Supply Chains & Critical CleanTech Shortages

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Record-long times from order to delivery have become common. Wide-scale shortages of essential basic materials seem in the daily news. Suddenly, increased commodities pricing creates confusion. Transportation sector difficulties permeate across industries. Why? Roaring demand for goods have created backlogs due to weaknesses in supply chains, and manufacturers started drawing down on inventories last month to meet demand. Business warehouses seem almost bare.

The US economy contracted 3.5% in 2020, its worst performance in 74 years. Most economists expect double-digit GDP growth this quarter, which would position the economy to achieve growth of at least 7% — the fastest since 1984.

The Harvard Business Review (HBR) argues that the Covid-19 pandemic has dramatically exposed the vulnerabilities of global supply chains, and one fundamental cause is the erosion of the US “industrial commons” — the domestic capabilities needed to support the development and production of many goods deemed critical to US interests.

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The Rare Earths Effect on Global Supply Chains

A May report released by Argonne National Laboratory explains how rare earth materials are essential to a variety of industries and how mine shutdowns have affected supply lines. Disruptions to rare earth supplies can have wide-ranging consequences, as they are essential to many emerging technologies, including those that support a clean energy future.

Right now, China dominates the global rare earths market. The country produces an estimated 58% of mined rare earths, and it controls roughly 85% of the world’s refining capacity. A variety of disruptive events can affect the supply of rare earth materials, including natural disasters, labor disputes, construction delays and, of course, a pandemic.

Argonne researchers analyzed the potential effects of 3 supply disruption scenarios on 10 rare earth elements, along with a handful of associated compounds, to determine the market effects. The results of the study highlighted which rare earth elements may be particularly vulnerable to disruptions. The largest price increases in response to disruptions occurred for dysprosium oxide, which is used in permanent magnets, specialty alloys, and other applications.

In general, the analysis found that in the case of temporary scenarios — a 1-year export stoppage and a 2-year mine shutdown — price impacts tended to extend years beyond the disruption period. Effects on production, capacity, and demand also could potentially last longer. The model suggested some mines that started up outside of China in response to a disruption would not likely be able to keep operating after primary supplies recovered.

Indeed, Tesla CEO Elon Musk has acknowledged that “microcontroller chips” are a particular challenge for the all-electric car company. Vacillating between positions that he’s “never seen anything like it” and the “fear of running out,” Musk pointed to rare earth metals at the core of the problem.

The Argonne study team is now working on changes to the model that will help align it with US goals to lower greenhouse gas emissions. They are enhancing representations of rare earth magnet markets for energy-efficient motors, including those used in wind turbines and electric vehicles. And new agent-based models of the lithium-ion battery supply chain will assess how shortages of global materials might affect the adoption of battery technologies important to electric vehicle markets.

Biden Administration is in the Midst of a Supply Chain Review

In recent decades the manufacturing and production of microelectronics has moved offshore and is now concentrated in places such as Taiwan and China. “It is not an exaggeration to say at the moment that we have a crisis in our supply chain,” said Commerce Secretary Gina Raimondo during an April hearing before the Senate Committee on Appropriations. While she noted that semiconductors are building blocks of the US future economy, she acknowledged that the global chip shortage is hurting businesses in every sector. “Our nation is falling behind its biggest competitors with regard to investments in R&D, manufacturing, and training. It’s time to catch up.”

The global chip shortage is affecting a number of different industries, the result of significant demand swings and increased use of semiconductors in advanced vehicles. Restoring market balance will take time, as semiconductor manufacturing is not designed for quick adaptation to fluid shifts in demand. Instead, lead times of up to 26 weeks are common. Supply chains that rely on a diverse array of sources are more resilient, but they are also likely to be more expensive if price points include higher-cost domestic manufacturers.

In February, US President Joe Biden signed an Executive Order to help create more resilient and secure supply chains for critical and essential goods. Starting with a review to identify near term steps to address vulnerabilities and shortages of essential products, the Executive Order is a first step toward securing US supply chains against a wide range of risks and vulnerabilities. Building resilient supply chains can help protect the US from facing shortages of critical products, such as  automotive semiconductor chips, which have forced slowdowns at automotive manufacturing plants.

Critical minerals are an essential part of defense, high-tech, and other products — from rare earths in electric motors and generators to the carbon fiber used for airplanes. The initial review has emphasized semiconductors and advanced packaging as well as large capacity batteries, such as those used in electric vehicles.

Later, a more in-depth, one-year review of US supply chains will include:

  • A focus on key sectors, including the information and communications technology (ICT) industrial base, the energy sector industrial base, and the transportation industrial base
  • A set of risks for agencies to consider in their assessment of supply chain vulnerabilities, which takes into account critical goods and materials within supply chains, the manufacturing or other capabilities needed to produce those materials, as well as a variety of vulnerabilities created by failure to develop domestic capabilities. Agencies and Departments are directed to identify locations of key manufacturing and production assets, the availability of substitutes or alternative sources for critical goods, the state of workforce skills and identified gaps for all sectors, and the role of transportation systems in supporting supply chains and industrial bases
  • Recommendations on actions that should be taken to improve resiliency: Agencies are directed to make specific policy recommendations to address risks, as well as proposals for new research and development activities
  • A sustained commitment to supply chain resiliency will mean that the government commits to a regular, ongoing process of reviewing supply chain resilience, including a quadrennial review process
  • Consultation with external stakeholders takes government from one piece of a larger whole and requires partnership and consultation with those in industry, academia, non-governmental organizations, communities, labor unions, and State, local, territorial, and Tribal governments. President Biden has also directed his Administration to work with US partners and allies to ensure that they too have strong and resilient supply chains.

Diverse approaches will be necessary to secure supply chains. Representative Michael McCaul, (R-Texas), the lead House sponsor of the Creating Helpful Incentives to Produce Semiconductors (CHIPS) for America Act of 2020, argues that the US government must restrict technology exports to companies that partner with China’s military and their production of semiconductors.

With what McCaul terms a “stranglehold on that supply chain,” firms such as the Semiconductor Manufacturing International Corp., or SMIC — China’s top chipmaker  —  would be the target of such efforts to reduce the likelihood that China will dominate global semiconductor production by 2030.

Image by Joshua Armstrong, Air Force, US Department of Defense (public domain)

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Carolyn Fortuna

Carolyn Fortuna, PhD, is a writer, researcher, and educator with a lifelong dedication to ecojustice. Carolyn has won awards from the Anti-Defamation League, The International Literacy Association, and The Leavey Foundation. Carolyn is a small-time investor in Tesla and an owner of a 2022 Tesla Model Y as well as a 2017 Chevy Bolt. Please follow Carolyn on Substack:

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