Balancing supply diversification and environmental impacts: A system dynamics approach to de-risk rare earths supply chain

Abstract

We introduce a System Dynamics (SD) model to examine policy measures aimed at diversifying the global supply chain of rare earth elements (REEs) and reducing reliance on China. Through meticulous simulation experiments, the paper evaluates the effectiveness of individual policies and their combinations (strategies) on enhancing the Rest of the World’s (RoW) market share, minimizing environmental impacts, and meeting the burgeoning demand for Neodymium—essential for green technologies such as electric vehicles and wind turbines.Our findings reveal that direct governmental interventions, particularly those focused on expanding mining and recycling capacities, significantly bolster the RoW’s market share and decrease unmet Neodymium demand. The study also underscores the importance of environmental regulations in promoting sustainable mining practices, which, while slightly constraining market share growth, result in considerable environmental benefits. Among the evaluated strategies, one combining capacity expansion, recycling, and international cooperation emerges as the most effective, marking a substantial increase in RoW market share and a notable reduction in unmet demand.Furthermore, the paper discusses the complex trade-offs between economic development, environmental stewardship, and supply security in policy-making. It calls for a comprehensive approach that considers economic, environmental, and social factors, including public perception and regulation, in REEs mining.In conclusion, our research provides vital insights for policymakers, illustrating how simulated policy interventions can facilitate informed decision-making in the REEs market. By advocating for a balanced consideration of multiple factors, this study contributes to the discourse on sustainable supply chain management for critical minerals.