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Critical Materials Act: Europe’s strategy for securing green technology supply chains

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In May 2024, the EU Critical Raw Materials Act (CRMA) came into force, setting ambitious benchmarks for the domestic production and diversification of strategic raw materials essential for the green and digital economy. The regulation aims to reduce dependency on non-EU sources and bolster Europe’s strategic autonomy amidst a complex geopolitical landscape.

Key objectives and targets

The CRMA mandates that the EU’s domestic capacity for extracting ores, minerals, or concentrates must meet at least 10% of the annual consumption of these strategic raw materials, provided the EU’s reserves can support this. Furthermore, the regulation requires that domestic processing capacity should produce at least 40% of the EU’s annual consumption, covering all intermediate steps in the process. The EU’s recycling efforts are also emphasized, with a target to produce at least 25% of domestic annual consumption from recycled materials.

By 2030, the CRMA stipulates that no more than 65% of the EU’s annual consumption of any strategic raw material at any processing stage should come from a single non-EU country. Although these targets are not legally binding and member states cannot face legal penalties for non-compliance, they reflect a significant push towards reducing reliance on external sources.

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Strategic materials identified in the CRMA include aluminum, cobalt, copper, gallium, lithium, graphite, nickel, silicon metal, and rare earth elements crucial for magnet production.

Streamlining permitting processes

The CRMA also addresses the need for faster permitting processes. It sets a maximum timeline of 27 months for obtaining permits for extraction projects, while recycling and processing projects should receive permits within 15 months. This regulatory change is designed to expedite the development of critical raw material projects and enhance Europe’s self-sufficiency.

The Act’s enactment comes at a time of geopolitical instability, with the Russian invasion of Ukraine and aggressive Chinese trade policies highlighting the strategic importance of materials like cobalt and lithium. The European Parliament, upon adopting the CRMA in December 2023, emphasized the geopolitical risks associated with over-dependence on a single source for these materials.

Reducing dependency on non-EU countries

Currently, the EU relies heavily on a few countries for its critical raw material supply. For example, China supplies 100% of the EU’s heavy rare earth elements, Türkiye provides 98% of the EU’s boron, and South Africa supplies 71% of the EU’s platinum. To address this dependency, the European Commission plans to identify and expedite strategic projects that significantly enhance supply security by December 2024, offering them faster permitting and improved access to finance.

Addressing the financing gap

Despite the positive steps, financing for mining projects remains a challenge. Greek MEP Anna-Michelle Asimakopoulou described the CRMA as “an important first step” but highlighted the need for greater incentives for private sector investment. Kerstin Jorna, the European Commission’s director-general for internal market, industry, entrepreneurship, and small and medium-sized enterprises, noted the “big manipulation” in the nickel market and emphasized the CRMA’s potential for joint demand aggregation and joint raw material purchasing, similar to the system for natural gas.

Aligning with the Net Zero Industry Act

The CRMA aligns closely with the Net Zero Industry Act (NZIA), adopted by the European Parliament in April 2024, which aims to increase the production of net-zero technologies within the EU. The NZIA sets a target for Europe to produce 40% of its annual net-zero technology deployment needs by 2030 and to capture 15% of the global market value for these technologies. It also simplifies permitting processes for strategic projects, setting a maximum timeline of 12 months for facilities with a production output of 1 GW or more, and nine months for smaller projects.

The NZIA underscores the need for substantial solar manufacturing capacity, targeting at least 30 GW of operational solar manufacturing across the full photovoltaic (PV) value chain by 2030. Currently, the EU imports 97% of its solar panels from China, and the NZIA aims to change this by supporting domestic production and massive deployment of rooftop solar energy.

Bridging the funding gap

Funding for these initiatives is critical. The NZIA outlines various EU funding programs such as the Recovery and Resilience Facility, InvestEU, cohesion policy programs, and the Innovation Fund. For instance, the Innovation Fund has allocated €400 million over two years for new solar manufacturing projects. Enel Green Power’s “3Sun” factory in Sicily received a €560 million financial package to expand its solar production capacity from 200 MW to 3 GW by the end of 2024, becoming Europe’s largest solar factory. This funding was supported by a consortium of Italian banks and backed by the European Investment Bank.

However, industry experts argue that the current funding is insufficient compared to the massive investments needed to scale up mining and green technology production in Europe. Louise van Schaik, head of unit at the Clingendael Institute, remarked that the NZIA and CRMA are less effective compared to the US Inflation Reduction Act due to the EU’s limitations in using tax incentives and reliance on member state subsidies.

The way forward

Achieving the ambitious targets set by the CRMA and NZIA will be challenging. Public opposition to new mining projects and the EU’s lack of mining expertise could impede progress. Nonetheless, partnerships with countries like Kazakhstan, Canada and Chile mark a positive step towards securing raw material supplies.

In a speech at the College of Europe, Fatih Birol, executive director of the International Energy Agency, highlighted the need for stronger policies to reduce reliance on Chinese solar panels and support the European solar industry. He emphasized that consistent policies are essential to avoid missed opportunities and to secure a sustainable and autonomous future for Europe.

The CRMA and NZIA represent crucial steps towards achieving a resilient and self-sufficient European economy, capable of meeting the demands of a green and digital future while mitigating geopolitical risks.

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