Month: April 2023

About a decade ago, a concern emerged that China was dominant in global production of what are called “rare earth elements”–including notably yttrium, neodymium, europium, terbium, and dysprosium. (Giving the atomic number for each of these is left as an exercise for the reader.) These materials are, at least with current technology, essential for manufacturing certain clean energy technologies, like components of electric vehicles and wind turbines, as well as some materials used in defense-related technologies, like permanent magnets and certain coatings for jet engines.

In a post back in 2015, I pointed out that China had been making threatening sounds about refusing to export these materials, but also that market had been reacting to that threat by figuring out how to conserve on the demand side and how to find alternative sources and recycle on the supply side. A group of researchers from the Rand Corporation–Fabian Villalobos, Jonathan L. Brosmer, Richard Silberglitt, Justin M. Lee, and Aimee E. Curtright– provide an updated view of the situation in “Time for Resilient Critical Material Supply Chain Policies” (2022).

Here’s a figure offering a timeline of events. Focus your attention on the graph at the bottom, which refers to production of REOs, or “rare earth oxides,” which is the amount produced after the ore has been refined. From about 1998 up through 2013, more than 90% of the rare earths being produced originated from mines in China (black line). This was the period when China was threatening to limit or cut off supplies to the rest of the world. But starting around 2016, global mining of rare earths rose substantially (red line), while mining in China rose much less (blue line). China’s market share of rare earth elements remains high, but has now fallen to about 55%.

The Rand researchers emphasize that China’s market share remains large, but they also make the point that China’s share of processing these rare earth elements is even larger–a legacy of the years when China was almost the only global producer. They write:

Current production and processing activities demonstrate that China’s window for
disruption of these critical material supply chains may be narrowing, but not eliminated, and remains a strategic geopolitical tool for its leadership. …

As shown in Figure 2, China’s share of extraction peaked in the late 2000s, when it provided upward of 95 percent of global REE [rare earth element] output; it now accounts for 55 percent. However, China accounts for about 80 to 90 percent of processing and separates nearly all heavy REEs; because of this dominance in the market, the processing sector
is where the risk of disruption is greatest.28 is the same sector that China leveraged when Japan was threatened with REO restrictions in 2010. In fact, nearly all rare earth ore mined in the United States (43,000 tons in 2021) is sent to China for separation and purification. This dominance resulted from China’s ambitious mining programs, an inability to enforce national policies that led to illegal mines, and a disregard for pollutants and by-products that create
environmental waste.

The Rand researcher go into some detail about risks of disrupted supplies, but in broad terms, the policy steps here are fairly straightforward. (You will be stunned to know that the Rand researchers believe a “whole-of-government approach” may be needed here. Personally, I’m not holding my breath for the announcement of some policy problem that is said not to require a “whole-of-government” approach.) For the short-run, having stockpiles of rare earth elements that could last a few months may be useful.

For the longer run, the answers involve allowing expanded mining for these rare earth elements, as well as finding ways to substitute other more common minerals for some of their uses and to recycle already-mined supplies. It also requires building processing plants for these materials. Some of this, like searching for substitute materials, the private sector will eagerly do on its own in response to supply shortages and higher prices. But for other parts–like opening new mines and processing facilities–governments are going to have to strike a balance between environmental concerns and actually allowing a reasonable number of such projects to go ahead at a reasonable time and cost. That part of the challenge may be more political than economic.

It’s been said that colleges and universities have an edifice complex: they like big buildings. Major donors like have having their names on buildings–or at least chiseled into the lobby. Faculty (setting aside the precarious position of adjunct faculty) feel that they need separate offices–even if they often work from home, or the laboratory or library, or even if they go off for a few weeks every year for seminars and lectures at other institutions. The conventional wisdom is that potential students, making their choices, judge by the evidence of their eyes whether the buildings of an institution seem stable and substantial.

My wife and I sometimes note that when you are a child, houses seem like nearly permanent objects, like the Egyptian pyramids. Then when you become a homeowner, it comes as a shock to discover that your house is instead a bunch of systems–roofing, windows, heating/air conditioning, water, electrical, large appliances, carpets, siding, painting–that are continually wearing out and breaking down. Across the country, many colleges and universities have been tempted to take a parallel approach to campus buildings: build them as if they were permanent and unchanging, and then be astonished at the concept of maintenance.

