Critical Raw Materials Act: an update

Introduction
Since 2011 the European Union assesses critical raw materials (“CRMs”) via a three-yearly list. Raw materials are considered critical as they are used in high impact industries like energy transition and digital technologies, but at the same time are scarce and/or difficult to mine. A year after the introduction by EU Commission President Ursula von der Leyen, what is the status of the Critical Raw Materials Act and what does it entail for companies and investors involved?

Background and Aim
The Critical Raw Materials Act, also known as CRMA, is designed to ensure the European Union to be able to access a secure and sustainable supply of critical raw materials, aiming to meet 2030 climate and digital objective. CRMs are used in a variety of (strategic) industrial and technological sectors, including renewable energies, space and defense. CRMs are mostly sourced outside the EU. For CRMs the EUR heavily relies on China, which exports 90% of all rare earth metals and 60% of lithium, whereas both these items’ demands are expected to exponentially increase due to the decarbonization of economies. The aim of the Act is to build on the strength of the single market and ensure and enable EU to rely on resilient and sustainable value chains for critical raw materials. Through diversifying the EU imports and improving the EU capacity to monitor and mitigate risks of disruptions to the supply chain, the Act seeks to reduce dependencies and realize a sustainable value chain.

Implementation
The latest CRM list contains 34 CRMs, 17 of which are considered as strategical CRMs (“SCRM's”). SCRM's are strategic in terms of importance, demand growth and difficulty of increasing production. Examples hereof are aluminum, lithium, copper, silicon, titanium, cobalt and nickel.  

To reduce dependence on third countries to access of CRMs, the EU set the following objectives for 2030:

• at least 10% of the EU’s annual consumption from EU extraction
• at least 40% of the EU’s annual consumption from EU processing
• at least 25% of the EU’s annual consumption from domestic recycling
• no more than 65% of the EU’s annual consumption from a single third country

To achieve this, the EU will increase trading activities, including establishing a European Critical Raw Materials Board, overseeing the implementation and coordination of strategic measures. This will increase the pressure on the mining and processing industry to ramp up their European production capabilities. Additionally, the Commission and the Board may recognize SCRM Projects. Involved companies/projects may benefit from support for financial assistance and shorter timeframes for obtaining permits. For example strategic mining projects are then to receive permits within 27 months and processing and recycling facilities within 15 months.

In other parts, to enhance resilience, the Act establishes critical raw materials supply chain monitoring and stress-testing, mandates risk preparedness obligations on large technology companies, and coordinates strategic stocks. Moreover, it mandates EU countries to improve the collection and recycling of CRM-rich waste, incentivizing large-scale recycling initiatives and empowering the Commission to establish rules for environmental footprint assessment. EU member states will also be required to establish a point of contact to process permit applications, having the Strategic Projects as the priority.

The manufacturing industry and final producers will face the impact of increased demand for domestically sourced and recycled materials.

Large EU-based companies are required to assess supply chain risks and develop strategies for supply disruptions, with a focus on labor rights, human rights, and environmental protection. Businesses are encouraged to map their reliance on critical raw materials, engage with suppliers, and invest in research and development for sustainable practices and renewable energy solutions. Businesses will have to anticipate and be prepared to comply with the frameworks set out by the Act.

The current Act is not detailed enough. It still has to be decided if recycled CRMs must come from end-of-life products or could also be manufacturing waste. And do recycled CRMs count as “mined in the EU” and contribute to meet the mining benchmark?

Although the detailed implementation measures by the Member States, according to the Act, may take some time, companies and investors in mining, processing, and manufacturing industries should not wait to prepare for the strong effects the Act can have on their (near) future businesses.