Browsing by Subject "Rare earth elements"

The concerns over the availability of rare earth elements (REEs) supply have risen. Meanwhile, China controls the supply side, the demand is increasing because of REE-containing products, such as wind turbines and electric vehicles, gaining more popularity in the transition towards low-carbon economies. In response to the financial and environmental challenges of opening new mines, recycling has been identified as an alternative to meet the demand for REEs. Furthermore, the European Union (EU) has the potential to grow its recycling sector as it is one of the world’s largest producers of REE-containing waste, with the potential to reduce dependence on China’s supply. This thesis aims to study the interaction between China the extractor and the EU the recycler in the market of REEs. As recycling can only emerge from the scrap extracted earlier, the extractor can influence the profitability of recycling activities. An extractor that intends to maximize its revenues anticipates the behavior of the recycler and based on that makes decisions. To accomplish the objective of the thesis, a two-period game theoretic model is employed. In the first period, there is one player, the monopolistic extractor, who turns into a dominant firm in the second period, while the recycler emerges as a fringe firm. Game theory provides a useful framework for analyzing the behavior of the players, each seeking to maximize their objectives in interaction with each other. To study the additional impact of recycling on the decision-making path, the Hotelling rule is used and modified. The model is applied in five different scenarios: private solution, planner’s solution with and without recycling, nonstrategic, and strategic behavior. Analytical and numerical solutions are presented to illuminate the implications and outcomes of these interactions, including their impacts on resource allocations and price paths. Results from the scenarios reveal that extraction in period one significantly influences recycling outcomes. While high extraction levels in period one, coupled with recycling, lead to optimal joint welfare for the EU and China, they also drive down market prices of period one, reducing extractor’s revenues. Consequently, the extractor is motivated to delay extraction toward period two, strategically influencing the availability of recyclable scrap and a maintaining higher market price in period one. Strategic behavior, where the extractor anticipates the recycler’s optimal strategy in period two, yields maximum revenues for the extractor and minimizes the recycler’s profit. These findings provide insight into the economic efficiency of managing REEs. While the EU is interested in enhancing its market share, this thesis underscores the complexity of market dynamics and the interdependence between extraction and recycling.