We live in a world of materials. Think about where you’ve been today. Every building, every path, every road – everything you’ve used. Now, consider that all of those things, from the steel and concrete holding up those buildings, to the tarmac and aggregate on the paths you’ve walked, the metal cutlery you’ve used to eat, everything, down to the computer you’re using now and the phone in your pocket – all use raw materials that are finite and have been (at least originally) mined. Now consider that some of these are from places and have uses that will make their supply in the future harder.
What are Critical Raw Materials?
Critical Raw Materials (CRM) can broadly be defined as any non-fuel mineral, element, substance, or material that has a high risk of supply chain disruption and serves an essential function in one or more energy technologies which cannot readily be provided by other materials. Critical Raw Materials have become especially important in the energy transition space and for clean energy technologies – for example, the increasing importance of lithium and cobalt for battery and energy storage technologies.
Why are some raw materials “critical”?
Criticality arises for these materials from the uneven and limited distribution of their supply and processing, as well as the fact that burden of extraction often lies disproportionately with developing nations (an example being cobalt extraction in the Democratic Republic of Congo) with their own inherent political, social and environmental risks, sensitivity and volatility. This has led to countries and economic blocs seeking to strengthen the production, processing, and recycling of strategic raw materials and to diversify supply chains for these materials.
The EU’s Critical Raw Materials Act (CRM Act) and the U.S.’s Inflation Reduction Act (IRA) both mandate or incentivise increased primary extraction and processing of critical raw materials within their respective territories.
What are the main components of the EU’s CRM Act?
The European Union’s Critical Raw Materials Act (CRM Act), which came into force in May 2024, establishes a framework to ensure that Europe has a secure and sustainable supply of critical raw materials. The legislation itself divides materials into two groups:
Critical Raw Materials (CRM), considered important for the European economy and which have a high risk of supply disruption.
Strategic Raw Materials (SRM), used in strategic sectors within Europe such as renewable energy, aerospace and defense and which are likely to face increased supply chain risks from scaling up of use in production.
The legislation also sets out targets with the objective of strengthening Europe’s critical raw materials supply chain, including:
- At least 10% of the EU’s annual consumption of SRMs must be from mining within EU countries.
- At least 40% of the processing of the annual consumption of SRMs must be within EU countries.
- At least 25% of the annual consumption of SRMs must be produced by recycling by EU countries.
- No single source third country should account for more than 65% of the supply of the EU’s annual consumption of an individual SRM.
How will the legislation help?
The legislation itself focuses on a number of key themes to enable these targets. These include streamlining the permitting process for any identified “strategic projects” in these areas and putting an upper limit of 27 months for permitting on such projects involving extraction within the European Union; requiring that every three years large companies using critical raw materials will conduct risk assessments of their raw materials supply chain. This is interlinked with other European directives such as the Corporate Sustainability Reporting Directive (CSRD) which includes within its guidelines requirements to report on the impacts of raw material usage on people and the environment.
Additionally, companies producing products involving these materials will have to further strengthen their footprinting and certification of products to align with CRM Act, this includes ensuring that common products using these materials (from green technologies such as wind turbines, EV vehicles, heat pumps and electric motors, to more domestic items such as microwaves and dishwashers) must adhere to a specified minimum share of certain raw materials by December 31, 2031.
What does the future hold for the CRM Act?
The effects of the CRM Act on companies operating within or accessing the European market will be wide ranging and strongly felt over the coming years. Moves are already being made by the EU to progress this agenda to secure and diversify supply of CRMs, underscored by the recent memorandum of understanding between the EU and Serbia (as a potential major source of lithium and boron) and the joint investment of up to €100 million with the European Bank for Reconstruction and Development (EBRD) to enable exploration for strategic and critical raw materials. Circularity also has a role to play, with incentivisation of scrap and better metal recovery to meet base case energy transition uses. However, analysis has shown that even with this baseline case and especially under an accelerated energy transition scenario this would require a huge policy shift, and societal change. As the demand for these materials increase and supply increasingly becomes interwoven with social, environmental and geopolitical concerns. Europe will have to grapple with ensuring that increasing domestic extraction and use of these materials does not negatively impact the local environment or communities. Companies should start to think about their supply chain knowledge and ultimately how much they know of where their materials come from.
For more information about how your company can incorporate the CRM Act email contact@greenheartbusiness.com
