As more environmentally conscious Americans do their bit to help clear the air by paying up for an eco-friendly Prius or a sporty Tesla, a damaging form of polluted rain is falling in China.

The link is graphite, a vital component in batteries used in Tesla’s Model S, Toyota’s plug-in Prius and other electric cars, as well as in electronic gadgets including iPhones. It’s mostly mined and processed in China, where graphite pollution has fouled air and water, damaged crops and raised health concerns. Now, in response, Chinese authorities are closing dozens of graphite mines and processors in a bid for cleaner air even as global demand for the commodity is surging.

“There’s little question that the Chinese are between a rock and a hard place environmentally,” said Josh Landess, an advanced transportation analyst with Bloomberg New Energy Finance. “There’s an obvious irony that the disruption it’s causing is within the clean vehicle and transportation industry.”

The graphite outcry is the latest among environmental flashpoints in China that have ranged from lead poisoning to acid spills and “unbearable smog” in big cities. And while the clampdown may help improve the quality of China’s environment, it could also affect as much as a third of worldwide production.

Analysts disagree about the impact of a sharp decline of graphite supplies. Simon Moores, a London-based senior analyst at Industrial Minerals Data sees China’s tougher stance pushing graphite prices up as much as 30 percent this year. Others say even that rise would have an only minimal impact on the overall price of electric cars though it could slow the expected long-term decline of battery prices.

The market for hybrid and electric cars such as Toyota Motor Corp.’s Prius hybrid and Tesla Motor Inc.’s fully electric Model S as well as for e-bikes is forecast to surge this decade, propelled by demand for greener vehicles.

To keep up with demand, Tesla plans to invest $5 billion building a factory to produce battery packs for its luxury electric cars, it said last month. The project, dubbed the “gigafactory,” would be the world’s largest such operation, according to Chief Executive Officer Elon Musk.

Each electric car contains about 50 kilograms of graphite. Hybrid cars use about 10 kilograms, e-bikes 1 kilogram, laptops about 100 grams and mobile phones about 15 grams, according to Anthony Pandolfo from Monash University’s department of materials engineering. The growth and diversity of electronic devices will propel demand for rechargeable batteries, according to Lux Research.

Tesla’s factory alone could double demand for graphite in batteries, requiring the equivalent of six new mines to come into production, according to Industrial Minerals’ Moores. Battery makers include Sony Corp., Panasonic Corp., Samsung Electronics Co. Ltd. and NEC Corp. 

(Bloomberg)