples of market-distorting practices with no national-interest justification. 

• The Advanced Research Projects Agency-Energy (ARPA-E) intends to "bridge the gap 

between basic energy research and development/industrial innovation." This is a bridge 

between work that might help the private sector and work which binds needed privatesector innovation to government initiative. ARP A-E tops its goals with "To bring a 
36 

freshness, excitement, and sense of mission to energy research," straining the notion of 

national interest. 15 

• The Vehicle Technology Program is "strongly committed to partnerships to help ensure 

the eventual market acceptance of the technologies being developed." Ensuring market 

acceptance of technology is exactly what the govermnent should not do; it pushes private 

actors toward the government's preferred path, limiting flexibility and assuring lower 

capability and higher cost. 

• The Advanced Manufacturing Office is similarly looking to deploy technologies rather 

than just initiate research. 

• The Wind Program's goals lead with job creation and rural economic development, far 

removed from a national interest in energy.16 

The govermnent should generally not participate in applied research, as this biases the 

technology path. While the line between basic and applied research is often blurry, one 

difference is that research focused on exploiting current technology is applied and not a proper 

activity for government. Also, govermnent research should not be done in cooperation with only 

one commercial entity or focused on technology utilized by only one commercial entity. These 

are essentially subsidies supporting inefficient production and should be avoided entirely. 

Recipients of subsidies often claim the mantle of representing the national interest. These claims 

are incompatible with all legislation seeking the correct goal of a competitive ECE market. It is 

competition that ensures superior firms and the best technology will emerge over time. In a 

competitive market, no single firm or technology is important enough to merit government 

support. Government interference to support a particular firm or technology inherently bars 

formation of a competitive ECE market and assures higher costs and slower development. 

In this vein, it should be recognized that the heavier cost of subsidies is not financial, but rather 

their distorting effect on markets. Loan guarantees are thus only a minor improvement over 

grants. The direct cost to the taxpayer is lower, but they still work at odds with the creation of 

competitive markets, emergence of superior firms, and dynamic technological development. 

The defense ofloan guarantees and other subsidies is that they are necessary to ensure ECE 

supply. However, the market is already doing an excellent job of ensuring ECE supply, and 

prices are falling as a result. Government action to ensure supply might mean lower prices, but 

this has little value given that REE imports in particular cost so little. Far more important is that 

below-market prices discourage conservation, substitution, and innovation. 

15 U.S. Department of Energy, Advanced Research Projects Agency. "About," at hllp://arpa-

(',energv godAbout/About,aspx (December 2, 2011), 

16 U.S, Department of Energy, Vehicle Technologies Program, "Financial Opportunities," September 29, 2011, at 

hllp://w",,,J.eere,energr,gov/v('hiciesand(ile/s/financia//index,html (December 2,2011), U.s. Department of Energy, 

Advanced Manufacturing Office, "About," November 30, 2011, at 

htlp://wWWJ. eere, enen;y, gov/industrv/abollt/index, hhn/ (December 2,2011) and u.s, Department of Energy, Wind 

Program, "About the Program," September 22, 2011, at ht!p://Hol'wl.eere,energv,gov/wind/ahout,htm/ (December 2, 

2011). 
37 

The various proposals for action are also subject to simple arithmetic. A single guaranteed loan, 

outright subsidy, or applied research program is probably a bad idea, but it is a limited one. 

Many such programs or subsidies make it certain the govermnent will make multiple incorrect 

choices, picking elements, companies, and especially technologies that ruin market development. 

Finally, any proposals that mandate both multiple subsidies and many other activities 

immediately fail even to identifY and prioritize a critical task that justifies govermnent attention. 

Conclusion 

In sum: 

1. The House should consider opening more land to ECE-related assessment and 

exploration. 

2. The House should strongly consider immediately devoting more resources to gathering 

information on ECEs on a regular basis. 

3. The House absolutely should not subsidize ECE mining, production, or refinement, 

including with loan guarantees. This will reverse progress being made by the market. 

4. The House should consider supporting basic research on ECE's. Applied research is often 

tantamount to subsidy, carries the same risks, and should be strictly limited. 

Because prices may go up as well as down, the U.S. government should gather information on 

possible market shifts. For the same reason, demands for further govermnent intervention in 

ECEs are being made on the basis of conditions that would no longer apply when the 

intervention became effective. In contrast, global market adjustment has been rapid and 

thorough. Let the market continue to work. 

******************* 

The Heritage Foundation is a public policy, research, and educational organization recognized as 

exempt under section 501 (c)(3) of the Internal Revenue Code. It is privately supported and 

receives no funds from any govermnent at any level, nor does it perform any govermnent or 

other contract work. 

The Heritage Foundation is the most broadly supported think tank in the United States. During 

2010, it had 710,000 individual, foundation, and corporate supporters representing every state in 

the U.S. Its 2010 income came from the following sources: 

Individuals 

Foundations 

78% 

17% 
38 

Corporations 5% 

The top five corporate givers provided The Heritage Foundation with 2% of its 2010 income. 

The Heritage Foundation's books are audited annually by the national accounting firm of 

McGladrey & Pullen. A list of major donors is available from The Heritage Foundation upon 

request. 

Members of The Heritage Foundation staff testify as individuals discussing their own 

independent research. The views expressed are their own and do not reflect an institutional 

position for The Heritage Foundation or its board of trustees. 
39 

Chairman HARRIS. That is okay. Thank you very, very much. 

I now recognize our third witnesses, Dr. Robert Jaffe of MIT. 

DR. ROBERT JAFFE, JANE AND OTTO MORNINGSTAR 

PROFESSOR OF PHYSICS, 

MASSACHUSETTS INSTITUTE OF TECHNOLOGY 

Dr. JAFFE. Mr. Chairman and members of the Committee, thank 

you for the opportunity to testify today. 

As Mr. Harris mentioned, I recently chaired a study of energycritical elements sponsored by the American Physical Society and 

the Material Research Society. Today I will highlight a few of our 

key findings and recommendations. 

Despite calls to the contrary, the sky is not falling. We will not 

run out of any chemical element any time soon. Nevertheless, the 

problem of availability of certain key elements is serious and very 

real. While rare earths are the flavor of the month, or perhaps the 

flavor of last month, a host of other elements are poised to present 

problems in the future. We are in this for the long term. 

If appropriate steps aren’t taken, we may face disruptive shortterm constraints on supply of some elements that are not presently 

mined or refined or traded in large quantities but are critical to the 

deployment of potentially game-changing technologies. Casualties 

might range from important petroleum refinery catalysts to stateof-the-art wind turbines. Constraints on the availability of ECEs 

would limit the competitiveness of both U.S. industries and the domestic scientific enterprise, disrupting both innovation and investment. 

I describe five types of constraints in my written testimony. Let 

me mention just two now. First are geopolitical constraints. Some 

ECEs exist only in one or two large or rich deposits in the world 

which are not in the United States. In other cases, economic or political forces have allowed one or few countries with particularly 

rich or abundant ECE resources to manipulate the market, as we 

have just heard. 

A second constraint is the risk associated with joint production. 

Some ECEs are only recovered as byproducts in extraction of more 

common metals. While they are in low demand, these ECEs may 

be abnormally cheap only to become far more expensive when byproduct production is exhausted. 

The study I chaired recommends a comprehensive approach to 

the ECE problem based on information, research and recycling. It 

is our view that with careful stewardship by the government coupled with the imagination of fundamental research and the initiative of U.S. Government, the problem of ECEs can be managed for 

the foreseeable future. 

In developing our recommendations, we took a lesson from industry. General Electric had for many years tracked the market for an 

exceptionally rare metal, rhenium, which is critical to its advanced 

turbines in modern natural gas-fired power plants. In 2005, GE 

predicted a demand for rhenium that would soon outpace worldwide supply. Instead of stockpiling, GE reduced its immediate need 

for new rhenium by a wide-ranging recycling program and a multiyear research program aimed at developing an alternative alloy. By 

2010, they had found, tested and certified several low-rhenium al-
40 

loys. Meanwhile, the price of rhenium had jumped tenfold to over 

$10,000 a kilogram. GE succeeded, but smaller U.S. companies, 

universities and national labs, one, don’t have the informationgathering network needed to recognize an impending supply disruption; two, can’t afford to carry out substitutional research; and 

three, can’t engage in extensive recycling. Consequently, in general, 

we recommend the following: 

First, the government should gather, analyze, and disseminate 

information on ECEs across the lifecycle supply chain including resources, production, use, trade, disposal and recycling. Accurate information about availability will allow scientists, entrepreneurs 

and investors to see beyond the price spikes and plan for the future. 

Second, the government should promote fundamental research 

aimed at the twin goals of increasing supplies and decreasing our 

dependence on ECEs. It is especially important to support fundamental research on earth-abundant substitutes for ECEs. 

Third, cell phones and iPods end up discarded at the back of sock 

drawers, yet often they contain ECEs in concentrations that exceed 

all but the richest ores. We need to develop technology and awareness to promote recycling of these elements that are often and truly 

more precious than gold. Here again, both government and industry have a role to play. I believe our report’s recommendations can 

be implemented with a budget-limited approach that respects the 

distinction between activities that belong in the private sector and 

those that fall to government. 

You have asked me to comment on the Energy Critical Elements 

Advancement Act of 2011 introduced by Representative Hultgren. 

The Hultgren bill, which shares many features with Mr. Miller’s 

bill, has provisions on the full triad that we recommend: information, research and recycling. It also reflects our view that these important actions can be addressed in a budget-limited or, in some 

cases, a budget-neutral manner. The Hultgren bill recognizes the 

need for careful stewardship by the government without unnecessary overreach. It couples the imagination of fundamental research 

and the initiative of U.S. industry so that the problem of ECE 

availability can be managed for the foreseeable future. 

Thank you very much for the opportunity to testify, and sorry for 

running over. 

[The prepared statement of Mr. Jaffe follows:] 
41 

PREPARED STATEMENT OF DR. ROBERT JAFFE, JANE AND OTTO MORNINGSTAR

PROFESSOR OF PHYSICS, MASSACHUSETTS INSTITUTE OF TECHNOLOGY
42 

1) Low Abundance or Concentration 

Though not intrinsically rare, some ECEs are not mineralized efficiently by 

geological processes, and do not occur in viable ores. 

EXAMPLE: Although nearly as abundant as tin, germanium has limited use 

because it is not found in rich ores. 

2) Geopolitical Risks 

By chance, in some cases, ECEs exist in only one or two large or rich deposits in 

the world. In other cases, complex economics and politics have led to dominance 

of a single or small number of countries that have particular ECEs, allowing those 

countries to manipulate the market. 

EXAMPLE: China has limited the export of rare earth elements. 

3) Risks of Joint Production 

Some ECEs are only recovered as by-products in extraction of more common 

metals. This links their availability to the economics of the primary metal. While 

in low demand, these ECEs may be abnormally cheap, only to become far more 

expensive when by-production is exhausted. 

EXAMPLE: Nearly all tellurium is a by-product of copper refining. 

4) Environmental Concerns 

Some countries in the developed world will not accept environmental disruption 

associated with extraction of particular ECEs, while other countries are willing to 

tolerate environmental degradation for short-term gain. Rising environmental 

standards and/or social unrest can disrupt supplies. 

EXAMPLE: The extraction of certain rare earth elements in South China is 

notoriously damaging to the environment. 

5) Response times in production & utilization 

It takes 5-15 years to bring new sources online andlor research and develop 

substitutes. 

EXAMPLE: The supply oflithium is uncertain due to time delays in production. 

APS POPAIMRS RECOMMENDATIONS 

The panel I chaired made recommendations to address constraints on element 

availability. We focused intensely on elements critical to new technologies that have the 

capacity to transform the way we harvest, transport, store, or use energy. (Please note 

that we did not consider defense-related issues.) 

It is our view that with careful stewardship by the government, coupled with the 

imagination of fundamental research and the initiative of U.S. industry, the problem of 

ECE availability can be managed for the foreseeable future. 

-2-
43 

To accomplish that, we recommend a three-component approach based on information, 

research, and recycling. 

But first, let me say a few words about what we don't recommend. 

The U.S. can't mine its way to ECE independence. Yes, we should certainly pursue 

domestic mining when economically and environmentally appropriate but not with the 

expectation that mining alone will solve the problem. Many ECEs are simply not found 

here in economically viable deposits, and others are produced more efficiently - for a 

variety of reasons - by other countries. Free international trade with a diverse set of 

suppliers works to everyone's advantage. 

We can't rely on stockpiling either. We found that stockpiling is a disincentive to 

innovation because it anchors us to the status quo. Stockpiles have proved a poor way for 

governments to try to moderate price fluctuations and stabilize markets, often with 

unintended negative consequences. (Note, however, that we did not consider defense 

stockpiles, which may be motivated by other considerations.) 

In developing our recommendations for the most effective way to address this issue, we 

took a lesson from industry. 

CASE STUDY: General Electric has for many years tracked the market 

for an exceptionally rare metal, rhenium, which is critical to its 

advanced turbines used both in jet engines and modem natural-gas 

fired power plants. In 2005, General Electric projected that demand 

for rhenium would outpace worldwide supply within a few years. 

Instead of stockpiling, GE reduced its immediate need for new 

rhenium by a wide-ranging recycling program, and began an intensive, 

multiyear research program to develop an alternative alloy. By 2010 

they had found, tested, and certified several new alloys that use less 

rhenium. Meanwhile the price of rhenium had risen lO-fold to over 

$IO,OOOlkg. 

LESSON: GE succeeded, but many smaller U.S. companies and 

university & national labs: 1) do not have the information gathering 

network needed to recognize an impending supply disruption; 2) 

can't afford to carry out substitutional research; and, 3) can't engage 

in extensive recycling. 

Consequently, in general, we recommend the following: 

I) The government should gather, analyze, and disseminate information 

on ECEs worldwide across the life-cycle supply chain, including 

resources, production, use, trade, disposal and recycling. Accurate 

information about availability will allow the scientific enterprise as 

well as investors to see beyond the price spikes and plan for the 

-3-
44 

future. This can be achieved by, among other things, elevating the 

federal information gathering entity to a "Principal Statistical Agency" 

similar to the Bureau of Labor Statistics and the Energy Information 

Administration. 

2) The government should promote fundamental research aimed at the 

twin goals of increasing supplies and decreasing our dependence on 

ECEs. It is especially important to support fundamental research on 

earth-abundant substitutes for ECEs. The goal should be a broad 

understanding of the advantages and disadvantage of technologies 

based on alternative materials, in order to enable U.S. manufacturers 

or lab researchers to more smoothly shift to a substitute material or 

alternative technology in advance of supply disruptions. 

3) Cell phones and iPods end up discarded in the back of sock drawers, 

yet they often contain ECEs in concentrations that exceed the richest 

ores. Those dispersed products could be gathered into a resource - an 

urban mine - so the ECEs can be extracted for reuse. There are 

various paths to achieve this: government could help increase 

recycling by enabling greater consumer awareness and industry could 

stimulate it by providing consumer incentives. 

THE ENERGY CRITICAL ELEMENTS ADVANCEMENT ACT OF 2011 

I believe that our report's recommendations can be implemented with a budget-limited 

approach that respects the distinction between activities that belong in the private sector 

and those that fall to government. As a result, I'm delighted to testify today along with a 

Research Fellow at the Heritage Foundation. 

Several House bills have been introduced to address the minerals availability issue. I'll 

speak to one in particular: HR 2090 -- the Energy Critical Elements Advancement Act of 

2011, introduced by Representative Hultgren. 

The Hultgren bill has provisions on the full triad that we recommend: information, 

research, and recycling. It is also closely aligned with our view that these important 

actions can be addressed in a budget-limited - or even in some cases a budget-neutral -

manner. 

