Is the EU setting itself up for a strategic failure with CRMs supply chains?
The geopolitics of critical raw materials (CRMs) has emerged as a pressing issue in relation to the EU’s energy transition targets. Europe’s pursuit of greener energy through the expansion of renewable technologies has led to a growing dependence on raw materials and rare elements that are predominantly produced outside its borders, notably in China and other countries. This reliance on external sources introduces complexities and challenges to the region’s energy transition.
Because the critical raw materials (CRMs) are particularly important to produce renewable energy, the CRMs demand escalates and securing a consistent supply of critical materials such as lithium, cobalt, and rare earth elements becomes paramount. The concentration of production in just a few countries heightens the risk of supply disruptions, geopolitical tensions, and price volatility, which undermines Europe’s efforts to achieve energy security and independence. Many CRMs are difficult to substitute and are rarely recycled, magnifying the potential for supply risks.It is becoming increasingly crucial for EU countries to secure a stable supply of the basic materials needed for new renewable energy sources. For the EU, the issue is even more pressing due to its extremely ambitious commitments to decarbonize its economy and its general lack of domestic sources of these materials.
Chinese monopoly on rare-earth elements (REE)
Understanding the full extent of the EU’s exposure to bottlenecks in CRM production requires a comprehensive overview of the whole supply chain, from raw material extraction to the production of final products. In fact, raw material extraction is not where the highest degree of concentration is observed. The examples of electric vehicle and solar photovoltaic panel supply chains highlight the Chinese dominance also at the refining and processing stages and in the manufacturing of intermediate and final goods.
Reserves and mining of cobalt and lithium, two minerals essential for the electric-vehicle value chain, are quite dispersed. The potentially minable resources of lithium are diverse, with most of the deposits located in South America, and current mining taking place mostly in Australia and Chile. But 94% of the Australian production of lithium minerals goes to China for refining. A similar observation can be made for cobalt. The cobalt mining in the Democratic Republic of Congo which accounts for 75% of global production, is exported nearly entirely (99%) to China. Furthermore, China imports 67% of the world’s supply of manganese ore and exports 70% of the world’s refined manganese. Chinese refineries are currently unavoidable intermediaries in several key commodity markets, giving China monopoly power as the largest buyer of unrefined ores, and as the largest producer of refined metals.
In terms of rare earth elements, around 66% of rare earth mining is done in China, giving the country a virtual global monopoly on the minerals. China provides 98 % of the EU’s rare-earth elements supply and around 66% of its 30 designated CRMs. While 66% might not sound that concentrated, the dependence on China is even more pronounced further down the supply chain. China still dominates the next stages of production, from refining capacity (87% of which is located in China) to the production of permanent magnets (Europe currently imports 83% of its permanent magnets from China).
Global distribution of the main CRMs producers also indicates that together with China, most of the production occurs in the countries that align themselves or express sympathy towards China’s challenge to US economic and military dominance signalling a potential shift in global power dynamic and geopolitical alliances (FIGURE 1). China together with Russia, Democratic Republic of Congo, Zimbabwe, South Africa, and Brazil constitute unprecedented global monopoly on the CRMs production, refining and exporting which Europe will have to reckon with to secure uninterrupted supplies.
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