Critical Raw Materials Act: boosting the twin green and digital transition

On 16 March, the European Commission published the Critical Raw Materials Act (CRMA), which aims to ensure the EU has access to raw materials needed to meet its target of moving to net-zero greenhouse gas emissions by 2050. The legislation is also meant as an effort to curtail the dependence the EU has on countries like China, which supplies about 95% of the EU’s rare earths.

The CRMA was announced by Commission President Ursula van der Leyen on 14 September, during her State of the Union address.  The CRMA contains targets for the mining, processing and recycling of critical raw materials (CRMs) within the EU, as well as targets for critical non-rare earth metals such as lithium, cobalt and manganese needed for electric vehicles (EVs) and wind turbines.

The CRMA proposal is accompanied by a communication on new trade partnerships with third countries in order to secure external supply, as well as an updated list of critical raw materials, as the last one was published in 2020. This list is aimed at helping governments and industries take informed decisions and improve their own strategies to cope with the risks associated with those materials, such as domestic scarcity and competition with third countries, as well as geopolitical crises.

How will the objectives of the Critical Raw Materials Act be reached?

The CRMA will set up a new agency, the European Critical Raw Materials Board, to ensure that by 2030 the EU can domestically produce at least 10% and process at least 40% of strategic materials needed each year. Furthermore, at least 15% of the EU’s annual use of CRMs should come from recycling these materials and no more than 65% of the annual consumption of each CRMs should come from a single country outside of the EU, at any relevant stage of processing.

The CRMA also seeks to improve the business environment by shortening the permitting process for mining and processing plants. Under the new legislation, the European Commission – together with the to-be-established Critical Raw Materials Board – could name certain projects as strategic, which would mean they would get streamlined permitting and access to financing, including possible state funds.

  • Under the CRMA, strategic mining projects will have to get permits within 24 months and processing facilities will get them in a maximum of 12 months.
  • The legislation will also set the stage for potential strategic stockpiles by first requiring Member States to report existing stocks before deciding on the needed levels of any EU wide stockpiles.
  • The EU will also require sellers of critical minerals in the bloc to display an environmental footprint to allow potential customers to buy sustainable products if they wish.

To boost strategic partnerships and free-trade deals, the Commission also aims at financially supporting strategic projects in third countries via the Global Gateway strategy. This is a €300 billion initiative aimed at countering the Chinese Belt and Road initiative, which is a global infrastructure development strategy adopted by the Chinese government in 2013 to invest in more than 150 countries and international organizations. As part of the Global Gateway Strategy the Commission Executive Vice President Margrethe Vestager visited Latin America in the week from 11 to 17 March 2023, to close several critical raw materials deals with countries with vast reserves of CRMs, such as Chile, Colombia and Brazil.

Additionally, large companies based in the EU are expected to audit their existing supply chains and develop strategies to be better prepared for supply disruptions. Furthermore, business activities conducted to safeguard and improve the affordability of CRMs should be complemented with efforts to mitigate any adverse impacts, both within the EU and in countries outside the EU , with respect to labor rights, human rights and environmental protection.

What does the Critical Raw Materials Act mean for your business?

In recent years, the availability of CRMs for industry in Europe is threatened by domestic scarcity and rising global demand, as well as geopolitical crises involving resource-rich nations such as Russia.  While the need for CRMs can create obstacles for businesses, it can also create opportunities and offer a competitive advantage for companies that respond quickly to the challenges around CRMs.

  1. The CRMA will enable companies to diversify their supply of CRMs through durable trade agreements, robust market access, and strategic partnerships with resource-rich third countries.
  2. The Act will also strengthen sustainable extraction and processing of raw materials in Europe, and streamline permits procedures.
  3. Lastly, the legislative initiative will help evolve a kind of horizontal governance, one in which governments and companies together will be able to identify challenges and solutions.

The CRMA will also help confront semiconductor shortages in the EU and strengthen Europe’s technological leadership in the global market. The semiconductor production process relies on a wide variety of critical raw materials. Semiconductors, in turn, play an indispensable role in powering the modern digital economy. They are an essential component of electronic devices, computers, smartphones, smart grids, automobiles and jetfighters. Notably, semiconductors play a key role in the energy transition, for instance, in new energy solutions such as solar and wind power.

For companies, it is important to sufficiently anticipate and prepare their businesses to ensure the resilience of their supply chains from a circular economy point of view. The CRMA gives a strong incentive for companies to review their product portfolio and map the CRMs they rely on. Therefore, it is crucial to map where those CRMs are coming from, engage with the suppliers and invest in R&D to use recycled materials. This will enable companies to gain a competitive advantage as well as an understanding of the resilience of their products and supply chains. Furthermore, it will lead to a smarter method of production of renewable energy and more sustainable products, by upgrading the recyclability of materials desperately needed to enable the EU’s energy transition.

Next steps

While the European Commission has opened a call for feedback on the proposed regulation until 16 May, both the European Parliament and the Council of the EU will start discussing the file. Nicola Beer (Renew Europe, Germany) will take the lead on this file for the Industry, Research and Energy (ITRE) Committee of the Parliament. Opinion committees still have to be appointed. It is expected that compared to other files, the Critical Raw Materials Act will not be politically contentious, and in the interest of trade it is important to move the file forward. The Spanish Presidency of the Council of the EU – whose mandate starts on 1 July 2023 and ends on 31 December 2023 – will play an active role in discussing the legislation, as the country has vast reserves of domestic raw materials that it wants to export onto the EU market. Moreover, Madrid has strong trade relations with resource-rich nations in Latin America.

However, it is possible that the file becomes more disputed when it comes to regulatory measures, such as increasing the domestic supply of critical raw materials by accelerating permitting procedures. Ahead of the publication, industry associations generally welcomed the proposal and the positive effects it would have on the digital and green transition in the EU, as is visible in the statement made by the recognized representative of the European metals and minerals mining industry (Euromines). However, organizations like the European Federation for Transport and Environment, though fervently in favor of the proposal, warned against watering down environmental safeguards  and argued that waste should be treated as an asset in the circular use of CRMs. The associations for the European wind industry (WindEurope) and the European steel industry (Eurofer) pointed out the need to ensure access to secondary materials like ferrous scrap and glass and carbon fibres, while also certifying public financial support for necessary private investments in the domestic production and processing capacity of key raw materials in Europe.

In the European Parliament, it is expected that progressive MEPs will want to have strong safeguards regarding environmental provisions. Because of these misgivings, it is possible the legislative process will not be finalized before the EU parliamentary elections in May 2024.

Is your business fit for the digital and green transition?

The twin green and digital transition is set to be the key to decarbonizing the economy, adopting a circular development model, supplying the mobility transition with green and smart alternatives and relaunching Europe’s industrial leadership.

Business leaders and decision-makers have a key role to play in tackling the climate emergency. By adopting this twin transition, leaders can bring the digital and sustainability agendas together to improve the digital function of their services, drive sustainability goals and future-proof their organizations.

In anticipation of the publication of the proposal, Publyon sat down with Gijsbert Wierink, founder of Plutonic Raw Materials Advisory (RMA) and closely associated with industry stakeholders, to share his views on the upcoming policy and its impact on supply chains. You can find the interview here.

Publyon offers tailor-made solutions to navigate the evolving policy environment at EU level and anticipate the impact of the twin transition on your organization. To learn more about the targets laid out by the CRMA and their impact on your business, do not hesitate to contact our experts to receive our deep dive into the proposal.