The transition to electric vehicles (EVs) has triggered an unprecedented demand for rare-earth elements (REEs) and battery metals. While recycling technologies show promise, they currently supply only a tiny fraction of global demand due to high processing costs and undeveloped supply chains.
Recently, a pioneering clean-tech refinery in the south-west closed down because it was unable to secure the massive capital required to scale up its low-impact chemical recycling process to commercial viability. Elsewhere, optimism remains high. In the north, a mining consortium has secured substantial long-term funding from private investment funds to develop a high-capacity lithium extraction facility. This project is expected to create hundreds of jobs and yield enough mineral output to support the domestic EV sector.
However, local communities are increasingly resistant. A planning application for a new open-cast lithium-clay mine in an area of outstanding natural beauty has faced thousands of formal objections, despite the firm's promises of local investment. Some economists suggest that market forces would allocate these resources more efficiently if local licensing restrictions and planning red tape were eased.
Another approach is high-intensity chemical refining of heavy REEs. While this guarantees a secure supply of essential inputs for high-tech industries, the process generates substantial volumes of toxic, acidic, and low-level radioactive wastewater. The economic advantages of cheaper electronics and industrial employment must be balanced against severe local ecological degradation and groundwater contamination. If heavy REE refining goes ahead, tough regulation is likely to be required.
Extract C states: ‘If heavy REE refining goes ahead, tough regulation is likely to be required.’
Using a negative production externality diagram to help you, explain why regulation of firms involved in the heavy REE refining process is likely to be necessary.
378 exam-style questions on AQA A Level Economics 1.8 The market mechanism, market failure and government intervention in markets, covering 1.8.1 How markets and prices allocate resources, 1.8.2 The meaning of market failure, 1.8.3 Public goods, private goods and quasi-public goods, 1.8.4 Positive and negative externalities in consumption and production, 1.8.5 Merit and demerit goods, 1.8.6 Market imperfections, 1.8.7 Competition policy (A-level only), 1.8.8 Public ownership, privatisation, regulation and deregulation of markets (A-level only), 1.8.9 Government intervention in markets, and 1.8.10 Government failure. Each one has a worked solution and a mark scheme showing where the marks go.