The Hultgren bill is comprehensive and recognizes the need for careful stewardship by 

the government without unnecessary overreach. It couples the imagination of 

fundamental research and the initiative of U.S. industry so that the problem of ECE 

availability can be managed for the foreseeable future. 

Thank you for the opportunity to testify. 

-4-
45 

ENERGY CRITICAL ELEMENTS SECURING MATERIALS FOR EMERGING TECHNOLOGIES A RtP<mr [lYTlll AM£HI(AN PI IY<;KAt $l)(l[fY& fll[ MATLHIAL':> HLSf.ARClI ';.tKILfY 

Energy Critical Elements: Powering Our High-Tech World 

Energy Criti<al Elements (ECEs) are found in a myriad of high-tech, environmental and military equipment. 

From smart phones to solar panels to jet engine parts, ECEs play crucial roles in products affecting our daUy lives. 

~ phYSICS 

HNdqtlart«s~ 

(ln~Phys!, .. f.1Iip~.~, 

O>!I"9,'Pmk, MD J!!74') 

Ge 

-~ 

, , 

/ ' . 

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Re 

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W.nhingtonOffice: 

'1)'1 !4tll'>l!eI·I,NW,"-.IIIt· !n<'11 

\<V'l',hlllq"~l,O( }ll,!,l:' 

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TEllURIUM-brittle, silvery-white metallic element 

used in solar panels 

GERMANIUM- hard. grayishwwhite element with 

meta!!!e luster; used in solar panels 

PLATiNUM-slivery-white, lustrous, ductile and 

malleable; used in pollution control devices for cars, 

and in fuel cells 

NEODYMIUM-bright, slivery rare-earth meta! 

element; used in wind turbines and hybrid cars 

LITHIUM-a soft, sliver-white metallic element; 

used in wind turbines and lithium-ion batteries in 

hybrid cars 

RHENIUM-silvery-whltE! metal with one of the 

highest melting points of all elements; used to 

make advanced turbines and jet engine parts 

TERBIUM-a soft, silvery-white rare earth metal; 

used along with its fellow rare earth europium 

in compact fluorescent Ught bulbs to provide an 

acceptable COIOf balance 
46 

Chairman HARRIS. No, thank you, Dr. Jaffe. 

I now recognize our fourth witness, Dr. Karl Gschneidner of the 

Ames National Laboratory. 

STATEMENT OF DR. KARL GSCHNEIDNER, SENIOR MATERIALS 

SCIENTIST, AMES NATIONAL LABORATORY 

Dr. GSCHNEIDNER. Thank you very much for giving me the opportunity to speak this morning in testimony. I also want to thank the 

Hon. Mr. Harris and the Hon. Mr. Miller for the very nice introduction to my talk. I can probably cut out half of it, but I won’t. And 

also, the other speakers were a very nice preface. 

The rare earth elements comprising scandium, yttrium and the 

15 lanthanides are vitally critical to both our military and energy 

securities. In the military sector, all of our weapons systems are especially dependent on rare earths, and permanent magnets, which 

are utilized in electric motors, computers, guidance systems, etc., 

sensors, capacitors, resistors, phosphors for optical displays, lasers, 

aircraft engines, communication devices such as filters, tuners, 

phase shifters, radar antenna and optical devices, camera lenses 

and fiber. 

In the energy sector, we are especially dependent on rare earths 

in permanent magnets for electric motors, cars, trucks, wind turbines, nickel-metal-hydride batteries, petroleum refining catalysts, 

fluorescent and LED lighting, oxygen and electrical sensors to control combustion in automobiles, to improve fuel consumption and 

reduce pollution, and high-temperature alloys for turbines for generating electricity. 

The Ames Laboratory has a long tradition of research on rare 

earth-related elements going back to World War II when Ames 

Laboratory developed a low-cost process for preparing uranium 

metal for the first atomic nuclear fusion reactor in Chicago. Subsequently, they developed the ion exchange process for separating 

and purifying the rare earth elements which is still utilized today 

to produce the highest purity individual elements. They also contributed together with other Department of Energy laboratories to 

commercialize the liquid-liquid solvent extraction process, which is 

used today for separating the rare earths on a large scale. 

From 1950 through the 1970s, the Ames Laboratory scientists 

prepared high-purity metals and studied the magnetic, physical 

and chemical properties, discovered many new compounds and 

measured their fundamental properties. Much of this new information contributed to the eventual discovery of the lanthanum nickel 

hydrogen battery, the giant magnetorestrictive material, TerfenolD, and the samarium-cobalt neodymium-iron permanent magnets. 

Currently, most of the research on rare earth carried out at the 

Ames Laboratory is funded by the U.S. Department of Energy’s Office of Basic Energy Sciences, BES, some lesser support from the 

Energy Efficiency and Renewable Energy, EERE, and Advanced 

Research Projects Agency-Energy, ARPA–E. Other research is supported by CRADAs and work for industry. 

The BES research involves both experimental and theoretical 

studies on novel materials, which is the giant magnetocaloric effect, 

colossal magnetoresistance and giant magnetorestriction and also 

correlated electron systems. The ARPA–E and the EERE research 
47 

includes studies on the anisotropic sintered permanent magnets for 

automobile traction motors. Rare earth CRADA and work for industry efforts include magnetic refrigeration materials, recycling 

and development of low-cost processes for making metal. 

Most of the critical needs in the future research for us are: One, 

improving high-temperature magnetic strength of the neodymium 

iron-boron permanent magnets. Two, new host materials for phosphors and reduced amounts of europium and terbium activators for 

most efficient lighting. Three, designing of recycling processes recovering the metallic elements without converting them to chemicals and then back to metals and improving recovery techniques for 

rare earth phosphors. Four, improve the effectiveness of rare 

earths and stabilize zeolite cracking catalysts and designing new 

catalysts and catalytic processes for bond cleavage and bond formation of hydrocarbons. And five, a more vigorous investment in new 

advanced energy technology including fuel cells and magnetic refrigeration. 

These goals cannot be accomplished without replacing the rare 

earth intellectual capital. It is imperative to educate and train the 

next generation of engineers, scientists and technical managers. 

This can be best accomplished through the National Research Center for Rare Earths and Energy established. Finally, our country 

will fail if we do not rebuild the rare earth industry especially beyond mining. 

Thank you very much for giving me the opportunity to testify on 

this vitally critical topic. 

[The prepared statement of Dr. Gschneidner follows:] 
48 

PREPARED STATEMENT OF DR. KARL GSCHNEIDNER, SENIOR MATERIALS SCIENTIST, 

AMES NATIONAL LABORATORY

Introduction 

The rare earth elements, comprising of scandium (Sc), yttrium (Y), and the 

lanthanides [the most important ones regarding this theme are: lanthanum (La), cerium (Ce), praseodymium (Pr), neodymium (Nd), samarium (Sm), europium (Eu), 

gadolinium (Gd), terbium (Tb), dysprosium (Dy), erbium (Er), ytterbium (Yb), and 

lutetium (Lu)], are vitally critical to both our military and energy securities. 

In the military sector, all of our weapon systems are especially dependent on: Nd, 

Pr, Sm and Dy in permanent magnets which are utilized in electric motors, computers, guidance systems, etc.; Y, Ce, and Nd in sensors, electronic materials, e.g. 

capacitors, resistors; Y, La, Nd, Eu, Tb, and Dy in phosphors for optical displays 

and lasers, etc.; Y and Gd in aircraft engines and turbines; Y and Gd in communication devices such as filters, tuners, phase shifters, radar antennas; and Y, La, Gd, 

and Lu in optical devices, camera lenses, fiber optics. 

In the energy sector: Nd, Pr, Sm, and Dy are used in permanent magnets for electric motors (cars, trucks, wind turbines); La and mischmetal in nickel-metal-hydride 

batteries; Ce, La, and mixed rare earths in petroleum refining catalysts; Y, Ce, Eu, 

Tb, and Dy in fluorescent and LED lighting; Y, Ce, and Nd in oxygen and electrical 

sensors to control combustion in automobiles to improve the efficiencies of fuel consumption and reduce the environmental pollution; Y, La, and Ce in high temperature alloys for turbines for generating electricity; and Gd as a nuclear reactor moderator. 

Rare Earth Research at the Ames Laboratory 

HISTORY

The Ames Laboratory has a long tradition of research on the rare earth related 

elements, going back to World War II when the Ames Laboratory developed a low 

cost process for preparing uranium (U) metal for the first atomic nuclear fusion reactor in Chicago. The process is still being used today. The Ames Laboratory also 

supplied two tons of U (1/3 of the fuel needed) for the reactor to be self sustaining. 

Subsequently scientists at the Ames Laboratory developed the ion exchange process 

for separating and purifying the rare earth elements, which is still utilized today 

to produce the highest purity individual elements. They also contributed together 

with other Department of Energy laboratories to the commercialization of the liquidliquid solvent extraction processes which are used today for separating the rare 

earth elements on a large scale; tens of thousands of tons per year per mine, or 

about 140,000 tons in 2010 worldwide, 90% coming from China. In the late 1940s 

to early 1950s Ames Laboratory scientists developed processes for making pure rare 

earths by the metallothermic process, and during the 1950s through 1970s developed new processes for purifying the metals from 99 to 99.99 wt.% pure by casting, 

zoning, sublimination, distillation and solid state electrolysis methods. During this 

same period they studied the fundamental properties of the elementary metals— 

magnetic, electrical, thermal, elastic, mechanical, chemical, etc.—and prepared and 

discovered many new intermetallic, inorganic and organic compounds. Much of this 

new information contributed to the eventual discovery of the electrical properties of 

the LaNi5Hx battery electrode; the magnetic behaviors of Terfenol-D 

(Tb0.3Dy0.7Fe1.9) a giant magnetostrictive material; the magnetically very strong 

Sm2Co17, SmCo5, Nd2Fe14B and Pr2Fe14B permanent magnets; and the electrical 

conductivity of yttria-stabilized zirconia (Zr1-xYx)O2 electrical sensors. One of the codiscoverers of the Nd2Fe14B permanent magnets carried out his Ph.D. graduate research at the Ames Laboratory. 

Analytical chemists devised new schemes, techniques and procedures for analyzing the purity of individual rare earth elements for other rare earths, and also 

non-rare earth impurities. Modifications of these methods are still utilized today. 

CURRENT RESEARCH ACTIVITIES

Most of the research on rare earth carried out at the Ames Laboratory is funded 

by the U.S. Department of Energy through the Office of Basic Energy Sciences 

(BES), with some lesser support from Energy Efficiency and Renewable Energy 

(EERE), and Advanced Research Projects Agency-Energy (ARPA-E). Other research 

is supported by CRADAs (Cooperative Research and Development Agreements) and 

work for industry. 
49 

The BES research includes several projects (7) and these are as follows. (1) Extraordinary Responsive Magnetic Rare Earth Materials, such as R5(Si1-xGex)4, RAl2, 

and RCo2, which exhibit unusual magnetic, electric, thermal, and elastic behaviors 

when stimulated by external changes of temperature, applied magnetic fields, or 

pressure. These include the giant magnetocaloric effect, colossal magnetoresistance 

and giant magnetostriction (Pecharsky and Gschneidner). (2) Novel Materials Preparation and Processing Methodologies research includes quasicrystals (Cd84Yb16), 

RFeAsO1-x superconductors (polycrystalline and single crystals), reactive metal crystal growth (GdNi)(Lograsso, McCallum, Anderson and Jones). (3) Work in the Innovative and Complex Metal-Rich Materials Project has a small rare earth component, 

which includes (R,M)-M’X giant multiply endohedral clusters (Miller and Corbett). 

(4) Complex States, Emergent Phenomena and Superconductivity in Intermetallic 

and Metal-like Compounds research involves correlated electron systems (Yb-based 

materials), superconductors (RNi2B2C, RFeAsO), and ferromagnets (Nd2Fe14B, 

CeAgSb2) (Canfield and Prozorov). (5) Research in the Correlations and Competition 

between Lattice, Electrons and Magnetism Project involves X-ray and neutron scattering of various materials including Gd5(Si2-xGex)4, RNi2B2C, GdBiPt, and RFeAsO 

(McQueeney, Kreyssig, Goldman). (6) The Magnetic Materials Discovery research on 

LaNi2Ge2 and LaNi2P2 mixtures, RV4O8, and EuM2Sb2 (M = Pd, Rh) was carried out 

in this Project by David Johnston. (7) In addition to these experimental efforts there 

is a considerable amount of theoretical work going on overlapping several of the condensed matter physics research projects tying this research together (Harmon, 

Duane Johnson). 

The EERE-Vehicle Technologies research project includes studies of anisotropic 

bonded and sintered R2Fe14B (R=Nd+Y+Dy) permanent magnets with high temperature stability for automotive traction motors with little or no Dy content. Also this 

research was expanded to include scientists and engineers from University of Nebraska-Lincoln, University of Maryland, Brown University, Oak Ridge National 

Laboratory, and Arnold Magnetic Technologies to enable a fully coupled theoretical 

and experimental effort to develop non-rare-earth magnets for advanced traction 

motors (Anderson, McCallum, Kramer). 

There is one funded ARPA-E project which involves developing high energy permanent magnets for hybrid vehicles and alternative energy. The lead organization 

for this effort is the University of Delaware (G.C. Hadjipanayis). The Ames Laboratory’s research is headed by McCallum. 

A new ARPA-E project on Ce-based permanent magnets for automotive traction 

motors was funded to begin in FY2012. The Ames Laboratory is the lead organization and there are three industrial partners—Molycorp Minerals, General Motors 

and Nova Torque. McCallum is the lead project manager and is joined by his Ames 

Laboratory colleagues Antropov, Gschneidner, Johnson, Kramer and Pecharsky. 

CRADA rare earth related research is concerned with recycling magnetic materials and developing new low cost processes for making rare earth metals for various 

industrial uses. A work for other project involves research on magnetic refrigerant 

materials. 

MATERIALS PREPARATION CENTER (MPC) 

The MPC was established in the 1970s to provide high purity rare earth metals, 

intermetallic compounds, inorganic compounds, alloys, etc. to research scientists, not 

only at the Ames Laboratory but also all over the world to promote and assist scientific investigations, both basic and applied; and under certain conditions to assist 

the commercialization of certain materials. In addition to supplying polycrystalline 

materials, they also grow single crystals and directional preferred oriented 

polycrystals of many of these materials, and also make very high purity rare earth 

and related metals by advanced metallurgical processing techniques. The MPC is a 

world-renowned national resource treasure. The MPC works on a cost recovery 

basis. 

Future Research and Other Needs 

(not just the Ames Laboratory but the entire USA) 

Magnets – Nd2Fe14B 

• Reduce the amount of Dy 

• Improve the high temperature magnetic strength 

• Improve the processing technology 

• Lower cost Nd, Pr metals 

• Reduce the rare earth content 

• Non-rare earth magnets – new, improved existing ones 
50 

Phosphors 

• Improved, lower cost, more efficient separation technologies 

• New host materials – more efficient light emitting phosphors 

• Reduce amount of activators (Eu, Tb) for same lumen output 

• Development of up-conversion phosphors 

Production and Separation 

• New improved extractants and complexing reagents 

• Design of better separation techniques, and/or equipment 

• New advanced chemistries – combinational and biometric 

Catalysts 

• Improve the effectiveness of the rare earths in stabilizing the zeolite cracking 

catalysts 

• New catalysts and catalytic processes – for bond-cleavage and for bond-formation of hydrocarbons 

• New diesel exhaust catalysts 

Recycling 

• Design processes for recovering the metallic materials and placing them directly 

in production schemes as metallic materials without converting them to chemicals (oxides or halides), separating the rare earths, then reducing them to the 

metals and finally alloying; especially important for magnets, battery and metallic alloying agents. 

