Explanatory Memorandum to COM(2023)160 - Framework for ensuring a secure and sustainable supply of critical raw materials

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dossier COM(2023)160 - Framework for ensuring a secure and sustainable supply of critical raw materials.
source COM(2023)160
date 16-03-2023


1. CONTEXT OF THE PROPOSAL

• Reasons for and objectives of the proposal

Raw materials are found at the beginning of all industrial value chains. The focus of this Regulation is on non-energy, non-agricultural raw materials that are important for the EU economy, the supplies of which are subject to a high level of supply risk. These critical raw materials (CRMs) are often indispensable inputs for a wide set of strategic sectors including renewable energy, the digital industry, the space and defence sectors and the health sector. At the same time, extraction and processing of CRMs can have negative environmental impacts, depending on the methods and processes used, as well as social impacts.

The EU relies almost exclusively on imports for many critical raw materials. Suppliers of those imports are often highly concentrated in a small number of third countries, both at the extraction and processing stage. For example, the EU sources 97% of its magnesium in China. Heavy rare earth elements, used in permanent magnets, are exclusively refined in China. 63% of the world's cobalt, used in batteries, is extracted in the Democratic Republic of Congo, while 60% is refined in China. This concentration exposes the EU to significant supply risks. There are precedents of countries leveraging their strong position as suppliers of CRMs against buyer countries, for instance through export restrictions.

With the global shift towards renewable energy and the digitalisation of our economies and societies, demand for some of these critical raw materials is forecasted to rapidly increase in the coming decades. Global demand for the lithium used to manufacture batteries for mobility and energy storage is expected to increase of up to 89-fold by 2050. EU demand for the rare earth elements from which the permanent magnets used in wind turbines or electric vehicles are manufactured is expected to increase six to seven-fold by 2050. EU demand for gallium, used to manufacture semi-conductors, is expected to grow 17-fold by 2050. Substituting materials and increasing material efficiency and circularity can mitigate the projected rise in demand to a certain extent, but these steps are not expected to reverse the trend. Presently, current and planned capacities risk not meeting more than 50 % of the projected demand for cobalt and future demand increase for rare earths is expected to outpace growth in capacities1. Against this background, many countries have adopted policies to actively secure their supply of critical raw materials, increasing resource competition.

Disruption in the supply of essential goods during the COVID-19 crisis and the energy crisis sparked by Russia’s war of aggression against Ukraine have highlighted the EU’s structural supply dependencies and their potentially damaging effects in times of crisis. The central importance of critical raw materials for the green and digital transitions, and for defence and space applications, means that a disruption in their supply would have significant adverse effects for industry in the EU. This would jeopardise the functioning of the single market and damage the EU’s competitiveness, while putting at stake jobs and job creation and affecting working conditions and wages. In addition, without a secure supply of critical raw materials, the Union will not be able to meet its objective for a green and digital future.

The 2008 raw materials initiative and the 2020 action plan on critical raw materials both provided a framework for initiatives to assess assessing the criticality of different raw materials, the international diversification, research and innovation and the development of CRMs production capacity in the EU. The measures put in place are helping to ensure a more secure supply. For instance, Strategic Partnerships concluded with third countries, as provided in the action plan, are helping to diversify sources of raw materials supply by further integrating the EU’s raw materials value chains with those of resource-rich third countries.

However, non-regulatory actions have not been enough to ensure the EU’s access to a secure and sustainable supply of critical raw materials. At present, there is no regulatory framework aimed at structurally reducing supply risks across the range of critical raw materials. First, in the absence of a common framework to ensure that economic operators are resilient and prepared for problems that arise, industry remains overexposed to the risk of supply disruptions. Second, the EU's potential to increase its extraction, processing or recycling capacities remains underexploited. Across Member States, knowledge of mineral deposits often dates back to a time when critical raw materials were not the sought-after resources that they are today. Sometimes difficult access to funding, lengthy and complex permitting procedures and the lack of public acceptance as well as potential environmental concerns are major impediments to the development of critical raw materials projects. Third, legislation on waste management does not create enough incentives to improve the circularity of critical raw materials (‘their circularity’) or for the development of a market in secondary raw materials. Lastly, there are not enough incentives to report on and limit the negative environmental impacts of CRMs that are placed on the EU market.

