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Commentary
91ÆÞÓÑ Institute

Greenland’s National Election and the US-China Tech Competition: The Rare Earth Challenge

liselotte_odgaard
liselotte_odgaard
Senior Fellow (Nonresident)
Members of the IA (Inuit Ataqatigiit) party wave party flags as they celebrate following the exit polls results of the legislative election in Nuuk, on April 6, 2021 (Photo by EMIL HELMS/Ritzau Scanpix/AFP via Getty Images)
Caption
Members of the IA (Inuit Ataqatigiit) party wave party flags as they celebrate following the exit polls results of the legislative election in Nuuk, on April 6, 2021 (Photo by EMIL HELMS/Ritzau Scanpix/AFP via Getty Images)

Greenland’s national election on April 6, 2021, gave the left-wing environmentalist party Inuit Ataqatigiit (IA) a decisive victory. This result offers the US a stellar opportunity to work with Greenland and Europe in developing alternatives to China’s rare earth production, which threatens the economic growth and military edge of the US and its allies. The IA has announced a stop to the Kuannersuit mine project, which China has a stake in. This is a slap in the face to China, which hoped to gain access to Greenland’s rare earths, and it buys the US time to get a foot firmly in the door.

The IA party won 36.6 percent of votes in the election, compared to 29.4 percent won by the ruling social democratic pro-mining Siumut party. In Greenland, 16 mandates are needed to form a government, and the election result gives IA 12 mandates. Hence IA has to establish a coalition with other parties. The most likely partner seems to be the pro-independence party Naleraq, which got 12 percent of the votes. This translates into four mandates.

What impact does the election result have on Chinese and US interests? Quite a significant one, it seems. The Siumut government collapsed in March over a proposal to let a Chinese-backed Australian company, Greenland Minerals, develop what was expected to be one of the world’s largest uranium and rare earth mines. Greenland Minerals had been through and passed an environmental inquiry. But there was widespread popular concern about the environmental consequences of the Kuannersuit mine.

More specifically, the local population was concerned that radioactive waste from uranium extraction would jeopardize their access to basic resources such as clean water and their livelihoods such as farming, hunting, and fishing. While prices have gone up for many rare earths, uranium prices have dropped. However, at Kuannersuit uranium is an unavoidable companion of rare earth mining. More broadly, environmentalists argued against an open pit mine on a location with thorium, uranium, and fluoride compounds, which they said were potentially dangerous and likely to spread in the surrounding area. A further concern was dust from the mining operation affecting the area’s surface water, which is used for drinking.

Opposition to the mine was a major reason for the IA’s landslide victory. On April 7, when IA’s leader, Mute B. Egede, was asked to lead negotiations to form a government, he fulfilled a campaign promise and said that mining at Kuannersuit would not go forward.

This is a major setback for Greenland Minerals and its Chinese partner, Shenghe, which is one of the world’s largest producers of rare earth materials and which has a 9 percent stake in Greenland Minerals. Greenland Minerals has already spent well over $100 million preparing the mine, possesses proven processing technology through its Chinese partner, and won initial approval from the former Siumut-led government.

Mining is one of three pillars, together with fisheries and tourism that Greenland hopes will pave the way for independence. As part of the Kingdom of Denmark, Greenland receives an annual block grant from the Danish government (equal to approximately $623 million) to help fund basic services. With mining at Kuannersuit off the table, Greenland will have to develop new sources of revenue to realize the independence aspiration. Surging rare earth prices explain the appeal of mining for Greenland, which has one of the world’s largest rare earth deposits. The Kuannersuit mine alone was expected to produce approximately 43,000 tons per year for 25 years. The annual global production is more than 120,000 tons per year.

China also the largest rare earth reserves in the world. It produces around 90 percent of the world’s global rare earths, which means that in practice it controls the processing of rare earths. The Kuannersuit mine would add to China’s near-monopoly status in rare earth production. Almost all products in the fields of green energy and high-tech contain rare earths. Without access to processed rare earths, America, as well as countries in Europe and Asia, would lose competitiveness in areas where they would otherwise be in a leading position. Just to mention a few examples: rare earths are indispensable in the production of wind turbines, telescope lenses, electric vehicles, combat aircraft, cell phones, lasers, and superconductors used in quantum computing.