• Better recovery techniques for rare earth phosphors from CFC (compact fluorescent lamps), long tubes, color TVs and monitors, color display units 

• Design phosphor applications for reusing recycled, but unseparated rare earth 

phosphors 

• Recovery of rare earths from cracking catalysts, especially the heavy 

lanthanides Tb and Dy 

• Develop value-based lifecycle models 

Sustainability 

• Improve manufacturing efficiency—reduce waste. 

• Design end-of-life products to easily recover the rare earth materials 

• Develop green chemistry and environmentally friendly processing technologies 

New Advanced Energy Technologies 

• Fuel cells 

• Magnetic refrigeration 

Rare-earth Information Center (RIC) 

• Re-establish RIC to help promote rare earth research and technology, and commercialization of these elements via the RIC News and RIC Insight, respectively, the quarterly and monthly RIC newsletters; and answering information 

inquiries. 

Rebuilding the Rare-Earth Industry Beyond Mining 

• Loan guarantees for small mining companies, producers of intermediate products (metals, magnets, phosphors, catalysts, etc.) and OEMs (Original Equipment Manufacturers) who manufacture hard drives, electric motors, cell phones, 

i-pods, CFLs, wind turbines, sensors, etc. 

• Tax incentives for same. 

Replacing Rare Earth Intellectual Capital - It’s Imperative to Educate and Train the 

Next Generation of Engineers, Scientists and Technical Business Managers 

• Requires 60 to 110 Ph.D., M.S., and B.S. degree students per year for the next 

ten years 

• Promote rare earth courses at educational institutions—via distance learning; 

semester long courses, short courses 

• Research projects funded by NSF, DOE, DoD, NIST 

• National scholarships 

• Establish a National Research Center of Rare Earths and Energy 
51 

Chairman HARRIS. Thank you very much. 

I now recognize our final witness, Mr. Luka Erceg of Simbol Materials. 

STATEMENT OF MR. LUKA ERCEG, PRESIDENT AND CEO, 

SIMBOL MATERIALS 

Mr. ERCEG. Good morning, Chairman Harris, Ranking Member 

Miller and members of the Subcommittee. Thank you for the opportunity to testify today regarding the important legislation before 

you. I would also like to thank our Congressman, Mr. McNerney, 

for his support and leadership on these important issues. 

My name is Luka Erceg and I am the President and CEO of 

Simbol Materials, a California-based producer of critical materials. 

It is exciting that this Committee has taken up energy-critical materials, broadening the discussion to more than just rare earth elements. Critical materials are the backbone to U.S. innovation, supporting job creation and competitiveness in clean technology, defense, agriculture and many other industry segments. 

Simbol is commercializing an innovative and sustainable process 

to produce the critical materials lithium, manganese and zinc domestically that are being currently produced from a demonstration 

plant in California. We are permitting our first facility, and when 

complete, we will, one, be the only U.S. producer of certain manganese compounds, and two, we will double U.S. lithium production 

in 2013. This will continue to create high-value jobs. 

We believe the U.S. Government can drive investment and job 

creation by establishing a clear policy for critical materials through 

a well-coordinated and consistent effort. Without prescription, the 

definition of critical materials should be based on strategic importance and domestic production that supports policy objectives, ensuring consistency across all federal agencies. Definitions of critical 

materials should recognize the elemental, compound and derivative 

forms as appropriate. 

Lithium has been recognized as critical in the proposed legislation. Its compounds and derivatives are a critical component in advanced batteries for electric vehicles and other energy storage applications. Due to a lack of domestic production, the U.S. imports 

approximately 76 percent of its lithium needs. 

Manganese, however, has not been recognized as critical in the 

proposed legislation, while it too supports strategic energy and defense priorities, and the lack of U.S.-based production is substantial. Manganese metal is essential for producing specialty steels for 

defense applications and manganese dioxide is critical to advanced 

batteries for electric vehicles. The U.S. is 100 percent reliant on 

foreign sources of manganese and 95 percent of the world’s manganese metal production comes from China. Two federal entities 

have demonstrated the importance of manganese to U.S. policy initiatives. The Defense Logistics Agency has classified manganese 

metal as a critical material and the Department of Commerce has 

protected domestic manganese dioxide production against unfair 

Chinese and Australian trading practices. 

The preceding illustrates that without a clear definition, a critical element such as manganese can be inadvertently overlooked. 

This demonstrates the need for clarity and policies and definitions 
52 

of critical materials across the U.S. Government. Critical materials 

should not be viewed through only an end-use lens. Critical materials themselves are an important industry. The interagency process led by OSTP has led to a greater focus on the whole of critical 

materials but work remains and a whole of government approach 

is required. 

Underlying a consistent policy for critical materials is federal 

support for R&D, which is a powerful driver for private investment 

into this important industry. Federal support in R&D helps to derisk new technologies coupled with commercial sector investments 

that send loud market signals and encourage follow-on investing in 

areas of policy interest. These signals lead to job creation. For example, in 2009, the DOE’s Geothermal Technologies Program announced a $3 million grant to Simbol to demonstrate its processes, 

building on our relationship with the Lawrence Livermore National 

Laboratory. Following the grant announcement, Simbol raised a 

further $35 million in capital prior to ever receiving the first federal grant dollar. The government’s validation of Simbol sent a 

clear signal to the market that stimulated commercial investments 

14 times the grant itself. With this support, we have grown our 

workforce from 16 to 62 and will reach 80 or more by yearend 

2012, and we will continue job creation through further expansion. 

Small companies are the economic growth engine of America, and 

as such, grant dollars and R&D support should be targeted to 

small, innovative and disruptive companies, creating greater leverage for job creation than through support of larger corporations. 

When a market does not exist, government funding can encourage 

the development of one. R&D also creates opportunities for universities to train the next generation of scientists and engineers needed to reduce the six to nine months we are experiencing in trying 

to find qualified candidates. The lack of a domestic critical materials supply chain and industry has resulted in the erosion of our 

talent pool and the departure and decline of important industries 

to countries such as but not limited to China. Supporting critical 

materials closes the loop on education, R&D and commercialization 

in this important area, and we hope that our testimony will help 

you improve upon the important legislation before you. 

Thank you for the opportunity to testify, and I look forward to 

your questions. 

[The prepared statement of Mr. Erceg follows:] 
53 

PREPARED STATEMENT OF MR. LUKA ERCEG, PRESIDENT AND CEO, SIMBOL

MATERIALS

Chairman Harris, Ranking Member Miller, and Members of the Subcommittee, 

my name is Luka Erceg, and I am the President and CEO of Simbol Materials. 

Thank you for the opportunity to testify today about research needs and priorities 

related to critical materials. 

Simbol is commercializing innovative, sustainable processes for the domestic production of lithium (Li), manganese (Mn) and zinc (Zn). We currently operate a demonstration plant in the Salton Sea region of California, where we co-produce minerals from geothermal brines at an existing geothermal power plant. Following 

power production, we ‘‘borrow’’ the brine for about 90 minutes to selectively extract 

the targeted minerals. The brine is then re-injected into the ground. This process 

has a smaller environmental footprint and cost profile than any other method for 

producing these materials. 

We anticipate groundbreaking of our initial commercial lithium plant in the 

spring of 2012. Each full-scale lithium facility will produce approximately 16,000 

tons per year of lithium carbonate equivalent, and 19,000 tons per year of manganese metal. Each of Simbol’s lithium plants will increase global supply by approximately 10-15% over today’s production volumes. There is sufficient capacity in 

the Salton Sea region to construct several facilities. 

A domestic supply chain for critical materials will spur domestic manufacturing and innovation 

While the development of a domestic supply chain for critical materials will reduce the risk of supply disruption and mitigate exposure to price spikes, the greatest benefit of developing a domestic supply chain is bolstering our nation’s competitive position in innovative industrial sectors. 

At every point in a supply chain, manufacturing drives innovation. As a supply 

chain lengthens, each step is strengthened through industry collaboration—which 

creates a more competitive overall domestic industry. In the case of electric vehicles 

and grid storage applications, critical materials are the cornerstone of the supply 

chain. It is important to realize that production processes to convert raw materials 

to usable products for downstream markets are highly technology-intensive. At 

Simbol, we have approximately 9 PhDs and 4 MS degrees on staff (representing 

about 25% of our current workforce)—all with backgrounds in chemical engineering, 

electrochemistry and chemistry. Our growth to date and future hiring is almost exclusively in the areas of skilled trades and technical functions. Our scientists and 

engineers are consistently finding innovative ways to improve the quality of materials and to develop the next generation of products. 

We believe that further domestic innovation in critical materials will drive workforce growth throughout our entire industry. Because domestic production of these 

materials largely ended in the 1970s, today it is inordinately difficult to hire individuals with experience in Mn and Li processing. In fact, it is taking us up to nine 

months to find qualified candidates for key positions at Simbol. This is a direct result of the absence of university programs: no U.S. universities offer geothermal energy degrees. While DOE has been making targeted investments in university 

coursework, in order to jump-start significant growth in this sector, strong university programs are an imperative. We believe that market growth in the production 

and processing of critical materials will lead to increased training of students in 

these fields, and subsequent technology advancements through our university system. 

Federal research and development funding drives private sector investment in critical materials 

We strongly support legislative initiatives to develop research, development and 

deployment activities for critical materials. These programs will jump-start the development of a domestic supply chain for clean energy, defense and other strategic 

sectors in the face of aggressive policy and financial support for entrenched foreign 

producers. 

The establishment of a new industry is inherently risky, and requires a concerted 

effort by both the public and private sectors. We believe that federal support for 

basic research remains essential to advancing America’s position in the clean energy 

economy. The Advanced Research Project Agency – Energy (ARPA–E) plays a critical role in driving cutting-edge, game-changing technologies. The Department of 

Energy (DOE) and other federal agencies play an important function in supporting 

R&D efforts to develop and demonstrate technologies that lower operating costs, 

allow access to new resources, and improve quality and environmental performance. 
54 

Federal R&D support that assists the private sector—including small businesses 

like Simbol Materials—in de-risking innovative technologies, when coupled with 

commercial sector investments, send loud signals to the market that encourage follow-on investment. In the critical materials space, these federal R&D commitments 

are power drivers of private investment, and directly support the development of a 

competitive domestic supply chain for next generation energy and defense technologies. 

For example, in 2009, DOE’s Geothermal Technologies Program (GTP) announced 

its intent to award Simbol a $3 million grant to demonstrate its processes for the 

competitive production of lithium, manganese and zinc chemicals for energy storage 

applications. Since being awarded the grant, we have grown our workforce from 16 

to 62, and will reach approximately 80 by the end of next year. We also have leveraged those federal funds to raise approximately $43 million in further capital. The 

majority of these funds were committed prior to the actual delivery of the first grant 

dollar, demonstrating the investment signal provided by the government’s technology validation. 

Financing risk remains the greatest barrier to commercialization of critical 

materials production and processing facilities 

While basic R&D support is essential to restoring U.S. leadership in mineral production technology, the federal government also has a critical role in helping overcome commercialization risk. While Simbol has been highly successful in raising private capital, the investment required for a full-scale plant is significant. Private investors require a demonstrated market for our product, but the reality is that—at 

least here in the U.S.—we are selling into a nascent industry. While growth projections for advanced batteries (and associated Li and Mn consumption) are high, investors continue to hold back, awaiting the emergence of downstream industry consumption for electric vehicles and grid storage. Furthermore, the absence of a federal strategy for the development of supply chains to support priority policy areas 

causes confusion in the marketplace regarding the importance of critical materials. 

Federal support for commercialization will help us bridge this so-called ‘‘valley of 

death.’’ In the same way that our GTP grant attracted an initial round of private 

capital, we anticipate that federal commercialization assistance would stimulate private investment for the full-scale production facility. It is important to note that 

mineral production facilities do not qualify for assistance under existing commercialization programs. For example, neither the Section 1703 loan guarantee program 

nor the Section 48(c) advanced energy manufacturing tax credit reaches sufficiently 

far back in the supply chain to support mineral production or processing activities. 

Current legislative proposals would be strengthened by adding provisions to expand 

eligibility. 

Absence of policy clarity stunts private investment in critical materials. 

The United States does not have a national policy on critical materials. Even the 

R&D investments we are discussing today are not explicitly focused on critical materials. Instead, nascent critical materials policies and investments are packaged in 

disparate programs and agencies based on end use technology. Let me give you two 

examples. First, Simbol received our DOE grant—not because we are helping build 

a domestic critical materials supply chain—but because we offer benefits to geothermal power production. On the other hand, we were excluded from consideration 

for a loan under the DOE Advanced Technology Vehicle Manufacturing Program because we could not prove that our lithium would be used only for electric vehicle 

batteries. This stove-piped focus on end use technology conceals the important critical materials policy efforts being undertaken in different parts of the DOE. 

This issue magnifies itself across the federal agencies. Different agencies approach 

critical materials from different end use perspectives, often resulting in divergent 

perspectives on criticality. 

Let me give you an example from Simbol’s vantage point. By any objective measure, both Li and Mn should be considered ‘‘critical.’’ As is the case with rare earth 

metals, this designation is not due to scarcity in global supply, but rather due to 

the lack of U.S. production. Li is an essential component of advanced batteries for 

electric vehicle and grid storage applications. The U.S. is approximately 76% import 

dependent on Li, with most global production from salt flat evaporation in South 

America and growing supply in China. While some government studies—including 

the Department of Energy’s 2010 critical materials strategy—have labeled lithium 

as ‘‘critical,’’ other assessments have not included it. 

Electrolytic manganese metal (EMM) is a fundamental input for specialty steels 

for defense and commercial applications, and Mn dioxide increasingly is emerging 

as one of the leading metal components for electric vehicle battery cathode powders. 
55 

The U.S. is 100% import dependent on foreign sources of manganese ore, as well 

as electrolytic manganese metal—95% of which is produced in China. Signaling U.S. 

concern with foreign production and trade patterns, the U.S. issued anti-dumping 

orders penalizing Chinese and Australian Mn producers. Despite this, Mn was not 

included in DOE’s 2010 strategy, although in April of this year the Defense Logistics Agency identified it as one of the Department of Defense’s top ten shortfall materials. 

These examples are not intended to serve as a criticism, but rather as a demonstration of the need for clarity across the U.S. government in defining what 

makes a material ‘‘critical.’’ 

This lack of consistency and policy clarity has stunted private sector investment. 

In the absence of a clear, consistent signal that the U.S. government is committed 

to developing domestic critical materials resources, private investors place their 

money elsewhere. On November 21, Reuters reported that Beijing plans to dedicate 

$1.7 trillion to ‘‘strategic sectors’’ over the next five years. This builds on the $500 

billion in Chinese public and private investment in lithium production since 2000. 

Similarly, South Korea announced approximately $300 million in public dollars for 

lithium production, and the Japanese government has been providing substantial 

public dollars through various loan guarantee and grant programs for lithium and 

other critical materials. In every instance, government involvement has led to substantial investment by private industry in the critical materials sector. 

A coordinated critical materials effort is needed across the Executive 

Branch. 

We recognize and applaud the Obama Administration for taking a focused approach to critical materials issues. The interagency working group led by the Office 

of Science and Technology Policy has been effective in bringing diverse agencies together to consider these issues. Efforts like the ‘‘Materials Genome Initiative’’ have 

placed high-level attention on materials science. Important activities are taking 

place at individual agencies, including DOE, where Mr. Sandalow’s team is doing 

excellent work in developing and updating a critical materials strategy for energy 

production. But these efforts should be coordinated through federal policies and programs that are responsive to market conditions and support domestic critical materials production regardless of end use. 

Critical materials policy recommendations 

We applaud Representative Hultgren and other members of this Committee for 

introducing legislation focused on the development of critical materials. Given the 

urgent need for clear policy signals, and the commitment to this issue on both sides 

of the aisle and the Capitol, it is our hope that critical materials legislation can be 

advanced this Congress. As the various proposals continue to move through the legislative process, I urge you to consider the following policy recommendations: 

• Establish whole-of-government critical materials policy: Current initiatives are 

scattered at various agencies and masked within programs focused on end-use 

technologies. It is essential to formalize and improve coordination efforts to create a whole-of-government critical materials policy agenda. 

