The European Commission published on 16 March 2023 its proposed European Critical Raw Materials Regulation (ECRMR) in a global geopolitical context that has seen tensions escalate, whereby most countries re-evaluate their dependencies on key commodities. The global demand for Critical Raw Materials (CRMs) is expected to increase substantially in the context of the green and digital transitions, while the EU remains highly vulnerable to bottlenecks in many value chains.
The EU is vulnerable to a number of CRM-relevant issues such as high dependencies on a handful of “unlike-minded” countries rich in these metals and minerals, or limited capacity for domestic sourcing, processing and recycling. The ECRMR aims to address these challenges and “ensure access to a secure and sustainable supply of CRMs in order to safeguard the Union’s economic resilience and strategic autonomy”.
The sustainable use of critical materials can facilitate access to clean technologies that generate positive outcomes for the climate1. Yet, their extraction, processing and recycling are also fraught with many potential adverse environmental, social and human rights impacts primarily felt by local communities. Hence, the ECRMR must prioritise circularity aspects over the extraction of new, virgin, materials, while adequately catering for strong and legally binding sustainability safeguards throughout CRM supply chains.
Yet, in its initial form, the proposed regulation insists on addressing CRMs’ supply chain bottlenecks to ensure the EU can meet its projected increased demand for virgin materials, with limited consideration on the potential spillovers. This raises a number of concerns.
1. Lack of a balanced approach to meet sustainable demand in the EU
The ECRMR should aim to improve material efficiency to reduce the EU’s overall environmental impact, by upscaling domestic capacities for circularity through setting clear product design requirements to increase material efficiency, implementing policies for repair and reuse, creating value in waste and ensuring CRMs are safely recovered from end-of-life products for recycling. Overall, the EU endeavours to bring its circular material use rate (CMUR), i.e. the share of the total amount of material used in the economy that is accounted for by recycled waste, to 23.4% by 2030. However, from 2010 to 2021, the EU’s CMUR increased by less than 1%, meaning considerable efforts will be needed for the EU to meet its ambition. The ECRMR should be a key milestone in delivering that ambition, yet the draft regulation responds primarily by introducing minimum benchmarks on extraction, processing & recycling capacities for EU annual consumption of CRMs by 2030:
- 10% of EU consumption must be covered by domestic extraction
- 40% covered by domestic processing, including recycled content
- 15% covered by recycling
This approach is reminiscent of the 2020 revision of the EU Batteries Directive which introduced new minimum recycled content for EV batteries, as well as material recovery targets for their CRM contents such as lithium. Like that Directive, the ECRMR shows a lack in circular ambition, with no concrete actions specified to reach these objectives. (such as Apart from specific products such as permanent magnets, the proposed regulation envisages a key role for EU Member States (MS) in terms of circularity potential. MS are tasked to adopt and implement national programmes on issues such as the collection of waste with high CRM recovery potential, the re-use of relevant products and components containing CRMs, or the use of secondary CRMs in manufacturing processes within 3 years after the regulation enters into force. The EU Council’s position on this particular point will be crucial in the legislative development process.
The diversity of origin, recycling capacities and use of CRMs also bring up the challenge of determining an adequate aggregated percentage target. This calculation will necessarily hide vast discrepancies between different materials and their potential associated risks. Therefore, a key question is whether this calculation will consider any differentiations based on the criteria listed above to create a weighted average.
2. Concerns on the fast-tracking of Strategic Projects
In order to achieve the above objectives, the EU’s approach focuses on “Strategic Projects” (SPs) for the extraction, processing or recycling of CRMs in the EU and beyond. The notion of SPs is arguably the most controversial aspect of the proposed regulation as it states that “in light of their importance for ensuring the security of supply of strategic raw materials, Strategic Projects should be considered to be in the public interest”. This public interest status comes with a number of facilities to streamline permitting, processing and financing, which risks jeopardising sound environmental or social impact assessments. The ECRMR also allows for streamlined permitting for other projects in the CRMs value chain even beyond SPs, thus potentially covering more environmentally impactful projects.
