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15 Dec 2023

From Challenges to Solutions: EU's Mining Sector and the Energy Transition Dilemma

The global shift towards renewable energy sources has become a cornerstone of the European Union’s (EU) sustainability agenda. In the last few years, one thing has become clear: key to this transition are Critical Raw Materials (CRMs), essential components powering the renewable energy infrastructure. The EU aims to reduce net greenhouse gas emissions by at least 55%, have a 42.5% share of renewables in its energy mix, and reduce its final energy consumption by 36% by 2030 (2030 Climate & Energy Framework, n.d.). 

Renewable energy technologies, such as solar panels, wind turbines, and electric vehicle batteries, hinge on CRMs such as rare earth elements, lithium, cobalt, or gallium and germanium. These elements are indispensable in manufacturing, ensuring the efficiency and functionality of these technologies. However, the demand for these materials is escalating exponentially. According to the International Energy Agency (2021), mineral demand could rise up to 6 times by 2050 to meet the net-zero scenario. Furthermore, the World Bank (2019) projects that by 2030, the demand for lithium and cobalt could rise by 965% and 383%, respectively, compared to 2018 levels. This surge in demand underscores the urgency for a stable CRM supply chain to facilitate the EU’s energy transition. 

However, the EU mining industry grapples with multifaceted challenges that impede its ability to meet this escalating demand. High energy prices, and lengthy permitting procedures, pose significant hurdles. The energy-intensive nature of mining operations significantly impacts overall production costs. Energy prices reached a record high in the second half of 2022, resulting in 50% and 30% of the capacity to produce aluminium and zinc in the EU respectively to be shut down. The electricity market design reform agreed in October 2023 stabilises prices by promoting power purchase agreements, but the mining industry is still hit by extra indirect costs that are not fully compensated.

In parallel, bureaucratic delays in obtaining mining permits hinder timely resource extraction. Granting permits requires long processes that are coordinated and approved by multiple authorities from Member States. It is estimated that a project takes on average 16 years to move from resource discovery to production (IEA, 2021). Amidst the challenges of the mining industry, companies also contend with an escalating administrative burden, diverting already limited resources to navigate and comply with an array of pieces of legislation. This includes navigating the complexities of the Corporate Sustainability Due Diligence Directive (CSDDD) or aligning with the demands of the Emissions Trading System (EU ETS), demands that hit Small and Medium Enterprises (SMEs) harder.  Meeting the objectives of the EU Green Deal requires a simplified regulatory framework that guides and supports all businesses and boosts their competitiveness. 

As a result of more stringent sustainability requirements, the competitiveness of the EU industry is negatively affected vis-à-vis that of external competitors such as China. Paradoxically, the mining processes in the EU remain less polluting than those of our partners. The EU faces the challenge to meet its sustainability requirements with its economic needs. For now, we import as much as 94.66%, 89.45% and 86.77% of the manganese, magnesium, and cobalt ore, respectively, from China. 

Addressing these challenges is pivotal for the EU’s pursuit of open strategic autonomy and transitioning to a climate-neutral society by 2050 while enhancing global competitiveness. The EU has initiated several measures to bolster its CRM supply chain and overcome these obstacles One of such initiatives is the Critical Raw Materials Act (CRMA). The European Commission laid down this piece of legislation in response to the European Council’s Versailles Declaration, which emphasised the need to secure CRM to achieve open strategic autonomy. This recently adopted Regulation lays down rules to secure CRM supply, emphasizing the need for responsible sourcing, recycling, and reinforcing international engagement with third countries. The EU should boost its extraction, processing, and recycling capacities to at least 10%, 40% and 25% of the EU’s annual consumption, respectively. On top of that, the EU must not be dependent by more than 65% on a country supply. 

Aiming to impose the so called one-stop shop per Member State at first, the final compromise of the CRMA (2023) was watered down in the Council by allowing different authorities per administrative unit. A new addition is the European Critical Raw Materials Board, which is entitled to submit a report describing obstacles to access to finance and provide recommendations to facilitate access to finance for Strategic Projects (Final compromise CRMA, 2023).

To conclude, in the quest for a sustainable and climate-neutral future, the EU faces a critical juncture in its pursuit of securing CRMs vital for the energy transition. The demand for these essential elements is skyrocketing, outpacing current supply capacities, and raising concerns regarding the EU's reliance on external sources. The challenges confronting the EU mining industry - from high energy prices and protracted permitting procedures to an increasing administrative burden - are limiting its ability to meet this escalating demand. Amidst these hurdles, regulatory frameworks such as the CSDDD and the EU ETS pose additional challenges, particularly for SMEs. 

Overall, to strengthen strategic autonomy, the EU must boost domestic extraction, processing, and recycling capacities, as well as reduce its reliance on external suppliers. How to achieve that? Through a balanced regulatory framework supporting industry competitiveness while meeting sustainability goals.