• Utilize self-classifying definitions: Rather than stipulating a list of qualifying 

materials or delegating broadly to federal agencies, we recommend a selfclassifying definition, which could be based on 1) use of specific materials in industries that support strategic or policy priorities and 2) the level of U.S. production and processing. Such a definition should apply across the entire federal 

government. This will ensure that the government is not picking winners and 

losers at a given moment in time, but rather structuring programs based on the 

realities of the rapidly changing global marketplace. A straightforward, clear 

definition will immediately communicate to the market that designated materials are critical to U.S. policy goals. This will rapidly drive private investment 

to strategic federal priorities. 

• Invest in materials science going back to the beginning of the supply chain. At 

every point in the supply chain, manufacturing drives innovation. Developing 

a domestic supply chain for critical materials will bolster our nation’s competitive position in innovative and industrial sectors. This also will serve as a force 

for rebuilding our university programs in materials science and engineering, 

which have languished since the 1970s, following the downturn in U.S. critical 

materials production. 

• Streamline methods for licensing technology from national laboratories. We recognize that there have been a broad set of efforts to create a more consistent 

licensing process for technology commercialization from our national labora-
56 

tories. However, there remains substantial variance within the laboratory system. We need to advance a more effective process that gets technology out of 

the labs and into the commercial sector, in order to drive technology growth and 

create opportunities for further innovative research. 

• Small-dollar government investments in research yield significant returns. Small 

businesses employ approximately 50% of the private sector workforce in the 

U.S., and they are able to move technology along the S-curve of innovation faster than other entities. In this time of downward pressure on federal budgets, 

it is essential to continue to support the small companies and innovative technologies that drive growth throughout our economy. We believe that the federal 

government will be best served by diversifying its investments and providing 

small research grants to a wide variety of promising technologies in strategic 

sectors. This limits the government’s exposure and enables it to serve as a catalyst for growth industries. In Simbol’s case, a $3 million federal investment leveraged approximately $43 million in private sector financing. 

Thank you for the opportunity to testify, and I look forward to your questions. 

Chairman HARRIS. Thank you very much, Mr. Erceg. I want to 

thank the panel for their testimony, reminding members Committee rules limit questioning to five minutes, and the Chair at 

this point will open the round of questions. I recognize myself for 

five minutes. 

Mr. Sandalow, your testimony notes that, and I think you mentioned that DOE is updating its critical materials strategy, I think 

you said next month, due to ‘‘the rapidly changing market,’’ and 

that is kind of the issue. Given how quickly the market has reacted 

to current supply constraints, how would the government be best 

positioned, because, you know, the government isn’t usually very 

flexible on how it works, and how would it be best positioned to position itself with regards to rare earths? Shouldn’t its efforts be focused as has been suggested on, you know, gathering information, 

doing only basic research, not necessarily applied technology solutions and recycling? And is that the direction you think this report 

is going to go or is it going to be more expansive than has been 

suggested, and I think as the bill suggests, that we focus on information, basic research and recycling? 

Hon. SANDALOW. Well, thank you for your question, Mr. Chairman. It is a very important one. And DOE’s 2011 Critical Materials 

Strategy will be released this month, and in that report, we have 

analyzed about 16 critical materials. We have looked at their role 

in the clean energy economy and we have looked at supply over the 

years ahead, and we have criticality assessments. We are updating 

the announcement that we did last year, and we hope it will be informative to the community that is working on these issues. 

With respect to your question about the role of government, I 

think you identified, and others have as well, some central roles. 

Certainly, collecting information is central, and government plays 

an extremely important role in that. Government also plays an important role in supporting research. I would be careful about artificial distinctions between basic and applied research in this area. I 

think research across what are sometimes called technology readiness levels of different numbers are important, and I would just 

highlight one example in a different area along these lines. 

In the 1980s, the Department of Energy supported work in what 

was then not widely known technology called hydraulic fracturing 

and horizontal drilling. It is a technology used to extract shale gas. 

And it was by any definition applied research that the Department 
57 

of Energy was doing, partnering with companies in order to further 

develop this technology. Well, that work was picked up by companies and today we have a shale gas revolution here in the United 

States, which is revolutionizing our power markets and is spreading around the world. So I don’t think we would have wanted to 

be limited at that time by any artificial distinction. I think we 

should be careful of it now. So I think government’s role there is 

important. 

There is one other principle I want to highlight in terms of government’s work on this, since you asked about it, Mr. Chairman, 

is interagency coordination. I am keenly aware sitting at the Department of Energy that we only work on a part of this issue, the 

critical materials issue. So it is very important that we coordinate 

across the Federal Government. We are doing that now within the 

Administration led by OSTP. 

Chairman HARRIS. No, I appreciate that, you know, since you 

mentioned hydraulic fracturing, which is kind of a favorite topic for 

the Committee at some times. You know, the problem is that, you 

know, when you go again to applied technology, then you do pick 

winners and losers, and right now the Department of Energy and 

the Environmental Protection Agency are picking hydraulic fracturing as a loser. They are not doing innovative research in it, even 

though it is one of the most promising, and I guess that is my problem with that. 

But Mr. Erceg, you know, you bring up an important point. Obviously, there is the imprimatur of somebody having like the Federal 

Government agency having reviewed a proposal and said yeah, this 

has merit, is obviously important. But your point that, you know, 

you even made the point that the government grant was for $3 million for your company but it leveraged into $42 million of private 

capital, venture capital, I take it. Obviously, that means that the 

venture capitalists weren’t looking at the government’s investment 

per se, the $3 million, because that is a drop in the bucket compared to what it is going to cost to develop your technology, but 

merely the fact it had been reviewed and it was felt to be a useful, 

potentially useful process, and I think your process was more along 

the lines of applied technology and the basic research similar to 

Solyndra was applied technology, not basic research. Is in fact the 

importance of what the government can do as reviewing these proposals and the amount of dollars to it is maybe not as important, 

that it has gone through a third-party outside, you know, substantive review? 

Mr. ERCEG. Thank you, Chairman Harris. I certainly would 

agree with that. If you look at the history of Simbol, when we were 

seeking our first round of funding, there were in fact next to no private industry experts in this field, and that actually led us to senior scientists at the Lawrence Livermore National Laboratory, and 

so what you actually had was a confluence of activities. What we 

saw was government was deciding that electric vehicles was one of 

the key policy initiatives for the Department of Energy to pursue 

that. In addition to that, Department of Energy has been a longterm supporter of geothermal technologies programs. You know, we 

have had a decline in the availability of technical talent in this 

country in these areas. In fact, you know, all the investment that 
58 

has gone on through the last couple of years has been to build a 

U.S. industry around electric vehicles. We have had a decline in 

addition to that in technical talent for geothermal. So when it came 

time to validate the approach the technologies that we were doing, 

the DOE had a very, very important role. The geothermal side of 

the DOE was able to essentially say yes, this has a lot of benefit 

to geothermal producers, not every one of them but certainly it has 

a benefit to promote geothermal investment and development, and 

then secondarily coupled with the policy initiative that producing 

these materials from a brine could satisfy other important policy 

areas as well, that $3 million became an enormous signal to the 

market that this was an area that government and the United 

States was committed to. 

Chairman HARRIS. And again, because you seem to suggest at 

the beginning of your answer, it is not as much the value of the 

dollars but that a collection of experts had looked at it and said 

this is valuable? 

Mr. ERCEG. That is correct. 

Chairman HARRIS. Thank you very much. 

Mr. Miller. 

Mr. MILLER. Thank you. I think Dr. Scissors and I agree that 

government should not rush to solve problems that the market will 

solve on its own. I think we differ on how long we are willing to 

wait for that to happen. A source that I know is not revered at 

Heritage said that in the long run, we are all dead, and in this 

case, I think waiting for the market to solve its own problem will 

be a very long wait when there are massive barriers to entry, massive investment required to compete with the Chinese, who we 

know will use predatory pricing, have in the past, will again, and 

have very deep pockets to wait out any potential competitors. 

Dr. Jaffe, I was struck by your using the term ‘‘fundamental research.’’ It appeared to me that you were trying to skate over that 

distinction between basic and applied, wanting to avoid that argument. It appears that we do—there is some picking of winners and 

losers about what research is done, what research is funded by the 

majority. The losers are called applied, the winners are called 

basic. There is not a clear distinction. There is no bell that goes off 

when basic research crosses over into applied, and it appears that 

most of what we are talking here would meet the usual definitions 

of applied and yet it seems that most of us think we need to do 

it. 

Is there a useful distinction there? What should the distinction 

be between what kind of research in this area we support and what 

isn’t? If you say let us not do basic—let us not do applied but let 

us do basic, what is your definition? How are you defining that? 

Let us start with you, Dr. Jaffe. Which is fundamental research is 

applied, which of your fundamental research is basic? 

Dr. JAFFE. Thank you for the question. I think we did choose 

that word ‘‘fundamental’’ quite carefully. There are picking of winners and losers when any research task is presented, whether it is 

at the very basic level or at the applied level. The distinction that 

seems most meaningful to me is time scale. It seems that private 

enterprise shies away from making investments in research that 

have very long payoff time scales, and that—those kinds of efforts 
59 

usually fall to government or foundation-sponsored research, 

whether it is in the area of very abstract research like I do or 

whether it is in the more practical areas of research like recycling 

or lifecycle analysis. 

When I listed those areas of research ranging from characterization of resources all the way through to recycling and resource 

analysis, it seems to me that that spans a spectrum more identified 

by the time scale than it was by the character of the individual investigation. 

Mr. MILLER. Anyone want to answer this question in 15 seconds? 

Dr. SCISSORS. I will take a shot. It is the market view, it is not 

the science view, which is when there is a single firm or single 

technology, it is very difficult to see how you are not moving—a 

firm, not a research center—how you are not moving into applied 

research. 

Mr. MILLER. Anyone else, a very quick answer? Okay. 

One of the differences between the bill that I have introduced 

and Mr. Hultgren’s bill, and I think a weakness of the Hultgren 

bill, is that it gives significant responsibility, coordinating responsibility, to an agency that exists only by Executive Order. So we 

could get statutory authority to an agency that might not be there 

if this President or another President changes that Executive 

Order. But everyone seems to agree that there should be coordination between agencies. The Department of Defense has national security needs. Department of Energy obviously has energy needs. 

The Interior Department historically has kept records in this area, 

has a role as well. Who do you think should be in the position of— 

Dr. Holdren, I think, I said in June that OSTP was taking the lead 

in coordinating across agencies. What—Mr. Sandalow, perhaps you 

could start. What agency do you think should have that coordinated role going forward? 

Hon. SANDALOW. Well, thank you for the question, Congressman. 

I am not in a position to comment on the specifics of legislation and 

the different proposals that are out there, but just two thoughts in 

response to your question. First, today, the Office of Science and 

Technology Policy is coordinating our work within the Executive 

Branch, and that is working very well. They are convening regular 

meetings on this, making sure that the different experts are talking to each other and that policy is coordinated. And I guess I 

would just add, you know, more broadly, from looking—I have had 

the opportunity in the past week or so to look at the different bills 

that are out there, and I think, as someone said, we have about 10 

or 12 bills, and I see in those bills a lot more similarities than I 

see differences. And so this may be an opportunity where different 

sides can come together and really enact something that would be 

good for the American people, good for American business and 

move us forward in this—on this topic. 

Mr. MILLER. Dr. Gschneidner, you testified before the I&O Subcommittee in 2010, just last year, and you emphasized the need to 

attract young people to research in this area and to build a workforce in this area. What provisions should we make for educating 

a workforce in legislation or otherwise? 

Dr. GSCHNEIDNER. Well, as I noted in my testimony at that time 

and also in the testimony today, I think a national center for rare 
60 

earth research and energy would be a very good step in the right 

direction where the center would be located, as far as rare earths 

are concerned, at a university which has a long background of history, and that would be the major thing, but there would be other 

satellites at other universities which contribute their expertise 

which is not found in the main thing—and I think the other thing 

is scholarships in addition to stipends to attract students into this 

area. 

Mr. MILLER. Thank you, Mr. Chairman. 

Chairman HARRIS. Thank you very much. 

I recognize the gentlelady from Illinois, Ms. Biggert. 

Mrs. BIGGERT. Thank you, Mr. Chairman, and thank you for 

holding this hearing. 

This question is for Dr. Sandalow and others if they care to respond. Recognizing that critical materials are the foundation for 

batteries and much of the focus of battery improvement, how would 

you characterize critical materials from a supply perspective as it 

relates to acquiring these materials for battery production? 

Hon. SANDALOW. Well, thank you, Congresswoman, and let me 

recognize in answer to your question the really superb cutting-edge 

work done by Argonne National Laboratory in the topic you were 

asking about. Argonne has really been a leader in battery research 

for many years. 

Last year in the Department of Energy’s Critical Materials Strategy, we identified a number of materials that are important for 

batteries and assess their criticality, as we said. We looked at lithium and concluded that lithium—there are issues with respect to 

lithium supply, particularly with lithium ion batteries. We didn’t 

classify them as the most critical, as one of the most critical elements in terms of overall supply. We found that there are likely 

to be adequate supplies of lithium going forward. Other batteries, 

nickel-metal-hydride batteries, have other elements that are important, and actually sitting to my left are some of the world’s experts 

in the chemistries of nickel-metal-hydride batteries and so with 

them sitting at the table, with your permission, we will pass the 

microphone to them. 

Mrs. BIGGERT. Well, first, let me just continue with this question 

and then we will do that, because, you know, obviously Argonne is 

doing a lot of research on the work on batteries, and I am always 

focused on taking that technology from the lab to the marketplace. 

Would you consider the supply issue critical at that point, taking 

it out of the labs to the marketplace, or is it something to monitor 

for the time being? 

Hon. SANDALOW. Just maybe two pieces of that question. First, 

in terms of our progress overall on batteries and battery research, 

this is an extremely important area for the U.S. transportation sector. Right now, we have electric vehicles that are on the roads for 

the first time. They are starting to make a difference and they will 

make a big difference, particularly if the cost of these lithium-ion 

batteries can be reduced, and research in this area is so important 

for reducing our oil dependence, for reducing our dependence on 

foreign oil, and it is important that we move those batteries to the 

marketplace. 
61 

In doing that, we need to pay attention to the material inputs 

for those batteries. Obviously, that includes lithium. Our analysis 

and the analysis of others concludes that lithium is not among 

those materials that is most critical in terms of supply, that there 

are adequate supplies of lithium out there. There are other materials that are important as well. 

Mrs. BIGGERT. All right. Would somebody else like to address 

that? Yes. 

Mr. ERCEG. Congresswoman Biggert, I would like to just address 

this question of lithium supply and even the supply of critical materials. First off, as has been noted on this panel, we are not running out of any of these raw materials in the earth. What we are 

lacking here in this country is the ability to produce these materials and process them. That requires a highly skilled and trained 

workforce. It requires research and development. But it also requires paying attention to the entire supply chain from how that 

material works its way from a company like ours where I can assure you the technology in producing a high-end lithium carbonate 

or lithium hydroxide for use in a battery is as complex as producing a cathode power, okay? And when you move these materials 

through the supply chain, if elements of that supply chain do not 

exist, there are no bonds for innovation. You lose the ability to innovate throughout the industry, and that is, I think, what is critical to understand is that critical materials support innovation and 

we need to foster that innovation. 

Mrs. BIGGERT. Thank you. 

And then Mr. Sandalow again, as our country faces the fiscal 

constraints and our economy is facing some pretty strong 

headwinds, we are making progress but it isn’t enough, and as 

such, we in the Federal Government need to do our part to cancel 

or at least rein in those programs that are not delivering the value 

for the money to our taxpayers, and in terms of program management, what research and development milestones or goals will 

teams competing for the critical materials energy innovation hub 

need to meet so that we can better evaluate our return on the investment? 

