The energy transition will not be possible without critical raw materials. Cobalt, lithium, nickel and other metals are vital for changing the way we produce and use energy, indispensable for everything from electric vehicles to wind turbines. In a net-zero emissions scenario by 2050, aligned with the Paris agreement, the demand for clean energy technologies will significantly increase over the next decade, reaching 60% for nickel and cobalt and about 90% for lithium. The total global consumption of these minerals, including use related to clean technologies, is expected to increase by +60% for copper, by +100%-200% for nickel and cobalt, and by +900% for lithium by 2040.
The race for key raw materials has already begun, with demand for these metals and minerals skyrocketing as companies and governments require them to achieve ambitious net-zero emission targets. According to the International Energy Agency, the market has doubled over the past 5 years, reaching $320 billion in 2022, and is expected to rise another 2 to 4 times. Investments in the sector have also increased, by +30% in 2022 after a +20% growth in 2021.
From OPEC to OMEC: A warning against cartelization
While the future will be powered by metals, it could also be fenced in by iron curtains. After all, key raw materials are highly concentrated resources: China dominates in this field, controlling nearly all heavy rare earth elements, 91% of magnesium, and 76% of silicon supplies worldwide. Similarly, the Democratic Republic of Congo controls over 60% of the global cobalt market, while South Africa holds a 71% stake in platinum. These geographic monopolies are already causing certain price disruptions and supply tensions.
Just like oil-producing countries in OPEC, mineral-rich countries might decide to form the Organization of Metal Exporting Countries and put substantial pressure on importers of key raw materials. Given their large dependence on import of crucial raw materials, some EU members would obviously be threatened because such a cartel could manipulate prices, further disrupt supply and limit international trade. Concentration of production around leading supply chain companies, where Europe is less present compared to the US or China, could also create dependencies and expose Europe to trade wars between third countries.
European Act on Critical Raw Materials? Insufficient
Europe’s dependence on critical raw materials is not only real but strong. For example, in the case of magnesium, germanium and rare earth metals, Europe relies mainly on one supplier – China. As for boron, it’s the same story: Europe is fully dependent on Turkey. As a result, Europe is very vulnerable to the upcoming risk of supply chain exhaustion, which could threaten its pursuit to achieve the goals of the Paris agreement.
In this context, the European Union needs to accelerate and take action. Will the Act on Critical Raw Materials suffice to fill the gap? Barely. Looking closely: the CRM Act proposes a 10% target for sourcing 18 materials from the EU. However, seven of them don’t meet this requirement at the extraction stage. For these seven materials, EU-27 is highly dependent on supply from third countries (over 94%). Moreover, the CRM Act states that at least 40% of the annual consumption in the EU-27 must come from refining in the EU. It turns out that out of the 24 materials mentioned, 21 are still not meeting this requirement. The list of examples is long. We all agree on the goals, but the resources utilized to achieve them are highly insufficient.
From diversification to recycling, we need to act quickly
Expanding our supplier base is necessary. The recent energy crisis proved that diversification of suppliers increases resilience and allows countries to better confront potential tensions. However, Europe will need to leverage extra measures.
Europe needs to also reassess its relations with metal and mineral suppliers. Strategies are required: investment and fair trade to build credibility-based relationships in order to strengthen Europe’s relations with strategic raw material-producing countries and thus mitigate the risk of supply disruptions. Besides reducing dependency, Europe also needs to invest in its own production capabilities. Some critical minerals are available in Europe: for instance, a lithium mine has recently opened in France. Europe now needs to learn how to exploit these mines in the most sustainable way.
Establishing recycling plants and developing innovative methods for reusing these materials will also significantly contribute to reducing Europe’s dependency on supplies. The EU proposes that we improve recycling capabilities by 10% for each of the 16 “strategic raw materials” by 2030. However, we need to set the bar more precisely and even higher. It is estimated, for example, that by 2050, 65% of the EU’s total cobalt demand, a key material in batteries, could be met by recycling old batteries. Massive investments and the development of an appropriate industrial policy to make sure our recycling capabilities match the technologies of tomorrow can help us achieve this goal. While it’s hard to estimate how much exactly we should invest, we know from other technologies that costs actually drop with investments – for example, the levelized cost of solar power fell an average of 36% per year over the last decade with massive investments in the sector.
Is Europe ready to catch up on critical raw materials? It’s far from it. But not catching up is also not an option. Europe must invest and make decisions without further delay.
Aylin Somersan Coqui, CEO of Allianz Trade Group
