On 16 March 2023, the European Commission unveiled its new Critical Raw Materials Act (the “Act“), now due to undergo review by the EU Council and Parliament, once public comment closes on June 30. While the EU has correctly identified that it must foster greater cooperation between Member States to grow the resilience of its critical mineral supply chains and reduce dependence on third countries, in its current form, the Act regrettably provides little guidance on how its ambitious targets will be met. Hopefully, the legislative review process will address these concerns.

The Act professes to ensure EU access to “a secure, diversified, affordable and sustainable supply of critical raw materials” for the green energy transition. Together with the Net Zero Industry Act, it is part of the EU’s response to the US Inflation Reduction Act and underscores the competition for critical raw materials (“CRMs“) and “strategic raw materials” (“SRMs“) – a CRM subset relevant to strategic sectors – taking place against the backdrop of the race to Net Zero.

The Act is a direct product of the global supply chain vulnerabilities exposed principally by the COVID-19 pandemic and the energy crisis following Russia’s invasion of Ukraine. These short-term catalysts, however, belie China’s dominance of global CRM supply chains. While security of supply has only recently dominated the western political agenda, it has long been a strategic priority for China, which has nurtured decades-long relationships with many of the world’s most mineral-rich countries, particularly in Africa and Latin America.

Unlike trade and competition, the EU does not have exclusive competence to determine industrial policy and is limited to promoting coordination between Member States. In line with this limitation, the Act sets ambitious but non-binding targets aimed at bolstering domestic production of SRMs by 2030, including: (i) extracting 10%, (ii) processing and refining 40%, and (iii) recycling 15% of its annual SRM consumption. It also sets a non-binding target limiting imports of SRMs (at any stage of processing) from any single third country to 65% of the EU’s total annual imports.

This target is highly aspirational. Many importers of SRMs are locked into long-term supply contracts which may be difficult to terminate, especially in the absence of a clear incentive or sanction. It is thus not clear how Member States are to effect the drastic shift in supply chains to achieve this target.

The Act seeks to meet this challenge by facilitating development of “Strategic Projects” (in the EU and third countries) involving the extraction, processing, refining and recycling of relevant raw materials by streamlining their permitting processes and supporting access to public and private financing. There is, however, a pointed lack of clarity on how both elements are to be achieved.

To mitigate the complex licensing procedures for extractive projects, the Act requires Member States to designate a single national authority to oversee applications and reducing the permitting deadlines for new extractive and processing projects to 24 and 12 months, respectively. This is likely to disrupt current licensing procedures, and it is not clear how effective these proposals will be, particularly in view of likely opposition from the green lobby.

The Act proposes that Member States and the Commission should cooperate with financial institutions to explore new and existing sources of financing and EU funds but does not establish any new funding mechanisms. Its impact is therefore unclear.

More substantively, the Commission has proposed the establishment of a supervised system of joint purchasing of processed and unprocessed materials, under which interested parties would aggregate their SRM requirements and leverage their combined scale to secure favourable offers from suppliers. This mechanism is intended to enable Member States and companies to develop stocks of strategic materials to mitigate against supply chain disruptions and market volatility, but its intended mode of operation is unclear. In the same vein, companies designated by Member States as manufacturing strategic technologies using SRMs will be required to conduct a mapping exercise and stress test their supply chains on a biannual basis.

In order to reconcile increased extractive activities with the EU’s climate goals, the designation of Strategic Projects will be subject to sustainable implementation criteria. Companies marketing CRMs will need to publish a declaration setting out the CRM’s environmental footprint, and Member States will need to improve collection and recycling of waste. While this is sound policy, the precise scope of obligations to be placed on Member States is unclear.

With this Act, and the best of intentions, the EU seeks a unified approach to avoid falling behind its competitors in the pursuit of the raw materials required for the energy transition. Unfortunately, the current lack of clarity in the Act does not clarify whether the EU can or will achieve this goal.


This article first appeared on Law.com

By Peter Leon and Tihomir Svilanovic.

Peter Leon
Peter Leon
Partner and Africa Chair
+44 20 7466 2795
Tihomir Svilanovic
Tihomir Svilanovic
Associate
+44 20 7466 3941