Hon. SANDALOW. Thank you for the question, Congresswoman. It 

is extremely important, and let me note that a couple of years ago 

when I had the privilege of first coming into this job, I looked 

around the Department of Energy and realized that there was no 

coordination across the many parts of the Department of Energy or 

very little coordination with respect to our research in this area. 

That is one of the reasons that we pulled together our team within 

the diverse parts of the Department of Energy to coordinate to be 

sure that we weren’t duplicating efforts in this area, and that internal coordination I think has paid a lot of dividends for the department and I hope for the taxpayers. 

The exact question that you are speaking about in terms of our 

R&D plan is one that we are going to be addressing more specifically in the Critical Materials Strategy that we are releasing this 

month and so if you are interested, we would be delighted to send 

that up to you. 

Mrs. BIGGERT. That would be great. I appreciate that. Thank 

you. 
62 

Yield back. 

Chairman HARRIS. Thank you very much. 

I now recognize the gentleman from California, Mr. McNerney. 

Mr. MCNERNEY. Thank you, Mr. Chairman. 

Mr. Erceg, as a business from my district, I would like to—and 

I am really thrilled to welcome you here today and have you share 

the story of your success with us. Can you expand a little bit on 

the grant you received from the Department of Energy and how 

that helped you and your company create jobs? 

Mr. ERCEG. Certainly. Thank you, Congressman McNerney. So we in 2009 had received a $3 million grant from the Department 

of Energy’s Geothermal Technologies program, and the grant had 

arisen to foster the commercialization or in testing of the extraction 

of materials from geothermal binds and to validate that technology. 

So at the time we had 16 employees, and we had done a lot of applied research in our own laboratory efforts, building on some of 

the work and understanding that had been gained from working 

with Lawrence Livermore, and then the $3 million that was granted to us was actually—actually paid for the salaries of many of the 

employees that helped us run these processes in a commercial-like 

environment. So we raised additional capital, continued to invest 

our own capital to put in the hard assets and equipment and then 

the $3 million grant was predominantly used for the salaries necessary to operate this facility in a 24 by 7 basis so that we could 

replicate and demonstrate that the technologies had matured to a 

point where you could now build a commercial-scale facility. 

In addition to that, the capital has also fostered additional R&D 

opportunities with universities and with national labs where we 

continue to work on programs for extracting other materials. The 

interesting thing is, is that this signal also led the State of California as itself to provide us with substantial opportunities such as 

matching grant dollars and then in addition to that sales tax exemptions that were provided for acquiring commercial-scale equipment and building our facilities. 

Mr. MCNERNEY. Would you say that regulations have stifled 

business and growth in your case or in general? 

Mr. ERCEG. So regulation is always tough, and I don’t opine on 

whether we should have regulation or not. We respect the fact that 

the regulations exist and that we have to adhere to the laws of the 

country. In our instance, actually regulation had an interesting effect, is that it actually fostered more innovation. So it actually 

drove us into a more sustainable process. The net result of that 

was that we could be more sustainable in the form of production 

that we use to produce lithium compounds than our competitors 

can while at the same time being able to compete with the lowestcost producers. So in that respect, it had a very positive outcome. 

Our concern with regulation is just simply timing. You know, as 

long as we know that there is timing transparency and consistency, 

I am confident that, you know, American innovation can adhere 

and be competitive. 

Mr. MCNERNEY. Thank you. 

Mr. Scissors, it seemed to me that you were saying to trust the 

market and hope for the best, and, you know, I don’t think the Chinese use that model, and I bet you they are hoping that we con-
63 

tinue to use that model but I just can’t abide with that approach. 

The market is not a free market. We need some participation and 

guidance from other sources than just the market itself. 

Dr. SCISSORS. Would you like me to reply, sir? 

Mr. MCNERNEY. I threw the first stone. Throw it back if you 

want. 

Dr. SCISSORS. Okay. It is not just trust the market and hope for 

the best. Rare earths exist because of the market. You know, we 

are just not hoping for something, we have evidence that the market works. We have evidence from the beginning of private sector 

innovation. We have evidence in the last year when the Chinese, 

as you are absolutely right, tried to play on the market and they 

failed. They haven’t failed forever. I agree with both comments. 

Mr. MCNERNEY. You said they tried to—— 

Dr. SCISSORS. They tried to drive up prices and now they are failing. That is the whole point of trying to take over a market so you 

can drive up prices and control the process and that—— 

Mr. MCNERNEY. That drove up market prices pretty significantly. 

Dr. SCISSORS. Absolutely, and I don’t mean to imply that because—— 

Mr. MCNERNEY. They made a lot of money in the process, and 

our companies have paid the price for that. 

Dr. SCISSORS. And now they are losing a lot of money, and my 

point is not that they are not going to try again. They are going 

to try again. The point about whether the market works is whether 

other firms can enter, whether consumers can respond, and they 

can and they have. I am not relying on the Chinese to do anything 

nice. I have studied the Chinese economy for 20 years. They are 

going to be predatory. Is it possible—I will stop in a second, I am 

sorry—for market participants to respond, and we have seen evidence that it is. 

Mr. MCNERNEY. All right. I think I will yield back. 

Chairman HARRIS. I recognize the gentleman from—I didn’t see 

you sitting over there—the gentleman from California, Mr. Rohrabacher. 

Mr. ROHRABACHER. Thank you very much, and I am sorry, I was 

here a little bit late. This is December 7th, and there is a group 

of Pearl Harbor survivors downstairs who I was meeting with, 

which sort of fits in with what we are talking about today, doesn’t 

it? The fact is that American security can be attacked whether 

through economy and economic means or through military means, 

and certainly what we are talking about today, Mr. Chairman, goes 

directly to the security of our country because we realize that many 

of the materials that we are talking about today and the elements 

that are necessary to have a modern society are at risk, and we are 

vulnerable to what is a government that is the world’s worst 

human-rights abuser, perhaps like Pearl Harbor where the Japanese militarists at that time were actually the greatest expansionary power along with their Nazi allies. Today, the Chinese communist regime has leverage over the West that it should not have, 

and if we are to make sure that it does not, we have to look at this 

from many different directions, and I will read your testimony, and 

I appreciate—I am sorry that I was not here. I was down with the 

Pearl Harbor survivors. 
64 

But just a few thoughts, and that is—and maybe your reaction. 

If I am saying something repetitive, please feel free of not commenting. But if we are to have the security we need in these materials, we of course need research and development that will make 

sure we have alternatives, but we also need to make sure that the 

regulatory policies of the government will permit our people to do 

what is necessary to meet the challenge, but also we need to make 

sure that we have a policy at the Bureau of Land Management and 

the Department of Interior that will permit us when we have these 

materials available domestically that will permit us to actually let 

our people to do their job in getting us those materials and processing them. We should take this very seriously because China is 

taking it seriously, not only in manipulating the market, as the 

gentleman just said, but in going around the world making alliances with other horrendous gangster regimes, whether it is 

Burma or whether it is African countries and Sudan, et cetera, in 

order to have this quest of having control of these very necessary 

materials for modern-type equipment. 

So with that said, I just thought I would put that into the record. 

Maybe some of you have any comment on that. Please feel free. I 

am sorry if it was repetitive. Yes, sir. 

Dr. SCISSORS. I will just briefly comment on your land management issues because I brought that up quickly in my testimony. I 

agree. I suspect we don’t agree on everything but I agree with you 

there, and I said that there is a commercial return available. We 

have, in my opinion, a properly functioning market. When you expand the size of a market, you get wealth from that. I am not arguing to the committee that there are no other considerations and I 

am not arguing that I know a lot about those considerations. There 

are lots of considerations. I just want to put it on the record that 

in addition to the national security aspect that you are referring to, 

there is a commercial return to expanding the land available for 

ECE exploration. There may be countervailing factors but there is 

a positive one to think about. 

Mr. ROHRABACHER. Well, let us just note that something as heralded as solar energy has been dramatically hampered by the Bureau of Land Management. I mean, it wasn’t until this year that 

after prodding, after years and years of putting pressure on the Bureau of Land Management that they were willing to give any contracts or any approvals for solar energy sites in America’s deserts. 

I mean, there was, I think, over 200 applications and not one of 

them had received an approval from the Bureau of Land Management, and it wasn’t until Congressional pressure—I wrote the legislation and submitted it—was exerted that they ended up permitting, and that is something as easy to understand as putting out 

solar panels, and sometimes the people who work for government 

will get distracted and in this case I think it was the habitat of the 

little lizards and the insects that were more important than the 

well being of the American people that prevented us from making 

those kind of decisions. 

Let us make sure that doesn’t happen in something with these 

vital materials because we are not going to have the industrial and 

the modern society that makes our standard of living unless we do 

take care of this challenge. 
65 

Thank you very much for holding this hearing, Mr. Chairman. 

Chairman HARRIS. Thank you. 

I recognize the gentleman from New York, Mr. Tonko. 

Mr. TONKO. Thank you, Mr. Chair. 

Assistant Secretary Sandalow, I am encouraged by your reports 

that efforts are underway to increase our supply of energy-critical 

materials. While that is good news, especially for some companies 

in my district that are manufacturing products that require these 

elements, but I would ask if DOE has responded to this barrier to 

retaining and expanding manufacturing by creating—by doing 

more if we want firms to manufacture, like a question to you would 

be, is DOE’s effort linked with a broader strategy to put the manufacturing model and link it to these efforts, and is OSTP or the 

Commerce Department part of a broader strategy to encourage domestic manufacturing, not just a reliable supply of energy-critical 

materials? 

Hon. SANDALOW. We are, Congressman, and thank you very 

much for that important question, because U.S. manufacturing is 

so vital for economic growth, for job creation, and the President has 

proposed extending the manufacturing tax credit known as 48(c) 

and a variety of other policies that are central and really beyond 

the scope of the particular issue that we are talking about in this 

hearing. I know in your district there is a company called Tonko, 

I believe, which is doing terrific work in this area, and within the 

Department of Energy, we are looking at this issue as part of a holistic package within the Administration, coordinating with the Office of Science and Technology Policy and the critical-materials aspect and other parts of the government on manufacturing policy. 

Mr. TONKO. And Dr. Jaffe, in your testimony, you suggest there 

may be a significant amount of energy-critical materials contained 

in discarded cell phones and other electronic devices, things we 

now refer to as e-waste. Do we have processes for collecting and recovering these materials for recycling? 

Dr. JAFFE. For some of them, yes. For others, it is a subject of 

future research. 

Mr. TONKO. Well, with the number of manufacturers that have 

moved their facilities to China to gain access to their supply of 

ECEs, do we have enough demand here to make recycling an economically viable option? 

Dr. JAFFE. At the present time, recycling couldn’t possibly satisfy 

the need for new supplies of these critical elements simply because 

the demand is growing so rapidly, the amount in present use is not 

sufficient. There are other economic puzzles and scientific puzzles, 

one of them being that cell phones seem to migrate down the economic world and end up when they are finally discarded in countries where obtaining a stream of recycling is very difficult. 

Mr. TONKO. Thank you. 

And Dr. Gschneidner, you provide a list of research needs in this 

area. Are any of these underway at DOE or are they being funded 

by the department at this time? 

Dr. GSCHNEIDNER. There is some work being done at various 

DOE laboratories but I don’t think they are coming out of regular 

projects. I mean, they are sort of diverting funds, you might say, 

into that direction. 
66 

One of the problems I want to comment on, on rare earths, is 

that the amount of rare earths in a cell phone is insignificant. It 

is .1 weight percent, which makes recycling very difficult. Of 

course, if you recycle it for the gold, the platinum and the copper 

and co-mine it, that makes it move in the direction you want to go. 

But as Dr. Jaffe says, a lot of this material is being shipped overseas. The recycling problem for the rare earths is difficult because 

the amount of rare earths in most applications is pretty small except the wind turbines, but there are not very many of them that 

are ready to be recycled anyway. So it is a difficult challenge on 

the rare earth side. 

Mr. TONKO. Thank you. Thank you very much. 

Mr. Chair, I yield back. 

Chairman HARRIS. Thank you very much. 

I recognize the gentleman from Illinois, the sponsor of H.R. 2090 

and a member of the full Committee, Mr. Hultgren. 

Mr. HULTGREN. Thank you, Mr. Chairman. I want to thank you 

for letting me join the Subcommittee today. 

Thank you all very much. This is a very important discussion 

and I am so grateful for the important work that all of you are 

doing and getting ready for the next steps that we need to take as 

Members of Congress here. 

I want to start with Assistant Secretary, a quick question for 

you, Assistant Secretary Sandalow. I know you can’t give your 

opinion on my bill but I wondered if you could share your thoughts 

on Dr. Jaffe’s recommendations in his report. 

Hon. SANDALOW. Well, broadly, we think the report is a really 

important contribution to the discussion here. I don’t want to comment on every specific recommendation in there but it really is a 

very important piece of work. We thank Dr. Jaffe and the whole 

committee that worked so hard on it. 

Mr. HULTGREN. Thank you. 

Expanding my question to the rest of you and specifically the 

strategy for critical materials, kind of a long question here, but I 

wonder if you could comment on this. What are your perspectives 

on the December 2010 DOE Critical Materials Strategy? Specifically, what input can you offer on the three key points that are outlined in the report including the need for a diversified supply 

chain, the development of substitutes and increases in recycling 

and overall efficiency? I wondered also if we have time if you can 

mention your opinion, what is the appropriate proportion of the 

amount of effort expended towards each one of these items and how 

might a focus on development of substitutes and on recycling and 

efficiency improvements impact the overall industry? So starting 

with Dr. Scissors, I wonder if you would have some comments. 

Dr. SCISSORS. Okay. I am going to give again the market view 

as opposed to the science view, and the market view is, we already 

are diversifying supply and we already are substituting, and that 

is best handled by the market because the market responds to 

prices and prices are what cause supply diversification and demand 

substitution. If the government orchestrates that, they are going to 

get it wrong. They are going to substitute the wrong things, they 

are going to diversify into the wrong things because ultimately 

what we are trying to satisfy is market demand, not government 
67 

demand. So the government steps in. We are going to get a mismatch between demand and supply. 

Where I would see a government role is recycling simply because 

environmental protection is part of the government mandate. That 

is a public good. It is an appropriate government role. We have 

heard from my colleagues challenges in this area and make it a 

disincentive for the private sector to recycle because the commercial return is low due to content and because we are relocating our 

waste overseas, which is also a proper government role. So I would 

stress the recycling side for the government, not because the other 

two points aren’t important but because they are properly handled 

by the private sector. 

Dr. JAFFE. If I might respond, I think there are three different 

timescales involved here. The diversified supply chain recognizes 

the present reality that these elements are found all over the world 

and in all kinds of different circumstances and that in order to 

maintain the present supply we have to cultivate supplies wherever they occur. The research efforts adjust over a somewhat longer 

time scale looking for substitutes, looking for new ways of identifying resources. And finally, I think the recycling efforts are an investment in the longest term. I think the public simply doesn’t appreciate the preciousness of these materials. Many of them are literally less abundant than gold on the surface of the earth and they 

should be regarded as the same way you would regard your discarded diamond rings or fillings from your teeth. 

Dr. GSCHNEIDNER. May I make a comment? I agree with Dr. 

Scissors in part in that the market situation has developed so that 

the Molycorp now is a U.S. producer. They are going to produce 

about 5,000 to 6,000 tons this year, 12,000 next year and 40,000 

probably by the end of 2013, beginning of 2014. The problem is— 

I think that part of the problem—I said there are three parts to 

the rare earth crisis, and that is the first one. The second one and 

the third one, which are the most serious ones which we need to 

really consider is what happens after Molycorp mines this stuff. 

