Authors: Rebecca Major, Partner; Paul Morton, Of Counsel; Marie Badr, Solicitor; and Tanesha Singh, Trainee Solicitor
On 16 March 2023, the European Commission (EU Commission) published its Critical Raw Materials Act Proposal (the Proposal). This is proposed legislation aimed at securing access for the European Union (EU) to a sustainable supply of critical minerals. The EU is looking to meet its target of net-zero greenhouse gas emissions by 2050, and reduce its dependence on non-EU countries for the sourcing and refining of critical minerals.
The Proposal recognises the indispensable role played by certain critical raw materials in achieving the EU’s climate neutrality goals across a wide range of sectors such as renewable energy, healthcare and defence, and proceeds to identify a list of critical and strategic raw materials before laying down the framework for the EU’s sustainable access to these.
Notably, the Proposal sets out four targets (explained in the blog post below) to be achieved by 2030, in relation to extraction, processing, and recycling of critical materials in the EU.
It creates a framework to promote “Strategic Projects” including support with financing, offtake agreements, and administrative processes, as well as a requirement for Member States to submit exploration programmes for critical raw materials.
Sustainability and circularity are at the core of the Proposal, with an obligation to increase recycling and reuse of critical materials, and environmental and social compliance being key criteria to determine whether projects are eligible to be awarded Strategic Project status.
The Proposal aims to facilitate joint procurement of strategic raw materials through the creation of a system to match interested parties consuming strategic raw materials with authorities responsible for strategic stocks of strategic raw materials and enabling them to jointly negotiate purchase terms.
The Proposal must still be discussed and agreed by the European Parliament and the Council of the EU before it enters info force, which means its content is still subject to change. The EU Commission has not given any indications on the timing of when such discussions with the Parliament and Council of the EU are expected to take place.
The Proposal will be adopted as an EU regulation (as opposed to a directive), which means it will have direct effect in the EU as soon as it enters into force, without the need for EU Member States to enact legislation to implement its provisions at the national level. However, some of its provisions are quite broad and further detailed legislation may be required in practice.
The Proposal was published with an accompanying Communication which aims to enhance the EU’s international coordination efforts to allow the EU to diversify its imports and promote increased supply and partnering. As part of this, the EU Commission proposes to establish a Critical Raw Materials Club which brings together consuming and resource-rich countries to promote the secure and sustainable supply of critical raw materials, expand its network of bilateral and multilateral trade agreements and further develop strategic partnerships by investing in critical minerals value chains in third countries.
The Proposal focuses on an initial list of non-energy, non-agricultural strategic and critical raw materials. The materials on the list are deemed to be important for the EU economy, and subject to a high level of risk (see Table 1 below). The Proposal recognises that these critical raw materials are often indispensable for a wide set of strategic sectors such as renewable energy (including electric vehicle batteries), the digital industry, the chemicals industry, the space and defence sectors and the health sector but that their extraction and processing is at risk of contributing to negative environmental and social impacts.
The Proposal introduces a range of initiatives which aim to boost the EU’s domestic capacity in relation to critical minerals supply chains including through (i) the identification and designation of ‘strategic projects’ for certain eligible strategic raw materials projects, (ii) promoting mineral exploration activities for critical raw materials and (iii) proposing steps to streamline and modernise the permissions and approvals processes in Member States.
In parallel, the Proposal maintains a strong focus on environmental and social sustainability, such as promoting the recycling of waste and magnets, and measures in relation to sustainability verification schemes recognised by the EU Commission.
The Proposal was one of the key measures announced as part of the EU Green Deal Industrial Plan unveiled on 1 February 2023, together with the Net-Zero Industry Act1 and the proposals to reform several of the European electricity legislations. The Proposal should be read alongside other related recent and upcoming European legislation such as the proposed Batteries Regulation2, the proposed Corporate Sustainability Due Diligence Directive3 and the Cross Border Adjustment Mechanism (CBAM)4, which also have an impact for EU and non-EU producers, importers and users of critical minerals.
