Can the EU play catch up on Critical Raw Materials?
By Klara Orlowska, Senior Consultant at Acumen Public Affairs and Anneleen Ghekiere, Senior Account Manager at Acumen Public Affairs
On March 16, 2023, European Commission presented the Critical Raw Materials (CRM) Act. CRMs play an essential role in many strategic industries such as ICT, renewable energy infrastructure, and electric mobility, essentially encompassing the pillars of the EU’s green and digital ambitions.
Together with a Communication, the CRM Act aims to address long-standing dependencies and work on the EU’s CRM self-sufficiency. Whereas the Act focusses on domestic measures, the Communication addresses trade aspects of the EU’s CRM challenge.
In this blog, we outline how the EU got so dependent on CRMs from abroad and how it intends to turn things around.
Background – how did we get here?
Historically, the EU has always been dependent on third countries for CRM supplies. Some 98% of the EU’s rare earth elements, needed for example for the manufacturing of smart phones or computer monitors, are currently supplied from China.
Europe’s overreliance on external sources was made painfully evident during the COVID-19 crisis as the pandemic caused severe supply chain disruptions. Today, we can still feel the consequences of these disruptions, with long waiting times for electric vehicles, e-bikes, and other types of electronic equipment.
In response to supply chain disruptions and under the new motto of ‘Open Strategic Autonomy’, the EU published the 2020 Communication on CRMs and launched the European Raw Materials Alliance. Once the war in Ukraine erupted in February of last year, however, Europe’s supply chains were brutally compromised. This forced the EU to come face to face with its dependencies and indicating that non-regulatory measures alone might no longer be sufficient to address the Europe’s CRM challenge.
Domestic measures at the heart of the CRM Act
The Act sets three objectives to strengthen European autonomy by 2030:
- Ensure at least 10% of CRM demand in Europe can be met by domestic extraction
- Increase processing capacity by 40%
- Boost recycling of CRMs to 15%.
This will be achieved via new free trade agreements, stronger recycling obligations, and EU-undersoil exploration programs to develop the EU’s own mining projects.
But can the EU get there? In recent years, the EU has set strong recyclability and reusability benchmarks for materials set by the Eco-design Directive and the Batteries Regulation. While the recycling of materials used in more strategic applications – such as germanium or silicon needed for renewable energy technologies – is still insufficient, the Act introduces provisions targeting R&D activities for recovery and recycling of these strategic CRMs.
On mining, the Commission breathed a sigh of relief when Sweden discovered the largest deposit of rare earth elements in Europe back in January, will the assumption that this will bolster the EU’s domestic extraction capacity. However, it could take between 10 and 15 years for extraction to begin – something the EU wants to fix by proposing to accelerate permit procedures for projects that will help decrease the EU’s import dependency.
The proposed “Strategic Projects” status (granted to projects contributing to the security of the Union’s CRMs supply) and streamlined permits could potentially take the EU towards the 10% extraction target set in the CRM Act. At the same time, hitting the 40% processing target depends on the development of the EU’s own processing and refining capacities, which are today still dominated by China. Although the proposed Regulation does include provisions to strengthen the EU’s know-how and human skills on processing, this target might be the most difficult to achieve.
“Raw materials are found at the beginning of all industrial value chains.” – European Commission, CRM Act
The EU’s renewed focus on domestic mining will likely face fierce opposition from EU citizens and environmental NGOs. Similarly, the Commission’s objective to develop sustainable financing criteria for mining and refining is promising to be the next big Taxonomy for Sustainable Finance debate. Extraction projects are often associated with a range of environmental impacts due to their significant material and energy consumption. This has driven opposition to local projects. In addition, local communities can oppose the development of such projects in a “NIMBY”[1] reflex – in other words, when people agree on the need for such projects but are opposed to them being implemented close to where they live.
To counter this, the proposal will set out rules for the Commission to recognize schemes that certify whether materials have been extracted sustainably and improve public acceptance of mining projects through increased engagement with civil society and requirements for project promotors.
Similar to the development of renewable energy projects and clean technology targeted by the NZIA, the Commission will have to strike a balance between protecting nature and the pursuit of its strategic autonomy and Green Deal ambitions.
A Club for sustainable CRM trade
Trade is also an essential pillar of the EU’s CRMs strategy. In the new CRM Communication, published alongside the CRM Act, the Commission outlines additional measures focused on the external angle of Europe’s need to wean itself overreliance on individual partners.
The CRM Act states that the EU should not be dependent on one single country for more than 65% of its supply of each CRM. To achieve this, the accompanying Communication announces the establishment of an exclusive ‘CRM Club’ – a platform aiming to bring together consuming and resource-rich countries all over the world to foster sustainable investment chains. It remains to be seen how successful this initiative will be, as many intergovernmental (critical) raw material partnerships already exist. For instance, since 2011, the EU, Japan and the US have been holding annual trilateral CRM conferences. Also, in 2021, the EU set up a strategic CRM partnership with Canada as part of their bilateral free trade negotiations.
The EU’s Global Gateway program will also be a key driver to foster new, sustainable CRM supply chains. Last November, the EU signed a Memorandum of Understanding with Namibia under this flagship initiative to establish a strategic partnership on raw materials. The EU is also exploring deeper cooperation with Chile on lithium and other critical minerals supply.
CRMs for Net-Zero
The CRM Act will work hand in hand with the Net Zero Industry Act (NZIA), the EU’s response to the US Inflation Reduction Act that will aim to boost domestic green tech production. The two fit together because if the EU wants to remain a leader in clean tech production, it will need a stable CRM supply.
For instance, for electric vehicle batteries and battery energy storage – both identified in the Net Zero Industry Act as key technologies for global competitiveness – the EU would need to have access to up to 18 times more lithium and 5 times more cobalt in 2030, and almost 60 times more lithium and 15 times more cobalt in 2050, according to the European Commission.
Conclusion
Can the EU play catch up on CRMs? Today’s proposal puts forward some ambitious targets that set the tone for the next decade. The Commission recognizes the shortcomings of the policies it has adopted so far and the dangers of a being too dependent on third countries for critical materials. As a solution, the new proposal prioritizes the need to build the EU’s own processing and refining capacities and accelerate the collection, recycling, and reuse of CRMs. More diversification of suppliers is also strongly advised via the Communication encompassed in the CRM package.
In the face of a growing competition for clean technologies, the CRM Act and the Net Zero Industry Act show that the EU is trying to be more assertive and ensure the competitiveness of European industry in line with its “open strategic autonomy” goals – for which secure CRM supply chains are essential.
The European Parliament and Council will now start developing their positions on the CRM Act. The co-legislators will want to move quickly; however, it is expected that the environmental concerns related to mining practices might lead to fierce opposition and slow down discussions.
[1] Not In My Backyard