They are going to make metals and then they are going to make 

magnets. What are we going to do with them? Are we going to ship 

them back to China to make all these things? We have to build up 

our infrastructure at that point, and I think maybe at that point 

guaranteed loans and tax incentives for the manufacturers that 

make the products out of the magnets, out of the phosphors and 

so forth, and I think we need to support. 

And then the final thing, as I mentioned earlier before, is the 

education. We have got to train people, and it is a long term. It is 

ten years down the road before these—maybe five plus before a 

Ph.D. becomes really productive. It takes four years to get if he is 

lucky, and maybe five years. And so by the time he really becomes 

productive, it is a long-term investment. So we—and the government has to do that. I think there is just no doubt about that, that 

we have to do that. And we see that. It is already occurring. As 

a matter of fact, next year one of my colleagues is going to be 

teaching a rare earth course, a three hour credit. It is going to be 

distance learning for anybody available in the whole world. And 

Colorado School of Mines is also working on some of these things. 
68 

So I think things are moving but we do need some help in certain 

aspects of these things down the road from the Federal Government. Thank you. 

Mr. HULTGREN. Thank you. 

Mr. Chairman, can I see if Mr. Erceg has any quick comments? 

Do we have time? 

Chairman HARRIS. Sure you can, and we will have a round, a 

three minute round of questions follow-up if you would like, but 

you can—— 

Mr. HULTGREN. Just quickly, Mr. Erceg. 

Mr. ERCEG. Thank you. I would just note that diversity of supply, 

substitutes and recycling form a circle, and this circle is linked 

through R&D and education, and if we focus on diversity of supplies being more than just a shovel in the ground and that it includes processes and downstream production, as you build those 

processes up, R&D and research will continue as substitutes, but 

when we do get to the question of recycling, the existence of manufacturing here in the United States will also enable recycling, and 

it is very important to not lose sight of the coordination that occurs 

in the market if all elements of the supply chain exist. 

Mr. HULTGREN. Again, thank you all. 

Thank you, Mr. Chairman. Yield back. 

Chairman HARRIS. Thank you very much, and as I said, I know 

some members have additional questions. We are going to have 

just limited three minute round of questions, and I will start. 

Dr. Scissors, let me ask you a question. You are kind of a policy 

person. As we go to authorize these things, one thing I personally 

wouldn’t want to see is an authorization of something that would 

lead to another Solyndra where we authorize a program that really 

isn’t basic research, that really does attempt to pick a winner and 

loser, and isn’t—you know, the function of basic research in my 

mind should be not to necessarily project exactly where things are 

going to go in the future but to set open the array of options that 

science and scientific development could present. How do we do 

that with regards to this? How do we do this in this legislation so 

that—again, you know, we have seen this with, for instance, coal 

energy research where the Administration has decided, you know, 

it is just going to do carbon sequestration is the answer. Now, I 

will tell you what is going to happen. It is not going to be the answer and we will have lost valuable years where we could have 

done basic research on, for instance, developing the metallurgy to 

develop the high-efficiency carbon, high-efficiency coal generation 

facility for instance. How do you think we do this in the legislative 

structure? 

Dr. SCISSORS. My incomplete but I think valuable as part of the 

answer is, you can’t—you know, Solyndra. You can’t involve particular companies. You can’t identify a company or a technology. 

The government has to be working, if it is going to do this, with 

multiple companies and multiple technologies. If you pick one, first 

of all, it is at odds with the whole idea of a competitive market. 

I think everybody in this room wants a competitive market in rare 

earth but the government picking out a company is immediately at 

odds with that. 
69 

And second, partly going back to the ranking member’s comment, 

you are setting up a giant target for our deep-pocketed competitor 

to destroy. It is much harder to respond to basic research and 

progress on a wide variety of fronts than it is to say this is the 

company that is getting U.S. money. So it is not a good tactic, you 

know, as somebody who works in markets, it is not a good tactic 

to pick out a single company or single technology. It is also going 

to end up biasing the technological development and causing inefficiency in the industry. So I have an incomplete answer for you but 

the start of the answer is, if you are looking at one technology and 

one company the government is making a mistake. 

Chairman HARRIS. Dr. Jaffe, let me ask you, because I think the 

study that you are involved in made recommendations on that. I 

mean, how do we—and you noted that big companies can do it. GE 

can do this on their own but it is the small innovative companies 

that maybe can’t. how do we protect ourselves from placing those 

wrong bets? 

Dr. JAFFE. Well, I frankly, I think it is impossible to prescribe 

the rules of basic research in detail in legislation. I think that creating a constituency for basic research and then trusting the imagination and creativity of the world of higher education, national laboratories and industry to arrive at research topics through peer review is the way to go. But I would still warn you that 75 percent 

or more of the research activities that are undertaken now come a 

cropper, and the creative part that comes from the remaining 25 

may end up being something that you didn’t imagine in the first 

place at all. 

Chairman HARRIS. Thank you very much. I know that is true in 

medical research. That is for certain. 

I recognize the gentleman from New York for three minutes. 

Mr. TONKO. Assistant Secretary, when DOE does respond to a 

need out there for the Nation, does it look to an array of companies, an array of technologies, or do you determine a single source 

and single solution? 

Hon. SANDALOW. Congressman Tonko, thank you for your question. We look at an array of companies, and this is an important 

question so I am glad this Committee is talking about it, and, you 

know, I would say this. Governments around the world are deeply 

involved in energy markets today, and they have been for decades, 

and so the people of the United States acting through their government are standing up for their businesses or helping their businesses succeed in the global marketplace. That is an extremely important role. Now, as we do that, we absolutely, as you say, Congressman, are looking at a broad range of businesses, and the one 

that is here is a great success story about creating jobs and making 

a difference for Americans today using funding from the American 

people and through the Federal Government. 

Mr. TONKO. And to the panel at large, compared to other commodities, how transparent is the global market and how sensitive 

is this market to uncertainties and volatility? 

Dr. SCISSORS. That is something I know a lot about. At present, 

it is very sensitive and not transparent, and that is exactly as you 

would expect. We have a currently dominant producer. Even 

though its market share is shrinking, it is still dominant by any 
70 

measure, and the only thing they are transparent about is bragging 

about their predatory pricing, that they are going to drive people 

out of the market and raise the prices. So I guess in some sense, 

they are providing us a service by being so transparent. It certainly 

makes the WTO case easier. But, you know, reserve—we are just 

at the beginning of figuring out what we should be looking for, 

what are the critical elements here. They are changing. Where are 

they? You know, we see this in the United States, which is far 

more transparent than China is. We don’t really know where the 

deposits are yet. So this is the early stages of a market, and I 

would argue the market is moving very rapidly but I agree with 

your point that compared to other important commodities in energy, we don’t know as much as we do elsewhere. 

Mr. TONKO. Mr. Erceg? 

Mr. ERCEG. Thank you, Congressman Tonko. You know, being a 

market participant, I can tell you that in the context of critical materials, there is very, very little transparency, and what ends up 

happening is, there seems to be a fair amount of transparency in 

the earliest part of the supply chain, where are deposits, what does 

it cost to bring a shovel of material out of the ground. The moment 

you start separating these materials and defining them as compounds and derivatives, you lose complete visibility into the markets. It just becomes so clouded because the number of players becomes more and more fragmented and reduced as you move 

through the various components. 

We can throw the term ‘‘lithium’’ around very, very easily but, 

you know, I not being scientifically trained could bore you for an 

hour with a list of compounds and derivatives that come out of lithium and I can point to the fact that there might be only one producer or two producers in each instance. So it is very important 

that the research that goes on sponsored by the government in 

terms of understanding the markets such as what Mr. Sandalow’s 

office is doing and goes on at the DOD and other places because 

that offers us visibility into what are our key policy initiatives and 

then the market can determine, all right, well, which compounds 

and derivatives are critical to meeting those components and then 

you can have a market response, which is what happened in 

Simbol’s case. But we really have to focus on the fact that to create 

a competitive economy, and a competitive response in this area, we 

need more players here in the United States as well and only in 

that way can we ensure that our Nation has market signals as 

well. 

Mr. TONKO. Thank you. 

Chairman HARRIS. Dr. Jaffe. 

Dr. JAFFE. Thank you. I just wanted to add briefly, I certainly 

agree that the absence of transparent and robust markets is a serious issue, and that was the motivation behind our recommendation 

for a higher level of information gathering and dissemination. The 

Energy Information Administration does a remarkable job of gathering and making available facts about energy from production 

through consumption for countries all over the world, and we don’t 

have any similar way of gauging the availability and life of these 

materials that are becoming so critical. 

Chairman HARRIS. Thank you very much. 
71 

I recognize the gentleman from California, Mr. Rohrabacher. 

Mr. ROHRABACHER. Thank you very much, and again, I missed 

the opening here. I was down with our Pearl Harbor survivors, so 

I am sorry if this is repetitive but perhaps it again fits in with this 

whole idea. This is December 7th. We were attacked at Pearl Harbor and we lost 3,000, basically 3,000 lives of our military personnel there in Pearl Harbor and the battleship sunk our ability 

to defend ourselves was immediately changed for the worse and put 

us in a very desperate situation for the first year of that war. What 

type of danger are we in now in terms of these critical materials? 

I mean, there is not going to be a sneak attack where bombs will 

be dropped but what if—and we already know the Chinese are willing to attack us economically. They have already tried that to a 

limited degree of success and maybe long-term failure, according to 

our Heritage Foundation witness. 

So what danger are we in? Are we in danger of the American 

people’s standard of living being impacted if we don’t pay attention 

to this rare earth issue and what we are talking about today? 

Could our economy be severely damaged and American people’s 

standard of living actually go down unless we do something dramatic about this? Maybe everyone could have a little—whoever 

wants to do it. 

Dr. GSCHNEIDNER. May I make a comment, please, on the China 

situation? The China situation has changed considerably in the 

past few years, as we know, but I think a lot of things that people 

don’t appreciate. The Chinese economy is growing so fast that the 

Chinese philosophy now is, we are not going to send our rare earth 

materials, which are very precious, to the rest of the world, we are 

going to keep them ourselves, as a matter of fact, they are going 

to compete with us for other supplies from other countries and so 

forth. 

The other thing is on the Chinese situation, the ore supplies. 

They have found out—you know, they had found this one rich deposit of the heavies, which is where most of the critical elements 

come from, is going to run out in five or ten years, and they realize 

that, and there are no other sources in China for this that have 

this rich deposit, and so that is changing a good part of their philosophy. 

The second thing is that, I have talked to—there was a conference in Hong Kong just a couple, few weeks ago, and I was 

there, and there was about 300 companies from all over the world 

that had, quote, rare earth deposits. Many of them are not. And 

they are looking into this business. The market forces are moving 

things in this direction. 

Mr. ROHRABACHER. And if we don’t succeed, is that—— 

Dr. GSCHNEIDNER. No, I think—— 

Mr. ROHRABACHER. If we don’t—— 

Dr. GSCHNEIDNER. If we don’t succeed—- 

Mr. ROHRABACHER. What can we face as a people and what will 

we see here as a people if we do not succeed on this issue? 

Dr. GSCHNEIDNER. Well, the places where we won’t succeed is we 

have to have these companies that come in after the mining and 

the manufacturing and Molycorp comes. I think the supply situation is going to be basically more or less solved in a couple more 
72 

years. But it is after these materials are available that we don’t 

have the infrastructure and the commercial companies to do it and 

so we are still going to have to depend on the Chinese. 

Mr. ROHRABACHER. And what will the impact be on the average 

American’s life? 

Dr. GSCHNEIDNER. Well, it is a little bit hard to say but you will 

have to put up with some other difficulties. 

Mr. ROHRABACHER. Maybe one of your other panelists can tell us. 

Dr. JAFFE. At a meeting preparatory for our report, we had a Korean representative who said that the past was the Stone Age, the 

Bronze Age, the Iron Age, the age of metals, and the future is the 

age of the rest of the periodic table. But looking forward to the next 

century, the engagement of these other elements which we haven’t 

paid much attention to in the past will become pervasive in the 

economy. It will be everywhere. They may play minor roles in this 

element, in this object or this manufacturing process, but they are 

with us for the future and we need to take a long-term viewpoint. 

To ask what the individual effect on an American would be like 

asking in the 18th century what the effect on Americans would be 

of the absence of molybdenum, which is now a crucial ingredient 

in fabricating high-performance steels. We use it everywhere. 

Dr. SCISSORS. Well, being a resident of Washington, I will, you 

know, make up stuff. After my colleagues pointed out that there is 

no way to do this, I will do it anyway, but not because I think I 

am right, just because we are in Washington and that is what we 

do. 

Mr. ROHRABACHER. Educated guesses. 

Dr. SCISSORS. Right. Just one element of context. Total amount of rare earths that we imported from China last year was $1.4 billion worth. We imported $2 billion of fish. This is not a cost issue. 

So when you are talking about pocketbook or coming out of Americans’ pocketbooks, it is not a threat. When you are talking about 

future technologies, that is a different story, but coming out of 

American pocketbooks is not a threat. By that, I mean in terms of 

surprise on the defense side, you have looked at the DOD reports, 

I am sure. They don’t see a short-term problem. So when you are 

talking about what we can do concretely for the short term, I agree 

with my colleague. This is not an issue. It is not something to 

worry about. There is no sneak attack that is going to cost us a 

lot. 

We don’t know about the long term, and that is where learning 

more, providing more information, addressing transparency issues, 

we don’t want to be surprised as we were as you referred to on December 7th. 

Chairman HARRIS. Thank you very much. 

Let me recognize the gentlelady from California. 

Ms. LOFGREN. Thank you very much. I think this is an important 

hearing, and one of the reasons among many it is important is to 

let the American people know that despite the name rare earth, the 

elements aren’t actually rare, and this is something that we can 

get ahead of except we need to get organized to get ahead of it. 

I would like to just ask a—I was at a hearing in the Judiciary 

Committee, which is why I am late, and we had the head of the 

FTC and the Department of Justice antitrust division, and one of 
73 

the issues that we talked about was the interplay of patent law, 

which is exclusive, a grant of a monopoly, and antitrust, which is 

breaking up monopolies, and I noticed that Hitachi has refused to 

license its patent for high-grade permanent magnets, and there 

may be other instances where we are out of luck because of a license issue. Have we, Mr. Sandalow, as a department consulted 

with DOJ and with the FTC on whether this does in fact meet the 

obligations of these patent holders not to engage in monopolistic activities? 

Hon. SANDALOW. I am not aware that we have, Congresswoman, 

and it is something that I will follow up on. Your question highlights an extremely important broader point and one that we were 

talking about before, which is the importance of developing intellectual capital in this area. This is not just about mines, it is also 

about minds. It is about making sure that Americans have the expertise to develop intellectual property in this area so we have the 

patents in the future. 

Ms. LOFGREN. Yes, but if the patent is being held now by a monopoly that refuses unreasonably to license it to the detriment of 

our country as well as our industry, something can be done about 

that. So if you wouldn’t mind getting back to me on your response 

to that, I would very much appreciate it. 

Mr. Erceg, you mentioned—your testimony, as I understand it, 

was that in some cases regulations can actually spur innovation, 

although there needs to be transparency and the timing does matter. Can you expound on that for me so I fully understand your 

point? 

Mr. ERCEG. Well, thank you Congresswoman, for the question. 

You know, I think it is no secret in saying that California ranks 

as one of the most stringent regulatory regimes for any type of materials-based processing, and I would just use as an example that, 

you know, we were limited. The fact of natural resources is, we 

don’t really choose where we find them, and in this instance, the 

natural resource being the salt and sea brine is located squarely in 

the State of California. So we knew that going in as a business 

model and understood that there was going to be a lot of regulation 

as to how you work with and process materials. Knowing that in 

advance, we knew that we had to develop our processes in such a 

way that, one, we could meet the needs of the regulatory authorities, but secondarily, before we could raise investment dollars, we 

had to be able to demonstrate that even with meeting those regulatory obligations, we could be competitive in the marketplace. 