Outside of the EU, other countries are ramping up their strategies for identifying and securing a sustainable supply of critical minerals. By way of an example, the United Kingdom published its Critical Minerals Strategy in July 2022 and its Critical Minerals Refresh on 13 March 2023. Among other measures, the UK will launch an independent task group to investigate UK dependency on critical mineral across various industry sectors and opportunities for promoting resilience in supply chains. Partnerships to co-operate on the sourcing of critical minerals have been agreed with Canada and South Africa, and the UK is continuing to engage in discussions with other countries of the G7 to reach similar agreements.
Targets: The Proposal sets out four targets to be achieved by 2030, in relation to the EU’s domestic capacities for strategic raw material supply chains and dependency on suppliers:
(1) The EU should extract the materials needed to produce at least 10% of its annual consumption of strategic raw materials (to the extent that the EU’s reserves allow for this). It is not clear if this is 10% of the aggregate critical minerals in the list or 10% of each critical mineral. Presumably the former. Various clients have asked us whether this is really realistic.
(2) The EU should process at least 40% of its annual consumption of strategic raw materials.
(3) The EU should recycle at least 15% of its annual consumption of strategic raw materials.
(4) The EU should not be dependent on a single country for more than 65% of its supply of any strategic raw material, unprocessed or at any stage of processing.The ECRM Board (see below) will publish progress reports. The first report should be submitted four years after the Proposal enters into force. If, based on these reports, the EU Commission determines that it is not likely to achieve these objectives, it can assess the feasibility of proposing measures at EU level to ensure the achievement of these targets.
Strategic raw materials and critical raw materials: The Proposal sets out a list of strategic raw materials and critical raw materials (see Table 1 below). The EU Commission expects to review and update these lists every four years after the Regulation comes into force.The Proposal sets out measures focused specifically on “strategic” raw materials and others relating exclusively to “critical” raw materials (see Table 1 below). For instance, the system around ‘strategic projects’ and related financing and offtake facilitation will apply exclusively to strategic raw materials, whereas the creation and promotion of national exploration programmes relates to critical raw materials. Other measures, such as the streamlining of the permitting and administrative processes target both strategic and critical raw materials.
Strategic Projects: The ECRM Board (see paragraph 11 below) will select ‘strategic projects’ relating to the extraction, processing or recycling of strategic raw materials using a set of recognised criteria (Strategic Projects).Among other things, the project must be determined to be sufficiently meaningful to the security of the EU’s strategic raw critical mineral supply, technically feasible, and implemented sustainably. The Proposal stresses that strategic projects should be assessed taking into account international instruments covering environmental protection, socially responsible practices, human rights, transparency, a meaningful consultation with local communities.Strategic Projects can be located in the EU or in a third country. For projects in the EU, the project must have cross-border benefits beyond the Member State involved, and for projects outside the EU, the project must be mutually beneficial to the EU and the non-EU country involved by creating value in that country (whether through value directly created by the project in the relevant supply chains, or value derived from the wider social and economic benefits of the project such as creating employment).Promoters will therefore need to apply to the EU Commission for recognition of their project as a Strategic Project, submitting the documents and supporting evidence contained in Article 6 of the Proposal, including (but not limited to) (i) a timetable for the project, (ii) a plan containing measures to facilitate public acceptance of the project, (iii) a business plan providing information regarding the project’s financial viability and giving an overview of funding and off-take agreements already secured as well as estimates for potential employment creation.Projects selected as Strategic Projects will receive numerous benefits under the Proposal, such as support with financing arrangements, facilitating of off-take arrangements and streamlining of permits and administrative processes (see paragraphs below).
