Rare Earths Are About to Cost a Lot More

China’s recent announcement of export controls on rare earth metals has raised familiar concerns in the United States, Europe, and elsewhere about supply chain vulnerabilities, technological dependencies, and geopolitical risks. The seeds of this crisis were sown decades ago, when production and processing of rare earth elements shifted to China because they were cheaper, or even less expensive, and came with few environmental restrictions. By shifting the environmental burden of rare earth element production to China in exchange for cheap materials, foreign buyers created a structural dependency that has since become both economically and geopolitically precarious. Much of the world has benefited from artificially low prices while building its high-tech military technologies and now green industries on very unstable foundations.

To address these geopolitical risks and diversify rare earth supply chains, the United States and Australia signed a new $8.5 billion agreement on October 20 after several months of negotiations. Commenting on the deal, US President Donald Trump claimed that “in about a year from now, we will have so many important minerals and rare earths that you won’t know what to do with them.” “It will be worth $2,” he added.

These claims seem far from realistic. First of all, it will take years, even a decade, to develop sufficient supplies. In fact, instead of rare earths becoming cheaper, they are becoming more expensive as countries seek to diversify their supply chains. Building new mines, refineries, and processing plants in regions such as Australia, the United States, and Europe comes with much higher capital costs, more stringent environmental regulations, and more expensive labor and energy inputs.

Now projects that were once unviable because of low prices are being revived in China – but its economy relies heavily on government subsidies, guaranteed procurement contracts, or defense-related demand. The result is a structural price floor that rises, not falls. This means that diversification adds security and flexibility, but not cheapness.

There are already clear signs that prices are rising and that there is a willingness to pay higher costs for safe supplies. For example, the US Department of Defense took the unusual step in July of signing a ten-year purchase agreement with the US company MP Materials, which guarantees a minimum price of $110 per kilogram for neodymium and praseodymium oxide, which is essential for the manufacture of permanent magnets. This was almost double the Chinese market price, about $60 per kilogram at the time.

Trump’s expected future price of just $2 (assuming per-kilogram pricing) would also be a major problem from the perspective of both investors and governments financing new mining contracts worth hundreds of millions of US dollars. This would make it impossible for investors to recover the investments needed to develop and operate new mining and refining projects, which would effectively undermine the financial viability of any non-Chinese supply chain.

In 2023, the Japanese government – through the Japan Mineral and Energy Security Organization (JOGMEC) – will take a 65% share of Australian production volume. It has invested A$200 million (about US$131 million) in Lynas Rare Earths to support its production growth projects. The agreement gives Japan priority supply rights for Lynas’ growth capacity until 2038. JOGMEC played a pivotal role after China imposed its restrictions on rare earth exports in 2010, helping finance Lynas in Australia and Malaysia. The move helped Japan diversify its supply of rare earth elements away from China, but it came at a higher cost.

Beyond the geopolitical premium that governments and industrial buyers are increasingly willing to pay, future rare earth prices will need to take into account the cost of trustworthy, transparent and environmentally responsible production. Until now, the true costs of pollution to the environment and health have simply been external, borne locally rather than priced into rare earth materials or products. Strict environmental and labor standards in OECD countries have created a gap in environmental costs, which has served as a major deterrent to Western investment in rare earth supplies over the past decade.

Until recent export restrictions were imposed, China’s rare earth mining and processing industry primarily served global markets, with up to three-quarters of its production destined for export. In 2015, researchers estimated the annual external environmental cost associated with these exports at $5.4 billion, reflecting the significant pollution and environmental damage they incur locally in places like Bayan Obo, a mining area about 150 kilometers north of Baotao in Inner Mongolia, or Jiangxi Province, an industrial center for smelting ionic rare earths.

Recognizing the environmental burden and toxic legacy of the rare earth industry, China has also moved to tighten environmental regulation in recent years and has moved some highly polluting rare earth extraction and processing operations to war-torn Myanmar, resulting in severe impacts on the environment and water resources there. If buyers are looking for the cheapest rare earths, Myanmar has become the place to get them – at the expense of human rights, environmental protection, and regional stability.

Efforts to diversify and reproduce production will inevitably mean accepting some environmental impacts at home, but doing so must be done under the highest environmental and safety standards, which are essential to minimize damage. However, such standards would raise operating costs, underscoring that a resilient and responsible rare earth supply chain comes at a higher but necessary price. New rare earth mining and processing contracts will need to clearly integrate environmental and sustainability commitments. (Reprocessing of rare earth elements often generates hazardous radioactive waste as a byproduct of enrichment processes.)

