The regulatory initiatives compared by the European Commission, the United States and the United Kingdom regarding the security of supply of Essential Raw Materials

  circular economy | October 14, 2022

---

hfw  

In her 2022 State of the Union address, European Commission President Ursula von der Leyen announced a proposal for a European law on critical raw materials. He described critical raw materials, such as lithium and rare earth elements, as crucial to Europe's future, saying they "are already replacing gas and oil at the heart of our economy." The law aims to prevent Europe "from falling into the same dependence (on a small number of suppliers) as with oil and gas". This will be possible by addressing all stages of the raw materials supply chain and increasing resilience along its entire length.

The EU is not alone in placing increased focus on critical raw materials. Less than two months after taking office, America's President Biden signed an executive order launching a review of supply chains for critical products, including critical minerals, computer chips and batteries. More recently, in July 2022, the UK also published its first Critical Minerals Strategy.

So what are the reasons behind this focus on critical raw materials and what are governments trying to achieve?

What are Critical Raw Materials?

Critical raw materials are minerals of significant industrial and technological importance, but whose supply is limited. The law identifies about 30 key minerals, including lithium, cobalt, platinum, tungsten and rare earth elements. Demand for these minerals is expected to skyrocket in the years to come: for example, demand for lithium in the EU is expected to increase 60-fold by 2050, while demand for rare earths will increase five-fold by the end of the decade.

The reason is that these minerals are essential for the production of everything from computer chips and electronic components, to wind turbines and solar panels, up to batteries for electric vehicles and even in the creation of electrolysers (presented as indispensable in order not to depend on third countries in the supply of energy declared clean, and instead it would seem that they activate scenarios of new dependencies on third countries as reported by the Court of Auditors of the EU). As the world shifts away from fossil fuels and towards cleaner energy sources, the demand for essential minerals will increase massively. In fact, without them, "there is no green transition, no internet, no nano medical research, no advanced weaponry, basically no technical solution to our planetary problems", we just need to have courage in choosing what would truly do the good of the world .

However, the supply chain of critical raw materials faces several challenges.

What are the challenges?

First, these minerals are not found in abundance, are difficult to extract, or both. They can also be by-products or co-products of other more commonly extracted raw materials. This leads to a disconnect between supply and demand for minerals.

Second, as discussed, demand is growing rapidly, which has led to significant price volatility. For example, lithium prices rose 400% in the year to May 2022.

Third, these minerals are concentrated geographically. Around half of the world's cobalt supply is found in the Democratic Republic of Congo alone, South Africa has around 40% of the world's manganese, while lithium is heavily concentrated in Chile, Argentina and Australia. However, when it comes to mining and processing, China dominates the world market, with nearly 90% of rare earth elements processed there. However, this was not always the case. Until the 1980s, the United States had a virtual monopoly on the world's supplies of rare earths, from a single mine in the Mojave Desert called Mountain Pass. Since then, the Chinese government has provided significant investments and subsidies to domestic manufacturers, which has gradually driven most other manufacturers out of the market. This gives a state enormous power over the world trade in these minerals, which it is not afraid to use. Between 2005 and 2012, China implemented export quotas and taxes on rare earth elements, which led to significant market distortions and price volatility. As essential minerals become increasingly important, the consequences of further similar action by China become much more serious.

Finally, there are often no alternatives to the use of critical minerals. Electric vehicle batteries, for example, require a precise combination of materials to achieve optimal performance and economic viability. While in the long term, replacement may become possible as technology advances, it currently is not.

As the world looks to achieve net-zero emissions, governments are recognizing the importance of ensuring stable supplies of essential minerals. This is leading to increased regulatory attention on the sector and new government strategies.

The EU strategy

The act proposed by Ms von der Leyen is at the heart of the EU's strategy on essential raw materials, and the Commission considers it crucial to Europe's ambition to become the first climate-neutral continent. The strategy recognizes that ensuring access to stable supplies of these minerals cannot be guaranteed by trade diversification alone and that a holistic approach is required.

The EU strategy pursues four objectives:

1) focus on strategic applications of critical raw materials;

2) create a network of European agencies;

3) create a more resilient supply chain;

4) create a level and sustainable playing field.

Regarding the first objective, the law will provide “a shared understanding of which critical raw materials can be considered particularly strategic”, taking into account the energy transition and defense needs. The hope is that this will provide a clear signal to the private sector on priority investment and development needs.

Secondly, a European network will increase resilience and allow us to anticipate and respond to supply chain disruptions.

