UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 726-iii

House of COMMONS

Oral EVIDENCE

TAKEN BEFORE the

SCIENCE AND TECHNOLOGY COMMITTEE

STRATEGICALLY IMPORTANT METALS

Wednesday 2 March 2011

Professor Robert Watson and Professor David Clary

RT HON David Willetts MP

Evidence heard in Public Questions 108 - 179

USE OF THE TRANSCRIPT

Oral Evidence

Taken before the Science and Technology Committee

on Wednesday 2 March 2011

Members present:

Andrew Miller (Chair)

Gavin Barwell

Stephen McPartland

Stephen Metcalfe

Stephen Mosley

Pamela Nash

Graham Stringer

Roger Williams

________________

Examination of Witnesses

Witnesses: Professor Robert Watson, Chief Scientific Adviser, Department for Environment, Food and Rural Affairs, and Professor David Clary, Chief Scientific Adviser, Foreign and Commonwealth Office, gave evidence.

Q108 Chair: Good morning, gentlemen. Thank you for attending this morning. We are on a fairly tight schedule so we will be keeping the questions to you fairly brief. We did ask for a Minister from the Foreign and Commonwealth Office to attend, but that is apparently not possible. We want to push hard to make sure that we understand how well joined-up the thinking is in this area. Could I ask the two of you, first of all, to introduce yourselves?

Professor Clary: I am Professor David Clary, Chief Scientific Adviser at the Foreign and Commonwealth Office.

Professor Watson: I am Bob Watson, Chief Scientific Adviser in DEFRA.

Q109 Chair: Thank you very much. On 24 January DEFRA published a Review of the Future Resource Risks Faced by UK Business and An Assessment of Future Viability. How will it be used, is it a one-off review or are there plans to repeat it and expand it?

Professor Watson: As you said, this is a review not just of strategic metals but it considered other issues, such as timber, palm oil, and so on. Our aim was to try and get an understanding of what are some of the critical resources for the private sector business in the UK. We believe that our job, primarily, is to provide information to the private sector as to whether some of these resources are rare, are getting rarer and whether there are issues such as price volatility, etcetera. We can imagine working through WRAP to try and make sure that the private sector, especially the SMEs, are made aware of some of the critical issues. So it is a conversation, basically, between DEFRA and the private sector as to what their needs and wants are.

We find that the EU study, which also looked at some of the resource issues, is very important. Whether we will do exactly this study again or not, I do not know, but it is an issue that we will keep a watching brief on, along with the EU, so that we can continuously update what the needs of our British industry are and we can advise them as to what we know about resource scarcity.

Q110 Chair: Were other Departments involved or was this just DEFRA? Did you consider Government policy for economic growth as a part of your thinking?

Professor Watson: Unless my colleague corrects me, it was a DEFRA study, but of course on issues such as this we work with BIS all the time to make sure that we are joined-up. It was a study that we contracted out to an external group. Obviously, the key issues are: what do we know about resources and resource efficiency, and what can you do on recycling? The obvious answer was that it had to be in the context of economic growth in the UK. The question, fundamentally, was, were any of these resources going to be scarce and could that undermine some of the private sector?

Q111 Chair: You mentioned the EU study. I take it that it is fair to assume that the work you have undertaken complements the EU study?

Professor Watson: Exactly, yes.

Q112 Chair: Did either of the two Departments have any direct involvement in the EU critical raw materials initiative?

Professor Watson: No. I did not know the answer to that, so my colleague sitting behind me has given me the answer, which is no.

Q113 Chair: Is it your intention now to feed into that process the findings from the UK?

Professor Watson: Absolutely. We are open and transparent about anything we study. The review has already been published, as you know. We will make absolutely sure, if we haven’t already, that our EU colleagues have the findings, absolutely. We can learn from each other.

Q114 Chair: Whose responsibility is it to decide when a metal becomes strategically important to the UK?

Professor Watson: Have you got an answer to that?

Professor Clary: I don’t have an answer to that.

Q115 Chair: But you would regard that answer to lie within the UK, not in the EU, I take it?

Professor Watson: The EU will decide from their perspective whether it is strategically important, but we should independently decide. For example, on many of the Rare Earths, we are not a major user of Rare Earths at this moment, but as we move towards a low-carbon economy, a number of these Rare Earths are going to become much more important, so we need to keep a watching brief as our private sector starts to develop wind turbines, for example, which will use some of the metals and materials that go into an electric car. We need our own watching brief in addition to the EU, quite clearly.

Q116 Graham Stringer: You said, Professor Watson, that we are not a major user. Compared with what-compared with the totality of Rare Earths or compared with other countries?

Professor Watson: Yes, correct. We are probably something like number nine or 10 in the world. We are a very minor user at this moment in time compared with the US and Japan, and even compared with France, etcetera. For the Rare Earths, in particular, at this moment in time, we are a relatively minor user.

Q117 Graham Stringer: When you say that, are you talking about manufacturing or end use?

Professor Watson: Our use of it in manufacturing.

Q118 Graham Stringer: In end use, we may well be up at the top.

Professor Watson: A bit more. Exactly. We buy some of the products in that already contain the Rare Earths.

