Throughout human history, raw materials have played a key role in economic development, international relations, and the destinies of entire nations and civilizations. From precious metals (silver and gold) and agricultural commodities (sugar, rubber, silk and spices) to energy resources such as oil and gas, changes in demand spurred by technological developments have rewritten global trade patterns, shifted fortunes, and often fuelled conflict and exploitation.
In the 2020s, we are becoming increasingly reliant on a new set of critical raw materials, including rare earth elements (REEs) and metals such as lithium, gallium and germanium. These commodities’ use in everything from solar panels, batteries and wind turbines to computer chips for industry and defence makes them vital to the green and digital transitions, which in turn will determine our future on this planet.
Europe will never be able to meet its own demand for REEs or lithium domestically, but nor should that be its goal. The goal, rather, is to secure access to critical raw materials so that we do not find ourselves at the mercy of those who might weaponize them – as the Kremlin has done with hydrocarbons. Such access is crucial for strengthening our strategic autonomy, maintaining our competitiveness, and meeting our climate ambitions.
To achieve this goal, we must avoid the mistakes of the past, not least overreliance on a single supplier. Recent events, such as the Covid-19 pandemic and Russia’s full-scale invasion of Ukraine, have amplified the importance of secure supply chains across all economic sectors. They also highlight the substantial influence of the world’s largest emerging economies – including the Brics (Brazil, Russia, India, China and South Africa) – which dominate many important global supply chains, including those for critical raw materials.
As we continue to pursue decarbonization and electrification, metals and minerals will become ever more important. Global demand for REEs alone is forecast to increase fivefold by 2030. On the supply side, however, a single country currently dominates the market: almost 90% of REEs, and 60% of the world’s lithium, are processed in China. As such, the European Union relies on China for nearly all its imported REEs.
We already know from recent experience how serious the risks of such dependencies are. To avoid disruptions, Europe must diversify and de-risk its supply chains. But there is no silver bullet. The problem will not be solved simply by investing in European mining, nor would that make economic sense. Instead, we will need to work with likeminded partners around the world to help scale up their extraction and processing capacities.
Still, we do have some difficult decisions to make with respect to mining projects within Europe, and we also must invest more in our own refineries and processing plants to lay the groundwork for achieving a net-zero circular economy. These are massive undertakings that will require a significant and sustained investment.
Past initiatives like the 2017 Battery Alliance show that we can succeed when we come together. Europe is now home to one of the greenest and most advanced battery gigafactories in the world. With the help of funding from the European Investment Bank (EIB), the Swedish battery manufacturer Northvolt will soon produce two-thirds of the electric vehicle batteries the EU needs.
To repeat this success story, we must avoid looking at the critical raw-materials challenge in isolation. All initiatives related to ensuring secure supplies should be integrated within a comprehensive policy, as we have done in the fight against climate change. In adopting this approach, we must be clear-eyed about European foreign policy, which should aim to develop and deepen strategic partnerships, and to boost investments in Europe and in partner countries.
This year’s EU Critical Raw Materials Act has already set the necessary policy changes in motion. As European Commission President Ursula von der Leyen noted in her State of the Union address this month, many countries around the world are eager to work together on securing global supply chains.
It is clear that Europe must do more to safeguard access to critical supplies. The EIB – which has already provided €3 billion (US$3.2 billion) for strengthening raw materials supply chains over the last seven years – is fully on board. But we also recognize that Europe’s existing toolbox is insufficient. The EIB is already working on a critical raw-materials initiative to ensure that it will be able to live up to these objectives, and we are encouraging others to do the same – from the level of regulation down to specific, concrete projects.
Access to strategically important raw materials has been a determinant of economic wealth and development throughout history. To secure our future, we must seize the initiative and make safeguarding access to this century’s new vital commodities a top priority.
Werner Hoyer is President of the European Investment Bank.
Copyright: Project Syndicate