The EU Critical Raw Materials Act (CRMA) entered into force at the beginning of May 2024. In an effort to diversify the supply of strategic raw materials, the CRMA sets benchmarks for the domestic production capacity of these materials.
The regulation states that the EU’s domestic extraction capacity must be capable of extracting the ores, minerals or concentrates necessary to produce at least 10% of the annual consumption of strategic raw materials, “to the extent that the Union’s reserves allow this to make.” It also stipulates that domestic processing capacity, including all intermediate processing steps, must be able to produce at least 40% of the EU’s annual consumption of strategic raw materials. Furthermore, according to the regulation, the EU’s recycling capacity, including all intermediate recycling steps, should be able to produce at least 25% of domestic annual consumption.
Importantly, the CRMA also states that by 2030, no more than 65% of the annual consumption of any strategic raw material in the EU, at any relevant stage of processing, can come from a single third country. It is worth pointing out that the above objectives are not legally binding, meaning that Member States cannot be taken to court for non-compliance.
Raw materials considered strategic include aluminum, cobalt, copper, gallium, lithium, graphite, nickel, silicon metal and rare earth elements for magnets.
Faster permitting is also critical. According to the CRMA, extraction projects will receive their permits within a period of up to 27 months, while recycling and processing projects must obtain their permits within 15 months.
The entry into force of the CRMA takes place in a fragile geopolitical context. Following the approval of the CRMA during a plenary vote in December 2023, the European Parliament noted in a statement that “since the Russian war against Ukraine and an increasingly aggressive Chinese trade and industrial policy, cobalt, lithium and other raw materials have also become an important component geopolitical factor.”
Critical raw materials are usually sourced outside the European Union and for some of them the European Union is solely dependent on one country. According to the European Commission, China supplies 100% of the EU’s supply of heavy rare earths, Türkiye supplies 98% of the EU’s boron supply and South Africa supplies 71% of the EU’s platinum.
The committee plans to decide by December 2024 on a list of strategic projects that make a meaningful contribution to security of supply. These projects are planned to benefit from faster permitting and easier access to financing.
Access to financing for mining projects remains difficult, as some EU politicians have noted. Greek MEP Anna-Michelle Asimakopoulou described the CRMA as “an important first step”, but added that the private sector needs more incentives to invest. Kerstin Jorna, European Commission Director-General for Internal Market, Industry, Entrepreneurship and Small and Medium-sized Enterprises, highlighted what she called “major manipulation” of the current nickel market.
Jorna added that the CRMA opens the door to joint demand aggregation and joint purchasing of raw materials, similar to the system of joint purchasing of natural gas that has already been introduced. The scheme also obliges companies to take a close look at their security of supply of raw materials.
“And if you look at the Net Zero Industry Act [NZIA]it basically tells Member States that when you auction… or you have a tender or you give subsidies, you could impose some non-price criteria, like that green nickel in the battery you buy for your energy storage system,” Jorna added.
NZIA central
The NZIA, which is closely linked to the CRMA, was adopted by the European Parliament at a plenary meeting in April 2024. Formal approval by the Council of the European Union is expected in the summer of 2024.
The NZIA aims for Europe to produce 40% of its annual deployment needs using net-zero technologies by 2030, based on National Energy and Climate Plans (NECPs) and capture 15% of the global market value for these technologies . As with the CRMA, these targets are not binding on the Member States.
The technology to be supported includes renewable energy systems, such as solar energy, hydrogen, onshore and offshore wind energy, and energy storage. It also includes carbon capture and nuclear power.
The regulation aims to simplify the permitting process and set maximum deadlines for project approval. For Net Zero Strategic Projects, the duration of the permitting process may not exceed twelve months for facilities with annual manufacturing output of 1 GW or more, and nine months for facilities with annual manufacturing output of less than 1 GW.
Specific to solar, the NZIA outlines a target of at least 30 GW of operational solar production capacity by 2030 across the entire PV value chain, in line with the objectives of the European Solar Photovoltaic Industry Alliance. Currently, according to the European Commission, 97% of solar panels imported by the European Union come from China. Member States must also establish national programs to support the mass deployment of rooftop solar, in accordance with the NZIA Regulation.
Funding shortage
In terms of financing, the NZIA states that several EU funding programs – such as the Recovery and Resilience Facility, InvestEU, cohesion policy programs and the Innovation Fund – are available to finance investments in net-zero technology production projects.
