Informal Meeting of Ministers for Industry and for the Internal Market, 31 January – 1 February 2022
Europe has significant mineral resources and important know-how. At the same time, it may find itself in situations of dependencies affecting, in the short term, its production continuities and, in the longer term, the capacity of its industry to achieve its dual digital and green transition. It must also ensure compliance with its environmental and social standards in the area of raw materials. The instruments available to the Union to meet these needs include (i) securing external supplies, (ii) recycling, innovation, and efforts to reduce consumption, and (iii) the development of domestic production. This workshop focuses on this third lever.
The European Union cannot claim to secure all raw materials essential to its future on its territory due to projects’ economic viability or geological reserves. It could, however, where possible, develop raw materials key for its industry on its territory, and start doing so now, as a mining project can take up to 15 years to develop.Recent efforts will lead to a significant increase in European capacity in key raw materials: the opening of four lithium mines planned by 2025 should for instance cover a substantial part or even the majority of needs for this material essential to the production of electric vehicle batteries.[1]. However, more could be done to support domestic raw material projects. Rare earths, for example, are not so rare: the European Raw Materials Alliance (ERMA) estimates that we can develop projects that would cover 20% of our domestic needs for these materials by 2030, based on available European reserves.
This support can be financial, such as investment support (CAPEX) – in particular via existing state aid schemes -, through EIB loans, or through public procurement. ERMA also proposes new instruments, in particular the creation of a Raw Materials Bridge Fund to reduce project risks and support SMEs in the sector, or the deployment of a Major Project of Common European Interest (IPCEI) in raw materials. Europe must also create market conditions to encourage these productions and develop adequate prospects for them, in particular by promoting their social and environmental qualities. The social acceptability of extraction remains a sensitive issue, resulting in particularly long project approval procedures. However, this risk can be transformed into an opportunity, as compliance with high social and environmental standards is a comparative advantage of European mining products compared to third country production. This implies that the Union must reaffirm its high standards for raw materials and render them accessible to its citizens and investors.
This workshop should allow Ministers to answer the following questions:
– What objectives should the European Union set itself for development of its capacities in raw materials? What can be done to strengthen framework conditions for the development of these capacities?
– Should specific projects (Raw Materials Investment Vehicle, raw materials IPCEI …) be explored beyond those already deployed? How can we create an ecosystem favorable to the private financing of these projects and the necessary skills to implement them?
– What actions can be designed to enhance the acceptability of extractive projects in Europe?
Ministers will benefit during their discussions from a case study delivered by Wolfram. The company operates an exemplary tungsten mine in a protected natural area in the Mittersill region (Austria): this project demonstrates that it is possible to develop European mining resources while respecting the environment and related economic activities such as tourism.
Ensuring the economic viability of projects
A reflection on the production of raw materials in Europe must first ask itself what are its objectives: should European action aim to secure certain entire supply chains or should it focus on reducing the risks associated with bottlenecks? In the first case, and for certain value chains, the purpose of such an endeavour may be the development of integrated chains within the EU. In the second case, more flexible strategies are possible: the Union may, for example, want to position itself in a key segment and leave certain downstream operations to be carried out outside Europe.
In order to answer these questions, it is important to first identify the criticality of each raw material and the real European production and extraction capabilities. The critical raw materials list updated by the Commission in September 2020 is a solid basis for work, as are the results of its strategic dependence analysis of May 2021 identifying 44 raw materials and their first transformations as vulnerable.[3]. The identification of sensitive technologies relating to critical raw materials that we might want to control better must also be carried out: the future Observatory of Critical Technologies [4] could study this subject and, if necessary, provide food for thought on the filtering of Foreign Direct Investment (FDI) in this area.
Europe does not necessarily lack reserves of raw materials, but they have not all necessarily been identified: support for mining exploration is a key tool to have the best vision of available European resources. The European Union currently accounts for only 3% of global mining exploration expenditure, while consuming 25 to 30% of the materials produced worldwide.[5]. Action 7 of the European Raw Materials Action Plan, which provides for the deployment of Earth observation and remote sensing programs for resource exploration, will be useful in this area.[6]. The diagnosis that we can share on our vulnerabilities must also cover the first transformation phases of a product. They are for the most part located in Asia today: the absence of European capacities in these segments makes us dependent on supply disruptions even when European extraction sites exist. Thus, within the list of 30 raw materials identified as critical by the Commission, vulnerability concerns extraction for 13 of them, but transformation for 17 of them, such as lithium, rare earths, niobium, or magnesium.[7]
ERMA identifies project “pipelines” within two clusters, for rare earth elements-based magnets and motors on the one hand, and energy storage and conversion on the other. Do these clusters cover all the exposed sectors? The question of whether aerospace and defense industry-related raw materials, as well as other metals that cut across the industry such as magnesium and tungsten, should be integrated into the scope of the work underway, could be raised. DG GROW has also launched a high-level working group on magnesium at the end of 2021 with Member States that have capacities or know-how in this field, with the aim of achieving 15% of world production capacity by 2030.
Once projects have been identified, instruments must be made available or developed to allow for their financing. A first lever for action remains support for investment (CAPEX) in raw materials projects. Some projects, particularly those with an environmental and R&D focus, can be supported under existing state aid schemes. Loans from the European Investment Bank (EIB) can also support the launch of mining projects. ERMA, in its Rare Earth Action Plan, also proposes two investment instruments: [8]
– A Raw Materials Bridge Fund, an instrument designed to guarantee and reduce the risk of projects with up to 150 to 200 million euros of funding per year. Issued in the form of loans, shares or mixed formulas, this instrument would support the development of SMEs in the raw materials sector.