So what ended up happening was, we had, you know, a brilliant 

team of scientists and engineers who represent the applied nature 

and then the actual tactical nature of our business came together 

and said oh, well, if we do this, this will allow you to do X, Y and 

Z, and that ended up, for instance, allowing us to reduce the CO2

emissions out of a geothermal power plant and reincorporate them 

in the carbonation step of our plants, and that is the example I 

would give as spurring innovation. 

I will say that, you know, regulation ultimately affects timing, 

you know, and that is a substantial concern. You know, when we 

look to competitors around the world, you know, their regulations 

are oftentimes more lax than ours, and I don’t propose in any re-
74 

gard that we should reduce the regulatory burdens that are out 

there but we have to be conscious of the impact on time and what 

it does in allowing a company to reach a commercial point and 

built that plant going through the number of regulatory steps necessary. So, you know, I would just, you know, hope that we can 

take a balanced approach in society on this issue. 

Ms. LOFGREN. If I may, Mr. Chairman, you can’t breathe the air 

in Beijing today. You can in San Jose ́n. So there is a reason for this 

but I think if we—if I am hearing you correctly, if the standards 

are set out in advance and you can look to them, that that is very 

helpful. Would that be accurate? 

Mr. ERCEG. That is certainly accurate, ensuring that especially 

in areas of policy initiatives, if we can provide companies the opportunity to move rapidly through these processes, that too could 

be very beneficial, and that is not—again, that is not a statement 

to say that we should lower the standard, just allow us to move 

through it much quicker, and as industry participants, we will rise 

to the challenge and innovation will help us. 

Ms. LOFGREN. Thank you very much. 

Chairman HARRIS. Thank you. 

And before we adjourn, Assistant Secretary Sandalow, I think 

you wanted to answer the Congressman from California, who subsequently left, but if you want, I will give you 30 seconds or a 

minute to address the issue of what if we don’t. 

Hon. SANDALOW. Well, thank you, Mr. Chairman. I did. I appreciate that very much. I just wanted to say, first, it is an important 

question that the Congressman was asking, I think and I agree 

with much of what was said here. I think if we don’t address this 

set of issues, we are going to face problems in terms of the availability of certain products, potentially problems in terms of the cost 

of certain products, and problems in terms of job creation and technology development, and those are all important, you know, very 

important issues. At DOE, we haven’t done the kind of overall economic analysis, so I don’t mean to be speaking to an overall economic analysis, but there is no question that there are serious 

issues here. I mainly wanted to make the point that these are 

issues that we can solve. These are issues we can address. We have 

done that in the past, by pulling together, by smart policy, by the 

right types of investments, by following policies like finding new 

sources of supply, developing substitutes and recycling. We have 

overcome challenges like that, and I believe we can do that again. 

Chairman HARRIS. Thank you, and I share your optimism. I 

think we will have a bipartisan product of the Committee that will 

address that. 

I want to thank the witnesses for their valuable testimony and 

the members for their questions. The members of the Subcommittee may have additional questions for the witnesses, and we 

will ask you to respond to those in writing. The record will remain 

open for two weeks for additional comments from members. 

The witnesses are excused and the hearing is adjourned. 

[Whereupon, at 11:43 a.m., the Subcommittee was adjourned.] 
(75) 

Appendix 

ANSWERS TO POST-HEARING QUESTIONS
76 

ANSWERS TO POST-HEARING QUESTIONS

Responses by The Honorable David Sandalow, 

Assistant Secretary for Policy and International Affairs, 

Department of Energy 

Questions Submitted by Chairman Andy Harris 
77 

announcement in 2009. To economize on the effon of all involved, ARPA-E reviews all 

preliminary proposals before inviting a fraction of them to prepare full proposals. In 

order to realize the full value of the DOE investment in the technical review of the 

preliminary proposals, ARP A-E allows applicants who are invited to prepare a full 

proposal to choose to be listed on the ARPA-E website, even iftbey are not selected for 

award negotiations. However, DOE notes that the public acknowledgment of ARPA-E's 

expression of interest in receiving a full proposal does not constitute a DOE certification 

oftechnical merit or an endorsement of the entity or its technology. 
78 

QUESTION FROM REPRESENTATIVE HARRIS 

Q2. The Department of Energy's 2010 Critical Materials Strategy identifies three pillars to 

address the challenges associated with critical materials in the clean energy economy. 

The first of these pillars states that substitutes must be developed. However, there are 

examples in which private industry proactively developed substitutes to preemptively 

limit the economic impact of fluctuation in material supply and price. How does DOE 

ensure its R&D prioritizes and is limited to longer-term efforts that industry is unable and 

unlikely to pursue by itself'? Would a more robust dissemination of information better 

enable market responsiveness? 

A2. One of the reasons DOE developed its first Critical Materials Strategy in 2010 was to 

better prioritize research, taking into account activities in the private sector and 

elsewhere. The Advanced Research Projects Agency- Energy (ARPA-E), the Office of 

Energy Efficiency and Renewable Energy, and the Office of Science each target their 

investments related to substitute research to avoid duplication with the private sector and 

with each other. The combination ofinvestments helps build national capabilities both to 

meet future national energy policy goals and also to participate in the global clean energy 

market. Other countries are pursuing materials strategies of their own, including 

investing in substitute R&D. DOE R&D investments help the U.S. to compete with other 

nations. 
79 

QUESTION FROM REPRESENTATIVE HARRIS 

Q3. Your testimony highlighted numerous programs throughout DOE that are supporting 

critical materials R&D, specifically 14 ARPA-E projects pursuing rare earth substitutes 

for electric vehicles and wind generators: and funding solicitations from the Wind 

Energy, Vehicle Technologies and Small Business Innovation Programs. How does DOE 

determine priorities and focus areas for these efforts and ensure R&D funded by the 

numerous programs does not duplicate efforts? 

AJ. We share the goal of making sure DOE uses resources efficiently and effectively to 

address critical materials challenges. That's one of the reasons DOE developed its first 

Critical Materials Strategy in 20 I O. Over the past two years, DOE has convened crossdepartmental discussions on critical materials research priorities. The multiple offices are 

supporting complementary work. The Advanced Research Projects Agency-Energy 

(ARPA-E) is supporting highly transformative, innovative projects to develop alternative 

technologies with little or no critical materials content. The Office of Energy Efficiency 

and Renewable Energy focuses its work on using critical materials more efficiently and 

effectively in specific technologies such as those supported by the Vehicle Technologies 

Program and the Wind & Hydropower Technologies Program. The Office of Science 

funds basic research activities on the fundamental properties of materials, particularly 

through the Basic Energy Sciences Office. For DOE's 2011 Critical Materials Strategy, 

the Department developed an R&D plan that integrates the complementary work of the 

multiple DOE offices and identifies potential gaps that may be opportunities for future 

investment. Incorporating the input across several offices has made the research agenda 

much more comprehensive than it would be ifit were housed in a single office. 
80 

QUESTION FROM REPRESENTATIVE HARRIS 

04. General Electric's research begun in 2005 is often cited as an example of a company 

proactively responding to potential supply shortages for critical materials. Is there reason 

to believe a similar course would not be pursued by other affected industries, such as the 

automobile or wind turbine industries? 

A4. According to reports, General Electric's proactive approach to potential material 

shortages has been very successful. However, individual proprietary company-level 

analyses and strategies are not a substitute for a national engagement for several reasons. 

First, not all companies have the resources to perform the same level of analysis and then 

use the analysis to inform R&D investments. Second, publicly available national or 

global analyses of supply, demand, prices and material criticality can contribute to market 

transparency. Finally, some research topics cut across companies and even industries. 

For example, both the automobile and wind turbine industries use neodymium magnets. 

In this case, it is beneficial both to understand combined material demand across 

industries and also to support precompetitive magnet substitute research that could 

benefit both industries. 
81 

QUESTION FROM REPRESENTATIVE HARRIS 

Q5. Unfortunately, one of the major impediments to market stability in energy critical 

elements is the monopolistic tendencies of Chinese trade policy and a demonstrated 

willingness to leverage their monopoly position for geopolitical advantage and drive 

American companies out of business. As such, what other policy actions (WTO, 

currency legislation, stockpiling, etc.) should the congress consider to mitigate the impact 

of these actions? 

AS. Any trade actions are under the purview of the U.S. Trade Representative's Office and 

the Department of Commerce. DOE supports a strategic response to help diversify 

supply, reduce use of newly mined minerals through recycling, and enable use of 

alternatives and more efficient use of critical materials in general. DOE has created an 

R&D plan for critical materials in order to address these issues. DOE appreciates the 

support of the critical materials R&D plan and the Critical Materials Energy Innovation 

Hub to address substitutes, recycling and diversity of supply. 
82 

QUESTION FROM REPRESENTATIVE HARRIS 

Q6. Energy Critical Elements are well-known to be of significant importance to certain 

defense applications such as jet engines and weapons systems. How is the Department of 

Defense working to address potential national security-related challenges, and how 

Should (or are) these efforts coordinated with those supported by DOE? 

A6. Since March 2010 OSTP, in close coordination with the National Economic Council, the 

Office ofthe U.S. Trade Representative and the National Security Council, has been 

convening an interagency working group that addresses critical materials issues through 

the full supply chain. This workgroup has been examining issues such as market risk 

(short- and long-term). the importance of critical materials for emerging high-growth 

industries, and opportunities for long-term impact through innovation. DOE and DOD 

have been working closely together as co-chairs of a workgroup subgroup addressing 

critical materials criteria and prioritization. 
83 

QUESTION FROM REPRESENTATIVE HARRIS 

Q7. The testimony from the hearing included multiple references to the rapidly changing rare 

earth marketplace, which seems to be evolving at a pace that makes government research 

or policy changes difficult to keep up with. How long is the process from which DOE 

makes a funding opportunity announcement, through the selection process, and finally 

selecting awardees and spending the money? Is it plausible that by the time the 

application process is completed, an award is announced, and funds are actually spent, 

the rapidly changing market conditions will render the research irrelevant or no longer 

critical? 

A7. The DOE process from issuing a funding opportunity announcement to making an award, 

at which point a successful applicant can begin spending funds, generally takes 5-8 

months. 

Technology innovation in the production and use of critical materials is not outpacing the 

process of making research grants at the Department of Energy. R&D objectives relating 

to critical materials can help stimulate more fundamental materials science and energy 

technology innovations that will have a lasting impact by ultimately broadening the array 

of available energy technologies. 
84 

QUESTION FROM REPRESENTATIVE HARRIS 

Q8. The proposed "Critical Materials Energy Innovation Hub" received funding as part of 

DOE's fiscal year 2012 budget. Please describe the selection process and provide the 

criteria it will employ to determine an awardee. How is DOE ensuring the selection 

process will be fully competitive and conducted in an open and transparent manner, and 

that key U.S. stakeholders that are not explicitly part of the Hub collaboration will benefit 

from its work? What milestones or research and development goals will the awardee be 

required to meet? How does DOE plan to ensure that work funded through the Hub is 

limited to technology areas that industry is unable and unlikely to pursue by itself? 

A8. On December 23,2011, President Obama signed the Consolidated Appropriations Act, 

2012, through which $20,000,000 is provided for the Energy Innovation Hub for Critical 

Materials. The DOE Energy Innovation Hubs aim to foster innovation through a unique 

approach, where scientists and engineers from many disciplines work together to 

overcome the scientific barriers to cuning-edge energy technologies in specific topic 

areas. In this environment, the researchers can accomplish greater feats more quickly 

than they would separately. 

DOE expects to solicit proposals for the Critical Materials Hub through a Funding 

Opportunity Announcement (FOA). A FOA would target research areas foundational to 

manufacturing advances that lead to increased availability of and/or reduced use of 

critical materials in energy efficiency and renewable energy systems and that industry is 

unlikely to pursue on its own. The applications would be evaluated by a peer review 

panel with criteria such as scientific/technical merit, appropriateness of the approach, 

expertise/experience of personnel, appropriateness of budget, integration of R&D, 

soundness of management plan, and potential market for the proposed technologies. The 

required milestones would be developed by the applicant; their appropriateness would be 

judged by the peer reviewers. In post-award management of the hub, DOE would ensure 
85 

that the milestones are met. Cost share with industry anellor state government would be 

required. The large bub team size and its interdisciplinary makeup will encourage 

multidisciplinary diffusion of innovation into the broader scientific and technical 

commnnity. 
86 

Responses by Dr. Derek Scissors, 

Research Fellow, Heritage Foundation 

Questions Submitted by Chairman Andy Harris 

Q1. General Electric’s research begun in 2005 is often cited as an example of a company proactively responding to potential supply shortages for critical materials. 

Is there reason to believe a similar course would not be pursued by other affected 

industries, such as the automobile or wind turbine industries? 

A1. This course is already being pursued. Companies such as Umicore are altering 

their research paths in response to changing prices. In wind turbines, for example, 

Boulder Wind Power has developed a technology using more readily available neodymium rather than dysprosium. In autos, Toyota and General Motors are improving induction motors that reduce the use of critical elements. And so on. 

More broadly, recall that rare earths became commercially valuable materials in 

the 1970’s, when GM and Sumitomo responded to supply disruptions of then-strategic minerals. What we now consider critical materials are not timeless and irreplaceable. Their role is the result of powerful and long-term private sector innovation. That innovation will inevitably continue to change what is deemed critical, unless the government gives in to short-term concerns and chills natural technological 

progress. 

Q2. Unfortunately, one of the major impediments to market stability in energy critical elements is the monopolistic tendencies of Chinese trade policy and a demonstrated willingness to leverage their monopoly position for geopolitical advantage and drive American companies out of business. As such, what other policy 

actions (WTO, currency legislation, stockpiling, etc.) should the Congress consider to mitigate the impact of these actions? 

A2. With regard to a stockpile, Chinese predatory behavior is one factor in the decision. The US should absolutely consider supplies from the PRC to be at risk. However, stockpiling is only effective if the correct elements are available when needed. 

For ECE’s, this assessment must frequently be redone, as supply and demand rapidly shift. A traditional stockpile, as in oil, would not be useful. 

The most obvious recommendation is to pursue a WTO case concerning restrictions on rare earth exports. Given blatant violations of WTO principles by Chinese 

state firms, this case should be easy to win. While full implementation of WTO decisions is a lengthy process, the initial favorable decision would permit the US to retaliate, perhaps on China-made goods using rare earths. This will discourage Chinese predation to some extent. One hopeful note: Chinese measures often backfire. 

The PRC did not even fill its export quota for rare earths in 2011 as demand for 

Chinese output weakened. 

Beyond the WTO case, a complex but vital trade issue concerns subsidies. Large 

Chinese rare earth miners are all state-owned and receive heavy subsidies. The 

most relevant such subsidy is protection from competition, with the central government explicitly driving non-state producers out of the market. The first step in responding to these subsidies is a comprehensive assessment of their size and any 

harm inflicted on the U.S. To mitigate actions based on China’s near-monopoly position, the US must document and counter the tools through which this position was 

established. Suppression of competition in the Chinese domestic market tops the 

list. 

The other way to fundamentally undermine the Chinese position is to permit the 

American market to expand. This can be most quickly and efficiently started by permitting more land to be surveyed for possible ECE deposits. As with stockpiles, Chinese behavior is only one factor in this decision. 

Q3. Energy Critical Elements are well-known to be of significant importance to certain defense applications such as jet engines and weapons systems. How is the 

Department of Defense working to address potential national security-related 

challenges, and how should (or are) these efforts coordinated with those supported by DOE? 

