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EU’s Initiative to Curtail Dependency: Critical Raw Materials Act Aims for Reduction

Rare earths, lithium and other raw materials are of enormous importance for future technologies. The demand for such “critical raw materials” will continue to increase in the future. However, the European Union has so far almost only been able to import them and is dependent on individual countries such as China. A regulation, the Critical Raw Materials Act (“CRMA”), is intended to increase and diversify the supply of critical and strategic raw materials, strengthen recycling and reduce dependence on individual supplier countries.

The main requirements of the CRMA are aimed at the member states, but companies are also subject to certain requirements. The European Parliament formally adopted the proposed regulation on December 12 last year and the European Council is expected to approve it in March this year, meaning that the regulation could come into force as early as April.

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Critical raw materials are very important for the manufacture of various products, such as electric vehicles or solar panels. Demand will increase significantly in the coming years due to the global transition to renewable energies and digitalization. The European Union is exclusively dependent on imports for many critical raw materials. The COVID-19 crisis and the energy crisis triggered by the Russian war of aggression against Ukraine illustrate the European Union’s structural dependence on imports. The suppliers of these imports are generally a small number of third countries, both for the extraction and processing of raw materials.

To improve this situation, on March 16, 2023, the European Commission presented a proposal for a Regulation establishing a framework for ensuring a secure and sustainable supply of critical raw materials. The aim is to use the CRMA to free themselves from this dependency for the future or to significantly reduce it so that these countries cannot exploit their strong position as suppliers, for example through export restrictions. The European Parliament and the Council of the European Union were able to agree on a final text for the proposed regulation on November 13, 2023. The proposal was formally adopted by the European Parliament on December 12, 2023.

Central to the Proposal is the aspiration that by 2030, EU capacity in respect of each strategic raw material should approach or reach the following benchmarks:

At least 10% of the European Union’s annual consumption should come from EU extraction

At least 40% of the European Union’s annual consumption should come from EU processing

At least 25% of the European Union’s annual consumption should come from domestic recycling

No more than 65% of the European Union’s annual consumption of each strategically important raw material at each relevant stage of processing may originate from a single third country

These are not enforceable target percentages vis-à-vis individual Member States or companies. The targets are to be addressed by the European Union by strengthening strategic projects to increase EU capacities.

Fast permit granting process for strategic projects

To ensure that the development of these strategic projects can be driven forward, the CRMA includes fast and simplified permit granting process for them. The member states should ensure that the specified deadlines are not exceeded. To this end, a single national contact point should be created, which does not necessarily have to be an authority but should be adequately staffed and resourced. The duration of the permit for strategic projects should not exceed 27 months for strategic projects in the extraction sector and 15 months for strategic projects relating exclusively to processing or recycling.

Significance for companies

The main requirements of the CRMA are directed at the member states. Nevertheless, companies also have to comply with certain requirements. To name just a few important examples:

Large companies that use strategic raw materials to manufacture batteries for energy storage and electromobility, equipment related to hydrogen production and utilisation, equipment related to renewable energy generation, aircrafts, traction motors, heat pumps, data transmission and storage, mobile electronic devices, equipment related to additive manufacturing, robotics, rocket launchers, satellites or advanced chips must carry out a risk assessment of the supply chain for strategic raw materials every three years. The risk assessment must include a mapping of where the strategic raw materials used by the company are extracted, processed or recycled, an analysis of the factors that may impact their supply of strategic raw materials and an assessment of their vulnerabilities to supply disruptions.

If a company is considered as a “key market operator” along the supply chain for critical raw materials, which is particularly the case if their reliable functioning is essential for the supply of critical raw materials, the company may have to participate in regular and appropriate surveys of Member States. However, key market participants may refuse to provide the data requested in these surveys if the disclosure of such data would lead to the disclosure of business and trade secrets.

Next steps

The approval of the European Council is still pending and is expected in March of this year.

 

Source: JD SUPRA

 

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