Wednesday, December 15, 2010

Backstops

Another basic principle of resources in the same newspaper today: clean energy suppliers should be worried, apparently, because some of the raw materials they use in making products such as compact fluorescent light bulbs come mostly from China. In other news, we can mine them here, but it's not worth it, apparently even with China slapping a hefty tax on exports.

If it's cheaper to do it over there, the market says to do it over there. Yes, economic models will be off by the way they assume away the costs of getting back into the mining game, but is that so huge? Seems to me that if and when it's worthwhile, we'll do it, but apparently it's not worth it even for CFL manufacturers to get into the business. If they aren't worried about it enough to secure their own supplies, should the rest of us be?

When one resource gets depleted it gets more expensive, and when it's more expensive people look for alternate sources. The alternate source is called a "backstop." In this case it looks like US rare earths are a backstop for Chinese rare earths.

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