Q119 Graham Stringer: Even if we are not manufacturing it, the supply of Rare Earths is important because we use them.

Professor Watson: Absolutely.

Q120 Graham Stringer: And we are not in ninth position in that?

Professor Watson: Absolutely. As we know, China totally dominates the Rare Earths market at the moment. Something like 97% of all Rare Earths come from China, which, of course, potentially poses the risk of instability. As we know, they put some quota limits on only a few months ago. Therefore, I would argue that it is rather important from a UK perspective to see other sources start to materialise. Clearly, there are thoughts of re-opening mines in Australia and in the United States so that there is a wider diversity of sources.

Q121 Chair: The point that Mr Stringer has raised is important because that means that DEFRA’s responsibility, which includes oversight of the recovery and recycling of materials, is bigger than our actual primary use in manufacturing.

Professor Watson: Yes.

Q122 Stephen Mosley: In your answer to the previous question, Professor Watson, you said that DEFRA was responsible for updating businesses on resource scarcity. When we had before us Tony Hartwell from the Environmental Sustainability Knowledge Transfer Network, he pointed out that he did not really know who was responsible. There is no central agency. Dr Pitts, from the Royal Society of Chemistry, pointed out that UK companies need good-quality information. He seemed to imply that they are not getting that at the moment. Is it DEFRA’s responsibility not just to update businesses but also to make sure that they are aware that the source exists? Do you also look at things such as the levels of import, export and the amount of rare metals that are traded within the UK?

Professor Watson: I am not sure we have formal responsibility, but given, quite clearly, that one of the roles of DEFRA is to understand resource efficiency-to what degree you can recycle-we undertook this study to inform ourselves and the private sector. Whether we have any formal responsibility, I am not clear.

Q123 Stephen Mosley: Leading on from that, do you think there should be an organisation within the UK Government that has formal responsibility for collecting all of this information and disseminating it?

Professor Watson: The question would then be, would it be an entity such as DEFRA or BIS? Clearly, we need to be joined up. The private sector needs to be informed, and we need to be informed by the private sector as to what they see their resource needs are likely to be now and in the future as they see whole new product lines coming on base. We, in the Government, ought to be able to make sure that we can at least provide information to them as to whether there is either scarcity or a question of access and price volatility, as in the case of Rare Earths. Until we get other sources of supply, China could set quota at any point in time.

Q124 Stephen Mosley: You mentioned BIS, and I know we have the FCO here and yourselves, so a number of different Departments seem to share responsibility. To what extent do you share data, information and responsibility?

Professor Watson: As soon as this study was commissioned and we had the final results, we obviously made sure it was published and available to everyone. One way in which in we try very hard to share information is through the chief scientific advisers. We, typically, meet every Wednesday morning for breakfast, as we did this morning. There is an informal network right across all chief scientific advisers as to key issues, whether it is Rare Earths, climate change, biodiversity and a whole range of issues. There is an informal network and we each make sure that we are aware of some of the big issues that are coming up.

Q125 Stephen Mosley: In your previous response you also mentioned the transition to the green economy, the low-carbon economy. You mentioned about the importance of rare metals. Are you able to quantify that at all?

Professor Watson: No. Again, the question is, what will the UK’s strategy be? Clearly, we have legislation, as you and I know, that by 2050 we need an 80% reduction in greenhouse gas emissions in the UK. We also have some intermediate targets for 2020 to 2030, especially advised by the Climate Change Committee chaired by Adair Turner. There is a real question of exactly what that energy mix will be. What will we do in the production of energy and to what degree will wind turbines be an effective part of that solution versus carbon capture and storage and nuclear power? How will we look at end use efficiency, so to what degree will we go to hybrid cars or all electric cars? The strategy to meet our target will depend on what the demand is.

DECC had a calculator that talks about a whole series of approaches to get to this 80% reduction of greenhouse gas emissions by 2050, depending on what combination of technologies you use in different sectors. A very logical piece of work could be almost what you are suggesting. We must think through different pathways between now and 2050. What types of demand will be needed of Rare Earths for either wind turbines or electrically driven cars? That is a piece of work that would make some sense. Of course, to what degree are we going to manufacture here and to what degree are we going to import? So one could do a piece of work around that.

Q126 Stephen Mosley: I was going to tie it all up by asking, does the Government know what the demand and need will be over the next couple of decades and where will those metals come from? I think the answer, from what you have said, is no, effectively, is it not?

Professor Watson: There are multiple pathways to get from here to 2050 in playing around with both end use and production of energy. It is a combination of the two, of course, in addition to how we manage our land and agricultural emissions. There are multiple pathways, but one could clearly then try and do some thinking that, if you took one pathway between here and 2050, what are the implications for different technologies that would need to be manufactured? You can make some assumptions of what would be domestic production versus imports. One could at least come up with a range of the demand for these materials. Obviously, one would really want to study the global demand for these particular products, and one could make an assumption of likely demand if the world went more towards wind turbines or electric cars.

Then, of course, one would want to examine to what degree you can recycle and recover. A lot of it would be in the initial design in terms of to what degree you could subsequently recover and recycle or to what degree you could create a longer lasting piece of equipment in the first place. We would need to consider many factors when making an assessment of demand.