The Innovation Fund has so far awarded €400 million ($434.8 million) over two years to support new investments in solar energy production projects. For example, in January 2024, Enel Green Power’s “3Sun” heterojunction cell and module manufacturing plant secured a €560 million financial package to support the expansion of production capacity. Based in Catania, Sicily, 3Sun’s existing production capacity of approximately 200 MW per year will be expanded to 3 GW by the end of 2024, becoming Europe’s largest solar factory.
The financing is made possible thanks to the support of a consortium of Italian banks whose commitment is supported by the Italian export credit agency SACE, and direct financing from the European Investment Bank (EIB), supported by the InvestEU programme. The EIB loan amounts to €47.5 million. However, the EIB financing also includes intermediary loans to commercial lenders, for €118 million, which could be increased to €342 million in 2024, bringing the total EIB support for 3Sun to €389.5 million.
Yet the funding made available so far is just a drop in the ocean compared to the massive investments needed to scale up mining and green technology production in Europe. Industry observers say the NZIA and CRMA are falling short in this regard in response to the US Inflation Reduction Act (IRA), which includes tax breaks.
“[The] The NZIA is less effective than the IRA because the EU cannot use taxes as a reimbursement tool and the EU is to some extent dependent on green industrial subsidies provided by Member States from their own budgets,” said Louise van Schaik, the unit head and senior research fellow at the Clingendael Institute in The Hague.
In any case, the objectives under the CRMA and NZIA are experienced as ambitious and will be difficult to achieve. “For crucial raw materials, it will still be difficult to open mines in Europe as this is unpopular among voters, and as the EU industry moves abroad there is a risk of being accused of being neo- to be imperialist or climate colonialist, apart from the private sector does not have mining and processing knowledge,” says Van Schaik. “But the commodity partnerships with Kazakhstan, Canada, Chile and others are a good start.”
External opinion
In a speech at the College of Europe in Bruges in April 2024, Fatih Birol, executive director of the International Energy Agency (IEA), said that if coal is king, “solar is the queen, because solar is the winner.” But he raised the issue of over-reliance on Chinese solar panels.
“It was Germany, Spain and Italy that started the world’s solar adventure about 25 years ago,” says Birol. “Solar started with Europe. We were the leaders, manufacturers. But after a few years, governments dropped the ball and China took over. And China now dominates the game around the world, in a big way. That’s why, in my opinion, it was a big mistake that we didn’t have a consistent solar policy and now missed a big opportunity.”
Asked for his views on the NZIA, Birol said it was a step in the right direction, but added that the policy needs to be much stronger, with clear incentives and a much greater role for public sources. “We cannot leave everything to the markets here,” Birol said, repeating the call for an industrial strategy.
The disintegration of EU policy
Some of the recently adopted (or soon to be adopted) EU policies are likely to have an impact on solar energy deployment in Europe. Critical Raw Materials Act/Net Zero Industry Act: This sets targets for domestic procurement of raw materials and clean technology and also opens the door for faster project permitting. Electricity market design (regulation and directive): This policy aims to stimulate the market for power purchase agreements (PPAs) and two-way contracts for difference (CfDs). The plan is to reduce the role of gas as a price-determining fuel. Regulations on the internal markets for renewable and natural gases and for hydrogen (“Gas Package”): This policy sets the rules for the hydrogen market and establishes the European Network of Hydrogen Network Operators (ENNOH) as an independent transmission system operator to coordinate the planning, development and operation of hydrogen infrastructure in the EU. EU Carbon Market Reform/Carbon Border Adjustment Mechanism (CBAM): Reform of the EU Emissions Trading System (EU ETS) will mean phasing out free carbon allowances for heavy industry and limiting the supply of allowances to markets. This is expected to lead to higher prices for carbon emissions allowances in the EU, which will benefit renewable energy, including solar energy. Under CBAM, importers of cement, iron and steel, aluminum, fertilizers, electricity and hydrogen products from non-EU countries will be subject to carbon prices comparable to those of the ETS. Renewable Energy Directive (revised): This policy increases the target for the share of renewable energy in EU final energy consumption to 42.5% in 2030 (up from 32% previously), with an additional indicative increase of 2.5% to reach 45%. It also includes measures to accelerate the licensing of renewable energy projects.
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