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Former European Central Bank President Mario Draghi unveiled a report on European Union competitiveness on Monday September 9, 2024. The report, commissioned by European Commission President Ursula von der Leyen a year ago, outlines a series of proposals to enhance the EU’s critical raw materials strategy.
Presented at a joint press conference in Brussels with von der Leyen, the report highlights the need for action given the EU’s vulnerability.
Proposals explore ways to strengthen the bloc’s position in the face of global economic challenges to secure its essential minerals supply beyond the scope of the existing CRMA.
Here are five key takeaways from EU competitiveness report in relation to the CRMA:
The report proposes financial instruments to bolster the EU’s critical raw materials strategy. Chief among these is a “Fund of Funds” that would pool resources from member states, financial institutions and large capital investors.
This mechanism aims to de-risk investments along the critical raw materials value chain, particularly in areas currently ineligible for EU financial support. Such a fund is meant to bridge the sector’s significant capital needs, which often exceed individual companies’ liquidity capacities.
Public-private partnerships feature prominently in the proposals, with the report advocating for strategic partnerships between governments, private investors and international organizations. These collaborations would create a fund for financing large-scale, cross-border projects.
The European Investment Bank (EIB) is also slated for a more active role, with recommendations to align its project finance and de-risking tools directly with strategic projects across the EU.
Notably, the report suggests adding “Made in EU” provisions to EIB loans for electric vehicle (EV) manufacturing and battery cell facilities, mandating a minimum use of EU-processed critical minerals.
The financial toolbox extends beyond traditional instruments – the report also explores the potential of Contracts-for-Difference to ensure market price stability, proposes targeted tax incentives to foster venture capital and blended instruments, and suggests leveraging Free Trade Agreements (FTAs) to increase the EU’s negotiating power.
For clean manufacturing reliant on critical raw materials, the report suggests support from various EU financial solutions, including operational programs and Horizon Europe.
In a nod to the US Inflation Reduction Act, the report even floats the idea of making public financial support for deployment projects conditional on using a minimum percentage of EU materials, aiming to secure off-take in EU manufacturing.
Perhaps the report’s most striking proposal is the creation of EU-level strategic stockpiles for critical minerals. Unlike other major economies, the EU currently lacks such reserves, leaving it vulnerable to supply disruptions and price volatility.
The report suggests a rotating stockpile system, similar to those used in Japan and South Korea, where materials are procured stored, and released to local industry on a cyclical basis. This approach would not only provide a buffer against short-term shocks but also foster ongoing dialogue with the industry on specifications and requirements.
An EU Critical Raw Material (CRM) Platform is proposed in the report: a centralized initiative to coordinate and leverage the EU’s collective resources and market power in securing, managing and strategically stockpiling critical raw materials deemed essential for European industries and economic security.
The platform’s remit would cover everything from supply chain risk monitoring to coordinating joint purchases of critical materials. The objective would be to negotiate more favorable terms with producer countries by aggregating demand from industrial users across the EU, leveraging AggregateEU and the Euratom Supply Agency.
Part of the REPowerEU plan, AggregateEU is a demand aggregation and joint purchasing platform to reduce dependence on imports of Russian gas and coordinate gas purchases amongst European companies.
Officially the Supply Agency of the European Atomic Energy Community, the Euratom Supply Agency (ESA) is tasked with ensuring security of supply of nuclear materials and nuclear fuel for all EU users.
However, it might also coordinate lithium purchases not just for battery manufacturers, but also for glass and ceramics producers. This collective approach could prove particularly valuable for smaller EU states, allowing them to punch above their weight in global resource markets.
Yet, the report cautions that any stockpiling scheme must be carefully designed to avoid market distortions, focusing on minerals with small market sizes, high supply concentration and opaque prices.
A “resource diplomacy” strategy was also put forward in the report, aimed at securing the EU’s CRM supply. It addresses China’s advantage in speed and scale for partnerships; to counter this, it proposes the creation of a “G7+ Critical Raw Materials Club”. This initiative would bring together resource-intensive and resource-rich countries to diversify supply chains and support market stability.
This club, which could include the EU, US, Canada, Japan, South Korea and Australia, would offer four main benefits to its members: free trade in responsibly sourced materials, joint research and development initiatives, long-term price stability through off-take agreements and instruments for downstream investment.
The report notes that the EU has already laid some groundwork, establishing strategic partnerships with nine countries between 2021 and 2023, including Canada, Ukraine and Chile. However, it emphasizes the need to upgrade initiatives like the Global Gateway to focus more sharply on the EU’s strategic interests.
The Global Gateway is the EU’s initiative to promote investment in infrastructure and sustainable development projects worldwide, aiming to mobilize up to €300 billion between 2021 and 2027.
The diplomatic approach seeks to offer an alternative to China’s dominance, with the EU positioning itself as a provider of more reliable, environmentally and socially responsible investments.
This strategy aligns with the EU’s goal of reducing its dependence on single suppliers — the CRMA sets a target that no more than 65% of the EU’s annual consumption of any strategic raw material should come from a single third country.
The success of this “Club” approach, according to the report, hinges on a credible upfront funding commitment and a streamlined international aid policy that aligns fully with the EU’s raw materials diplomacy.
The Draghi report calls for a significant acceleration of domestic mining projects within the EU to reduce CRM dependencies.
It highlights that the EU’s current lithium resource base of around 20 million tonnes is approximately 60 times larger than the predicted total annual lithium demand in 2050. With five to 10 new mines projected to open by 2030, domestic lithium supply could meet between 50-100% of EU demand by that year.
This push for domestic production comes while the EU grapples with a reliance on imports, particularly stark in the case of rare earths, where over 90% of demand is met by imports from China.
To unlock this potential, the report advocates for streamlining permitting processes across member states. The CRMA already calls for shorter timeframes – 27 months for extraction permits and 15 months for processing – compared with processes that currently take three to five times as long.
However, the report goes further, recommending additional measures such as mandating pre-defined staff resources for strategic projects and considering these projects as “imperative reasons of overriding public interest” (IROPI).
This push for faster permitting is balanced with a call to maintain high social, environmental and governance standards, under the banner of “responsible mining.”
The report also suggests a review of EU competition rules, which currently make it difficult to vertically integrate projects along the value chain. It argues that to promote investment in new sectors, such as lithium processing for battery production, off-take agreements for a set period may be critical to final investment decisions.
This represents a shift in thinking, potentially allowing for more coordinated industrial policy in critical sectors.
Finally, the Draghi report proposes a bold move to reshape the European critical minerals market: the development of EU-specific metal price benchmarks. This aims to avoid price shocks and create a more stable investment environment for the bloc’s green technology sector.
These proposed benchmarks would provide greater transparency to the lithium, cobalt and rare earths markets. These would be intended to avoid inefficient price discovery that cause undesirable volatility on regulated exchanges, the report said.
By establishing its own benchmarks, the EU would like to generate more reliable price signals for investors, potentially catalyzing investment in green technologies and materials.
Beyond price setting, according to the report, these new benchmarks would incorporate clear definitions of responsible mining practices and harmonized ESG standards – reflecting the EU’s commitment to sustainable resource extraction.
With Fastmarkets’ price data, market analysis and forecasting, customers are able to get a forward-looking view of these critical minerals markets and plan accordingly. Get in touch today to find out more.