EU’s Critical Raw Materials Act challenges China’s dominance

Critical raw materials (CRM) are natural resources that are essential to producing various high-tech products, industrial goods and green technologies—but are often subject to supply chain risks due to their scarcity, geopolitical issues or environmental concerns.

The European Union (EU) has identified 34 CRM, among which 17 are classified as strategic raw materials essential for the economic security of the region. Strategic raw materials include lithium, cobalt, natural graphite and nickel for battery manufacturing, metallic silicon for semiconductors, and rare earth elements for magnets.

Europe will never be self-sufficient in the supply of critical raw materials, such is their reliance on imports from third-country suppliers. The EU is acutely aware of the importance of international trade and the inherent risks associated with its reliance on a limited number of dominant supplier nations.

Recent disruptions caused by the COVID-19 pandemic, chip shortages, and the energy crisis stemming from Russia’s invasion of Ukraine have underscored the vulnerability of European (and global) supply chains. CRM are susceptible to similar geopolitical and social challenges.

Anti-China sentiment has seen the United States take significant steps to decouple its supply chains from China. The U.S. Inflation Reduction Act, which was signed into law by President Joe Biden on August 16, 2022, includes provisions to wean U.S. manufacturers off their dependence on China. While Europe may not share the same level of political tension with China, it remains acutely aware of the need to diversify its supply chains to mitigate the risks of shortages and dependencies on strategic materials.

The EU is entirely dependent on China for heavy rare earth elements, 97% of its magnesium, 71% of gallium and 65% of bismuth. Turkey supplies 98% of boron, and 71% of platinum group metals derive from South Africa. 63% of the world’s cobalt comes from the Democratic Republic of Congo (DRC), 60% of which is refined in China.

Demand for CRM has already surged to record levels and is expected to continue its rapid growth. According to a factsheet released by the EU, global demand for lithium for electric vehicles is projected to increase 57 times by 2050. Similarly, there is an expected 5.5-fold increase in rare earths demand by 2050, primarily driven by their use in wind turbines. Nickel is forecasted to grow fifteen fold by 2040, while platinum group metals see a staggering 970-fold increase in demand by 2050 due to their use in hydrogen fuel cells.

In a State of the Union speech on September 14, 2022, the President of the European Commission, Ursula von der Leyen, stressed the need to curb the EU’s reliance on imported CRM.

The 2008 Raw Materials Initiative and 2020 Action Plan on Critical Raw Materials have provided a non-regulatory framework to strengthen raw material access in Europe in recent years. On March 16, 2023, the commission proposed legislative action to safeguard its supply of CRMs.

The Critical Raw Materials Act aims to diversify CRM supply, strengthen circularity and support greater innovation on resource efficiency. The proposal was published in conjunction with the Net Zero Industry Act, a regulatory framework designed to bolster European manufacturing capacity in net-zero technologies.

Common text was agreed upon by the European Parliament and Council on November 13, 2024, which included clear priorities and benchmarks for domestic supply and circularity. The act was rubber-stamped by the European Parliament on December 12, 2023. The EU Council adopted the legislative act on March 18, 2024, completing the final step in the decision-making procedure.

According to the approved legislation, 10% of annual consumption must come from EU extraction, with an additional 40% sourced from EU processing. The legislation also mandates that at least 25% of consumption should be derived from domestic recycling, to encourage member states to enhance their efforts in recovering critical raw materials from waste products. This is a significant increase from the originally proposed 15% set last March. Importantly, there is an upper limit of 65% for the annual consumption of each strategic raw material sourced from a single third country at any relevant stage of processing.

The act includes a comprehensive range of actions to enhance international trade and engagement, with a particular focus on broadening trade partnerships. One significant initiative involves the establishment of a Critical Raw Materials Club among like-minded countries, aimed at fostering sustainable investment and trade. In addition, efforts are being made to strengthen the World Trade Organization (WTO) and expand the network of Sustainable Investment Facilitation Agreements and Free Trade Agreements.

Strategic projects will benefit from fewer administrative burdens with the EU looking to streamline permitting processes and to improve access to financing. Extraction permits are targeted to be processed within 24 months and processing/recycling permits within 12 months. Efforts are being made to assist partner companies in developing extraction and processing capacities, through the establishment of a global gateway.

The EU will allocate resources to research, innovation and skills development, including a Raw Materials Academy that will nurture workforce skills that are pertinent to the industry.

Given the relative scarcity of mining CRM, the commission has outlined plans to develop national exploration programs to search for new deposits. A European Critical Raw Materials Board will facilitate actions on exploration, monitoring, and stocks, along with strategic projects with third countries. Moreover, the board will provide advice on accessing finance for these strategic projects.

Some stakeholders have hailed the EU’s efforts to secure its raw material supply. Nevertheless, Europe has an uphill battle to climb—so entrenched is China’s dominance. In a EURACTIV event in June 2023, Georg Riekeles, associate director at the European Policy Centre (EPC), suggested that Europe is where China was 15-20 years ago.

Of the 34 CRMs identified in CRMA, eight exceed the upper consumption limit from a third country. Raw material extraction from China of bismuth, cobalt ore, magnesium, manganese and strontium exceeds the 65% threshold, not to mention the Asian nation’s global supremacy in refining and processing. While only 9% of lithium mining occurs in China, two-thirds of lithium is refined there. Europe’s benchmarks could be difficult to achieve.

The International Energy Agency (IEA) published the Critical Raw Materials Review in July 2023. The report noted a global surge in planned CRM projects with the market size of key energy transition minerals doubling over the past five years. Lithium secured the largest investment increase, followed by copper and nickel.

A lot more work is required to diversify mineral supply. In 2022, the top three producers of CRM maintained or increased their share, particularly in nickel and cobalt, according to the report. “Without secure and resilient supply chains of critical minerals, clean energy transitions around the world risk becoming slower and more costly,” says IEA Executive Director Fatih Birol. The IEA report suggests that mining has improved somewhat, but that the geographical concentration of refining remains a greater concern.

While China may seem flush with critical resources, it also holds concerns about large imports of raw materials from a small number of sources. The IEA outlined significant Chinese investment in mining assets in Africa and Latin America and overseas refining and downstream facilities to diversify its raw material portfolio. Chinese companies invested USD4.3 billion to acquire lithium assets between 2018 and the first half of 2021—double the combined investment of U.S., Australian and Canadian companies.

China has shown its readiness to exploit its control over critical raw materials for political gain. China supplies 67% of global graphite, which is used in virtually all electric vehicle battery anodes. In October 2023, it implemented new export restrictions on specific graphite products to limit mineral shipments and safeguard national security. Similar export controls were imposed on eight gallium and six germanium products in August, which had a significant impact on export volumes.