Q127 Stephen Mosley: But there is nothing going on at the moment?

Professor Watson: Not that I know of.

Q128 Pamela Nash: Good morning, gentlemen. We have seen evidence in the Committee that large businesses have been able to bulk purchase and plan ahead so that they can hedge against any strategic metal supply risks that may be on the horizon. However, we are concerned about small and medium businesses that may not have the resources to plan ahead in this way. In what way can the Government support those businesses?

Professor Watson: I presume, to be quite candid, that the best way we can support the SMEs is by providing information about availability, about whether we see that there is likely to be scarcity or not. I see the Government’s role is in helping to provide information. What you are also suggesting is that the larger companies have more the ability not only to bulk purchase but to stockpile. I don’t see that there is a role for Government in stockpiling. I see the role of Government in providing information about availability, etcetera.

Professor Clary: I think the Foreign Office has a particular role in promoting companies overseas, and that includes SMEs through agencies like UKTI and Science and Innovation Network. They have a role in that regard. I think that is an important aspect also.

Q129 Chair: Do our science counsellors in overseas missions collate any information and feed it back to the centre on the specific question that Pamela asked?

Professor Clary: There has been a certain amount from Science and Innovation on SMEs and what can be done in other countries, certainly. At the moment there is going to be a little more emphasis on that than there has been in the past.

Q130 Chair: Clearly, there should be a structured reporting mechanism covering perceived risks of supply from the different countries.

Professor Clary: Yes. The science counsellors do provide reports on policy issues from all the different countries. Those are published on the BIS website in the annual report of the Science and Innovation Network.

Q131 Pamela Nash: Thank you, Chair. I am interested that you said that. How can the Government do that when the supply risk does not seem to be very clear to the rest of us? Does the Government have sufficient information to provide that to small businesses?

Professor Watson: I might be missing your question. If so, I apologise.

Q132 Pamela Nash: My concern is that the supply risk is unpredictable. Is it as unpredictable as I think as a lay person, or do you have the ability to predict it sufficiently to provide to business?

Professor Watson: What has happened on the Rare Earths, which we all know, is that China put some significant quota limits on a number of them during the last year. The situation was not that supply was uncertain but that the price became much more volatile. What we need to do is to keep a watching brief as to what will happen to availability and to price. As I say, we are starting to see the potential increase in production of new mines or the re-opening of some mines in California, USA, and a couple of mines in Australia. Also, there is the possibility of other mines opening in South Africa, Vietnam and in other places. As the price goes up and the Chinese start to put on quotas, these other mines could come to be quite lucrative. However, one of the big challenges is that much of the skill base for knowing about mining-it is meant to be quite complex-resides in China. One needs to make sure that there are multiple sources. Then you will get supply certainty and probably more price certainty as well, which would indirectly encourage other sources of minerals, especially the Rare Earths.

Q133 Pamela Nash: Can I take from that answer that you believe we need to offset China’s monopoly with these other mines?

Professor Watson: This is a personal viewpoint. Whenever you have a single source, by definition they can hold the world to ransom, basically. Clearly, what would give us more stability on both price and availability would be multiple sources. It would make the market work.

Q134 Pamela Nash: Do you think that the World Trade Organisation talks in Doha will provide us with a more successful strategic metals trade?

Professor Clary: Obviously, the Doha talks have stalled somewhat, but currently there is a lot of enthusiasm to get that going again, and this could be a mechanism for developing, emerging and developed nations to get together on this issue. There is a promise there.

Q135 Pamela Nash: Do you think the progress in this area is dependent on these talks being successful?

Professor Clary: I think it is one of the many areas where progress is needed. It is not just the WTO. There are other agencies like the World Bank and the IMF, for example. Even if you go to international fora like the G8 and G20, there are quite a few opportunities to address these issues. Although the Doha trade round has great potential, it is not the only way forward.

Q136 Stephen McPartland: Professor Clary, how practical would it be for the Government to implement and monitor schemes such as the International Council on Mining and Metals’ best practice?

Professor Clary: I think the International Council has had some very useful initiatives and proposals for those companies getting together and making proposals on sustainability, for example, with respect to mining. Certainly from the FCO’s point of view, they support those initiatives and reports that have come through from that direction.

Q137 Stephen McPartland: From your answer, how practical do you think it would be monitor those schemes and enforce them so that we know what is going on in those mines?

Professor Clary: Enforcing is something else altogether. Obviously, the UK cannot do that on its own. These are done more through the international agencies, through the European Union, for example, or even through agreements through the WTO. The International Council on Mining and Metals can provide good ideas but it is up to the other agencies, if they wish, to take those forward. That agency also comes forward with good practice between the major mining companies, and if those companies can keep up that good practice that is also very advantageous.

Q138 Stephen McPartland: Do you think it is feasible to trace the source of these strategic metals to identify that they have been produced from specific mines?

Professor Clary: Scientifically, that is very difficult to do. There has been some research in that direction, but once the metals are released, especially if they are in alloys and so on, it is very difficult to trace where they come from, as I understand it.

Q139 Chair: It does need political oversight to manage the supply side in making sure that they come from morally acceptable sources.