Financing for Strategic Projects: Strategic Projects will be entitled to support with their financing needs. The Proposal envisages the creation by the ECRM Board of a sub-group tasked specifically with discussing and coordinating financing for Strategic Projects. This sub-group will comprise representatives of national promotional banks and institutions, the European development financial institutions, the European Investment Bank Group, other institutions such as the European Bank for Reconstruction and Development, and, if appropriate, private financial institutions invited as observers. The aim of this sub-group is to discuss the financial needs of Strategic Projects and the existing funding possibilities in order to provide the project’s promoters with suggestions on how to access such funding possibilities. To advise on how a Strategic Project’s funding can be completed, the sub-group will consider (i) additional private funding, (ii) supporting through the European Investment Bank Group and the European Bank for Reconstruction and Development, (iii) existing Member State instruments and programs including from banks, and (iv) relevant EU funding and financing programmes.
Facilitation of offtake agreements for Strategic Projects: the Proposal foresees the creation of a system to bring in contact Strategic Project promoters and interested offtakers that have compatible buying and selling bids. The system would allow potential offtakers to make bids indicating the volume, quality, and price of the raw materials they intend to purchase, and the intended duration of the offtake arrangement, while Strategic Project promoters would submit the same information in relation to the strategic raw materials they are selling. Based on the bids and offers received, the EU Commission would then bring into contact the compatible offtakers and Strategic Project promoters.
Permit streamlining and harmonisation: the Proposal also promotes the overall streamlining and authorisation processes for all strategic and critical raw materials’ projects, including (i) the requirement for each Member State to designate a single national authority as a ‘one stop shop’ for permits and authorisations to coordinate the submission of all relevant documents and information, (ii) the setting up of a central accessible online information hub, or (iii) the sharing of ‘best practices’ and guidelines for permitting procedures by the ECRM Board with the national authorities. The Proposal also prescribes maximum duration of the permitting process for Strategic Projects (no longer than 24 months for Strategic Projects involving extraction and no longer than 12 months for Strategic Projects only involving processing or recycling, and slightly shorter deadlines for projects that entered the permitting stage before being awarded the Strategic Project status). We have seen similar requirements from the EU on projects of common interest over the last decade. Members states are required to put in place processes to ensure that accelerated processing timelines are respected (so that there is a maximum period for a final decision to be issued).
Support for exploration activities: The Proposal promotes exploration activities by requiring each Member State to draw up and submit programmes for exploration activities relating to critical raw materials, enhancing coordination between Member States and increasing public information about critical raw materials deposits in the EU.
Sustainability and circularity: The Proposal creates an obligation on Member States to implement measures to improve and increase the collection, recycling, reuse of products containing critical raw materials, the use of secondary raw materials in manufacturing and the technological maturity of recycling technologies. As set out above, this should be read with the recycling requirements in the Battery Regulation in relation to battery metals.
Joint Procurement of strategic raw materials: the EU Commission will facilitate joint purchasing of both unprocessed and processed strategic raw materials. The EU Commission will “set up and operate a system to aggregate the demand of interested undertakings consuming strategic raw materials established in the Union and Member State authorities responsible for strategic stocks and seek offers from suppliers to match that aggregated demand“5.Participants in the demand aggregation system may then, on a transparent basis, jointly negotiate purchase terms. The Proposal makes clear that the joint purchasing arrangements must comply with EU competition law. A number of factors will be relevant to this assessment, including the market position of the participating undertakings and the extent to which the arrangements could be liable to lead to a collusive outcome on the downstream markets, the arrangements in relation to any exchange of commercially sensitive information and the extent of the benefits that will be realised for consumers in terms of lower prices and security of supply.
Stockpiling and storage: The Proposal notes that strategic stocks of critical raw materials are an important tool to mitigate supply disruptions. It requires Member States to submit information on the state of their strategic stocks to the EU Commission, with a view to coordinating a safe level of EU stocks for each strategic raw material. This includes setting up a subgroup of the proposed Board, aimed at bringing together national emergency and stockpiling agencies for the coordination of strategic stocks.
European Critical Raw Materials Board (ECRM Board): The Proposal establishes the ECRM Board, which will be comprised of the Member States and the EU Commission, it will be chaired by the EU Commission and will also include a number of sub-groups related to different priorities such as coordination of financing for strategic projects, exploration, monitoring and stress testing of critical minerals supply chains and coordination in relation to strategic stocks.