A3. I am not the best person to assess DOD efforts or DOD-DOE coordination. True 

national security requirements should take priority over market imperatives while 

industrial policy should not, so it may not be possible to effectively coordinate DOD 

and DOE initiatives. A guiding objective for DOD should be to try to project military 

demand for ECE’s against supply projections, to avoid surprises. DOD should not 

simply treat all ECE’s as critical to future military equipment. 
87 

Q4. Dr. Scissors, you note your support for targeted government resource assessments 

and information gathering associated with Energy Critical Elements. What specific information is most important for the federal government to provide to energy critical element market participants? 

A4. The ECE market involves, both at home and overseas, information concerning 

land and resources that can only be provided by national governments. The market 

is also shifting rapidly. As a result, the most valuable information at present is 

quite basic in nature. It is important that this information be provided reliably and 

repeatedly. 

The definition of ECE should be broad and flexible, anticipating change. For all 

classified ECE’s, the government should initially work to provide the most recent 

information concerning: 

1. Total world output and output change 

2. Output and change in output by country 

3. Total world demand and demand change 

4. Demand and change in demand by country 

5. Demand and change in demand by industry 

6. Total world known deposits and change in known deposits 

7. Total world estimated deposits and change in estimated deposits 

8. Known deposits and change in known deposits by country 

9. Estimated deposits and change in estimated deposits by country 

10. Price trend using a standardized measure and benchmark 
88 

Responses by Dr. Robert Jaffe, 

Jane and Otto Morningstar Professor of Physics, 

Massachusetts Institute of Technology 

Questions Submitted by Chairman Andy Harris 

Q1. General Electrics research begun in 2005 is often cited as an example of a company proactively responding to potential supply shortages for critical materials. 

Is there reason to believe a similar course would not be pursued by other affected 

industries, such as the automobile or wind turbine industries? 

A1. I believe that GE’s situation was unusual, almost unique: it had appreciated for 

many years the importance of rhenium to its turbine business and made it a high 

priority to gather information on U.S. and world production and reserves. Because 

of the proprietary value that individual companies would place on this kind of information and on their research, it seems quite unlikely that ‘‘industries’’ would respond collaboratively as your question suggests. Instead a few big players might 

have the long term perspective, the vision, and the resources to commit to a similar 

strategy, while most would not. Entrepreneurial startups and small businesses 

would be at a particular disadvantage. 

I should mention that the number of individual chemical elements that might be 

important to a given emerging technology would likely be quite large. Instead of 

tracking one element, rhenium, as described in the GE case, a company might be 

confronted with the daunting task of tracking many. 

This is the kind of information gathering activity that has typically been recognized as a legitimate function of the Federal Government, as illustrated by the Bureau of Labor Statistics or the Energy Information Administration. 

Q2. Unfortunately, one of the major impediments to market stability in energy critical elements is the monopolistic tendencies of Chinese trade policy and a demonstrated willingness to leverage their monopoly position for geopolitical advantage and drive American companies out of business. As such, what other policy 

actions (WTO, currency legislation, stockpiling, etc.) should the Congress consider to mitigate the impact of these actions? 

A2. The APS/MRS study focused primarily on medium to long-term approaches to 

ECE problems, so my perspective on these issues is somewhat limited. Our committee did agree that the U.S. should take all appropriate actions under bilateral 

and multilateral trade agreements and through the WTO. We observed, however, 

that the time scale for addressing issues in these forums is often too long to have 

an impact on the crisis of the moment (one more reason for taking a longer term 

perspective). We advocated for free international trade in general, but did not discuss currency manipulation. Finally, we recommended against federal stockpiling 

for economic reasons1 for several reasons. First it often has unintended and unforeseeable economic consequences; second, it interferes with free markets in a particularly crude way; and third, individual companies have the capacity to stockpile according to their own needs. 

Our report recommended a triad of information, research, and recycling to anticipate problems before they become critical. Unfortunately, by the time an individual 

event has reached the proportion of the ‘‘rare earth crisis’’, the government’s arsenal 

is rather limited. 
89 

Responses by Dr. Karl Gschneidner, 

Senior Materials Scientist, 

Ames National Laboratory 

Questions Submitted by Chairman Andy Harris 

Q1. Unfortunately, one of the major impediments to market stability in energy critical elements is the monopolistic tendencies of Chinese trade policy and a demonstrated willingness to leverage their monopoly position for geopolitical advantage and drive American companies out of business. As such, what other policy 

actions (WTO, currency legislation, stockpiling, etc.) should the Congress consider to mitigate the impact of these actions? 

A1. Yes, there are some other actions Congress should carry out. But before I 

present my suggestions we need to understand the Chinese strategy regarding rare 

earths. 

The supply of the basic rare earth materials in the Rest of the World (ROW) is 

close to being ameliorated with Molycorp (in the USA), Lynas (Australia) and other 

smaller mining operations in the USA, Canada and South Africa in (or coming into) 

operation. The post-mining manufacturers and related infrastructure is practically 

non-existent in the ROW, Japan is probably ahead of the USA and Europe in this 

regard. We need to re-establish this portion of the rare earth industry. It is absolutely necessary to do so from both a military and energy security posture. But if 

we can build up this manufacturing capability to supply computers, magnetic devices, electric motors, cell phones, i-pods, etc. for the general public the money will 

be spent in the USA and not sent to China. 

My first three recommendations are: (1) that we make government guarantee loans available to these companies to become established; (2) make 

favorable tax incentives at the federal, state and local levels; and (3) place 

import restrictions (quotas, taxes, etc.) on rare earth containing products 

coming from China. 

In order to re-establish the USA’s rare earth intellectual capital and keep us competitive, it is imperative to educate and train the next generation of scientists, engineers, technical business managers for our rare earth industry, especially the post 

mining manufacturers. This requires 60 to 110 Ph.D., M.S. and B.S. degree students 

per year for the next 10 years. In order to carry this out: educational institutions 

need to teach semester long courses and short courses on various aspects of the rare 

earths both locally and via distance learning; federal government research organizations, such as NSF, DOE, DoD, and NIST, need to fund research projects involving 

rare earth science and technology; and a National scholarship program needs to be 

established to assist students to obtain and complete their education. 

My fourth recommendation is: the establishment of national rare earth 

scholarships to be administered by the Energy Innovation Hub on Critical 

Materials authorized by Congress on December 2, 2011. 

The Chinese are restricting the supply of the basic rare earth materials (concentrates, metals, magnets, etc.) to the Rest of the World (ROW), but not the commodities (i-phones, TVs, audio systems, cell phones, components which go into automobiles, computers, lighting, etc.) which utilize the rare earths. The Chinese want 

to sell the high value products (i-phones, TVs, etc.) and therefore, will continue to 

supply them to consumers in ROW and also internally in China itself. 

However, I foresee real problems further down the road, five to ten years from 

now, when we have rebuilt the post-mining manufacturing infrastructure. Putting 

the manufactured electronic products, magnets, electric motors, CFL and LED 

lamps, computers, etc. in the consumer market will be in direct competition with 

the equivalent products from China. China is not going to let these markets slip out 

of their hands—they will do most anything to retain them and earn hard currency, 

which could include cutting prices below their costs and thus dumping these products in the marketplace. This will be the next battlefield—it will be a very competitive period, and we cannot fail, we cannot let them drive our companies out of business. From military and energy security needs we need these US manufacturers in 

the time of military conflict—who would produce the various devices that the country needs in a reasonable time scale? 

How can we compete with the Chinese with their low labor costs and centrally 

controlled economy? Automate-Automate-Automate our manufacturing processes; 

maintain our intellectual and patent rights, and our trade and corporate secrets; 

and finally send our components to South and Central American countries to be assembled into the final products taking advantage of the lower labor costs in these 

nations. 
90 

Responses by Mr. Luka Erceg, 

President and CEO, Simbol Materials 

Questions Submitted by Chairman Andy Harris 

Q1. Unfortunately, one of the major impediments to market stability in energy critical elements is the monopolistic tendencies of Chinese trade policy and a demonstrated willingness to leverage their monopoly position for geopolitical advantage and drive American companies out of business. As such, what other policy 

actions (WTO, currency legislation, stockpiling, etc.) should the Congress consider to mitigate the impact of these actions? 

A1-a. Free trade practices must be paired with support for strategic domestic industries 

The U.S. has long been the leader in fostering free-trade throughout the world, 

and simultaneously, our companies have exported many technologies. Our policies 

have now come full circle—we have invested abroad in countries with a comparative 

advantage in many resources (labor, natural resources, etc.). Those countries have 

now rapidly increased their standards of living for their citizens and have developed 

industries in areas where the U.S. previously exerted leadership, taking jobs from 

U.S. Citizens. Employment in the chemical and mining industries, for example, is 

down by more than 30% the past 20 years. Critical aspects of the U.S. industrial 

commons—the skills shared by a large, interlocking group of supply-chains, universities, and government that has been central to U.S. technological leadership—has 

lost its vitality as materials suppliers and production factories have moved abroad. 

The issue is significant as many of the advanced technologies, such as electric vehicles, solar, wind, LED lighting, rely on materials that are increasingly complex and 

produced overseas. 

The answer, however, is not one of protectionism. Rather, it is to demand respect 

of the WTO standards and to make far greater use of the WTO Agreement to rebuild our domestic industries. The United States along with its partners in Japan 

and the European Union should vigorously pursue WTO dispute settlement. Congress should appropriate all funds necessary for the Office of the United States 

Trade Representative and the newly created Trade Enforcement Unit to litigate 

against distortive export quotas and export duties that constitute an implicit assistance to domestic producers and downstream processors, providing them with an unfair competitive advantage. Unless we take measures that permit U.S. industries to 

rebuild, we will continue to be a nation of importers. 

We must stop the altruism of sacrificing our industries and jobs for the sake of 

free trade, rather, we must take up ‘‘fair trade.’’ American ingenuity stands toe-totoe with the best in the world. All that is needed is a level playing field. 

A1-b. Monopolistic tendencies of Chinese trade policies 

Unfortunately, monopolistic tendencies are not limited to just China, although it 

does provide ample evidence. The issue really is whether the monopolistic tendencies are actually a ‘‘wrongful act.’’ Unfortunately, due to our reliance on the 

WTO, it is far too easy to argue pursuant to the WTO’s conservation provisions, 

such as found in Article XX of the WTO Agreement, which provide ample protection 

for countries such as China. Even if their acts are wrongful, the time it takes to 

bring a WTO case is such that American industries will suffer inordinately. 

Pursuant to Article XIX of the WTO Agreement, the U.S. government could take 

emergency action to safeguard domestic industry. Let us take manganese or rare 

earths as an example. The U.S, the European Union, and Mexico in their formal 

request to the WTO for dispute settlement noted that Chinese export restraints on 

raw materials significantly distort the international market and provide preferential 

conditions for Chinese industries that use these raw materials. The U.S. Government could implement import duties pursuant to Article XIX to protect U.S. Industries. However, who would that really help? The irony is that many of the customers 

of these products are located abroad, and in fact could be U.S. Customers. So the 

question next becomes to which products do you apply duties —the raw materials 

or the finished goods? Neither are produced in the U.S. today. In the case of manganese, duties will work because there is a domestic industry for refined chemical 

products. However, there is not for manganese ore or manganese metal. 

My recommendation would be to take a position of supporting critical industries 

and making use of treaty safeguards and laws as necessary. Should domestic production be revived, the United States antidumping and countervailing duty laws 

could be used to combat a repeat of underselling by Chinese producers. However, 
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the underlying problem is that we do not encourage enough manufacturing in the 

U.S. This is consequently causing shortages of talented persons. 

A1-c. Manufacturing (not stockpiling) will provide us with innovation 

bonds and long-term competitiveness 

It is my opinion that stockpiling of materials is akin to the early failures of aid 

to under-developed nations. In the past, we provided food aid which was a shortterm stimulus to those in need, but once the food was gone the situation reversed 

itself. Aid was most successful when we taught under-developed nations to grow 

their own food — it is time to teach the U.S. how to manufacture and support those 

endeavors. This century we saw U.S. leadership in the production of raw materials 

fall and shift to other nations. This was driven by taxation and permitting. 

We next saw U.S. manufacturing leadership fall and shift overseas — notably following raw material production. This occurred because of anticompetitive trade policies of nations such as China that required that raw materials be processed into 

finished products in their countries. In the U.S., such tied relationships are considered in violation of our competition laws and are illegal. Why do we tolerate them 

with trading partners? This was driven by high labor costs and taxation. Once manufacturing left, so too did innovation. 

Manufacturing and innovation are intimately related. The erosion of our economy 

is abundantly clear — loss of raw material production, led to loss of specialty materials, led to loss of manufacturing. Without jobs, students do not enroll in university 

programs as there is no gainful employment for them in this country; hence they 

shift to other studies. Only 15.6 percent of U.S. bachelor’s degrees were awarded 

in science technology and engineering (STEM) during 2010. Once the education system stops offering courses, educators stop conducting research and thus innovation 

begins to wane. China now leads the world in materials science publications, overtaking Japan and the U.S., and currently challenging the combined output of the 

EU-15 group of well-established European research economies While the demand for 

innovation has increased, government sponsored research has actually declined as 

a share of GDP. In one generation, we lost tremendous headway in multiple disciplines. It is perhaps not surprising that many emerging industries, such as solarpanels, and LED-lighting industries that have their roots in the U.S. semiconductor 

materials commons, are now mostly based in Asia. The erosion must stop. 

Approximately 20 years ago, lithium-ion battery technology was invented in the 

United States. Today, the U.S. is not consequential to the world market for lithiumion technologies. Some of the battery related investments made through ARRA 

funds were deployed for end-use assembly of battery and their components. We 

missed the opportunity to invest in materials capability that is at the head of the 

innovation supply-chain and the foundation for a competitive industrial base. This 

is not a criticism, rather an example of how much more we must do to foster education, innovation, and manufacturing in the United States. 

Today, the U.S. falls woefully short in its ability to produce raw materials and 

to manufacture specialty / critical materials. U.S. companies must be given an opportunity to be competitive. Today, we face the highest labor costs, the most difficult 

permitting regimes, strictest environmental standards, the highest taxes, and lack 

of sufficient training in industries of strategic importance to the U.S. economy. Any 

one of the impediments aforementioned is daunting to overcome, let alone all. In no 

way do I suggest that environmental standards be lessened, or an elimination of 

permits. Rather, our governance slows the ability of U.S. Industry to act and respond, rather than encouraging it. Permitting must be transparent and rapid for 

manufacturing. Environmental standards must be predictable. Being competitive is 

not about lowering the pay of U.S. workers, rather, being competitive is about productivity. We need to encourage the optimization of labor, capital, and natural resources—the basic implements to the economy. That is manufacturing, and manufacturing of critical materials. 

We suffer from a tax regime that has encouraged off-shoring of manufacturing 

and many other jobs. There is evidence that without such tax benefits related to 

repatriation of income, there would be no incentive to off-shore jobs. It is further 

worth noting that the research tax subsidy in the United States is only about half 

of that available in such technology strongholds as Japan. It is imperative to support the development of manufacturing supply chains in the U.S. But, merely providing acute stimuli will do little as we do not address the underlying problems. 

History has shown that nations are strongest when they manufacture. This has the 

advantage of reducing imports, or alternatively increasing exports to balance trade. 

Strengthening in our trade position improves the strength of the U.S. dollar. Only 

support of manufacturing will provide the solution. 
92 

Critical materials play a special role in our economy. Critical and specialty materials are the building blocks to advanced technologies, even such as solar panels, 

EV batteries, magnets for wind turbines, handheld consumer electronics, etc. Material innovation will lead to substantial R&D, innovation, commercialization, and job 

creation. 

I respectfully submit to the committee, that without reducing taxes, providing incentives for manufacturing in general and more specifically to specialty materials 

producers, and supporting education, we cannot counter the monopolistic tendencies 

of other nations. By providing the incentive to increase U.S. based manufacturing, 

we will encourage companies to invest in training and collaboration with educational and research institutions. This will then foster more technical developments 

that will strengthen our ability to compete and lead. 

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