Contents

1.

Against this background, the present proposal has the following objectives:


- to strengthen the different stages of the European critical raw materials value chain;

- to diversify the EU's imports of critical raw materials to reduce strategic dependencies;

- to improve the EU capacity to monitor and mitigate current and future risks of disruptions to the supply of critical raw materials;

- to ensure the free movement of critical raw materials on the single market while ensuring a high level of environmental protection, by improving their circularity and sustainability.

This memorandum is linked only to the current proposal for a Regulation. The overall strategic vision for strengthening Europe’s supply critical raw materials, through action both within and outside the EU, is explained in the Communication accompanying that proposal.

• Consistency with existing policy provisions in this area

This proposal is consistent with the European Green Deal strategy and the European Climate Law. This proposal is intended to help equip the EU with the capacities that will be needed to meet its targets for producing renewable energy, for developing strategic manufacturing technologies such as semiconductors and to reach our climate neutrality objectives.

This proposal responds to the 2022 Versailles Declaration adopted by the European Council, which underlined the strategic importance of critical raw materials in guaranteeing the EU’s open strategic autonomy and European sovereignty. It is also consistent with the November 2021 resolution of the European Parliament on an EU strategy on CRMs and with the conclusions of the Conference on the Future of Europe. Finally, this Regulation delivers on the commitment to reduce the EU’s dependency on critical raw materials made by President von der Leyen in her 2022 State of the Union speech. This would be achieved by diversifying and securing a sustainable domestic supply of critical raw materials by identifying Strategic Projects across the supply chain and by building up strategic reserves. Ahead of the announcement of a Critical Raw Materials Act, the REPowerEU Communication and the Joint Communication on Defence Investment Gaps Analysis and Way Forward had announced a legislative proposal on CRMs in May 2022.

Whereas this proposal focuses on building the EU’s capacity to supply CRMs, the Communication accompanying this proposal explains the underlying strategy to secure the supply of critical raw materials sector, which includes non-regulatory measures to diversify external supplies from outside of the EU and to boost research and innovation and skills. The Regulation is accompanied by the results of the Commission’s criticality assessment, the corresponding papers fiches on the critical and strategic raw materials (see detailed explanation on p.15 for more details) targeted by this proposal, ands by the latest foresight study. The proposal is presented jointly with the Net Zero Industry Act which, as announced in the Communication on A Green Deal Industrial Plan for the Net-Zero Age, will underpin the industrial manufacturing of key technologies in the EU.

This proposal is consistent with the Commission’s Communication updating the 2020 EU Industrial Strategy in May 2021, which identifies areas of strategic dependencies that could lead to vulnerabilities. The two subsequent in-depth reviews provided further analysis on the origins of strategic dependencies and first addressed CRMs overall (among other issues), then rare earth elements and magnesium.

Although there has been no regulatory framework before this Regulation that aimed to secure the supply of CRMs, this proposal is consistent with the previous European CRM strategies. First, this Regulation builds on the criticality assessment, updated every 3 years since the 2008 initiative, which has provided information on CRMs and the EU’s dependencies on them. Second, it complements and strengthens the initiatives which followed the 2020 action plan. It also provides a framework to support projects along the critical raw materials value chain, building on the work of the European Raw Materials Alliance. The proposal also builds on the EU principles for sustainable raw materials which aim to align Member States’ understanding of sustainable extraction and processing.

In addition, in line with the 2021 action plan on synergies between civil, defence and space industries, the Commission is setting up an observatory of critical technologies. The observatory will identify, monitor and assess critical technologies for the civilian, defence and space sectors, their potential applications and related value and supply chains, including strategic dependencies and vulnerabilities.

Furthermore, the Commission has carried out a Foresight study which assesses the European Union’s future needs for critical raw materials and the potential supply chain bottlenecks in key strategic technologies and sectors. The report forecasts an unprecedented increase in demand for the key materials necessary to a successful twin transition and to the EU’s defence and aerospace agendas.

This proposal is consistent with other legislation on CRMs. For instance, it is consistent with the Conflict Minerals Regulation2, which requires importers of tin, tantalum, tungsten and gold (3TG) to set up and implement due diligence policies addressing human rights impacts linked to armed conflicts and labour rights along their value chain.

