The Critical Raw Materials Act: Towards ‘Open Strategic Autonomy’ in Europe’s Industrial Policy

Similar to other global players, the European economy and its future development depend greatly on what are known as Critical Raw Materials (CRMs) particularly in view of the digital and sustainability transition to Net Zero by 2050. This is due to their strategic and economic importance in an array of industrial sectors such as; aerospace, defence, digital including clean tech for the energy sector and transportation. These aim to ensure the sustainable functioning of the European economy through the dual digital and carbon reduction transformation. Raw materials are not only referred to as ‘critical’ due to their scarcity but also because of their economic importance together with their high-supply risk.

Most CRMs are naturally located, produced and supplied by third countries. The high import dependence by the EU on third countries also elucidates their criticality due to the limited viable substitutes. The question of diversification of supply concerns arises to reduce dependencies in all sectors. The strategy to diversify includes the sourcing of primary raw materials from both the EU and third countries, enhancing resource efficiency which permits the increased supply of secondary raw materials together with finding alternative sources for scarce raw materials. Due to their significant demand and potential adverse environmental impact during mining, the raw materials must be managed in a sustainable manner enabling adequate supply whilst also safeguarding against detrimental environmental effects. This will not only ensure the EU’s long-term competitiveness and the bloc’s aim to become strategically autonomous, but it will be an important contributor to meet the ambitious target to become the first climate-neutral continent by 2050. These set goals are also in line with the 2022 Versailles Declaration ensuring the vitality of CRMs in both the EU’s sovereignty as well as its strategic autonomy.

Reducing dependancies

The EU’s strategy in reducing its dependence on a few third countries is based on four pillars, being: 1) reducing the reliance on key third country source markets through diversification; 2) increasing the sourcing from within the EU itself; 3) recycling of critical raw materials and 4) finding alternative more common materials. A list of CRMs is reviewed by the European Commission every three years. The first list was published in 2011 with the most recent review being that of 2023.

America’s initiative

Within the objective of open strategic autonomy, the EU is seeking to catch up with China and the United States (US) around Clean Tech. The US Biden Administration, through a significant number of legislative packages which have fiscal incentives incorporated, have jump started capital investment in specific manufacturing niches. Some of the flagship legislative pieces include the Infrastructure Act, the Chips and Science Act and the Inflation Reduction Act (IRA). Certainly, the US IRA with its initial budgeted US $369 billion of grants and tax incentives raises several alarm bells in Brussels and European Capitals. Recent forecasts estimate that the actual outlay of the IRA will exceed the US $1 trillion. To counteract the US IRA, the European Commission rolled out several legislative packages particularly the Critical Raw Materials Act (CRM Act) and the Net Zero Industry Act.

A future of industry ‘Made in Europe’

The CRM Act was announced in the 2022 State of the Union address by President of the European Commission Ursula von der Leyen where she stated that the EU’s dependence on imported CRMs needs to be addressed. On the 16th of March 2023 the CRM Act was unveiled. The objective to secure resources necessary for the development of technologies strengthened the wise words of President von der Leyen “Let’s make sure the future of industry is made in Europe.” In accordance with the Critical Raw Materials, Thierry Breton, European Commissioner for Internal Market (2022) stated that such an Act will allow the EU “To act fast, with ambition, and according to our European values and standards” whilst “For Europe to tilt the balance of power in such critical supply chains, it needs to focus, prepare, strengthen and preserve.”

The impact on Malta’s manufacturing base

Malta’s innovative industrial base relies heavily on the importation of raw materials. Thus, developments related to the CRM Act are of direct relevance and impact. This Act is of particular interest to our local operators engaged in the development of innovative technologies such as batteries and semiconductor chips. Lithium, Magnesium, Natural Graphite, and Nickel are essential for the manufacturing of batteries especially those concerning electric vehicles and digital communication devices. Gallium, Germanium and Silicon are considered vital for the development of semiconductor chips, which are also used within electric vehicles and smartphones, as well as industrial and household machinery. The use of such raw materials will enable the transition to higher value-added products that are related to cleaner and smarter technologies. These technologies will drive the transition from fossil fuels and non-renewable resources to more environmental and sustainable goods. Through the importation of the required CRMs, Malta will be able to retain its competitiveness and to venture into the production and supply of environmentally friendly solutions that will experience an ever-increasing demand. This will enable the country to shift even further its development towards one that is sustainable and that targets high growth areas which enjoy more favourable margins.

Companies interested in receiving further information or would like to learn more on the discussions being held at EU level are to contact Malta Enterprise on [email protected]

Nicole Sciberras Bray is an EU Affairs Intern at Malta Enterprise and is reading for a Bachelor’s Degree in European Studies (Honours) with Anthropology.