Scott Carlson provides a readable overview of the issues in “The Backlog that Could Threaten Higher Ed’s Viability: A Big Bill for Deferred Maintenance is Coming Due” (Chronicle of Higher Education, March 31, 2023). Carlson writes:

Meanwhile, bricks, steel, concrete, and mortar follow the laws of entropy. As a rule, buildings have two critical stages in their lifetimes: At 25 years, a building needs significant updates and renovations; at 50, a major overhaul of its structure and systems. In recent decades, colleges went through two peaks of construction, one in the early 1970s and another in the late ‘90s and early 2000s. Do the math: Two building life cycles will come due in the 2020s.

Lander Medlin, the president and chief executive of APPA, an association of higher-education facilities managers, points out that the construction costs of a building represent only about 25 percent of the total lifetime expenses. Recurring annual costs, like utilities, everyday maintenance, and operations, represent another 35 to 40 percent. The rest is periodic costs in the lifecycle of essential building systems: replacing the roof after 50 years, updating the heating and cooling system after 20, the plumbing and wiring, the building’s skin, and more.

Carlson cites a number of examples: for example, the major state university branch in my own metro area, the University of Minnesota-Twin Cities campus, “has a 10-year renewal need of $4.2 billion, with more than seven-million-gross square feet of space in poor or critical condition.” It is not an exceptional case.

Moreover, when money is tight, postponing some deferred maintenance often feels easier than the other options. But the number of college and university students has been declining for a decade now, and the combination of US demographic trends combined with pandemic and political factors that have made the US a less attractive choice for international students, the decline seems likely to fall. For a lot of what faculty members do, including the rise in online classes, work-from-home is a very plausible option.

Thus, the supply of space at institutions of higher education is to some extent already determined by the decisions of the past, and some major categories of demand for the use of that space have been in decline. At some places, it’s not just a matter of deferred maintenance for existing space, but of an overload of space. If you walk around a college campus during the standard workweek, you will often see a substantial office and classroom spaces not being used. At a lot of places, this underuse is especially apparent first thing in the morning, as well as Monday morning and Friday afternoon, when students and faculty would prefer not to be in class.

These issues have been around for awhile. Ronald G. Ehrenberg, an economist who ended up doing a stint as an administrator at Cornell, described some of the issues in a 1999 article: “Adam Smith Goes to College: An Economist Becomes an Academic Administrator” (Journal of Economic Perspectives, Winter 1999). With regard to academic buildings, he wrote:

[O]ur trustees have long been aware that new buildings add to the operating and maintenance cost of the university. A rough estimate is that if the building was expected to have a total project cost of a given amount, it would take an equivalent endowment to provide the funds for utilities, custodial services, and routine and planned maintenance over the useful life of the building. This estimate derives from these costs averaging roughly 4 percent of the project costs and 4 percent is what Cornell ‘‘targets’’ as the annual payout, after investment expenses, on its endowment funds. …

Cornell’s trustees have long required that a plan for meeting operating and maintenance costs be present before construction of a building can begin. Realistically, however, once a major donor has committed to funding half the cost of a building and it has been publicly announced that the building will be named after that donor, the idea that construction on the building would be held up because an endowment for maintenance had not been raised is a non sequitur. Furthermore, our ability to raise the additional construction costs, let alone the endowment for operations and maintenance, was somewhat uncertain and based upon forecasts of our development staff. So, while the university hoped that funds to endow a
maintenance fund for the building will be raised, we instead planned to pay for the needed operating and maintenance funds that will not come out of indirect cost recoveries from our annual operating budgets.

Inevitably then, this new building will compete for funds with faculty positions, graduate student support and faculty salaries. The very same faculty members who vehemently argued that the institution needed the new facilities to remain competitive in the physical sciences and engineering are likely to turn around and chastise the administration for spending too much on buildings and not enough on faculty salaries, new faculty positions, and graduate student support. … Many faculty members understand the tradeoff between buildings and other costs, but apparently only after their unit’s new building is finished.

Raising money for a new building at a college or university can be difficult, but being able to put the donor’s name on the edifice helps. Maybe with some creativity, donors could put their name on the renovation of a building: The Smith Renovation (Re-Imagining? Resurrection?) of good old Jones Hall. Or in some cases, the right answer will be for the college or university to rethink and shrink its use of physical space, and the best answer will be the Smith Quadrangle (or playing field, or garden) which will be sitting in the space where good old Jones Hall used to be.