• Consistency with other EU policies

Given the presence of critical raw materials in many industrial value chains and the characteristics of the different stages of the critical raw materials value chain such as extraction, processing or recycling, several sets of European policies and legislation are relevant.

First, the EU environmental legislation covers the procedures to obtain permits for raw materials projects, including CRMs, across the whole value chain. The proposed Regulation will apply without prejudice to EU nature protection legislation, including Directive 2011/92//EU3 on the environmental impact assessment, Directive 2010/75/EU4 on industrial emissions, Directive 92/43/EEC5 on the conservation of natural habitats and of wild fauna and flora and Directive 2009/147/EC6 of the European Parliament and of the Council on the conservation of wild birds, Directive 2000/60/EC7 of the European Parliament and of the Council on water policy8. This proposal aims to make national permit procedures more streamlined and more predictable ensuring that projects comply with the EU legislation protecting nature without undermining the effective application of its provisions.

Second, the EU’s waste framework governs the collection, reduction, recycling and treatment of waste, including of waste streams containing critical raw materials. The Extractive Waste Directive9 requires any operator responsible for managing extractive waste (i.e. the waste generated by mining operations) to obtain a permit. This proposal will complement this by requiring operators (for waste facilities currently operating) and Member States (for closed and abandoned waste facilities) to analyse the CRMs recovery potential in extractive waste. The Waste Framework Directive10 targets waste in general and obliges Member States to take measures to prevent the generation of waste, targeting products containing CRMs in particular. The Waste Electrical and Electronic Equipment Directive11 lays down rules to promote the preparation for re-use, recycling and other forms of recovery of waste from electrical and electronic equipment, to contribute to the efficient use of resources and to the retrieval of secondary raw materials, including critical ones. A joint review is being carried out of the End-of-Life Vehicles Directive 2000/53/EC12, in conjunction with Directive 2005/64/EC13 on the type-approval of motor vehicles regarding their reusability, recyclability and recoverability, aiming to reduce waste from end-of-life vehicles and their components and increase the circularity of both conventional and electric vehicles, which contain significant amounts of CRMs. The legislative initiative based on this review will complement the horizontal recyclability requirements included in this Regulation by introducing more specific requirements to improve the recyclability of permanent magnets in vehicles, which will make their waste treatment and recycling easier.

Third, the classification of hazard provided by the Regulation 1272/2008/EC on the classification, labelling and packaging of substances and mixtures14 and the risk mitigation measures provided by the Regulation 1907/2006/EC15 concerning the Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH), serve to ensure the safety of chemicals and products containing chemicals in the EU, which is highly relevant for CRMs. In this regard, the EU chemicals Strategy for Sustainability16 lays down the necessary actions to protect better human health and the environment as part of an ambitious approach towards a toxic free environment as regards chemical safety, in line with the European Green Deal. This includes reducing risks and substituting the most hazardous chemicals in consumer and professional products. The Strategy also recognises the need to allow the use of these most harmful chemicals when this is essential for society. This will also apply in many cases to the uses of CRMs.

Fourth, the presence of critical raw materials across many industrial value chains and the characteristics of the different stages of the of critical raw materials value chain require human capacity, including by ensuring an adequate and skilled workforce to support the industry. This is notably guaranteed by the protection of jobs as well as the creation of new quality jobs to address the needs of workforce in the sector at all stages of the industrial value chains, which are key to ensure a fair green transition and to ensure security and supply of critical raw materials, as well as the sector’s competitiveness. In line with objectives of the REPowerEU plan and of the European Green Deal, the Council Recommendation of 16 June 202217 on ensuring a fair transition towards climate-neutrality provides comprehensive policy guidance as regards the formulation of policies to ensure the protection of jobs, including of working conditions and wages, as well as to support quality job creation across industrial ecosystems and value chains, including through the support of up- and re-skilling of the workforce to match with needs in the sectoral labour market, and through the consultation of social partners through social dialogue.

Lastly, this initiative is also consistent with:

- Directive 2007/2/EC18 establishing an Infrastructure for Spatial Information in the European Community (INSPIRE), which aims to ensure that the spatial data infrastructures of the Member States are compatible and usable in a European and transboundary context; and

- Regulation (EU) 2020/85219 (Taxonomy) on the establishment of a framework to facilitate sustainable investment.