This is easier said than done. Take the case of Lynas, which shipped its rare earths from the Weald Mountain in Western Australia to Kuantan, Malaysia, for processing. The Lynas Advanced Materials Plant was surrounded by significant public opposition and political controversy throughout the 2000s. In 2019, a Malaysian government decision required Lynas to move the riskiest part of its rare earth refining chain – crushing and leaching – to Western Australia within a four-year time frame.

Malaysia’s indication that it no longer wishes to host processing represents a significant regulatory tightening for Lynas. For the company and its investors, this added project risk and capital cost, because moving an industrial process across jurisdictions is complex and expensive. This situation has also fostered a broader strategic shift in supply chains: away from low-cost refining in Malaysia and towards onshore processing in Australia, increasing costs and regulatory burden and thus contributing to higher supply chain costs. As a result, Lynas opened a processing plant in Kalgoorlie, Western Australia, in November 2024. Australia’s stricter environmental controls will raise operating costs but reduce externalities and pollution.

As production costs rise due to relocation and diversification away from China, there is a risk that some operators will seek to cut costs by neglecting environmental safeguards. Therefore, contracts must include clear clauses on environmental performance, and specify that any breach – such as loss of a license or regulatory violation – constitutes a default. Including such provisions is essential to ensure responsible production without creating a toxic legacy, ensure continuity of supply, and enhance the long-term credibility of non-Chinese rare earth supply chains.

But paying the full or true price for rare earth elements is not just about fairness or covering environmental costs; It is also what will unleash circular economies in this sector.

Rare earths are found in a wide range of secondary materials and waste streams. They occur in coal combustion residues such as fly ash. A University of Texas study, the first comprehensive national assessment, estimates that coal ash in the United States contains up to 11 million tons of accessible rare earth elements — that’s nearly eight times the country’s domestic reserves. This secondary resource could represent approximately $8.4 billion in recoverable rare earth elements.

Despite their resource potential, various forms of electronic waste such as batteries and hard disks from computers and mobile phones are still disposed of in landfills, representing a significant loss of valuable rare earth elements. Currently, only about 1% of the rare earth elements in old electronic devices are recycled, mainly due to factors such as the complexity of separating the mixtures they contain. Magnet recycling innovations will be a key solution.

For example, French startup Carrister is developing what could become the first major operational rare earth recycling facility in Europe. The $245 million project aims to create domestic refining capacity by combining recycled materials with imported concentrates, targeting up to 15 percent of global demand for heavy rare earths. Scheduled to become operational by late 2026, it will be Europe’s first large-scale industrial plant dedicated to rare earth separation, and is designed to process 2,000 metric tons per year of end-of-life magnets and 5,000 metric tons per year of mined concentrates. The project has attracted investment from Japanese partners (again including JOGMEC), and has secured €106 million in public funding from the French government, provided through a mix of grants and repayable advances.

Safe building A responsible supply chain for rare earth elements inevitably requires greater responsibility and co-investment across the value chain. While governments can provide strategic funding, long-term viability depends on investors, manufacturers, and auto and electronics companies integrating the true cost of rare earths into their business models. It also means designing a future generation of products for easy disassembly and recovery, investing in closed-loop systems, and securing materials from verified, environmentally compatible sources.

Ultimately, consumers will also need to accept higher prices for green electronics and technologies that reflect their true physical and environmental costs. We should not see paying more as a punishment, but as an investment in resilience, supporting circular supply chains, providing decent working conditions, and preventing environmental damage.

This will entail raising awareness that rare earth elements are not literally rare, but are in fact precious and limited, and should be used, recovered and valued accordingly. This collective reassessment can drive innovation toward business models that extend product life and recover critical materials.

Ensuring projects are supported by realistic price assumptions is critical; Prices must be high enough to sustain operations, ensure high environmental and public health standards, and protect taxpayer investments.

Government investments in rare earth extraction and processing and long-term takeover agreements with fixed or guaranteed prices are clear examples of active industrial policy at work. These measures reflect the recognition that market forces alone cannot provide the necessary diversification and flexibility in supply chains for critical minerals. The high capital costs, long lead times, environmental risks, and price volatility associated with rare earth projects have made them unattractive to private investors in the absence of state support. For this reason, many attempts over the past decade have failed.

This new government-led approach highlights that achieving diversification and sustainability in rare earth supply chains does not constitute a natural market adjustment, but rather a deliberate policy choice. It reflects a broader recognition that strategic state intervention is necessary to drive the necessary systemic transformations.