Professor Clary: Yes. That is correct.

Q140 Stephen McPartland: Does that political oversight exist at the moment?

Professor Clary: I do not think it exists in the form that people would really like at the moment. There are lots of discussions going on between various agencies, for example, in the DRC, in the Congo, to try to make progress there. As far as I can tell, there is no overarching procedure that is working at the moment.

Q141 Stephen McPartland: You have mentioned the DRC. Do you think that there is anything the UK Government could do to minimise the social and environmental impact that mining causes in a country like that?

Professor Clary: DFID has had some programmes in that regard, for example, the Trading For Peace Initiative, which has recently finished. I believe that it also has an initiative with the World Bank to provide some resource to try to help the DRC have a more sustainable mining well-governed process. There is some work going on in that direction in one of the Government Departments.

Q142 Stephen McPartland: On a slightly different point, the IMF’s Structural Adjustment Programme required very low royalties. Zambia gets 0.6% of the royalties from 700,000 tonnes of copper. I am wondering whether or not you think that was the wrong policy.

Professor Clary: It is an interesting idea. If it is possible to increase the royalties that countries get, then that could have a very significant effect. The quote that you have from Zambia is remarkable in that it is less than a 1% royalty. If there is a way, perhaps with the IMF, of increasing that royalty, that could help the developing countries to develop a sustainable system for mining metals.

Q143 Stephen Metcalfe: Professor Watson, I want to go back to what you said about multiple sources of supply. You said that most of the expertise in mining lies in China. Presumably, we need multiple sources of ownership as well and to expand that mining expertise. Do you see that as a risk or was that just a comment you threw in?

Professor Watson: It was just a comment, given that at the moment 97% of all the Rare Earths are coming from China and, effectively, there has not been any significant production outside of China. As I understand it, you need quite a range of skills to mine these Rare Earths. It is just a comment, basically, that one not only has to have a source of the Rare Earths, but one has to have the skills to extract and process them. I would imagine that within the US that skill base does exist. If not, I am sure they can get it. As I said, a mine in California is being opened up. They are optimistic that within a couple of years they will have quite a significant production. Equally, there are a couple of mines in Australia which they hope will have quite a significant production. How optimistic those production numbers will be, only time will tell. Between the two mines in Australia and the one in the US, the thought is that it could start to produce a significant percentage, be it 30%, 40% or 50% of the production currently in China. I would presume that if there is enough profit to be made, those skills can soon be acquired, if they haven’t already got them.

Q144 Stephen Metcalfe: I want to pick up on the issue of recycling that we touched on earlier because, presumably, as well as new supply, recycling can play a big role in this. Ian Hetherington of the British Metals Recycling Association told us that the WEEE regulations should be expanded to cover industrial and commercial waste. Should we or could we change the WEEE regulations to do that?

Professor Watson: I am not an expert on this. The amount of Rare Earths in many of these products is extremely small, so the question is to what degree it is economically viable to recycle. We are working with WRAP and WEEE to look at the issue of product design in the first place, the life expectancy of the product and then the potential for recycling. It would strike me that we need to do a lot of work on product design and to see to what degree recycling is indeed feasible.

Professor Clary: Perhaps I could add to that. Japan has something of a lead in recycling science. I know there are proposals from the research councils that were in the RCUK submission-from NERC, for example-on promoting recycling. It is an area that is being given attention by the fundamental science being done in research councils.

Q145 Stephen Metcalfe: Where do you think the Government role lies in encouraging companies to design products so that it is easier to recycle the strategically important metals contained within them?

Professor Clary: That is a difficult one. We have a trade situation of openness. The regulations in that respect might not be productive. It is a difficult one to answer.

Q146 Stephen Metcalfe: Okay. So you do not necessarily see a role for Government in encouraging businesses. Is it just a question of back to the information?

Professor Watson: I would argue that it is information as to the cost of these products and the potential for recycling. One needs to let the market work, basically. As long as the private sector has all the relevant information about what the current and potential future demand is and they can think through how you would produce a product and what the potential for recovery and recycling is, that is the role of Government basically, and then one will let the market work.

Q147 Stephen Metcalfe: At the moment, as I understand it, quite a lot of waste electrical goods are exported, but a fair degree of that is exported illegally. How do you see the Government addressing that? What is their role?

Professor Clary: Have you come across that, Robert?

Professor Watson: I know it is a potential issue. The question is, how does one stop the illegal waste dumping, because it is the Basel Convention which prohibits dumping? One of the other points is, within the UK, when a product sometimes reaches the end of its useful life here, it still has some potentially useful life in other places. The question is, if indeed that is not exported not as waste but as a product that has Rare Earths in it, if one could recover them, would we want then to re-import what is waste? This is a real question of what the economics look like, to be quite honest.

Q148 Stephen Metcalfe: But it does go wider than economics, does it not, because these are metals, as you say, that we might be exporting and re-importing with some additional value added to them, but they are important to the UK economy as well in their own right as a resource? Do you see WRAP having a role in controlling the export of waste? Does WRAP have enough of its own resources, bearing in mind it has taken the best part of a 50% cut in the last few years, to be effective in that role?

