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The European Union’s Critical Raw Materials Act: Strengthening sustainable supply chains

The primary objective of the Critical Raw Materials Act (CRMA) is to establish a secure and sustainable supply of critical raw materials for the European Union (EU). The CRMA defines “Critical Raw Materials” through two annexes, listing 34 materials considered strategic, with 17 classified as critical. The Act acknowledges the high concentration of these materials in a few non-EU countries as a significant supply risk. The swift adoption of the Act, from proposal in March 2024 to finalization in April 2024, underscores the urgency with which EU institutions and Member States are addressing this issue. The CRMA highlights the EU’s dependence on these materials for its internal market and economy, referencing potential sources such as deep seabed mining in its Recitals.

The three-fold approach to mitigating supply risks

The CRMA outlines a comprehensive strategy to mitigate the risks associated with the supply of critical raw materials:

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  1. Promoting domestic extraction:
    • The EU aims to increase the extraction of raw materials within its Member States, targeting a quota of 10% of all critical raw materials consumed in the EU to be produced domestically.
    • New exploration projects, such as those in Kiruna, northern Sweden, will receive increased focus and potentially easier extraction conditions.
  2. Enhancing recycling efforts:
    • The Act mandates a significant boost in recycling, aiming for 25% of annual EU consumption to come from recycled materials.
    • European landfills, which contain substantial quantities of critical raw materials, are identified as potential sources for recycling. Additionally, the EU seeks to reduce the export of waste that includes valuable raw materials.
    • Member States are required to develop measures to enhance the circularity of their economies.
  3. Diversifying supply sources:
    • The CRMA sets a goal to reduce dependency on any single non-EU country for critical raw materials to less than 65% by 2030, with a particular focus on reducing reliance on Chinese rare earths.
    • The EU is actively forming strategic partnerships and fostering relationships to secure alternative sources of these materials, leading to increased investment and simplified import conditions.

Opportunities for the private sector

While the CRMA primarily targets the public sector, it also presents significant opportunities and new obligations for the private sector:

  1. Promotion of strategic projects:
    • The Act emphasizes the importance of strategic projects, which can be located within EU Member States or in third countries and can be undertaken by both governments and private entities.
    • The EU Commission is responsible for evaluating and qualifying projects based on criteria such as feasibility, sustainability, and reliability.
    • Projects deemed strategic benefit from improved access to financing, de-risking mechanisms, and potentially simplified approval processes.
  2. Access to financial support:
    • Strategic projects may receive financial backing through established EU funds such as the Just Transition Fund, the European Regional Development Fund, the Recovery and Resilience Facility, the Innovation Fund, and InvestEU.
    • The CRMA acknowledges that public support may be necessary to ensure the effective rollout of projects along the critical raw materials value chain, even if this constitutes state aid, which is usually restricted under antitrust law.
  3. Simplified approval processes:
    • To streamline operations, the Act proposes that project promoters only need to interact with a single point of contact at the government level, addressing the common issue of complex and lengthy approval procedures in the sector.

Obligations for the private sector

The CRMA introduces several obligations for companies operating in the critical raw materials sector:

  1. Company risk preparedness:
    • By May 24, 2025, Member States must identify large companies using strategic raw materials to manufacture various high-tech and industrial products, including batteries for energy storage, hydrogen-related equipment, renewable energy devices, and advanced electronics.
    • These companies are required to conduct risk assessments every three years, mapping their supply chains and analyzing vulnerabilities to supply chain disruptions. If significant risks are identified, they must mitigate them, such as by diversifying their raw material sources.
  2. Alignment with Other EU Regulations:
    • The CRMA’s risk management obligations add to the existing reporting and risk assessment requirements under the Corporate Sustainability Due Diligence Directive (CS3D) and the Corporate Sustainability Reporting Directive (CSRD), which focus on human rights and environmental risks.
    • Companies must ensure their supply chains are both sustainable and secure, requiring a comprehensive approach to due diligence.

The way ahead

Companies involved in procuring or processing critical raw materials must prepare for more challenging times ahead. The steady supply chains of the past are increasingly under threat from geopolitical tensions and resource constraints. The CRMA represents a proactive measure by the EU to create an environment that supports the development of new supply chains and promotes recycling while also imposing new responsibilities on large companies to secure their raw material supply chains.

In response to these changes, companies must navigate new opportunities and obligations with diligence and strategic planning. Baker McKenzie’s International Trade Practice offers specialized insights into supply chain reporting, risk assessment requirements, and regulatory compliance, providing comprehensive guidance on adapting to the CRMA’s framework.

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