It was recently reported that the German government is working on plans to establish a €2 billion state fund to support the mining of raw materials critical to the nation’s green transition. The initiative being shown by the German government supports the European Commission’s proposals under the Critical Raw Materials Act to secure the EU’s supply chain of raw materials. Meanwhile the UK government has updated its roadmap in its Critical Minerals Strategy. The following piece will examine the differences between the two plans. In addition, they are considered in the context of increased global environmental ambition, with particular attention paid to the US Inflation Reduction Act (IRA).
UK approach to critical raw materials
In March, the UK government published the Critical Minerals Strategy Refresh reinforcing the government’s commitment to its Critical Minerals Strategy that was originally published in July 2022. The strategy outlines the government’s initiatives to ensure the sustainable supply of critical raw minerals needed for the development and construction of renewable energy infrastructure and other technologies essential for the transition. The UK did not publish specific targets but outlined its A-C-E approach to secure the critical minerals supply chain and mitigate future vulnerabilities. The A-C-E approach includes:
- Accelerate growth of the UK’s domestic capabilities.
– The government will financially invest in domestic mining production and intends to improve the circular economy of critical minerals in the UK by increasing recovery, reuse and recycling rates.
- Collaborate with international partners.
– The aim is to diversify supply across the world to reduce risk and highly concentrated dependencies in the market.
– The government will support UK companies to participate in transparent and responsible overseas supply chains.
- Enhance international markets to make them more responsive, transparent, and responsible.
– Improve data and traceability capabilities to boost global, environmental, social and governance (ESG) performance.
EU approach to critical raw materials
On 16 March, the European Commission published its proposals for the Critical Raw Materials Act. The objective of the proposals is to establish a framework to ensure the EU’s access to a secure and sustainable supply of critical raw materials.
The proposal sets specific targets to achieve the ambition of the Act.
- Internal European Union extraction capacity for ores, minerals or concentrates is required to produce at least 10% of the Union’s annual consumption of strategic raw materials.
- EU processing capacity is able to produce at least 40% of the Union’s annual consumption of strategic raw materials.
- EU recycling capacity is able to produce at least 15% of the Union’s annual consumption of strategic raw materials.
- By 2030, not more than 65% of the EU’s annual consumption of each strategic raw material at any relevant stage of processing should originate in a single third country.
To achieve these targets, the proposals outline the following frameworks and instruments.
- It sets out a framework for strategic projects which will contribute towards the targets.
- These strategic projects will benefit from much shorter permitting procedures and Member States will need to designate one national competent authority as the one stop shop to facilitate and coordinate the permit-granting process.
- The EU will push for more strategic partnerships with third countries to ensure the security of supply.
- Provisions are included on how sustainability must be considered when devising and carrying out strategic projects.
- It establishes a European Critical Raw Materials Board which is tasked with overseeing the delivery of the targets.
- Finally, the Act will compel Member States to collect information and provide data on the stock levels of critical raw materials. There are details on the coordination, stress testing and joint purchasing.
Funding the CRMA
The European Commission’s proposals provide Member States with the targets and framework to secure the bloc’s raw materials supply chains. The funding of these projects and actions will fall to national governments under the current plans and stakeholders are already calling for funding to be provided from the European level. Nevertheless, the Commission was not able to provide a funding pot for the moment. Some countries are already getting started on addressing this financial need.
The German government is taking the initiative to bring the intent of the CRMA to life. It has been recently reported that the German government plans to establish a state fund worth up to €2 billion that will support mining of raw materials critical to the nation’s green transition. We can expect other governments to follow suit and begin devising plans to commit funding to raw materials and the delivery of the CRMA. This comes amid a relaxation of the state aid rules at European level which were known to be very stringent.
With this in mind, market players should engage with senior decision-makers in national governments on the plans. In some cases, state aid rules may need to be amended. There is an opportunity to show the industry support on this initiative with government officials and how Member States will benefit.
A major concern for the industry is if the UK and EU take on divergent strategies and fail to align their approach to securing the critical raw minerals (CRM) supply chain. As outlined above, the EU is ahead of the UK in terms of setting specific targets and establishing governance frameworks. Whilst Brexit has imposed trade barriers on companies to access the UK and European markets; the CRM supply chain is highly integrated and each region has specialised operations needed to jointly address the complex challenges impacting the supply chain. It would be beneficial for each region and the industry if the EU and UK used a centralised approach for incentivising domestic production and engaging with international partners.