Professor Watson: I do not see WRAP having a regulatory role. We need WRAP to focus on the issue of material efficiency, how you design to avoid waste in the first place and analyse to what degree one, effectively, can do product design recycling recovery. You are absolutely right that WRAP, like the rest of DEFRA, will be reduced in size. We are looking at a 30% cut over the spending period, so clearly WRAP, like the rest of the entities we fund, will also face cuts. However, we have talked to WRAP. They believe that even within their smaller budget-they have a small core in-house group and then a larger external expertise they work with, some of which is voluntary-they can keep this issue of strategic metals as one of their priorities, but they do not really have a regulatory function. Their function is to advise us on what is the waste resources programme, basically.

Q149 Chair: Is there a function for WRAP or DEFRA to work more closely with academic institutions to deliver some of the research that is needed to improve the recovery rates of these metals?

Professor Watson: It is something we should look at. I believe that David Willetts will be appearing in front of you next. It is not necessarily just DEFRA but we need to be joined up. I think that some of the research councils, like NERC, could well look at this. It is quite clear that this has not been an area of active research in the UK. We need to look at to what degree there is a research agenda and a combination of funding entities, which can include DEFRA but also NERC as a major research council. We should look at this. It is one area where putting more emphasis on it might well be useful, absolutely.

Q150 Graham Stringer: The Minor Metals Trade Association told us that the European REACH regulations are causing huge problems for them in terms of costs and making it difficult to handle strategic metals. Do you think the REACH regulations should be changed?

Professor Watson: I don’t know enough about the REACH regulations. Obviously, REACH is meant to look at, I think, at least 30,000 chemicals at the moment. Their job is to understand what the implications are for the environment and human health. A raw rare metal should not, as I understand it, come under the REACH directives. Where they have a role is if it is chemically modified. REACH, of course, is fairly new and it has only recently got up and running. Of course, some people would argue that, if the chemical is on the REACH agenda, it can actually stifle innovation. You can also say that, if it is trying to protect society from harm, whether it is environmental or human health, it can also stimulate innovation. Given that I don’t have enough information, I can get back to you. I will talk to the people who run our REACH programme and come back to you later on with some information.

Q151 Graham Stringer: That would be helpful. In terms of the evidence we have had, it certainly applies to titanium, and they told us it costs £70,000 for a licence just to handle it, which strikes me as excessive.

The same people also said that thallium ends up in landfill sites because it is toxic but it is an absolute necessity for repeaters in fibre optics. Can you think of any way that we can stop it just being dumped in landfill?

Professor Watson: Again, let me get back to you on that. I am not an expert in waste disposal, so I apologise for not having an instant answer for you. Obviously, we are trying to move much closer to a zero-waste society. To what degree regulation should stop things being put into landfills versus encouraging the recycling and recovery of these metals is a key issue. I need to get back to you on that.

Q152 Graham Stringer: We have had fairly firm evidence that the regulations are actually increasing the amount of toxic waste material going into landfill rather than being recycled. Do you know in terms of recycling strategic metals where we are in the league table of European nations on that?

Professor Watson: I don’t. The answer is no, we don’t know.

Q153 Chair: Once again, your answers indicate that there is a gap in knowledge that does justify some joined-up thinking across Government Departments and reaching out into academia to help improve our ability to recover metals.

Professor Watson: I would agree completely with that. Absolutely.

Chair: Gentlemen, thank you very much.

Professor Watson: I will come back with the information you requested.

Examination of Witness

Witness: Rt Hon David Willetts MP, Minister of State for Universities and Science, gave evidence.

Q154 Chair: Good morning. Minister, thank you for coming to see us this morning. We were getting a bit anxious. The just-in-time principle applies to Ministers, we see. There are several issues we are going to cover this morning, starting with strategic metals, moving on to Pfizer and then UKCMRI. Just to flag up to you, there are other issues that we will be chasing your Department on, not least of which is our inquiry into particle physics and astronomy, where we are extremely anxious to see that there is some joined-up thinking between yourself and the Department for Education over the issue of astronomy. So I am parking that to one aside and putting it on the record for the time being.

If I may start on the strategic metals, we have just had the chief scientific advisers of DEFRA and the Foreign and Commonwealth Office in front of us. As you know, we have taken evidence from other external experts in this field. BIS said in its memorandum that there is a need to support and encourage companies, and I quote, "to assess their own particular situation to mitigate risks to supply." That very much fits in with some of the evidence we have received. How does the Government intend to do this?

Mr Willetts: First of all, Chairman, I appreciate the fact that the Committee has a very weighty agenda today to get through. I am sorry I was not here bang on 9.40. I apologise for that.

Of course, on Rare Earths we are not a major importer of Rare Earths in their raw form. We are more a user because we import products that incorporate them. We reckon, incidentally, that we are directly importing about 1% of the world’s production of Rare Earth compounds. What we are trying to do is, first of all, work with our EU partners on the impact of the Chinese export quota, which is a significant challenge to the industry. We are also working with industry to get them to try to develop smarter purchasing strategies. Also, through the excellent reports that the TSB has produced, of which you are doubtless aware, we are trying to work on, for example, their Materials Security report, but also there is work that we have been trying to sponsor on opening up alternative sources of supply, to develop better and cleaner extraction technologies and do a better job of recycling. So the TSB is working with industry on some of the industrial challenges and we are working with the EU on some of the foreign policy trade challenges.