At the end of March, China announced a one-month halt to activity at around 40–50 percent of rare earth processing plants in Ganzhou, which is the main production base for China’s rare earths. The closed plants are mainly those that specialize in rare earth waste separation, a key procedure in processing rare earth oxides. The temporary closures are said to have been ordered for environmental reasons. However, another effect of the closures is to strain China’s exports of rare earth products, driving prices higher and potentially creating a shortage. China rarely reveals the real reason for initiatives that damage other countries’ economies. However, as part of its tech competition with the US, China has warned that it may use rare earths to hit the US economy, presumably as payback for the 2020 and 2021 US restrictions on the supply of semiconductors to some Chinese companies—a move that hit China’s cell phone industry hard.

US vulnerability to Chinese rare earth exports is highlighted by the fact that the only rare earth mine operating in the US, Mountain Pass in California, is partly owned by a Chinese state-backed company that currently sends material mined in the US to China for processing. The US wants to lower its dependency on China by creating a supply chain of rare earth products that bypasses China, and Greenland’s rare earth reserves could play a key role in these efforts. But establishing an alternative supply chain is no easy task. At present, Malaysia offers the only alternative processing facilities, but not at a scale or level that can match China’s at present. Others, such as the Mountain Pass mine in the US, are planning or have started to build processing facilities. However, these efforts are time-consuming and require capital. The US needs to buy time.

The halt to the Kuannersuit mine project gives the US just that, since it puts an abrupt end to China’s hopes of getting access to Greenland’s rare earths. Greenland’s new leading party, IA, has said that the Kuannersuit project cannot go ahead because it involves mining of uranium. However, it has kept the door open to other mining projects. The most promising alternative is Killavaat Alannguat, which is located a few kilometers from Kuannersuit and does not involve uranium mining. The concession is held by another Australian company, Tanbreez Mining Greenland. Almost $40 million has been spent on this project so far, but it still needs parliamentary permission and capital to be implemented, and perhaps (in light of the election result) to develop a more environmentally friendly mining approach. Although the Tanbreez project is considered more environmentally sound than the Greenland Minerals projects, at least partially because it does not involve uranium extraction, it looks a lot like the Kuannersuit project from an environmental perspective. Tanbreez may therefore have to think of more environmentally acceptable solutions than (for example) depositing waste material in a nearby lake.

Tanbreez has approached US investors to get the project off the ground and has vowed not to process rare earths in China. But no specific alternatives to Chinese processing have yet been identified. This project, like the Kuannersuit project, is part of a European Union initiative designed to reduce Europe’s dependency on China for rare earth products. The European Raw Materials Alliance coordinates investments and provides seed money for European mines, processing plants, and industries such as magnets that form part of rare earth production. Greenland is not a member of the EU, but it has agreements with the EU in selected areas.

The US now has a great opportunity to work with Greenland, the EU, and Australian Tanbreez to get a good start on finding alternatives to China’s rare earth production. For this effort to succeed, environmentalists in Greenland’s government and society will need to be convinced that rare earth mining can be done in a sustainable way and that the project will benefit Greenland economically. The effort will also require a transatlantic agreement to ensure that the project benefits both the US and Europe. Since the Biden administration has announced that it will allocate funds to green production and will continue the Trump administration’s efforts to develop supply chains that make the US less vulnerable to Chinese pressures, the US should get busy working with Greenland to ensure that this project goes ahead. It looks to be a win-win-win for Greenland, Europe, and the US. It will help boost Greenland’s economy and bring Greenland closer to realizing its aspirations for independence, which IA supports. In addition, by increasing the role of Europe and the US in rare earth production, the project will reduce their vulnerability to China in an area of key importance for continued economic growth and access to advanced military capabilities.