Brussels has signaled that securing critical raw materials for the green transition is a top priority. But it faces major challenges in its competition with China, of which the biggest is how to convince companies to prioritize geopolitics over the market.
Electric vehicles do not guzzle fossil fuels, but they do come with a hidden environmental cost. They are materially intensive to produce—much more so than a conventional vehicle. While a car with an internal combustion engine requires just 22 kilograms of copper and 11 kilograms of manganese, an electric car requires almost 200 kilograms of minerals.
The rollout of clean energy technologies, particularly electric vehicles (EVs), has driven surging demand for a number of minerals that the European Union regards as “critical raw materials” (CRMs) and that the Americans refer to as “critical minerals.” Lithium, for example, saw demand increase 300 percent between 2018 and 2023.
Definitions of criticality vary over time and between methodologies, and not all of the materials on the EU’s latest list of 34 critical and strategic materials are rockstar battery metals like lithium. Neither are clean energy technologies the only driver of demand for CRMs—digitalization and defense, as well as non-strategic sectors like construction also play their part. Additionally, cynical experts have noted that assessments related to critical materials rely heavily on information provided by the mining industry.
But despite these layers of nuance, it is still clear that the world has entered a new energy paradigm in which the availability of certain, previously neglected raw materials is as much a matter of national security as the availability of oil and gas in a fossil-fueled world. In fact, when European Commission President Ursula von der Leyen announced the new European Critical Raw Materials Act (CRMA) in her September 2022 “State of the Union” speech, she did so alongside the prediction that “lithium and rare earths will soon be more important than oil and gas.”
China’s Control of Critical Raw Materials
The EU is dependent on China for several CRMs—this is of obvious concern in the current geopolitical climate, and when von der Leyen stated in her speech that the EU “must avoid becoming dependent again, as we did with oil and gas,” she was thinking about dependence on China.
Besides rare earth minerals, which are actually quite abundant, China does not possess a huge bounty of CRMs. Instead, the country has become dominant in processing many CRMs. For instance, two-thirds of cobalt is mined in the Democratic Republic of Congo (DRC), but a similar share of global supply is processed in China.
Chinese mining companies have also made impressive acquisitions overseas. In recent years, they have been on a shopping spree, spending $10 billion overseas in the first half of 2023 alone. In the DRC, Chinese companies have significant control over cobalt and copper mining, and they are a major force in Indonesia, the world’s top nickel producer. More recently, they have been investing big sums in South America’s lithium triangle.
Concerns about dependence on China for rare earths prompted the EU’s Raw Materials Initiative all the way back in 2008, but the rollout of clean energy technologies, deepening geopolitical tensions, and concern over supply chains following the pandemic and Russia’s invasion of Ukraine have pushed the problem way up the agenda.
Security vs. Sustainability
The security of CRM supply chains has come under scrutiny amid growing pressure for those same supply chains to become more sustainable. A month after the text of the EU’s CRMA was finalized in November 2023, the European Council (i.e., the EU’s 27 governments) and the European Parliament also reached a compromise on the EU’s Corporate Sustainability Due Diligence Directive (CSDDD), which requires large companies—including non-EU companies—to identify, prevent, mitigate, and account for adverse impacts in their supply chains.
There is a clear, but not entirely straightforward, contradiction here between security and sustainability. On the one hand, the CRMA clearly prioritizes supply chain security. It carefully mentions sustainability at every turn, but its main purpose is to expedite more mining. Of particular concern to environmentalists is the CRMA’s statement that mining projects with “overriding public interest” can essentially sidestep environmental safeguards.
On the other hand, this oversimplified dichotomy risks providing an excuse for a mining free-for-all in the name of “public interest.” Sustainability isn’t a top-down imposed constraint—the industry as a whole is heading in this direction. Sustainability is also part and parcel of security. If a supply chain depends on projects that put short-term profits ahead of sustainability, then it is not a secure supply chain. There are multiple examples in recent years of mining projects being disrupted or scrapped entirely due to public opposition.
