European Commission Announces Legislative Proposal on Critical Materials

European Union Commission (EC) President Ursula von der Leyen announced a new legislative proposal, the Critical Raw Materials Act, to help boost supplies of minerals such as lithium and rare earths. The proposal would be the upcoming Commission’s instrument to boost Europe’s strategic autonomy, reduce its dependence on third markets, and invest in stronger supply chains with like-minded countries.

Through the new legislation, the EU intends to identify potential projects along the supply chain, from extraction to refining and from processing to recycling, as well as build up reserves.

Due to the green and digital transition, the demand for critical raw materials is expected to rise dramatically. According to the EC, demand will increase by 500% by 2030. Other projections by the World Bank suggest that the global demand will also increase 5-fold by 2050.

What does this mean for EU supply chains?

Many of the raw materials that the EC deems critical are primarily mined in China. This holds especially true for rare earths, where the supply risk is considered by the Commission to be the highest.

One case in point is lithium, which is a key component of batteries and thus essential for the green transition. While only around 9% of the world’s lithium is mined in China, around 60% is refined there, leaving the EU largely dependent on China even in areas where there are a multitude of suppliers of the raw material itself.

To boost the diversification of supply chains, the EU is additionally working on partnerships on raw materials with third states. Last week, the EC – alongside France and Germany – entered a Mineral Security Partnership with Australia, Japan, South Korea and the United Kingdom to address the growing international demand.

To ensure a sufficient supply of lithium and rare earths to help countries transition to a green economy, the EC is also considering ratification of trade agreements with Chile, Mexico and New Zealand as well as looking to advance talks with partner countries, including India and Australia.

What’s next?

There are no clear dates yet for the publication of the proposal. However, there should be a clearer picture after October 18, when the Commission is expected to publish its work plan for 2023. The Commission’s work plans are key to understanding what they will be presenting in the upcoming year.