Q155 Chair: Much of the evidence we have had suggests that the real problem is going to lie in the SME sector. How are you going to make sure that the Government’s advice and guidance gets down to that sector?

Mr Willetts: I know this is an area that the Committee is concerned about. So far, BIS is not aware of this being a particular issue affecting SMEs, although we will keep a close eye on it, and this Committee’s Report will help us on that. Through our contacts in the new local economic partnerships, the outgoing RDAs and our other consultative arrangements, we are always open to SMEs to give us their views. But, as I say, we have not picked this up as particularly an SME issue so far.

Q156 Chair: In Japan, the government-funded Japan Oil, Gas and Metals National Corporation-what a fantastic title-has an annual budget equivalent to over £11 billion, nearly twice the combined budget of DEFRA and DECC. Should we conclude that the UK is not taking resource security as seriously as our competitors?

Mr Willetts: It is a particularly fraught issue in Japan because of their relationship with China and because of their very different industrial structure, with more direct manufacturing incorporating these elements.

Q157 Chair: But much of that manufacturing you would like to capture to the UK, wouldn’t you?

Mr Willetts: Yes and, of course, we are seeing a revival of British manufacturing. We have to see what sectors our manufacturing expands into, but at the moment we tend to be rather further down the chain than Japan. We tend to buy and import products, which can be components that we are doing further work on, but we tend to import products and components where an intermediary country has itself bought the Rare Earths and done the first set of work on it. So we are in a slightly different relationship to the supply chain than Japan is.

Q158 Chair: The Government strategy for growth will have to rely on strategic metals, which, in turn, will have to be sourced from a number of nations. Should resource management in the UK be dealt with by a single public body, such as the Japanese example?

Mr Willetts: This is an area where I would be very interested to have the Committee’s views. I think it is excellent that the Committee is investigating this subject. The Committee has raised the salience of it, quite rightly. It is a very odd position where something like 97% of these Rare Earths and materials are all coming from one country, China, which has now imposed export quotas. At the moment, working with the EU on areas like improving recycling through the WEEE directive, working with the EU and WTO on the trade issues-of course we are waiting to see the outcome of a related trade case-and through the work of the TSB on specific industrial challenges, we think that we are covering the waterfront. If this Committee had a view that there should be some changes in the arrangement-it obviously cannot commit us to it-I would certainly undertake to consider them very carefully.

Q159 Graham Stringer: I think the only way of interpreting the evidence we have had from the Minor Metals Trade Association is that the reason why we are only importing 1%, to go back to your original statement, is partly the costs of the REACH regulations. Would you accept that and do you think you can do anything to reduce the burden of the REACH regulations?

Mr Willetts: We think that the REACH regulations are, on balance, helpful in this context. They are driving industry to do the kind of things that have to be done if we are to reduce our-

Q160 Graham Stringer: Let me give you an example. We were told that to handle titanium, which is a metal that has been known for a long time and its properties are pretty well known, you need a letter of access that will cost you £70,000 because the body that imports that has to pay even more than that and it wants its money back. That can’t be helpful to British industry, can it?

Mr Willetts: The regulations provide a common framework across a whole range of potentially hazardous materials applied consistently across Europe. We think that it is in the best interests of British industry to have one consistent framework. If there are individual examples where the regulations are too onerous, then, as we are also the Department responsible for deregulation, I will happily pursue them. It is challenges like the one we face on Rare Earths that reveal the relevance and value of these type of regulations.

Q161 Graham Stringer: That was facing both ways, really, wasn’t it? Do you think a letter of access costing £70,000 to trade in titanium is an unnecessary burden? As you pointed out, your responsibility or the Department’s responsibility, in your manifesto, was very clear on removing burdens from industry. I would have thought that the REACH regulations were ideal for amending, whatever the philosophical basis for them is.

Mr Willetts: If you have specific examples of-

Graham Stringer: I have just given you one.

Mr Willetts: I am not aware of that specific case. I am very happy to go away and look at it. Certainly regulation has to be proportionate, but the REACH framework we regard as very valuable. If there are particular areas where it is being applied, especially if it is being gold-plated in the UK, going beyond the EU requirements, then certainly we will have a look at it.

Graham Stringer: Maybe titanium-plated.

Chair: Or both.

Q162 Graham Stringer: You mentioned the WEEE directive. Again, the Minor Metals Trade Association said that that directive and the interpretation of health and safety legislation is stifling innovation and business start-ups. Do you recognise that? Do you think the WEEE directive needs amending in any way?

Mr Willetts: Again, the basic idea of the Waste Electrical and Electronic Equipment Regulations is to encourage more recycling of electrical and electronic items where the current recycling rate is very low. I think we get something like 1% of these Rare Earths from the recycling of existing equipment. It is clear that one thing we have to do is to get better at recycling. As more and more old computers, IT equipment and mobile phones are chucked out, they are a potential resource. So, again, we back the principle of the WEEE regulations.

Q163 Graham Stringer: Just on the principle, what is the cost benefit of the WEEE regulations?

