Monday, April 1, 2013

The Global Implications of Greenland's Election

In a recent article from the The Economist, an interesting economic perspective is posited regarding the recent election in Greenland. Why is an election of just 30,000 voters worth talking about? Greenland is home to enormous deposits of untapped natural resources. Offshore oil drilling and mining for rare-earth metals are what keeps investors interested, as well as keeps the economy afloat. These rare-earth metals are not as scarce as their name suggests, but rather are difficult to extract as they are often mixed with Uranium. Under Greenland's current laws, Uranium is illegal to mine and thus rare-earth metals are near impossible to extract.

In March, the Siumut party led by Aleqa Hammond ousted the current government in Greenland. Hammond recognizes the necessity of foreign investment if Greenland is to prosper and establish its economic independence from it's former colonial power, Denmark. However, she must also protect the interests of the citizens of Greenland. She promised to both lift the law that bans Uranium mining as well as require higher loyalties from mining firms. In this way she hopes to attract more foreign investment while also protecting her voters. "We are welcoming companies and countries that are interested in investing in Greenland," she said in her first interview since the election. "At the same time we have to be aware of the consequences as a people. Greenland should work with countries that have the same values as we have, on how human rights should be respected. We are not giving up our values for investors' sake." (The Guardian) Between the melting ice due to global warming and the lift on the ban of Uranium mining, rare-earth metals will become more widely available to firms on the global market.

Currently, China supplies 97% of the world's rare-earth metals and has been restricting it's supply for what it claims to be environmental concerns. Skeptics argue that China is withholding its global exports so that these metals will be available to its domestic producers, giving Chinese manufacturers a competitive advantage. Whatever the reason, the current market for rare-earth minerals is comprised of excess demand for a limited supply. The changes taking place in Greenland (if they indeed come to be) could change all of that. A greater availability of these metals could force China to loosen its hold on the market, thereby increasing supply and lowering prices.

6 comments:

  1. This is interesting. Oil drilling has been appearing a lot in the new over the past years so it's interesting to see how it has an impact on elections.

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  2. I find the most interesting aspect of the Economist article to be China's interests in "controlling the supply of high-valued materials." It was surprising to read, initially, that China restricted its exports of rare earths because of environmental concerns--it seemed unlikely that China would be worried about the environment given its past history with use of natural resources. The country's "ulterior motive" cited in the article seems more characteristic of the country. While I think it would be good for the world electronic market if Greenland exploited its "untapped export industry" by lowering prices that China has been in control of, it may also pose a race-to-the-bottom aspect of countries lifting bans (like the ban on uranium extraction) in order to attain more profit.

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  3. I don't think its unlikely for china to worry about the environment as international pressure about China's burning of fossil fuels has heated up. I would hope to eventually give China the benefit of the doubt, and say that they do want to improve their impact on the environment

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  4. The mining of rare-earth metals in Greenland may very well take away the comparative advantage China gains from hoarding rare-earth metals. One thing that comes to mind is Greenland's domestic industries, or lack there of. This means Greenland may be forced to export these metals, which will undoubtedly drive down the world price for these commodities.

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  5. The historical reason behind the policy against mining uranium is a stance against nuclear weapons. Denmark's attempt was "to reduce the role of nuclear weapons in international relations. It is because of this history that Greenland's zero tolerance on uranium mining policy has remained so steadfast." Uranium is not traded like other commodities but sold individuals futures contracts negotiated between buyers and sellers and because of this it is hard to follow the flow of uranium, which is problematic for countries who are trying to stop the proliferation of nuclear weapons. Greenland is not under the IAEA agreement and could therefore mine uranium if it wanted. We should look to see what the young government of Greenland will do in the future and if Denmark will try to step in. There are concerns about the effects on public health and the environment, though I think the amount of money that Greenland stands to make will outweigh any of these concerns.

    http://www.isn.ethz.ch/isn/Digital-Library/Articles/Detail/?lng=en&id=141673

    http://www.proedgewire.com/nuclear-energy-press/government-leaning-toward-allowing-uranium-mining-in-greenland/

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  6. This is a very interesting article. I had no idea that Greenland could have such an economic impact. I wonder how much rare-earth metals Greenland has and how that could effect markets?

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