The regulation even goes so far as to allow responsible permitting authorities to “override” identified adverse impacts on the environment on the grounds of public interest as long as conditions set out in the Water Framework and Habitats Directives (which date back to 2000 and 1992 respectively) are met. Crucially, the regulation does not define what constitutes ‘Public interest’, leaving its interpretation up to the diverse array of permitting authorities within the Union (including in MS or regions where mining interests are prevalent). The proposed regulation does mention that “the Union should not neglect the environmental footprint of its CRMs” but the text offers limited legally binding commitments for SPs to comply with, aside from the EU principles for sustainable raw materials or certain EU environmental permitting legislation as mentioned above.
Whilst Member States are given the option to refuse the approval of a Strategic Project, the absence of voice given to local authorities or communities, who are the most directly impacted populations, is extremely concerning. In addition, the proposed review clause that should cater for reconsideration of Strategic Project status in light of severe environmental, social, or human rights impacts remains extremely vague, which blurs its effectiveness. In terms of remedy, competent national authorities are tasked to ensure that applicants and project promoters have access to “simple” and “urgent” dispute settlement procedures. These all point toward the predominance of strategic interest over environmental, social or human rights considerations in the EU.
3. Diversified supply from trade partners
Trade and trade policy will continue to play a key role in the supply of CRMs, as the EU will likely not reach self-sufficiency and remains dependent on a handful of countries with a large share of these materials. The draft regulation aims to address these bottlenecks by supporting the EU’s strategic aim to increase its resilience through diversifying its sources of primary and secondary CRMs, especially from like-minded countries. The regulation states in particular that the EU cannot depend on one country for more than 65% of imports of a specific CRM, in order to mitigate supply chain risks. This is especially important when considering countries that score low on the EU governance index, such as the DR of Congo upon which the EU depends for 86% of its cobalt at mining stage, or China upon which the EU almost exclusively depends for mining and processing of rare earths and bismuth. The EU is engaging in ongoing (Canada) and new (Chile, Mexico, Australia, Namibia, Kazakhstan) trade agreements and strategic partnerships with the aim to increase the supply resilience of both primary and secondary CRMs and reduce its exposure to geopolitical risks.
The text also introduces the new notion that Strategic Projects can be based abroad if deemed “commercially safe” and contributing to circularity benchmarks. This is aimed at maximising the level of supply of strategic materials to the EU. Yet, again, no mention is made of the sustainability impact of a strategic project in the country of origin. EU trade initiatives and frameworks geared towards the least developed countries for instance (Generalised System of Preferences with DR of Congo, Aid for Trade scheme etc.) are key in that regard as they carry heavy social and environmental risks.
The extent of the negative environmental impacts resulting from the race for CRMs supply will eventually depend on how they are extracted, the inclusiveness of the process and the efficiency of its upscaling.
The proposal of a regulation by the European Commission further emphasises the importance of securing ambitious objectives during the ECRMR legislative process, since the final text will be legally binding in its entirety across the EU (unlike a directive which would have set an overall goal while leaving EU countries some liberty to follow their own national pathways).
The current proposed regulation appears to focus primarily on securing supply of virgin or raw materials to respond to the EU’s projected increase in demand, either through strategic projects or diversified trade routes. There is little to no consideration for targets on an absolute reduction of resource consumption, or to the environmental impacts of upscaling the EU’s domestic capacities (notably for extraction). In a Paris-compatible future – guided by the Sustainable Development Goals – the objectives of the Regulation should be primarily based on the principles of circularity, such as circular design and resource efficiency, or reuse, remanufacture and recycling processes. An objective of reducing material use, and therefore demand, would also inherently increase the EU’s resilience, while decreasing its material footprint.
We therefore encourage the EU Council and Parliament to work towards the development of an ambitious “Critical Materials Regulation”, covering the entire CRM value chains and moving the EU away from the extraction and use of virgin resources.