EU Critical Raw Materials Act: Right goals, open implementation
When China curbed its magnesium production in October 2021 due to a power crisis, the outcry was great. Germany and Europe are almost 100 percent dependent on magnesium supplies from China. In the short term, the entire aluminum value chain was affected, and with it sectors such as the automotive, aircraft, construction or packaging industries, mechanical engineering, and iron and steel production. The Russian war of aggression on Ukraine, which violated international law, also highlighted the danger of autocratic regimes using raw materials as a weapon in the context of geopolitical conflicts.
Mineral Raw Materials are Indispensable, but Supply Risks are Increasing
Germany's and Europe's dependence on various mineral raw materials such as rare earths from China are already greater than it was for oil and natural gas from Russia. This is also the result of a targeted state price and settlement policy by Beijing, which made extraction and processing in other countries economically unattractive. For years, classic market mechanisms for mineral raw materials have been losing importance worldwide. Several metal markets are highly concentrated and characterized by structural supply deficits. Protectionist measures by various countries are hampering trade in raw materials. Unlike oil and gas, there are hardly any national (strategic) reserves of mineral raw materials. A supply freeze would therefore have an immediate and far-reaching impact on German and European industry.
Yet mineral raw materials are indispensable for industry. We need them for important future technologies on the way to a climate-neutral future: rare earths and raw materials such as lithium are used in wind turbines, batteries for electric vehicles and semiconductors. Without them, there will be no energy transition, no e-mobility, no digitization, and no Industry 4.0 - but also no infrastructure expansion and no powerful defense industry. Technological development is significantly increasing the demand for mineral raw materials. In the race for these strategically important raw materials, Germany and Europe risk losing important sources of raw materials in competition with other countries. As a result, dependencies and supply risks are increasing.
EU Critical Raw Materials Act provides Important Impetus for Greater Security of Supply
In mid-March, the EU Commission presented the Critical Raw Materials Act (CRM Act), a draft for a new legislative package aimed at strategically securing the supply of critical raw materials. It targets materials that the EU classifies as strategic for green and digital transformation and defense and space applications, as well as materials on the EU's list of critical raw materials. The CRM Act sets targets for building and expanding European production capacity: Cover at least 10 percent of annual consumption of strategic raw materials by 2030. Domestic processing is to provide at least 40 percent of annual consumption. Recycling is to account for at least 15 percent of annual consumption. In addition, no more than 65 percent of the annual consumption of any strategic raw material at any relevant processing stage is to come from only one third country.
Acceleration of Permits and Expansion of the Circular Economy
The EU Commission wants to support selected "Strategic Projects" through access to funding and shorter permit periods: Mining permits are to last a maximum of 24 months, processing and recycling permits a maximum of 12 months. New free trade agreements, the establishment of a "Critical Raw Materials Club" and the "Global Gateway Strategy" are intended to diversify raw material supply chains and make them more resilient. The EU Commission is thus following on from the Transatlantic Raw Materials Partnership, which Commission President Ursula von der Leyen and U.S. President Joe Biden also announced in mid-March 2023. A new "buyers' club" is thus to be created within the G7 framework.
The EU Commission is also focusing on the circular economy. For example, the collection of waste rich in critical raw materials is to be improved and their recycling into critical secondary raw materials is to be ensured. The potential recovery of critical raw materials from waste from ongoing mining operations and historical mining waste is part of the strategy. The CRM Act identifies permanent magnets as a priority product group for the circular economy. The EU Commission wants to increase the information transparency of products, facilitate the removal of magnets through circular product design, and examine a minimum input quota for secondary raw materials in new magnets.
Central Instruments for Implementation are Missing
Although the thrust of the CRM Act is correct, the Commission's draft in its current form falls short. So far, it has not been sufficiently coordinated with other legislation and regulations such as the taxonomy, the chemicals legislation, the eco-design regulation or the supply chain due diligence obligations. The EU Commission must work with the member states to resolve conflicting goals in favor of greater supply security.
The success of the CRM Act will be decided above all in the member states. It is their local authorities that implement the projects on the ground and ensure social acceptance. For this reason, the CRM Act must be closely interlinked with national legislation, such as the amendment to the Federal Mining Law. Location policy answers are also needed regarding the high energy and electricity costs for extraction, further processing and recycling of strategic raw materials. This issue has been completely absent from the draft legislation to date.
What is also missing is an urgently needed financing offensive for the development and expansion of domestic projects for the extraction, processing, or recycling of critical raw materials. In the USA, mining companies and refineries of critical minerals can write off ten percent of their costs under the Inflation Reduction Act (IRA). While investments are made in commodity projects around the world well before mining begins, the CRM Act lacks a commodity investment fund. The EU also needs such incentive instruments.
Aspects relating to recycling and the circular economy are also not sufficiently operationalized, and the draft does not shed any light on the interface with digitalization. Companies face higher costs for the use of secondary raw materials in permanent magnets. For this reason, a corresponding assessment must very closely examine the feasibility of this requirement from a business perspective. If the increased take-back of waste products with critical raw materials is organized solely at the level of the member states, there is a risk of blocking the internal market.
The envisaged review of the list of critical and strategic raw materials in a four-year cycle is unrealistic. The raw materials race is heating up: In the future, there is a threat of supply bottlenecks even for raw materials such as aluminum or zinc that are not yet on any list. This is why agile monitoring is needed.
To secure critical raw material supply chains, companies should conduct stress tests and member states should build up strategic raw material reserves. EU-wide results of stress tests and findings on strategic reserves should be published in aggregated form. The BDI rejects this. Disclosure of European vulnerabilities weakens the negotiating position for raw material imports.
Close Cooperation of EU Commission and Member States with Industry
Increasing system competition with autocratic regimes is a structural challenge for Europe - strategically and economically. Autocratic regimes are increasingly using control over supply chains as a geopolitical weapon. Commodity security must therefore become the central goal of politics and business in Europe. In implementing the CRM Act, the BDI therefore calls for close cooperation between the EU Commission, member states and industry - also to swiftly resolve existing political conflicts of interest.