Energy transition and critical raw materials: time for investment

A recent Brussels meeting emphasized the need to address the priority for a long-term strategy for Critical Raw Materials in Europe.  Following the Ukrainian-Russian conflict, not only war came back to our continent after the end of WW II, but we also witnessed adverse effects, such as soaring inflation, geopolitical tensions, and surging energy costs, significantly impacting our everyday lives. Alongside, with growing consequences of the climate crisis, there is no other action than to transition towards renewable energy sources to lower carbon dioxide emissions and make energy more efficient.  In this scenario, the Critical Raw Material Act (CRM) sets out an ambitious vision for Europe that seems to fall short when it comes to financing its promises. 

By Nicola Filizola

As I attended the Eurometaux rally on April 18th, discussing Critical Raw Materials, I couldn't help but ponder the complex challenges confronting the global scene today.

The Ukrainian-Russian conflict and its aftermath had unforeseeable consequences.

Inflation, international tensions, embargoes, and a dramatic increase in energy costs have affected every aspect of our lives. Electricity bills have soared, fuel prices have spiked, and industries are facing unexpected cost increases, occasionally leading to business failures.

As this was not enough, in the face of these economic challenges, we are also obliged to confront a harsh reality we’ve long ignored—the climate crisis and its severe implications for our planet and its inhabitants.

Consider this, annually, air pollution from fossil fuels and biomass burning is responsible for 7 million deaths worldwide, with associated costs nearing $30 trillion. By 2050, the financial impact of global warming could reach $25-30 trillion yearly. Shockingly, 90% of this pollution originates from energy sources, highlighting its grave impact on human health and the environment (Jacobson M., 2024, Clean, Renewable Energy & Storage for a Sustainable Future, Stanford University). Our dependence on fossil fuels not only raises pollution levels and keeps energy efficiency low, but also introduces risks of price volatility and geopolitical instability. 

There is no way out, humanity stands at a crossroads: take decisive actions to protect our planet and future generations or passively face increasingly catastrophic events. 

However, there is hope in this ugly scenario. The power to shape our future is in our hands. Embracing renewable energies such as wind, water, and solar is pivotal to electrifying our homes, industries, and transportation systems. But this shift demands innovation, investment, and political will.

If we are to do that decisively, Europe's green transition is expected to boost the demand for critical raw materials. European companies largely depend on imports for these minerals, with a significant amount coming from China. Therefore, this concentration in supply chains places Europe's climate and green industrial policies at considerable geopolitical risk.

The CRM, a new regulation of the European Commission, is part of the broader Green Industrial Plan and is aligned with the Net-Zero Industry Act (NZIA). It emerges as a vital element in this transition, ensuring the responsible extraction and processing of materials crucial for renewable technologies. 

The Act, for instance, aims to diversify supply chains. It has set benchmarks for domestic capacities by 2030: at least 10% of raw materials must be sourced domestically, with targets of 40% for processing and 15% for recycling, reducing dependency on single suppliers.

While the CRM represents a positive and very ambitious step for Europe's strategic autonomy, it doesn’t fully tackle the vastness of the challenge. The Act aims to develop a European supply chain for critical raw materials by simplifying permitting processes, yet it needs to allocate additional funding. There’s no doubt private investment is crucial. However, as demonstrated by the US Inflation Reduction Act ($783 billion in provisions relating to energy security and climate change) mechanisms such as tax credits, grants, and loans can greatly bolster the confidence needed for sustained private investment in decarbonising the industrial sector.

To truly enhance resilience and reduce vulnerabilities, the EU must recognise building such resilience comes with a cost. This implies committing to substantial European funding and administrative support, setting realistic diversification targets for European companies through regulations, and ensuring that necessary resources support external trade and partnership strategies.