Texas Provides Model For Much-Needed Supply Chain Overhaul

Emily Pickrell, UH Energy Scholar

Semiconductor chips are getting smaller all the time, but crisis behind supplying enough of them has been big enough to raise questions about future greening of America. 

Chips play a key role in everything from computers to smart phones, but they are also critical in the technology that is supposed to replace fossil fuel know-how, especially EVs and solar and wind plants.

As global supply chains have snarled – driven by problems in China and the Covid pandemic – it has emphasized the inadequacy of our domestic supply chain. One of the biggest limiting factors in manufacturing our own chips instead?

The rare earth materials required.

Rare earth elements are names right off the high school chemistry chart – atomic numbers 57 through 71 (the lanthanides), plus scandium and yttrium.

These elements have conductive or magnetic properties ideal for different high-tech products, including semiconductors.

In recent years, the United States has imported most of its rare earth elements, or REEs – with 80% coming from China. The majority of manufacture of microprocessor chips had largely been relocated to cheaper locations overseas, especially Asia. REEs are not scarce worldwide, but they are hard to extract. This is because their ores oxidize rapidly. The difficulty in mining also means these mines frequently cause extensive water and soil pollution.

Fast forward to 2020, and a spike in demand for computers and microchips – driven by supply disruptions and a sharp increase of home offices – snarled the semiconductor supply chain.

The increased computerization of all new vehicles has made the automotive sector vulnerable to these supply chain problems. The shortage wreaked havoc on the auto industry last year: Ford, Jaguar Land Rover, Volkswagen, General Motors, Nissan, Daimler, BMW and Renault shut factories or scaled back production, citing chip unavailability.

And the shortage could easily get worse. The Biden administration has set a 50% EV sales share goal by 2030. Electric vehicles, both hybrid and battery vehicles, require REE for the electric motors needed in these vehicles. Achieving these EV sales targets will probably require a strong domestic REE supply chain, especially if the country intends to benefit economically all its green investment. 

Yet the abundance of rare earth materials in places like Vietnam, Russia, Australia and Brazil does not mean that the U.S. does not have its own sufficient resources – far from it. Texas, California, Minnesota, Wyoming and Alaska all have significant supplies of the rare earth minerals.

Even before this acute crisis, both the Trump and the Biden administrations built their campaigns on promises to revive domestic manufacturing, and have focused on the need to build up these supply chains.

President Trump’s 2020 executive order that declared a national emergency in the mining industry budgeted government spending up to $1.75 billion on rare earth elements in munitions and missiles and $350 million for microelectronics.

The Biden administration has built on this supply chain development, encouraging the production of critical rare earth minerals in the infrastructure legislation.

Whether and how quickly the U.S. can do so to meet the expected spike in demand is another question.

Ten to 15 years is a more reasonable time estimate for traditional mining and metal projects to become operational, according to Michelle Michot Foss, a fellow in Energy, Minerals & Materials at the Baker Institute at Rice University. Foss testified last year before Congress on supply chain considerations for decarbonizing transportation.

“For underground mining, which is much more expensive, who knows who long it will take,” Foss said. “There are projects in various places – including the US and Canada – that have yet to see light of day, going on 15-20 years of effort. Nickel, platinum/palladium, rare earths – it’s really tough.” 

Meanwhile, Texas is trying to make an example of itself, showing how the development of a rare earth supply chain might work.

Its state officials have rallied behind the idea of the development of such a supply chain as a priority, both for government and private players.

“This is an issue of increasing interest in Texas, which leads the nation in energy production,” said Glenn Hamer, the CEO of the Texas Association of Business. “Part of preserving that independence means ensuring we have the right supply chains in place, either domestically or through our friends internationally.”

The state mapped out specific plans to aggressively develop its rare earth deposits, in a Nov. 2021 report. 

And the state has the attributes to put the plan in action. Relatively mining-friendly regulations, good infrastructure and tax incentives have already helped encourage companies like USA Rare Earth to set up shop. USA Rare Earth plans to begin mining certain rare earths on 950 state-owned acres in Sierra Blanca in West Texas by 2023. The company plans to process the rare earths onsite and expects the mine to produce 16 or 17 rare earth elements. (Currently, only one other domestic mine exists in San Bernardino, California.)

Texas is also trying to establish the needed rare earth processing sites – a segment of the mining industry which is currently dominated by China. One such Texas-based company, Blue Line, has received federal funding for a facility to separate rare earths in Hondo, Texas. The rare earth minerals will come from its Australian partner Lynas Rare Earths Ltd.

The Lone Star state is also hosting one of the first facilities to recycle rare earth elements from electronic waste, San Marcos-based Urban Mining Co. The company has a Dept. of Defense contract for a small pilot program that seeks to harvest usable rare earth elements.

Texas hopes to do well by doing good. It believes it will attract more companies with production lines requiring these rare earth properties, the better to create more jobs and grow its economy.

Some of this already appears to be happening.

Samsung announced its plans to invest $17 billion in Texas chip factory this November, citing infrastructure as one of the reasons for the location. Tesla made official its plans to move its headquarters to Texas in October. It is planning $1 billion of investment, as it continues to expand EV production in the state.

Obviously, this nascent Texan supply chain is not nearly enough to meet growing U.S. demand for chips and the REEs they require. Still, it is an encouraging sign that we may be waking up from the delusion that offshoring key manufacturing processes does not have consequences.

“It’s wobbly progress, but at least it’s headed somewhere,” said Margaret Kidd, program director of Supply Chain and Logistics Technology at the University of Houston. “Texas is not going to solve our entire country’s supply chain problems for chips, but it is a positive step.”

With estimates that it will take 25 times our current rare earths supply to achieve Biden’s 2050 green economy, it can’t come too soon.

Emily Pickrell is a veteran energy reporter, with more than 12 years of experience covering everything from oil fields to industrial water policy to the latest on Mexican climate change laws. Emily has reported on energy issues from around the U.S., Mexico and the United Kingdom. Prior to journalism, Emily worked as a policy analyst for the U.S. Government Accountability Office and as an auditor for the international aid organization, CARE. 

UH Energy is the University of Houston’s hub for energy education, research and technology incubation, working to shape the energy future and forge new business approaches in the energy industry.