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Commission President Ursula von der Leyen announced a new legislative proposal, the Critical Raw Material Act, to tackle the evolving dependency on China when it comes to raw materials and ensure more resilient supply chains.
The proposal was announced as part of von der Leyen’s annual State of the Union address on Wednesday (14 September).
While the Commission already noted on several occasions that it is working on a legislative proposal to boost autonomy and resilience in the area of raw materials, it is the first time that the main pillars of the new approach were outlined.
“We must avoid becoming dependent again, as we did with oil and gas. […] We will identify strategic projects all along the supply chain, from extraction to refining, from processing to recycling. And we will build up strategic reserves where supply is at risk. This is why today I am announcing a European Critical Raw Materials Act,” she added.
Chinese dependency
While von der Leyen did not mention China directly in her speech, the message was clear. “The not-so-good news is – one country dominates the market,” she said.
Many of the raw materials that the European Commission deems critical are primarily mined in China. This holds especially true for rare earths, where the supply risk is considered by the Commission to be the highest.
Around 90 % of these rare earth metals are currently mined by China – rendering the EU largely dependent on the Asian giant regarding this essential resource.
“Lithium and rare earths will soon be more important than oil and gas,“ von der Leyen emphasised.
Due to the green and digital transition, the demand for critical raw materials is expected to rise dramatically. According to the Commission, demand will increase by 500% by 2030. Other projections by the World Bank suggest that the global demand will also increase 5-fold by 2050.
Tackling dependencies
Some of the measures, aimed at tackling existing dependencies and ensuring diversification of supply chains, will be modelled after a legislative proposal that dealt with similar problems: the Chips Act, which seeks to boost semiconductor production capacities for the EU.
“We now need to replicate [the Chips Act’s] success,” von der Leyen said.
This could entail the relaxation of some of the state aid rules under its main subsidy scheme, the Important Projects of Common European Interests (IPCEI), to increase investment in the mining sector – something that has already been proposed for the Chips Act.
To boost investment, von der Leyen also announced an increase in the financial participation of the IPCEI and the creation of a new European Sovereignty Fund.
However, the upcoming Critical Raw Material Act will not only deal with securing supplies. It also aims to lessen the dependency on China when it comes to refining raw materials.
One case in point is lithium, which is a key component of batteries and thus essential for the green transition. While only around 9% of the world’s lithium is mined in China, around 60% is refined there, leaving the EU largely dependent on China even in areas where there is a multitude of suppliers of the raw material itself.
“We will identify strategic projects all along the supply chain, from extraction to refining, from processing to recycling. And we will build up strategic reserves where supply is at risk,” von der Leyen stated.
Securing supply chains through trade
Another pillar of the Commission’s approach to secure supply chains is through means of trade with like-minded democracies like Chile, Mexico, New Zealand, Australia and India.
This emphasis on diversification of supply chains instead of pushing for a more protectionist approach was especially welcomed by experts.
“I find it telling that von der Leyen placed a strong emphasis on the role of trade relationships and expanding the portfolio of strategic partnerships,” André Wolf, divisional head at the Centre for European Policy, told EURACTIV.
“This could perhaps be interpreted as an indication that the Commission is moving a bit away from the idea of renationalising the commodity sector as a risk hedging tool,” he said.