2.

In terms of international instruments, this proposal is consistent with:


- the EU's international trade obligations and the EU common commercial policy. The Communication attached to this regulation includes measures to strengthen and diversify the EU’s external supply of CRMs from international sources without undermining trade rules and international competition;

- the EU’s updated Arctic policy, published in 2021, which aims to help to preserve the Arctic as a region of peaceful cooperation, tackle the effects of climate change, and support the sustainable development of Arctic regions to the benefit of Arctic communities, not least Indigenous Peoples, and future generations;

- the Commission and the High Representative of the Union for Foreign Affairs and Security Policy’s joint Communication on the Global Gateway, particularly as regards conduct of its Strategic Partnerships with third countries.

The High Representative will fully play its role and cooperate to ensure the consistency of EU external action and its other policies.

3.

The Regulation will also ensure consistency with other ongoing proposals:


- The Regulation is consistent with the Batteries Regulation20, which includes specific provisions on CRMs in batteries placed on the single market, whereas the Regulation aims, to increase the EU’s capacity to supply those materials and to make information on their environmental footprint more transparent and available when placed in the EU single market. This follows a similar approach to the progressive deployment of obligations on environmental footprints.

- The Regulation complements the proposal for a Directive on Corporate Sustainability Due Diligence (CSDD)21 . The CSDD proposal might cover companies using CRMs, ensuring that they adequately address adverse human rights and environmental impact in their own operations and value chains, but does not develop the requirement to produce information on the environmental footprint of critical raw materials. Where relevant, the calculation of the environmental footprint of each material under the CRMs Regulation, could contribute to the effective implementation of a due diligence policy.

- By reinforcing the resilience and preparedness of the European industry with regards to CRM, the Regulation complements the Single Market Emergency Instrument, which allows the Commission in vigilance or emergency mode to activate targeted measures when a threat to or a disruption of the supply of strategic goods emerges, which may include critical raw materials.

- The Regulation also ensures that the manufacturers of key technologies supported in the Chips Act or the Net-Zero Industry Act can rely on a secure and sustainable supply of critical raw materials.

2. LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY

• Legal basis

This Regulation’s legal basis is Article 114 of the Treaty on the Functioning of the European Union, which allows the European Parliament and the Council to adopt measures to establish and ensure the well-functioning of the single market.

The Regulation intends to ensure a secure and sustainable supply of CRMs for the EU. Without such efforts, current trends in supply and demand are likely to create a serious and structural risk of disruptions to the supply of a range of CRMs. As these are essential to the functioning of multiple strategic sectors, potential supply disruptions must be addressed in order to ensure that European markets remain stable. The onset of supply disruptions, and of the associated shortages and volatility in prices, would be likely to trigger unilateral efforts at national level to address their consequences. Although justified in principle, such efforts have, if left uncoordinated, the potential to distort competition and create intra-EU restrictions to the free movement of goods.

By introducing coordinated measures to structurally reduce the likelihood of supply disruptions, including measures to strengthen domestic supply and to monitor the risk and preparedness, this initiative will contribute to ensuring the well-functioning of the single market:

- it set common objectives and a shared definition of critical and strategic raw materials;

- it establishes a common and consistent approach to increasing European capacities of CRMs by providing and coordinating support to Strategic Projects, thereby helping prevent the potential distortion of competition and market fragmentation that might result from uncoordinated support actions and helping to preserve a level playing field for raw materials companies active on the internal market;

- it introduces risk monitoring and preparedness measures, ensuring that companies have access to similar risk monitoring information across the internal market and face harmonised preparedness measures;

- it harmonises requirements for placing on the market products incorporating permanent magnets (regarding the recyclability and recycled content of the magnets) and products containing CRMs (regarding the declaration of their environmental footprint), thereby preventing intra-EU restrictions and helping to ensure the free movement of goods

• Subsidiarity (for non-exclusive competence)

Member States alone are not capable of effectively meeting the objectives of this Regulation. First, increasing CRMs capacities, would not be efficient at national level due to, for example to the lack of geological occurrences in an individual Member States, the scale of the investments needed and the substantial economies of scale required to be competitive on the global raw materials market. Secondly, in the absence of coordination and cooperation between Member States and the Commission to increase monitoring of supply risks and risk preparedness, efforts are likely to be duplicated leading to inefficiencies. The framework proposed should allow for a more efficient division of tasks and for the aggregation and sharing of relevant information.