– The deployment of an Important Project of Common European Interest (IPCEI) in raw materials. An instrument allowing significant support for industrial projects until their first deployment, the IPCEI also has the advantage of structuring all the projects it finances within a pan-European dimension. Its deployment is conditioned by a set of criteria (highly innovative nature of projects, deployment in response to market failures, positive externalities for the entire Union, etc.), making it necessary to study its relevance in relation to other available instruments.
Before considering direct support for projects, it is essential to ensure that conditions exist to encourage productions involved. In this respect, we can note the strong interventionism of certain third countries: for example, strategies of “resource nationalism” with export quotas in India, tax subsidy projects and preferential public procurement rules in the United States, the use of asymmetrical VAT rules in China to encourage local processing, or coordination of procurement with companies in Japan or Korea. The EU and its Member States can likewise reflect on the various public policies at its disposal such as tax incentives or criteria for public procurement, particularly for strategic goods.
The sustainability of European raw materials production, more broadly speaking, depends on appropriate framework conditions to ensure the development of the European market. The highest level of European environmental and social standards can be a source of comparative advantage for European projects and would benefit from being made more accessible to investors and citizens alike. Reaffirming and communicating European social, environmental and democratic principles applicable to the production of critical raw materials
The social and societal acceptability of raw material extraction is a key issue in the development of European capacities in this field: it is identified as the number one risk by Ernst&Young in the development of the mining sector.[9]. The INFACT project financed by Horizon 2020 gathered 3,000 responses from three European countries on the population’s perception of mining projects: while perceptions are generally positive about mining activity and its economic benefits, they are ambivalent about its impact on local communities and strongly negative about its environmental externalities.[10].
The sensitivity of this issue results in particularly long licensing and approval procedures for mining projects, or even their cancellation. It is therefore imperative for the Union to seek to improve confidence in mining projects within its territory and, more broadly, to transform this “risk” into an advantage by promoting the qualities of the products associated with them. It can do this by demonstrating and promoting the high level of European standards, beginning with its environmental democracy principles.
Indeed, the EU has strong environmental democracy principles, resulting in particular from the adherence of all Member States to the Aarhus Convention that ensures the right to information, public participation, and access to justice in environmental matters. These requirements are based on a high level of quality of environmental impact studies that are publicly accessible.[11] Few extractive sites outside Europe meet this level of transparency.
Ensuring that raw materials produced in compliance with EU environmental and social standards can find their way to the market is key to enhancing the social acceptability of mining projects: indeed, a study conducted by the Swedish government with 6,000 respondents in six countries determined that the origin of the raw materials in a product was the least influential factor in the purchase decision.[12] Uptake of durability requirements applicable to extra-European supply can be sought to this end. Exchanges could be based on the “European Union Principles for Sustainable Raw Materials” established by the Commission,[13] in order to be able to compare compliance with standards of transparency, the rule of law, and fundamental rights between different sources of supply.
Ongoing work on sustainable finance could also support the strengthening of the social acceptability of mining projects. The establishment of criteria for judging the sustainability of mining activities financed in Europe, by opening up the possibility of improved financing conditions for businesses that meet them, could indeed usefully support the development of sustainable mining products: they could also contribute to investors’ awareness of the challenges of extraction, of the necessity of this activity, and of the efforts undertaken to strengthen its sustainability.
Finally, a balance must be found between the fluidity of approval and development processes for mining projects on the one hand, and the imperatives of transparency, democratic involvement, and economic and social benefits on the other. The promotion of existing best practices, in order to strengthen emulation between operators, can contribute to this objective. Two levers for action can also be identified:
– The creation of standardized stakeholder consultation processes. These processes can include independent parties, which can include scientific boards ensuring the environmental, economic and social sustainability of the mining projects submitted.
– Strengthening communication, especially to local communities, around mining projects, showing the needs of the economy and the sustainable
1.Report on a European Strategy for Critical Raw Materials2. EIT Raw Materials: Rare Earths Magnets and Motors: A European Call for Action
3. Of the 137 vulnerable products identified by the Commission, 44 concern raw materials or their first transformations, including intermediate products such as steel and aluminum. This list includes, for example, antimony, cobalt and cadmium, all of which are used in the manufacture of batteries; chromium, which is mainly used in metallurgy; and copper, which has many applications, particularly in electronics.4. European Commission, Action Plan on synergies between civil, defence and space industries, COM (2021) 70 Final5. Hinde, C. and Farooki M. (2018), Strategic Dialogue on Sustainable Raw Materials for Europe (STRADE) – Promoting Investor Interest in the EU Mining Sector.6. Critical Raw Materials Resilience: Charting a Greater Path towards sustainability and durability- COM (2020) 474 Final7. Critical Raw Materials For Strategic Technologies and Sectors in the EU- A Foresight Study
8. EIT Raw Materials: Rare Earths Magnets and Motors: A European Call for Action9.https://www.ey.com/en_gl/mining-metals/10-business-risks-facing-mining-and-metals 10.https://www.infactproject.eu/wp-content/uploads/2018/06/INF_ATC_D_2.3.Reputation-report_01.pdf11. Joint Research Centre, A review of European Union legal provisions on the environmental impact assessment of non-energy minerals extraction projects, 2021 12.https://www.tillvaxtanalys.se/download/18.6f15c8d16854162f48d7bef/1549527461996/Sustainable%20materials%20choice%20experiment%20in%20six%20countries.pdf13. European principles for sustainable raw materials, September 2021