UK: EU Proposal On Critical Raw Materials

1. Setting clear priorities for action

The CRMA sets targets for internal extraction, processing and recycling capacity within the EU along the supply chain of identified strategic raw materials. The EU aspires to meet:

• 10% of annual consumption for extraction;
• 40% of the annual consumption for processing; and
• 15% of annual consumption for recycling from within its borders.

The proposal further states that not more than 65% of each strategic raw material's annual consumption, at each relevant stage of processing, should be from any individual third country, strongly emphasising that the EU is beginning to prioritise a diversity of supply of these materials to enhance security across the bloc.

2. Creating secure and resilient EU critical raw materials supply chains

The CRMA also seeks to simplify administrative processes and procedures surrounding critical raw materials in order to expedite "Strategic Projects", which will be eligible for access to finance and shorter permitting timeframes (see Implications for the infrastructure sector below for further commentary). The intention is to encourage investment in extraction, processing or recycling of critical raw materials.

Additionally, Member States will be required to develop national plans for exploring their natural resources, presumably with the aim of the EU being better placed to fill any anticipated supply shortages.

3. Ensuring that the EU can mitigate supply risks

To ensure the resilience of supply chains, the monitoring and co-ordination of critical raw material stocks will be mandated at a national level. The obligation to monitor supply chains is anticipated to be required at a company level.

"Large companies" (those with more than 500 employees and net worldwide turnover of over EUR150m) manufacturing certain strategic technologies that use strategic raw materials (including, but not limited to, those involved in energy storage, EV batteries, renewable energy generation equipment, data transmission and storage equipment) will be required to:

• audit their supply chain every 2 years;
• map where the materials are extracted, processed or recycled;
• stress test the supply chain; and
• produce a report for their board of directors.

4. Investing in research, innovation and skills

To strengthen the uptake and deployment of breakthrough technologies in critical raw materials, the Commission has proposed a "Raw Materials Academy" and a "Global Gateway" to assist partner countries develop their own extraction and processing capacities.

5. Protecting the environment by improving circularity and sustainability of critical raw materials

Reducing demand for critical raw materials via increased collection and recycling of critical raw materials is a key aspect of securing supply chains (and the wider EU circular economy).

In particular, the draft regulation requires that products containing permanent magnets (including certain household appliances) meet circularity requirements and specify recyclability and recycled content on labels.

The CRMA will also oblige current operators of mines to assess the possibility for recovery and to also collect information on the critical raw materials content of the waste they are generating and storing. For closed and abandoned mines, Member States will be required to investigate and publishing this information on an open database.

Critics have queried how increasing access to, and encouraging the extraction of, raw materials in the EU can be aligned with EU regulations designed to protect natural habitats and the EU's wider ambitions in this area. The EU may well argue that extractive projects based in Member States are required comply with stricter standards in connection with environmental and other compliance matters than they would in other international jurisdictions (and therefore their overall impact on the environment should be viewed in this context).

That said, protests in Portugal over the granting of six new lithium mining permits in recent years highlight that, even if the EU seeks to relax some permitting rules, breaking ground on new projects will likely continue to be less than straightforward.

As mentioned above, the CRMA introduces a new framework to select and implement so-called "Strategic Projects", which will benefit from expedited permitting and easier access to finance.

• By way of example, the rare earth elements that are used in the magnets required for wind turbines will be considered Strategic Raw Materials under the CRMA. Accordingly, projects that seek to extract, process or recycle these materials will be deemed 'Strategic' and will benefit from streamlined permitting and facilitated access to EU financing opportunities.

The EU is hoping that, by supporting these projects, they can strengthen European critical raw materials capacity along the entire value chain, creating more resilient and predictable global supply chains for sectors dependent on those materials, including the infrastructure sector (and in particular green infrastructure). As part of the proposal, the EU also intends to establish a "Critical Raw Materials Club", working with global partners to establish international strategic partnerships with third countries. The idea is to facilitate collaboration between resource-rich and resource-hungry countries. While there are limited details on what the "Club" will entail in practice, the proposition potentially opens up a wider range of global procurement opportunities, further improving security of supply chains. To the extent that these measures bring new elements of competition to EU traders, the CRMA could have the ancillary effect of also bringing down their costs (or at the least, reducing the rate at which they increase).

The CRMA, once final, will come into force without any delay. The European Parliament adopted its position on the proposal in September and it hopes to reach final agreement with the Council in the coming months. While the majority of the text will likely remain unchanged, the European Parliament have proposed a number of amendments, including the possibility of setting up a dedicated fund at EU level, to better facilitate financial support for relevant projects. Notably, its position also softened the requirements on companies to audit their supply chains, so where the Council comes out on this particular aspect will be interesting to see.