Highlights

• İsmail Hilali's study shows rare-earth price shocks can raise green hydrogen production costs by up to 9%, particularly in PEM systems.
• China dominates rare earth mining and processing, potentially creating strategic leverage in hydrogen technology development.
• Recommendations include:
  • Diversifying REE supply chains
  • Developing alternative technologies
  • Creating strategic materials inventories

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İsmail Hilali (opens in a new tab) (Harran University) reports in a Research Square preprint (Sept 12, 2025) that rare-earth price shocks—especially in neodymium, dysprosium, and terbium—can raise the levelized cost of green hydrogen (LCOH) by up to ~9%, with proton-exchange-membrane (PEM) systems most exposed.

Using an artificial-neural-network (ANN) model that outperformed ARIMA and XGBoost during high-volatility episodes (e.g., Myanmar mining disruptions, Red Sea logistics), the study links geopolitically driven REE price spikes to measurable capex/LCOH uplift, arguing hydrogen may swap oil-and-gas dependence for critical-minerals dependence unless supply chains diversify.

Why it matters (and who it favors)

Green hydrogen is capital-intensive, and PEM stacks/materials embed small but pivotal amounts of REEs. If Nd/Dy/Tb prices jump, project economics drift, financing wobbles, and deployment timetables slip—particularly in import-dependent regions. Given China’s commanding position across mining and especially processing (the paper cites >70% extraction and ~85% processing), volatility and bottlenecks tend to entrench Beijing’s leverage unless (a) non-Chinese refining capacity scales, (b) circular supply (recycling/urban mining) expands, and (c) buyers adopt smarter contracts and stockpiles. In short: without materials sovereignty, hydrogen sovereignty is a mirage.

Implications for policy and markets

• Procurement & contracts: Expect longer-dated, floor-price or collar-style offtakes for REE-bearing components; “take-or-pay” structures could migrate from magnets to electrolyzer supply.
• Capex buffers: Developers should model REE shock bands in financing cases (e.g., ±10–50% sensitivity on Nd/Dy/Tb), with contingency budgets sized to PEM exposure.
• Industrial strategy: Pair hydrogen roadmaps with REE roadmaps—regional separation plants, recycling targets, and strategic inventories—so that electrolyzer build-outs aren’t hostage to midstream chokepoints.
• Tech pathways: Accelerate REE-lean alternatives (materials substitution in PEM/AEM) and diversify toward Alkaline Electrolyzer (AEL) where performance permits.

What the study got right

• Method fit: An ANN is reasonable for non-linear, shock-driven pricing; the model’s superior error metrics versus ARIMA/XGBoost during volatility are plausible and decision-useful for stress testing.
• Translation to LCOH: Linking REE price trajectories to stack/system costs turns abstract risk into bankable inputs (sensitivity bands, Monte Carlo)—a practical step for investors.

Limitations (read before you act)

• Preprint status: Not peer-reviewed; methods and coefficients may change.
• Data gaps: Limited visibility into informal trade, incomplete tracking of recycling flows, and reliance on coarse proxies (e.g., a single geopolitical-risk index).
• Generality: REE intensity varies widely by vendor and stack design; applying the paper’s elasticities to all PEM/AEM/SOEC cases risks over- or under-estimating true exposure.
• Attribution risk: Correlation between geopolitical events and price moves is shown; causality and pass-through to LCOH in real procurement contexts need validation with actual POs and contracts.

REEx bottom line

The analysis is directionally credible: REE volatility can dent hydrogen economics, advantaging China’s midstream until allied refining and recycling scale. Investors should demand materials-aware hydrogen models; policymakers should fund refining, recycling, and substitution in lockstep with electrolyzer targets. Otherwise, clean-energy goals will remain at the mercy of a concentrated REE pipeline.

Citation

Hilali, İ. A Foresight Study on the Geopolitical Vulnerabilities of the Rare Earth Supply Chain in Securing Green Hydrogen (opens in a new tab). Research Square preprint, Sept 12, 2025. DOI: 10.21203/rs.3.rs-7309732/v1.

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