Still, there is a balance to be struck between environmentalists who resolutely oppose all mining, and those who advocate getting minerals out of the ground at any cost in order to compete with China. In the final version of the CRMA, the EU raised recycling targets in response to criticism, but it hasn’t adequately addressed calls to reduce demand in CRMs. Ultimately, it is unjust and unsustainable that the EU consumes around 25 percent of the global CRM supply, yet represents 6 percent of the world’s population, and only 3 percent of production.
Who Gets the Best Deal?
The final text of the CRMA states that the EU should extract 10 percent, recycle 25 percent, and process 40 percent of its annual CRM needs by 2030 for 17 raw materials. This implies that 90 percent of extraction and 60 percent of processing will occur overseas even in the best-case scenario.
For this reason, strategic partnerships and free trade agreements feature prominently in the legislation as a means to secure the EU’s critical raw material supply. Already, the EU has signed critical raw material partnerships with Canada, Ukraine, Kazakhstan, Namibia, Argentina, Chile, Uzbekistan, the DRC, and Zambia.
According to the EU, these “strategic partnerships” will promote the economic development of producer countries “in a sustainable manner through value chain creation.” The EU puts a very strong emphasis on the “win-win” nature of the partnerships it seeks in the so-called Global South, but it remains to be seen whether or not this rhetoric will translate into action.
With critical raw materials becoming ever more essential to the global economy, some countries in the Global South have taken steps to break past patterns of “extractivism,” banning the export of raw, unprocessed materials abroad. Indonesia pioneered this approach a decade ago, and since then Tanzania, Ghana, Malaysia, Zimbabwe, and Namibia have followed with export bans of their own.
Richer, resource-importing countries have labeled these export bans and other moves to retain value as “resource nationalism,” and the EU filed a lawsuit against Indonesia’s export ban in 2019.
By claiming to engage partners at “eye level” the EU hopes to win over countries that are wary of Europe’s history of exploitation in the Global South. China invests deeply in its image as a post-colonial superpower, and EU rhetoric suggests it is aware of this competition. However, EU critical mineral policy is fundamentally about creating domestic green energy supply chains, and this reality is difficult to square with rhetoric about value creation in partner countries.
Even if the EU did allow minerals to be processed in-country, most of the value in the green supply chain is actually further upstream. Creating genuine value in the economies of partner countries would mean assembling batteries where minerals are mined, and this is unlikely to happen. The EU won’t want to build battery plants in the DRC anyway, but if they did, they’d have to convince investors first.
Moving the Private Sector
Chatter about policy tends to overlook the fact that what the EU decrees in legislation does not necessarily translate into reality. Just as with the Global Gateway—the EU’s answer to China’s Belt and Road Initiative—the CRMA seeks to develop European CRM supply chains without actually committing new funds.
Instead, the CRMA streamlines processes for new projects and hopes to incentivize the private sector to invest. But unlike the United States’ Inflation Reduction Act, which provides powerful tax incentives for companies that source domestically or among allies, the CRMA doesn’t provide much in the way of financial carrots.
If the market conditions existed to create resilient European supply chains, then they would already be in place. Unfortunately, private investment does not always align with national interests. Mining is a challenging sector for private investment—it is time and capital-intensive, and is plagued by price volatility and risk.
In fact, crashing lithium and cobalt prices—due to disappointing EV sales and a glut in supply—are stalling Western investments in new mines. Many Chinese companies are also feeling the pinch, but they benefit from much greater state support and possess the staying power to ride out and even double down on the low prices.
The story is by now a familiar one: The EU becomes concerned about China’s growing dominance, positions itself as a competitor, but then is unwilling to make the changes or pay the price of entering the race.
The CRMA signals that the EU considers the security of CRM supply chains a strategic priority, but it faces three big challenges. The first is balancing the security and sustainability of supply chains, the second is balancing its own economic interests with promises to partner countries, and the third is the biggest, most familiar problem—how can the EU manage to compete with China without sacrifice or serious investment?
