Power & Politics Hub

This article is the second in a series about the report made by Mario Draghi on the future of European competitiveness. The topic which is going to be tackled by this article is critical raw materials- another one of the ten specific industries to which the former ECB boss and Italian PM pays specific attention.

The report starts off by making the observation that raw materials are critical for a broad range of goods, including clean energy products and EVs, which are essential for Europe’s transition to a net zero economy. The report observes that the International Energy Agency (IEA), for example, has an observation that by 2030, depending on the scenario, demand for clean energy products and technologies would have multiplied two or three times. 

The EU has traditionally been a bloc with high clean energy ambitions. Arguably, until recently when the United States started stepping up, the European Union was at least the Western world’s clean energy leader. Draghi does note that recent investments point to the EU being ambitious, but a significant issue is that global supply of critical raw materials remains far from assured. On page 46 the report makes a conclusion that a new global dependency may emerge, due to the fact that critical raw materials are concentrated in a handful of providers, with China being by far the biggest one. The PRC maintains a 68% share in the global raw materials market, with their share in the production of materials such as graphite standing at around 70%. 

There are some materials where China does not dominate but others do. As an example, the Democratic Republic of Congo accounts for 74% of global cobalt production.

A further problem is that many of those dominant producers are introducing export restrictions. Over the last 15 years, global export restrictions on critical raw materials have increased fivefold. While the EU keeps relying on imports from countries with low governance and transparency ratings, which often leads to a higher risk of supply disruptions, stocks and storage are not stable either. While stocks and storage often have a cushion effect when it comes to fossil fuels such as oil and natural gas the same can hardly be said for raw materials needed for the transition to cleaner energy. For metals like copper and nickel, the stocks at the London Metal Exchange (LME) are currently at a historic low.

As far as the EU’s share of global production is concerned, for most critical raw materials it is lower than 7% (page 50 of the report). For technologies like solar photovoltaics and batteries, Draghi notes that the EU is facing dependencies throughout the entire supply chain. In comparison with actors like the United States where the Inflation Reduction Act (IRA) and the Bipartisan Infrastructure Act provide for the accelerated development of domestic processing, refining and recycling capacities, the EU is also moving much slower in that regard. On a bit more positive note some EU member states like Sweden and Finland remain with excellence standards in several across the critical mineral value chain, including technological leadership in mining and extraction, implementation of multi-metal waste approaches, and having top-class refineries.

Expectedly, towards the end of the section on critical raw materials, Draghi strongly advocates for the EU diversifying its supply chains as much as possible. Strategic Partnerships should be encouraged, and the EU should support roadmaps prepared by the European Commission, along with investment projects.

An EU Critical Raw Material Platform should be established in order to deliver on an EU strategy to leverage market power. 

The EU should develop financial solutions to support the critical raw materials value chain, including in the stages of mining and manufacturing. While Draghi agrees that the bulk of investment should come from the private sector, the risk associated with investments is often too much to undertake for individual investors, so the EU should be there to offset some of that risk.

Finally, the EU, in Draghi’s view, should create a Single Market for waste and recycling in Europe. It is estimated that by 2050 the EU would be able to meet between 50% and 75% of its metal requirements through local recycling (mentioned on page 63 of the report).  It is important to note that recycling and re-use of metals may only become a major player after 2030 when sufficient end-of-life recycling input is available, secondary raw materials are still likely to be a major asset for the EU.