Securing the supply chain - the proposed EU Regulation for Critical Raw Materials

What’s the issue?

Whether it is the renewable energy sector, the digital industry, the transport and mobility industry, the space and defence sectors or the health sector: modern technologies require CRM.  The list of CRM is long.  Cobalt and lithium are used in batteries, gallium is needed for semi-conductors.  But as their name suggests, CRM are scarce.

In reaction, companies are putting in place complex legal structures to secure their share of CRM.  From off-take agreements and direct sourcing arrangements to the acquisition of mining sources.

But the problem is overarching, affecting economies.  The EU’s economy is particularly vulnerable.  It relies almost exclusively on imports for many CRM.  In addition, the supply chain disruptions caused by the Corona pandemic and Ukraine war had massive adverse effects on the industries.  They highlighted the EU’s structural dependencies.  This can put at risk the EU's efforts to meet its climate and digital objectives.

What’s on the horizon?

Now the EU Commission is reacting.  On 16 March 2023, it proposed a Regulation for establishing a framework for ensuring a secure and sustainable supply of critical raw materials. It also published an explanatory memorandum.

The Regulation includes a list of CRM, from Antimony to Magnesium to Vanadium.  The Regulation also introduces a list of SRM.  These are CRM that could face shortages in the future, but are essential to Europe's green and digital ambitions in various industry sectors.  The list reaches from Bismuth to Lithium (battery grade) to Tungsten.

The Regulation defines clear benchmarks for domestic capacities and diversification of supply to the EU by 2030.  This includes that the EU:

• increases the use of its own geological resources of SRM and builds up capacity to allow it to extract the materials needed to produce at least 10 % of the EU’s consumption of SRM
• increases its processing capacity along the value chain and is able to produce at least 40 % of its annual consumption of SRM
• aims to increase its recycling capacity so that it is able to produce at least 15 % of the EU’s annual consumption of SRM
• is principally not dependent on a single third country for more than 65% of its supply of any SRM

The CRM measures go together with the reform of the electricity market design and the Net Zero Industry Act.  Together they create a conducive regulatory environment for the net-zero industries and the competitiveness of the EU’s industry, as announced in the Green Deal Industrial Plan.

What’s proposed in concrete terms?

The proposed Regulation sets out a comprehensive set of actions to ensure the EU's access to a secure, diversified, affordable and sustainable supply of CRM.  In concrete terms:

• Administrative facilitation: permitting procedures and granting processes for CRM projects in the EU will be facilitated (Art. 8 et. seq.).  Selected Strategic Projects will benefit from administrative support for their effective implementation and shorter permitting timeframes: 24 months for extraction permits and 12 months for processing and recycling permits.  “Strategic Projects” are projects aimed at the extraction, processing or recycling of SRM in the EU that should, together with Member State efforts, contribute to increasing capacities towards the benchmarks a) – c) mentioned above.
• Coordination of financing: selected Strategic Projects facing difficulties in accessing finance will benefit from coordinating support (Art. 15).
• Off-take agreements: the Commission shall set up a system to facilitate the conclusion of off-take agreements related to Strategic Projects (Art. 16).
• Exploration: each Member State shall draw up a national programme for general exploration targeted at CRM (Art. 18).
• Mitigation of supply chain risks: the Commission shall monitor supply risk related to CRM, including trade flows, demand and supply, concentration of supply, as well as EU and global production and production capacities.  The Commission shall ensure that a stress test is performed for each SRM’s supply chain at least every three years (Art. 19).  SRM stocks will be coordinated amongst the Member States.
• Company actions: Member States shall identify “large companies” that manufacture strategic technologies using SRM on their territory, for example batteries for energy storage and e-mobility.  These companies will have to perform every two years an audit of their supply chains.  The audit will include a mapping of where the SRM they use are extracted, processed or recycled and a stress test of their SRM supply chain (Art. 23).
• Circularity and sustainability: Member States need to adopt and implement national measures to improve the collection of CRM rich waste and ensure its recycling into secondary CRM (Art. 25).  Member States and private operators will have to investigate the potential for recovery of CRM from extractive waste in current mining activities but also from historical mining waste sites (Art. 26).
• Permanent magnets: products containing permanent magnets will need to meet circularity requirements and provide information on the recyclability and recycled content (Art. 27 et. seq.).  These products include market magnetic resonance imaging devices, wind energy generators, industrial robots, motor vehicles, light means of transport, cooling generators, heat pumps and electric motors.
• Diversification of imports: the EU will diversify its imports of CRM (Art. 1).  It will conclude Strategic Partnerships to achieve the objectives of the Regulation.  A “Strategic Partnership” is a commitment between the EU and a third country to increase cooperation related to the raw materials value chain that is established through a non-binding instrument setting out concrete actions of mutual interest.

What’s next?

The proposed Regulation must now be discussed and approved by the European Parliament and the Council of the EU.  It is proposed to enter into force 20 days after the Regulation’s publication in the Official Journal of the European Union.

Why it matters?

The proposed Regulation clearly shows: CRM and SRM are critical.  They will play an increasingly important role.  The Regulation provides for a comprehensive set of rules regarding CRM and SRM.  Including both great opportunities, but also obligations for companies dealing with CRM and SRM.

This will be relevant, for example if you:

• seek an administrative approval for a CRM project in the EU
• conclude off-take agreements for Strategic Projects
• seek to benefit from coordinating support for financing
• are identified as a “large company that manufactures strategic technologies using SRM” by a Member State and therefore need to perform audits and supply chain stress tests
• are a producer of products of permanent magnets and therefore subject to new circularity and information requirements

As the first comprehensive regulatory framework for CRM and SRM, the Regulation will be a game changer.  Companies dealing with CRM and SRM will need to closely monitor the legislative process and prepare for the new rules.

Authored by Dr. Florian Unseld and Niklas Knop.