Environmental standards governing the production of rare earths, specifically concerning pollutants, were issued on Monday to ensure the sector's sustainable development.

The standards, which come into force on Oct 1, set strict emission limits possibly affecting at least 60 percent of companies in the industry and could lead to consolidation in the sector, industry sources said.

Rare earths, composed of 17 elements, are used in a number of high-tech industries ranging from wind turbines and hybrid cars to missiles. China produces 97 percent of the global supply of the minerals, with reserves accounting for only 36 percent of the world's total.

An executive from Ganzhou Rare Earth Mineral Industry Co Ltd, who declined to be named, said at least 60 percent of producers would have difficulty meeting the standards, which means they will face increasing production costs trying to implement them.

"This will increase the export price of rare earths," he said.

Under the standards, enterprises will have to increase investment in pollution treatment facilities. This investment will provide a more accurate picture of the true environmental and financial cost of the industry, according to Wu Xiaoqing, vice-minister of environmental protection.

At the current scale of production, 150,000 tons of rare earths per year, Wu estimated that the industry will need at least 1.5 billion yuan ($228 million) in investment to build sewage treatment facilities, which will incur annual running costs of 280 million yuan.

Another 500 million yuan will be needed to build waste gas treatment facilities, with annual operation costs of 30 million yuan, Wu said.

Previous environmental standards governing the mining and production of the lucrative minerals fell far short of what was required, with specific pollutants, such as nitrogen ammonia and some radioactive substances, not adequately covered, Wu said.

"For instance, in 2005, the concentration of nitrogen ammonia in the discharge by the industry was between 300 and 5,000 mg/l, scores of times higher than the national standard," Wu said.

That year, China produced 103,900 tons of rare earths, which led to the emission of up to 25 million tons of sewage, according to Wu.

Illegal mining, coupled with excessive and irrational production, has led to severe environmental degradation and resulted in a rapid depletion of reserves, said the vice-minister.

Existing enterprises will be given a two-year grace period from the standards, but newcomers will have to abide by them immediately.

To prevent enterprises "diluting emissions", benchmark volumes for sewage and waste gas will also be published and producers will have to keep within these limits, the ministry said in a statement on its website.

"Some small- and medium-sized smelters, unable to meet the standards, are likely to be taken over by bigger ones, which will boost consolidation in the industry," said Wang Zhenhua, secretary-general of the Shanghai Society of Rare Earths.

But the policy would not affect big companies that much, as they have already adopted strict environmental measures, said He Guoxin, director of the Sustainable Development Department at Hunan Nonferrous Metals Holding Group.

A number of measures have already been introduced to protect rare earths. On Feb 16, the State Council said the government will impose stricter mining polices and set reasonable annual production and export quotas for the previously over-exploited sector.

The country reduced export quotas by 11 percent for the first batch this year, after it slashed export quotas 30 to 40 percent in 2010, in a bid to protect sustainable development.