As a key effort, the UK and the EU both want to implement diversification strategies to reduce each region’s reliance on China or Indonesia. China overwhelmingly controls critical mineral supply chains, processing nearly 60 per cent of the EU’s supply of lithium for example. It is also the biggest producer of 12 out of 18 minerals on the UK’s critical list. This control in one single country is extremely risky as it creates geopolitical risks and economic vulnerabilities that must be addressed. Both the UK and EU want to invest and develop their domestic production and capabilities. Nevertheless, it remains to be seen how far the EU and UK will go to coordinate their decoupling from China.
Companies should continue to review their own critical raw minerals supply chains to identify any geopolitical exposures. It is also imperative that companies, alongside the government, identify alternative suppliers or buyers that would be available in the event of future geopolitical conflict.
Common western standards
The U.S., EU and UK are likely to attempt to increasingly coordinate their approach to ESG in raw material supply chains. China has a long way to go in improving its environmental record. Shared standards will unite the West while it tries to reduce its dependence on China. Market players should advocate a common approach to national governments. The unity will facilitate a more robust and independent raw material supply chain.
Transatlantic subsidy race
Under the IRA, electric vehicles (EVs) and batteries produced in North America (including Mexico and Canada) may qualify for significant tax breaks. Partial tax breaks are also available for EVs with batteries utilising raw minerals extracted or processed in third countries with which the U.S. has a free trade agreement (FTA).
EU companies can benefit from the Commercial Clean Vehicle Credit scheme under the IRA. It will not require changes to established or foreseen business models of EU producers. This will strengthen EU-U.S. cooperation.
European Commission President Ursula von de Leyen and US President Joe Biden recently released a joint statement agreeing to forge ahead with a trade pact to ensure that minerals extracted and processed in the EU would count for clean vehicle tax credits under the IRA. Negotiations between the two parties are ongoing.
The European Commission recently unveiled its response to the IRA, called the Green Deal Industrial Plan. It is based on four pillars: less red tape, skills, trade and funding. The significant new measure with regard to funding is the elongation and growth of the relaxation of state aid rules until end-2025. It is called the “Temporary Crisis and Transition Framework” and gives EU members more flexibility in supporting their domestic industries. For companies, this opens up the prospect of a cross-Atlantic bidding game between governments to lure factories to their shores.
The UK will not mimic the IRA. This is in recognition of the reality that the suite of subsidies launched by the U.S. and its marketplace is far more attractive for global companies. The UK plans to unveil its full response to the IRA in the autumn but is currently in discussions about potential carve-outs for UK businesses. Instead of going “toe-to-toe” on the subsidy race, the UK plans to focus on public funding in areas where the region has a competitive advantage. Market players should continue to engage UK stakeholders on the plans for green subsidies/public funding as government officials continue to draft their response and work with their U.S./EU counterparts.
- The UK government is planning to publish an update on its CRM strategy in 2024 to report on its progress, highlight developments, and outline next steps.
- The UK government has launched an independent Task & Finish Group on Critical Minerals Resilience for UK industry to investigate the UK’s critical mineral dependencies and vulnerabilities across industry sectors. The group is composed of leading industry experts who were appointed by, and will directly report to, the Minister of Industry and Investment Security. The group is expected to release its findings by the end of the year.
- The feedback consultation period for the EU Critical Raw Materials Act is open until 14 June 2023.
- The Industry, Research and Energy Committee (ITRE) is responsible for the file in the European Parliament. German Member of the European Parliament Nicola Beer from the liberal Renew Group has been appointed as Rapporteur. The Shadow Rapporteurs are Hildegarde Bentele for the European People’s Party, Mohammed Chahim for the Socialists & Democrats and Henrike Hahn for the Greens/European Free Alliance. The ITRE Committee has already started working on its report with a very tight deadline set for amendments on 25 May.
Full article written by Liz Rockett, Donal Sheehan, Eamonn Lawler and Sergiu Scolobiuc.
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