Third, projects across the supply chain will be targeted to support, covering extraction, refining, processing and recycling. The focus on the entire supply chain is particularly important, as Europe itself only has very small reserves of critical raw materials. The EU sees increased investment in recycling as a key part of ensuring a future supply for the continent's needs. Such projects could also benefit from a simplified approval process and easier access to financing.

Finally, strategic reserves will be built up to mitigate market instability, so that EU countries share the benefits equally.

The Commission has launched a public consultation on its plans, allowing individuals and organizations to comment on the challenges faced in ensuring stable supplies of essential raw materials, the EU policies adopted so far in this area and how these can be improved .

The strategy of the United States

Meanwhile, the United States has launched the Minerals Security Partnership (MSP), an initiative to develop supply chains. Similar to the EU act, it will target the entire supply chain, from production and processing to recycling, and is made up of a group of industrialized Western economies: Australia, Canada, Finland, France, Germany, Japan, Korea South, Norway, Sweden, UK, US and EU. MSP focuses on ensuring that critical mineral supply chains operate in a way that supports the realization of the economic potential of mineral resources. Similar to EU efforts, it aims to use public investments as a signaling tool to the market.

The MSP held its first meeting in New York in September 2022, during the opening of the United Nations General Assembly. Attended by mineral-rich countries in South America, Africa and Asia, the meeting considered potential new projects of interest to MSP members.

The US is also looking to regain its former strength particularly in the rare earths sector, with the Department of Defense providing funding for the reopening and expansion of the old Mountain Pass mine, clearly with security considerations in mind national.

The UK strategy

In July 2022, after many years of the absence of a government strategy in this area, the UK published its first policy document on critical minerals. As is the case with the EU and US, this is due to growing recognition that supplies of critical minerals will be essential to the UK's automotive and battery industries.

Where the EU strategy is more focused on efforts in Europe, the UK strategy takes a more international approach to the issue. The UK strategy can be divided into three pillars:

1) accelerate the UK's national capabilities;

2) collaborate with international partners;

3) strengthen international markets.

In the first point, the UK strategy aims to maximize the extraction of domestic deposits. The world's fourth largest tungsten reserve is located in Devon, although several recent attempts to reopen the mine have run into difficulties. There are also lithium reserves in Cornwall and it is hoped that lithium can be economically extracted from underground brine reserves. Apart from this, however, the UK is poor in critical minerals. For this reason, the UK strategy also seeks to develop a circular economy in critical minerals, improving resource efficiency and recycling. Currently, the UK exports the majority of its waste containing critical minerals. By increasing national recycling capacity, a new secondary source of critical minerals could be developed. This will also include research and development in extraction and recycling technology.

In the second point, the UK will look to diversify its supply and therefore increase its resilience. The importance of diversification has been highlighted recently in the nickel sector. While it is not a critical mineral, as it is more abundant in terms of supply, it is still an important component of stainless steel and batteries. Russia is the world's third-largest nickel producer and Western buyers have been looking for alternatives after the situation with Ukraine. This, along with other factors, caused nickel prices to spike, ultimately forcing the London Metals Exchange to suspend nickel trading for over a week in March 2022. This incident is the subject of an investigation by the Bank of England and the Financial Conduct Authority, as well as multiple lawsuits by traders and funds. However, the diversification of the UK's sources of critical minerals relies on the availability of sufficient alternative sources.

This is what the third point aims to achieve. The UK government wants to build on London's existing expertise as the home of the London Metals Exchange to become the world center for critical minerals financing. This will be done by improving the functioning of markets and opening up new sources of minerals around the world, thus reducing China's dominance.

Conclusions

It is clear that in capitals around the world the focus is shifting to how countries can secure supplies of essential minerals for use in cutting-edge technology and the energy transition. Above all, governments are eager to avoid falling into the same dependency trap that happened with oil and gas in the 20th and first two decades of the 21st century. This attention is timely, given the expected explosion in demand for essential raw materials in the coming decades. These latest developments in strategy in the EU, US, UK and other Westernized nations, and the policies that will result from them, look set to open up a number of new business opportunities in this area, from domestic recycling and processing , the financing and management of extraction projects abroad. It is necessary to choose more advantageous solutions that move away from dependencies on third countries (whatever they may be) and aim to re-evaluate the territories precisely with the potential that they possess. Among the various technologies currently in the field, the innovative HPP available to government institutions is potentially capable of recovering lost Critical Raw Materials, a strategic technology for policies that want the true development of their territories, a technology that responds to the requests of the Circular Economy in compliance with current regulations and the needs of the world always in continuous search for energy clean with zero impact.