Industrial strategy critical as EU support act
- 3 December 2024
Europe’s Critical Raw Materials Act has signalled new recognition in the regional bureaucracy of the role responsible mining needs to play in member country industrial supply chains, but the EU remains a long way short of addressing crucial delivery questions, a prominent international mining lawyer says.
He says the urgency of the situation has escalated as energy security tensions have grown alongside a previously dominant energy transition narrative.
“If the Americans are at sort of DEFCON 1 in terms of critical minerals, Europe and the UK are probably at DEFCON 4 or DEFCON 5,” Pinsent Masons partner Akshai Fofaria said this week ahead of Resourcing Tomorrow 2024 in London, where he is leading a discussion about the EU CRMA.
“Europe uses 30% of global critical minerals, roughly speaking, and mines about 3%.
“It has regulated domestic sourcing to reach at least 10% by 2030.
“But whether the EU can regulate itself out this crisis – and it is a crisis – is the question.
“Miners are crying out for strong, adequate regulation to create an environment which is propitious for mining. This is one of the very few sectors where industry is not demanding less regulation but more effective regulation.
“They want strong capacity and regulation so that they can effectively plan their autonomy to develop large-scale, long-term, financeable mining projects.
“So I think this is a positive and quite marked change in EU policy towards extraction. Extraction is now on the table, which it wasn't before.
“But you can't regulate your way to success if it’s not combined with an industrial strategy driving the right kind of extraction, with a business environment which incentivises risk-taking and is an enabler to funders.”
The EU CRMA also calls for recycled materials to account for up to 25% of annual consumption in the EU and sets a target level below 65% for “outsourced” critical raw material dependency by 2030 for individual EU member countries.
Fofaria, who leads Pinsent Masons’ global mining group, will probe the EU CRMA mandates and whether they can reverse Europe’s long-term extractive industry decline with a panel of miners and investors.
Resourcing Tomorrow will examine China’s dominance of global critical mineral supply lines, feeding energy transition, defence, transport, technology and other manufacturing value chains, and Western efforts to build secure alternatives at a time of supply gluts and generally low metal prices.
“The EU’s had the tools for 15 years to observe the criticality [of rare earths, battery minerals, etc],” Fofaria says.
“By 2020 it started getting scared of supply chain vulnerabilities with the pandemic. And by 2022 geopolitical tensions placed it into a state of panic.
“What does the EU do in a state of panic? It does what it excels at which is to consult widely, draft a policy paper and legislate.
“The CRMA suggests a growing recognition of the need for more decisive and practical measures, however, it only makes sense if the EU has an industrial strategy. What are you going to use the minerals for? You can’t just go and chase critical minerals in a vacuum.
“Industrial policy competence is something that is a shared competency between the EU and member states.
“There are very few domains in which they [EU] have effective budgetary competency and executive ability and the EU will be reliant on member states to control national strategies and to direct investments into strategically important areas.
“Similarly, you cannot speed up [mine] permitting by decree. You need to establish whether you have individuals within all the chancelleries and ministries across Europe who are capable of dealing with permitting.
“Good policy isn't just about validating permits quickly. It also requires regulators who are competent to analyse the paperwork. If it is deficient then that will of course delay things. That is not the state’s fault.
“So it is not just about the state speeding things up, it’s about competency and agility.
“Also, if production of certain minerals is a fraction of the amount demanded by [downstream] businesses across the EU then the inference is there isn't the capacity. However, that is also a function in many parts of Europe of a civil society which is diametrically opposed to this policy of exploring for and exploiting critical minerals.”
Beyond public sentiment and its impact on public policy, Fofaria says energy costs and fiscal constraints in member states will clearly weigh on their competitiveness.
“Is the business environment predictable enough in parts of Europe to attract mining businesses?”
In terms of helping to de-risk inherently risky mining projects, the EU CRMA recommends financial support for “strategic projects” through established EU channels such as the Just Transition Fund, European Regional Development, the Innovation Fund and InvestEU.
EU members are also currently collectively and separately competing with US and other state-sponsored development of mining projects to try to fill gaps in private markets.
“One of the big challenges is obviously getting funding in place for important mineral projects. It's one of the big constraints,” Fofaria says.
“If you have projects which are state backed that de-risks them considerably for funders and financiers.
“If you look at the petroleum industry … the oil consuming countries of the world typically have large-scale NOCs, national oil companies, whose role is to seek out petroleum from abroad or to develop their own capacity to produce. They are state-backed with arguably easier access to finance.
“I think we are seeing the emergence of a similar scenario in the mining context where states are recognising there is a national interest in securing minerals access to miners – the oil of the future – and promoting their own national mining companies.”
