No time to lose on critical raw materials
As the EU’s Critical Raw Materials Act is about to enter into force, its relevance could not be underestimated. Demand for cobalt, graphite and lithium is foreseen to increase six-fold by 2050[1], as the net-zero transition gathers speed. At the same time, China’s grip on production and processing of rare earth minerals remains shockingly high. According to some forecasts, 97 percent of lithium mined in Africa could come from Chinese-owned projects[2]. What is more, China has already made clear it would not refrain from using its dominance as a leverage, curbing exports of certain types of graphite in October 2023.
Aiming to address this vulnerability, the EU Critical Raw Materials Act proposes an entire array of actions, from incentivizing greater extraction in Europe, through boosting the potential of the recycling industry to recover minerals from existing appliances, to postulating new partnering agreements with raw materials-rich third countries.
The Critical Raw Materials’ Board (CRM Board) will be convened for the first time in mid-May, with the intention of swiftly becoming an operational body, monitoring, and managing activities envisaged in the Act. In the initial period, its prime focus will be on selecting and implementing “strategic projects” that are meant to benefit from easier access to finance and shorter permitting timeframes. Getting the list right will be of momentous importance, as these projects will define the depth and the pace of Europe’s de-risking in critical raw materials.
As the EU strives to deliver on the CRM Act’s benchmarks with respect to extraction, processing, and recycling[3], the one backbone it will need urgently is stockpiling. The Act envisages coordination of national stocks for strategic raw materials as the way forward, creating synergies and providing companies with additional security. The organization of such a system is complex and needs to be wrestled with rapidly. It is likely to require storage requirements by private producers or fixed price contracting to incentivize investment. Other countries are acting on this as well. The creation of a critical minerals reserve has recently been suggested by the bipartisan congressional committee in the US.
A bigger challenge for the Board, which will compromise experts from the Member States and the European Commission, will be to bring about a new strategic culture to address existing vulnerabilities. Several thematic working groups, including on exploration and circularity, will take this work forward, aiming to overcome the divergence in attitudes to risk, which prevails across the EU.
The elephant in the room is funding. The CRM Act has no budget attached to it, which stands in stark contrast to the 8.5 bln USD dedicated to CRM-related projects in the US Inflation Reduction Act and the Bipartisan Infrastructure Law, with more support offered for recycling and substitution. The European Commission is traditionally skillful in squeezing every euro from the different budgetary lines when the need comes, but a significant aggregation effort will be needed to harness subsidies, public guarantees, grants, or blended finance, for the purpose of supporting CRM-related actions, in particular boosting circularity. The Board’s working group on finance will no doubt keep itself busy, aiming to identify all possible funding sources, including with the support of the European Investment Bank.