The measures included in this Regulation would not be as effective if implemented by Member States acting alone, as the problems they address concern the single market as a whole. They are not limited to single Member States or to a subset of Member States but concern the EU’s industrial base as a whole. In addition, approaches at Member States’ level alone are unlikely to be enough to serve the needs of closely intertwined supply chains within the single market.

The authorities in the Member States’ are, and will remain, solely responsible for granting permits for Strategic Project, subject to the procedural rules set out in this proposal. Member States, therefore, will be able to prevent the granting of strategic status to a project that would be implemented on its territory.

• Proportionality

The proposed measures do not exceed what is necessary to secure the supply of CRMs. There is a demonstrable added value in acting at the Union level due to the scale, urgency and scope of the efforts needed:

- The measures on Strategic Projects focus on strategic raw materials (SRMs) to ensure that the Regulation brings within its scope the materials that are the most needed to achieve the EU’s objectives for the green and digital transitions as well as for increased resilience and security.

- The measures on exploration are proportional to the size of each Member State’s territory, and Member States would remain able to build on their existing exploration policies. The national programmes of exploration are however necessary to foster the development of the CRM value chain.

- The measures proposed include a review and engagement with Member States on a regular basis, especially as regards the provisions on monitoring and governance.

- The measures on monitoring leave Member States responsible for identifying and monitoring key market operators. The burden on companies to provide information is limited as it only captures large companies active in extraction, refining or recycling of CRMs.

- The measures tackling companies risk preparedness are conscribed to a subset of large companies manufacturing strategic technologies containing SRMs and are limited to internal audits of their supply chains.

- The measures on sustainability do not impose requirements that are beyond what is necessary to incentivise the development of the market for secondary raw materials or to ensure greater transparency of information on the environmental footprint of CRMs, through a gradual and evidence-based approach.

• The choice of the legal instrument

A regulation is considered the most appropriate instrument as it makes it possible to set requirements that apply directly to national authorities and relevant economic operators. This will help ensure that the requirements are implemented in a timely and harmonised way, leading to greater legal certainty.


3. RESULTS OF EX-POST EVALUATIONS, STAKEHOLDER CONSULTATIONS AND IMPACT ASSESSMENTS

• Ex-post evaluations/fitness checks of existing legislation

4.

Not Applicable


• Stakeholder consultations

In line with the Better Regulation Guidelines, the Commission carried out a comprehensive stakeholder consultation process, following a consultation strategy with the aim of collecting reliable information using a range of methods, consulted parties and tools. The aim of the stakeholder consultation was to collect and assess all relevant evidence, including data and information about the costs, benefits, and potential societal impact of a policy decision. The strategy was designed in line with the intervention logic, focusing on the problem drivers necessitating action and the characteristics identified for the EU’s CRM value chain.

The Commission followed the consultation strategy by running multiple activities: an online open consultation organised by DG GROW between September 30 and 25 November 2022, a call for evidence for an impact assessment open for feedback during the same period and a targeted questionnaire on ‘stockpiling of raw materials’ and ‘permitting’ in the EU Member States shared with the expert group ‘Raw Materials Supply Group’. The Commission received 259 answers to the public consultation and 52 respondents attached a policy paper. The Commission also collected 310 replies to the call for evidence. The results of the public consultation are summarised in the factual summary report published with the answers to the call for evidence on the ‘Have your say’ portal.

Overall, stakeholders confirmed the benefits of ongoing initiatives under the 2020 EU action plan on critical raw materials to secure critical raw materials supply, notably via the Strategic Partnerships on raw materials. However, they underlined that EU domestic capabilities and the industry’s resilience to supply risk have not sufficiently improved. The Commission received broad support for the idea to propose an initiative with the aim of ensuring secure and sustainable access to critical raw materials while improving Europe's resilience and preparedness by addressing supply chain vulnerabilities. On supply chain vulnerabilities, the contributions received underlined a number of structural deficiencies that prevent extracting industries from developing projects in the EU. To respond to these challenges, they underscored the importance of running Strategic Projects in the extraction, processing and recycling stages to develop the EU's value chain in critical raw materials.

