Critical Minerals Strategic Reserve Design

Rare earths are essential for making permanent magnets

Permanent magnets are key inputs into technologies like fighter jets, radar systems, wind turbines, and electric vehicles. As such, they are crucial to Australia’s national security and energy transition.

Australia has the potential to develop its own rare earths capacity

Australia currently ranks fourth globally in rare earths reserves and fourth in rare earths production. However, China’s dominance in rare earths has created volatile market conditions, placing supply at risk and creating headwinds for investment.

To safeguard Australia’s national security and support investment, the Government has announced the Critical Minerals Strategic Reserve

To implement this reserve, we recommend introducing the Rare Earths Production Scheme (REPS), under which rare earths producers and the Government enter a Contract for Difference with a price collar.
Under the REPS, the Government covers any gap when the spot price falls below an agreed floor. Similarly, the Government receives a negotiated proportion of revenue when the spot price rises above an agreed ceiling. The REPS would focus on neodymium, praseodymium, dysprosium and terbium, as key materials for Australia’s national security and energy transition. Volume eligible for the scheme will be allocated through a tender process, and prices will be set via a reverse auction.

CfDs are already emerging as a key mechanism to support government interventions in strategically important markets, while maintaining economic and fiscal objectives. For example, the REPS mirrors the Australian Government’s Capacity Investment Scheme, which uses CfDs with a price collar to underwrite investment in renewable energy and storage.
The Government should act quickly to establish the delivery and governance arrangements necessary to implement the REPS.

Read the full report here.