Mr Willetts: I don’t have the cost benefit analysis to hand.

Q164 Graham Stringer: If it was negative, would you change your view?

Mr Willetts: I believe that in the context of the specific problem we are looking at today on Rare Earths, and more widely, given this Government’s commitment to recycling, like that of the previous Government, the WEEE directive overall make sense. We are trying to improve it. At the moment it has have a framework of, essentially, collective producer responsibility. I can tell the Committee that we are working with industry stakeholders to see if we could get a system of individual producer responsibility which might improve the incentives. If there are specific ways that we could implement the WEEE directive better, again, I would be very happy to look at it, and it would be useful to have the Committee’s views on this. But the overall framework of that type of requirement for recycling electrical and electronic items is pretty well rooted now in national policy as a good thing and economically worthwhile.

Q165 Graham Stringer: Thanks, but you will come back to us with a cost benefit.

Mr Willetts: I am not aware that this Government has carried out any new cost benefit analysis. I am sure there was a cost benefit analysis when the decision was taken to implement the regulations, and I am very happy to look that document out in whatever form it is available to us as a new Government and share it with this Committee.

Q166 Graham Stringer: We were also told that one of the perverse consequences of the REACH regulations is that thallium, which was used over the road in the Palace of Westminster in the 19th century for rat poison, is now considered so toxic that it is put into landfill rather than being recycled. It is vital in repeaters in fibre optics. Do you think that is sensible, and doesn’t that require a re-look at the REACH regulations?

Mr Willetts: Yes. I think we need to be far more imaginative about ways in which we can reclaim and recycle these Rare Earths.

Q167 Chair: Can I just stop you there, Minister? You keep referring to Rare Earths. Are you specifically referring to lanthanides and actinides or are you using it meaning scarce minerals?

Mr Willetts: I am referring to the particular elements in about the middle of the periodic table. What I found quite useful as a layman, as the simplest guide, if I may say so, is the Chemistry World chart.

Q168 Chair: Our inquiry spans beyond scarce metals, just so that we are talking the same language. I apologise, Graham.

Mr Willetts: One of the ways forward is to do better at reclaiming and recycling. If there are particular examples the Committee has where British industry could do more or the regulatory framework is having perverse effects, that would be very helpful and we would undertake to look at them.

Q169 Graham Stringer: One of the things that I have so far failed to get a handle on in terms of whether we are going to run out of these strategically important metals is whether, as some of the witnesses we have heard have said, if the price goes up, we’ll dig deeper and get more metals out, assuming there isn’t an access problem, but what if the real problem is not even that but the fact that the market is being manipulated? Do you have a view on whether it is market manipulation that is sending the prices up or just scarcity and, eventually, the price mechanism will deal with that?

Mr Willetts: These are delicate issues. There are investigations pending, are there not? It is very odd if a country imposes an export quota on the raw materials but with no constraints on those materials in finished products exported from that country. That is an odd way of conducting international trade. That is the first point.

The second point is that, although we currently have many of these materials, over 90%, I think, of the world’s supply coming from China, this is not, as I understand it, because there is something special about the geology of China which means they are concentrated in China. It is more to do with other things, for example, that mining some of them is a nasty, dirty and environmentally risky business and the environmental regulations in China may be less onerous than in many other countries. It may also be that, as I understand it, as they are not concentrated in areas where you can have large-scale mining but are more dispersed, you need a rather different industrial structure for people to operate in large numbers of small mines, which again appears to be the Chinese industrial structure at the moment.

There are several reasons why we have ended up with China as such a key player. It would be a good thing, as part of the market response to this situation and the export quotas, if we saw improved effort at recycling and reclaiming in other countries and we also saw the opening up of alternative sources of supply, including extractive technologies that were less environmentally damaging. There could well be an issue about how international trade is currently being conducted but I don’t think that is the full story. There are several factors behind this and I am trying to share with the Committee our understanding in BIS as to what those are.

Q170 Graham Stringer: That is interesting. Apart from the restrictions that China have imposed, we have been told that one major dealer on the London Metals Exchange owns a large proportion of certain strategic metals, not necessarily Rare Earths but fairly rare metals, anyway. Are you satisfied that the market, away from the Chinese factor, is operating fairly as a market should?

Mr Willetts: As someone who does, I confess to this Committee, believe in free markets, one thing that is a feature of some of these materials is the absence of a proper forward futures market. You do wonder if that would help to get pricing signals clearer and provide improved continuity and security of supply. Then I am told that, where you have export quotas and one large national supplier, those are not circumstances that particularly favour the creation of a forward market. So, again, you find you go round in circles. If you have more diverse supply, if you have more reclaiming, then as soon as you have a rather greater diversity of supply, that might in turn help to create the conditions in which you could get a proper futures market operating. You could imagine the London Metal Exchange or whatever adding rather more elements and materials on which they traded on futures contracts.

Graham Stringer: I come to my last question.

Chair: A very quick question.

Q171 Graham Stringer: The implication of that is that you are not satisfied that the market is operating properly. Are you going to do anything about it?