In their replies, businesses and firms focused on procedural and administrative costs and called for action to streamline permitting procedures and to facilitate access to finance. Non-governmental organisations (NGOs) and citizens expressed concerns about the environmental and social impacts of extraction and processing projects that lack appropriate environmental and social safeguards.

Stakeholders agreed with the need to create a sustainable level playing field for the EU’s value chain in critical raw materials. NGOs signalled the importance of reducing the environmental footprint of EU raw materials while promoting a more efficient use of resources and developing less harmful activities on the environment. Stakeholders also called for a more coherent and coordinated approach to the challenges inherent in sourcing CRMs notably by stepping up monitoring, foresight and by taking more concerted risk preparedness measures. However, stakeholder groups had different views on the best form of action needed.

Overall, stakeholders broadly agreed that action by the Member States at national level would not be sufficient to tackle critical raw materials supply vulnerabilities due to their complexity, opacity and transnational dimension, and welcomed EU-level action on this issue.


• Collection and use of expertise

5.

Not Applicable


• Impact assessment

Following the Better Regulation Guidelines, this regulatory proposal is based on an impact assessment that analyses the problem and sub-problems related to the EU’s lack of secure and sustainable supply to critical raw materials. The impact assessment identifies possible policy options to address problem-drivers and assesses their likely impacts. The impact assessment was structured to reflect the consultation of the Commission’s Inter-Service Steering Group on critical raw materials.

The impact assessment received a negative opinion from the Regulatory Scrutiny Board (RSB) on 20 January 2023. The Board recommended to:

- clarify the political context surrounding the initiative and specify how parallel initiatives and regulatory gaps will be affected by the upcoming initiative;

- better explain the set of general and specific objectives, their timelines, how they interact and what models are used to measure success;

- improve the baseline, composition and timeline of the policy options and

- improve the assessment of key impacts.

When the revised impact assessment was resubmitted, the Board issued a positive opinion with reservations on 16 February 2023.

The impact assessment is built around a set of policy pillars that tackle the problem drivers identified and aim to reach the objectives of the initiative. It sets out three policy options for each pillar based on the scope, the level of resources, the efficiency and coherence as well as the synergies created and the proportionality and subsidiarity principles. Overall, the policy options range from option 1 (the closest to the business-as-usual scenario) to option 3 (a more wide-ranging approach including measures that go beyond the current regulatory framework but within the limits of what is technically feasible).

Policy option 1 provides for a mechanism to set targets for strategic raw materials. It comprises a governance structure under a dedicated EU CRM board supported by a network of national agencies and operational capacity within the Commission. This entity would develop monitoring capacity, enable the coordination of EU strategic stocks and ensure that companies are better prepared ahead of possible supply disruptions. It contains elements to support the value chain, notably by more coordination during the exploration phase greater support for national CRM projects and better access to finance. In terms of circularity, it provides for a recommendation targeting small consumer electronics and the announcement of future actions. It provides for greater EU action in international standards-setting, as well as minimum requirements for certification schemes on CRM sustainability and information requirements on the environmental footprint of CRMs placed on the EU market.

Policy option 2 has the same governance mechanism as option 1 and tasks in terms of monitoring, strategic stocks and risk preparedness. It goes further to improve the value chain in the EU by developing stronger obligations on exploration and by implementing Strategic Projects along the value chain of strategic raw materials. These projects would benefit from streamlined permitting and a coordinated access to finance. Measures to boost circularity include making targeted amendments of the Extractive Waste Directive. Measures on standards include developing additional standardisation deliverables for industrial processes and measures on the environmental footprint contain the progressive development of thresholds for CRMs, provided that a specific assessment indicates that this would not affect supply security.

Policy option 3 develops an external capacity in terms of governance, which makes it possible to propose ambitious measures on strategic stocks, monitoring and risks preparedness. It also builds on the concept of Strategic Projects, which would benefit from additional permitting support through dedicated resources from Member States and a dedicated European CRM Fund. Like option 2, it contains the measures on circularity, standards and environmental footprint.