The EU’s focus on self-sufficiency in relation to critical and strategic raw materials reflects the urgency driven by the current geopolitical and economic context. The regime foreseen by the Proposal, once adopted, is intended to create and enhance the attractiveness of opportunities for businesses to get involved in the different stages of extraction and processing of these raw materials. The targets identified by the EU Commission should however be closely monitored, to ensure that they remain cost effective, achievable, and realistic in light of the current energy climate and cost of electricity. It will be particularly interesting to follow the outcome of the discussions with the European Parliament and Council of the EU in this respect. There is also a question on whether this measure is sufficiently attractive and easy to apply to counter the provisions of the US Inflation Reduction Act and the temptation for EU based businesses to move to the US/invest more heavily in the US.
The Proposal comes at a busy time, as governments rush to strengthen and diversify supply chains in strategic sectors. To promote continued investment in critical minerals, the EU Commission has recently revised the EU State aid rules in order to better facilitate EU Member States’ support of investments in this sector and to the extent the measures envisaged in the Proposal involve the grant of State aid by EU Member States, they will benefit from the greater flexibility of this framework. The EU is also working towards better alignment with non-EU countries. In particular, shortly before the Proposal was released, the US and EU announced they were seeking a more coordinated approach on these matters, notably in relation to access for European companies to subsidies and other targeted benefits under the US Inflation Reduction Act (which also provides for incentives for clean energy projects and the processing of critical minerals). On the interplay between the two regimes, in a speech, the President of the EU Commission recounted a recent discussion with the US President, noting that the aim is to ensure that critical raw materials, for instance for EV batteries, whether extracted or processed in the EU or the US are treated in the same way. This is intended to have a twofold impact: secure a strong supply chain for batteries in Europe and ensure access to the US market.
Companies that are likely to engage in the extraction, processing, transformation, offtake or trading of strategic or critical raw minerals whether in the EU or abroad should therefore start aligning their business plans and strategies in accordance with the Proposal, assess the availability of funding, and identify potential offtake markets to make the best of the measures envisaged by the Proposal.
Proposal for a regulation of the European Parliament and of the Council on establishing a framework of measures for strengthening Europe’s net-zero technology products manufacturing ecosystem dated 16 March 2023. The regulation still needs to be adopted by the European Parliament and Council of the EU.
Proposal for a regulation of the European Parliament and of the Council concerning batteries and waste batteries, repealing Directive 2006/66/EC and amending Regulation (EU) No 2019/1020 dated 10 December 2020 (link). The regulation still needs to be adopted by the European Parliament and Council of the EU, and a subsequent set of accompanying rules will be adopted from 2024 to 2028 to make the Batteries Regulation fully operational.
Proposal for a directive of the European Parliament and of the Council on corporate sustainability due diligence and amending Directive (EU) 2019/1937 dated 23 February 2022 (link). The directive still needs to be presented to the European Parliament and Council of the EU. Once adopted, Member States will have two years to transpose the directive into national legislation.
Proposal for a regulation of the European Parliament and of the Council establishing a carbon border adjustment mechanism dated 14 July 2021 (link). The CBAM enters into force in its transitional phase as of 1 October 2023, with the permanent system entering into force on 1 January 2026.
Article 24 of the Proposal.
Table 1: Strategic raw materials and critical raw materials
Strategic raw materials
(Annex I section 1 of the Proposal)
Critical raw materials
(Annex II section 1 of the Proposal)
Boron – metallurgy grade
Lithium – battery grade
Manganese – battery grade
Natural Graphite – battery grade
Nickel – battery grade
Platinum Group Metals
Rare Earth Elements for magnets (Nd, Pr, Tb, Dy, Gd, Sm, and Ce)
Heavy Rare Earth Elements
Light Rare Earth Elements
Nickel – battery grade
Platinum Group Metals
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