Mr Willetts: There is currently an investigation of the related case involving Chinese export quotas. I do think there are issues here that could well come up in a WTO context, but meanwhile we are trying, in a practical way-again, I praise the work of the TSB and the reports they have done-about being smart about things like better recycling, looking at technologies for extractive industries to tackle the problem in several different dimensions.

Q172 Pamela Nash: Minister, yesterday the Resource Extraction (Transparency and Reporting) Bill was presented to Parliament, which will require businesses performing metal extraction to publish what they pay in developing countries. This reflects the opinion that the UK has a responsibility to ensure that businesses trading in the UK act responsibly in the communities where they are mining. Does the Government agree that we should make sure that extraction companies that are listed in the UK meet sufficient social and environmental standards in their overseas mining activities?

Mr Willetts: This is the kind of area where I think action is best taken internationally. We are looking at ways in which we can work with our partners on this and agree standards in the extractive industries globally. I would be more wary of a particular burden on a company that happens to have its headquarters located in London and if a company’s headquarters were located somewhere else it would escape the burden. These issues are best tackled with other countries alongside us.

Q173 Pamela Nash: Are any current negotiations going on either through the World Trade Organisation talks or elsewhere?

Mr Willetts: This is something about which there are discussions at the EU level. I am sure it is something that we can raise again at that level. As I say, I would be very reluctant to see us impose special burdens on extracting businesses which are headquartered here but otherwise could move elsewhere.

Q174 Pamela Nash: Can I take it that you do not think there are any measures that we could use within the UK at the moment?

Mr Willetts: In BIS and DEFRA we keep in close contact with businesses. Of course, that is a two-way process. We talk to them about some of the issues that concern us and they raise their concerns with us. I would be reluctant to see UK specific regulations.

Q175 Stephen Metcalfe: We would probably all accept that strategically important metals are going to become more important to the UK, certainly if the Government’s strategy of expanding its manufacturing base works. Many of those metals are currently concentrated in China. We also heard in our earlier session that a lot of the expertise for extracting those metals also lies in China and the UK has always had a strong mining and exploration research base. Yet, the Geological Society is concerned that NERC is not putting enough money into funding and supporting that research base. What do you think the Government can do about that and do you think the Government should do something about that?

Mr Willetts: We do have a responsibility through our excellent science and research base. There are things that we can do. I keep in touch with NERC and others. We are world leaders in understanding some of the geological processes and the distribution of some of these materials. If there are specific areas where more research is required, I am sure the industry will communicate it to NERC. My impression is that we are quite active in researching this area.

Q176 Stephen Metcalfe: Why would you imagine that the Fellows from the Geological Society have expressed concern about that?

Mr Willetts: All I can say is that I visited the British Geological Survey in Scotland only a few weeks ago and went through with them the work, for example, that they were doing and was impressed by the range of their activities. We do have a post-graduate course in mining geology at Camborne School of Mines at Exeter. My impression is that, both through the British Geological Survey and some of the work done at universities such as Exeter, we have a reasonable presence in this area. As we know from a previous set of exchanges at this Committee, I do not instruct research councils about specific areas that they should research because that would be a breach of the Haldane principle, but if there are specific areas where there is a view that we need more research and there is more that NERC could do, then, of course, the business community are free themselves to communicate directly with the research councils.

Q177 Stephen Metcalfe: That does identify whether it should be an industry pull or an academic push. Perhaps the next part of my question is that some of these strategically important metals may well lie within the UK. However, extracting them requires planning permission. We know that in the UK the planning law is lengthy, uncertain and complex. Would the Government like to see more mining done in this country which may then encourage more research into the extraction of these metals, and what can we do to encourage it?

Mr Willetts: It is my understanding that in this country we have one gold mine, which is in Northern Ireland. I believe there was recently a planning application for a mine in Cornwall, which was turned down. Planning permission was refused, I think, from memory. Mr Metcalfe, you may have more information than I have about it.

Stephen Metcalfe: No.

Mr Willetts: I have asked officials if there are ways in which our current plans to reform the planning system might affect decisions on mining and the extractive industries, and so far that connection has not been made. Nobody has been able to identify to me specific provisions that might change that. Certainly, as the thinking of other Departments about the planning regime advances, there is a potential read across here and we need to keep an eye on it. But, at the moment, I personally have not been briefed on any specific ways in which that would change.

Q178 Stephen Metcalfe: Would changing the classification of mines to nationally strategic infrastructure have an impact?

Mr Willetts: That is not a proposal that has been put to me. I can see the sensitivities of things such as that. It is an interesting observation, which, if the Committee wants to pursue it, I am sure we will look at as part of our response to your report. I will pass it on to my colleagues who are in the forefront of tricky decisions on planning.

Stephen Metcalfe: Absolutely. Thank you very much.

Q179 Chair: These are very difficult questions, Minister, and range much wider than simply Rare Earths, as I indicated. In the critical raw materials review for the EU there are a dozen or so elements listed, including, for example, tungsten, of which we used to be a very significant producer, the platinum group and so on. We would ask you to make sure, in conclusion, that your Department’s evidence does reflect the broader shortage of certain minerals as identified by that critical raw materials review.

Mr Willetts: That is a very fair point. Yes. Quite right.

Chair: Thank you.