The Race For Critical Raw Material Self-sufficiency

A secure supply of critical raw materials (CRMs) is essential for the stability of entire economic value chains. These CRMs have a wide range of commercial and military applications, extending well beyond renewable energies. They are crucial in everything from mobile phones and computer hard drives, to batteries for electric vehicles, as well as precision-guided missiles and high-tech ammunition.

China is the world’s largest producer of lithium batteries for electric mobility and commands a 60 percent share of the global electric vehicle (EV) market. By strategically dominating the mining, metallurgy and material science sectors – often referred to as the “three Ms” – China dominates much of the world’s clean-tech supply chains.

In contrast to China, the European Union and the United States are heavily dependent on imports of CRMs from abroad, and thus on international commodity markets and access to foreign mines. Currently, China accounts for 98 percent of the EU’s supply of rare earth elements (REEs) and around 60 percent of its CRMs. 

Rising demand for critical raw materials

In 2017, a World Bank study explicitly warned that the global energy transition and climate protection policies would demand significantly greater use of CRMs than previously forecasted. This was confirmed by the United Nations Environment Programme, which stated that achieving the 2-degree Celsius target of global climate protection policy would require approximately 600 million tons more metallic raw materials than a 6-degree Celsius scenario by 2050.

The International Energy Agency has forecasted that global demand for CRMs could increase up to 40 times between 2020 and 2040. Specifically, for rare earths used in magnets, demand may increase fivefold by 2040. To achieve net-zero emissions targets, the world might need as much new copper as has been produced in all recorded history.

Although there are generally no severe geological shortages of CRMs, concrete challenges in extraction, processing or recycling arise due to numerous factors. These include instability in producing countries, restrictive environmental regulations, poor governance and resource nationalism at a time when the global demand and access to a stable supply of CRMs will further intensify in the next decades. 

Mining projects and plants in the U.S. and the EU often face rocketing investment needs and budget overruns, leading to delays, missed production targets and insufficient commercial profitability. These projects must also contend with the challenge of competing against low, subsidized Chinese prices. Any goods made using critical materials sourced in North America or Europe inevitably see an increase in the cost of the final products, whether in renewable energy sectors or in manufacturing high-tech weaponry. 

For example, rare earth magnets in the U.S. are about 50 percent more expensive than their Chinese counterparts. Moreover, even new reprocessing initiatives by American or European companies depend on Chinese technology, to which Beijing can restrict access. Indeed, last year, China banned exports of rare earth processing technology.

Efforts to enhance supply security

It was not until 2017 that the European Commission, along with member states including Germany, began to lay out industrial strategies to address the challenges of raw material supplies for electromobility and to start construction of newly planned battery gigafactories. Currently, the 27 EU countries can only produce 9 percent of the bloc’s critical raw material needs. 

In 2020, Europe accounted for just 5 percent of global mining, making it the only region in the world where the industry is declining. Global demand for lithium is expected to increase eighteenfold by 2030, while demand for REEs and cobalt could rise tenfold and fifteenfold respectively by 2030, and cobalt even sixtyfold by 2050. 

In 2010, the EU and Germany introduced a “three-pillar strategy” for their raw materials policy, focusing on utilizing domestic raw materials, importing primary raw materials that are not available in Germany, and reducing dependence on primary materials through recycling, substitution and resource efficiency. Concerns about the EU’s raw material supply security are mirrored in the commission’s evolving list of CRMs, which has steadily expanded from 14 items in 2011 to 34 in 2023. 

Still waiting for peak coal

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In March 2022, the EU launched the Critical Raw Materials Act (CRMA), addressing numerous challenges in securing raw material supplies and setting broad objectives to enhance self-sufficiency by 2030. Goals include increasing the EU’s raw material extraction to at least 10 percent of its annual consumption, boosting processing capacity to 40 percent (a significant rise from the previous 0-20 percent), ensuring 15 percent of consumption through recycling, and limiting imports of any strategic raw material from a single third country to a maximum of 65 percent of annual consumption.

The CRMA also aims to reduce administrative burdens and shorten permitting procedures for CRM projects in the EU, while still ensuring a high level of social and environmental protection. Selected strategic projects will receive financial support (as in Spain, Portugal, Serbia, Sweden and Norway) and provide shorter approval periods (24 months for promotional projects and 12 months for processing and recycling projects).

Like the EU, the U.S. has supported domestic mining and similar initiatives in other G7 countries with democratic, market-based economies. The Mountain Pass mine in California, once the world’s largest rare earth mine, resumed operations in 2012 and now contributes 15 percent to global rare earth production.

Over the past four years, the Pentagon has invested approximately $1 billion in global rare earth projects through its Defense Production Act. Additionally, the National Defense Stockpile program maintains CRM inventories in preparation for potential conflicts with China or Russia. The Minerals Security Partnership (MSP) enhances cooperation, information exchange and joint financing for stable CRM supplies among the U.S., EU and 13 other countries. 

The U.S. Inflation Reduction Act (IRA) and the CHIPS & Science Act also promote domestic and friendshoring projects of more resilient supply chains for CRMs. The IRA and the Foreign Entity of Concern (FEOC) rules promote cooperation with partners to reduce their dependence on China. The FEOC rules mandate that to qualify for IRA tax credits, Chinese state-owned companies must not control more than 25 percent of a given operation in a non-FEOC country.

Source: GIS