On 23 March 2024, the European Union’s Critical Raw Materials Act (CRMA) entered into force. A flagship initiative under the Green Deal Industrial Plan, which seeks to fasttrack the EU’s goal of climate neutrality, it aims to ensure a secure and sustainable supply of critical raw materials that are essential for net-zero technologies. Demand for these critical raw materials has been rapidly growing as they are vital for the green transition, digital, and defence sectors. Against this backdrop, the CRMA seeks to strengthen the EU’s critical raw materials value chain, reduce strategic dependencies, mitigate risks, and usher in a more sustainable and circular economy.
The Act identifies 34 critical minerals, 17 of which have been highlighted as having strategic importance. These minerals are expected to see increased demand, have complex processing procedures, and are at a higher risk of supply disruptions. The EU’s twin digital and green transitions require it to secure a supply of critical raw materials, which are used in technologies such as solar panels, wind turbines, batteries, semiconductors, etc. However, most of these critical raw materials are produced and processed outside the EU, with substantial portions being sourced from a single external nation. As the Russian invasion of Ukraine and the resulting energy crisis demonstrated, such overreliance on a single external nation presents a major strategic vulnerability for the EU.
EU’s outsized dependencies
The CRMA comes in light of the recognition of the EU’s massive dependencies in the case of several critical raw materials. For example, the EU is fully reliant on China for its supply of rare earth materials, which are vital components for several digital and defence applications. Türkiye supplies about 99% of the EU’s boron, which is used in wind turbines among other applications. Chile contributes about 79% of the EU’s lithium, commonly used in electric vehicles. In recognising that it does not possess the critical raw materials it needs to transition into a sustainable and digital economy, the EU’s CRMA is its effort to build resilient supply chains for those materials.
To these ends, the policy sets certain non-binding benchmarks for the EU’s annual consumption of raw materials in order to offset its strategic dependencies. For instance, 10% of its annual raw materials needs to come from local extraction, 40% needs to be processed within the EU, and 25% needs to come from recycled materials. The EU also expects to reduce its dependency on any single external country to less than 65% of any critical raw material by 2030. Furthermore, it has planned to step up its trade actions to achieve its goals such as establishing a Critical Raw Materials Club for like-minded countries to join, strengthening the World Trade Organisation, expanding its network of Sustainable Investment Facilitation Agreements and Free Trade Agreements, and pushing harder on enforcement to combat unfair trade practices.
The Act also places certain obligations on European countries and companies to further Europe’s strategic autonomy. Large companies that produce strategic technologies are required to carry out a regular risk assessment of their supply chains to identify and mitigate vulnerabilities. It requires member states to have national exploration plans and gives the Commission and member states authority to designate certain projects as strategic, which would expedite required permissions and facilitate better access to funding. For example, extraction projects are to receive their permits within 27 months, and recycling and processing projects are to receive their permits within 15 months. The Commission is also required to monitor any critical raw materials supply risks and develop mitigation strategies.
Environmental and Social Concerns
Finally, the CRMA does a great deal to further European strategic autonomy by reducing strategic dependencies and improving the sustainability and circularity of the raw materials industry within the EU. However, the adverse effects of the CRMA need to be considered. The Act does not contain an explicit mention of communities living near extraction sites needing to give free and informed consent to such projects. Still, the CRMA does include provisions on new raw materials projects engaging with local communities, ensuring environmental protection, socially responsible practices, respect for human rights, and transparent business practices.
Implications for Governments
- Significant infrastructure development would be required to ramp up the capabilities of European states to hit their extraction, processing, and recycling targets.
- Job creation and economic development particularly in the mining, processing, and recycling sectors can be expected.
- EU member states need to divest cautiously, taking care to prevent damaging their relationships with their current sources of supply.
- The European Commission and EU member states need to balance their need for critical raw materials with concern for the environmental impact of mining and related activities.
Implications for Firms
- With the CRMA’s focus on capacity-building and domestic production, mining, processing, and recycling industries within the EU are bound to experience increased demand.
- Firms involved in strategic industries will have to scrutinise their value chains to identify and mitigate vulnerabilities.
- Firms have an opportunity to capitalise on increasing demand for critical raw materials, particularly within the EU. However, they must ensure they meet the stringent regulatory standards set out by the Act.
- Firms involved in strategic partnerships, particularly in external countries, must ensure that they increase their engagement with local communities and address environmental concerns.