Overall, the preferred option is policy option 2, as it receives support from stakeholders and Member States, puts a limited additional burden to institutions, has a relatively lower cost and helps to meet the general and specific objectives. It brings clear added value to the functioning of the single market and has positive economic impacts for critical raw materials producers and downstream sectors by building industrial resilience and boosting the development of the EU’s CRMs value chain. Policy option 3 would achieve certain objectives more effectively (especially as regards the pillars on monitoring and access to finance) but it would not be possible to implement given the current budgetary constraints.

Differences compared to the preferred option in the impact assessment

6.

The Regulation contains measures that are not assessed in the impact assessment, namely:


- Measures on the joint purchasing of strategic raw materials. These measures were part of policy option 3 on strategic stocks but were later analysed as feasible under policy option 2 even without a specific stockpiling framework. Measures on recyclability and on the recycled content of rare earth magnets. These measures were not detailed in the impact assessment but they do address an integral part of the problem described in it, notably the problem driver explaining how EU waste legislation does not sufficiently target critical raw materials recovery. The Commission collected additional evidence from experts, think tanks and industry to better understand the circularity challenges relating to magnets and the potential impacts of the measures. It also requires inserting provisions on compliance and on the presumption of conformity to enable the development of the necessary standards.

- Measures on cooperation on Strategic Partnerships. Since the international dimension of the impact assessment was strengthened, as suggested by the Regulatory Scrutiny Board, it was deemed appropriate to add a measure highlighting the need for cooperation and complementarity regarding the EU’s Strategic Partnerships on raw materials with third countries, including their coherence with Member States’ bilateral cooperation with relevant third countries, complementing the actions announced in the accompanying Communication.

- Measures on the stress tests of value chains were included in policy option 3 but are present in the Regulation with a more targeted scope, focusing on strategic raw materials only. It is expected that both the Commission and Member States can share the tasks related to their implementation, thereby limiting the administrative burden.

These new measures remain within the overall framework of the topics analysed in the impact assessment and do not significantly alter the comparison of options, or the preferred option.

The proposed regulation also contains measures that were assessed in the impact assessment but which differ in their implementation, namely:

- The proposal integrates the measures on extractive waste planned in the impact assessment directly in the Regulation rather than through a targeted amendment of the Extractive Waste Directive, to ensure that they apply sooner and more directly.

- It integrates measures on increasing the collection of electronic waste and other CRM-rich products and components, anticipated as a Commission Recommendation in the impact assessment, directly in the Regulation. This recommendation is to be announced in the accompanying Communication, along with a list of other circularity measures, as planned. The purpose is to provide guidance to Member States on the implementation of the measures required under the Regulation, at a later point.

- The preferred option in the impact assessment included measures requiring that sustainability claims are based on recognised certification schemes but implemented without reference to sustainability claims. These claims will be subject to horizontal legislation, as announced in the Commission initiative on green claims. The proposal includes a provision allowing the Commission to recognise certification schemes for the sustainability of CRM projects. Participation in one of these schemes will provide project promoters with a clear and efficient way of attesting compliance with the criterion for being a Strategic Project related to sustainability.

• Regulatory fitness and simplification

7.

This proposal does not envisage significant additional regulatory burden.


The administrative costs for businesses that will apply directly with this Regulation are limited. They relate first to the reporting obligations for a limited set of large companies operating in the CRM value chain, with reporting remaining voluntary for other companies. The costs incurred are likely to be offset for the same companies, which will benefit, under certain conditions (e.g., having their projects labelled as strategic) from efficiency gains from streamlined permitting obligations. A limited number of large companies manufacturing strategic technologies with strategic raw materials will also incur costs to carry out an audit.

Costs related to the studies required to calculate the underlying environmental footprint are also administrative costs that are accounted in the regulation, which would have to be offset by other initiatives.

The cost assessment also estimates the costs for existing mining sites of reporting further information. Given that the knowledge produced by this information on waste streams is likely to generate further economic activity through recovery, these costs are likely to be offset.

For Member States, the costs are likely to be higher. However, the Regulation will also generate higher synergies and lesser overlap in actions between Member States. This should unlock potential savings by improving coordination, for instance in monitoring and strategic stocks. The initiative does not anticipate any cost for citizens.

• Fundamental rights

The proposal requires that the Strategic Projects receiving support are implemented sustainably. Sustainable implementation means that the projects must be not only environmentally sustainable but also that they will respect the human rights set out in international instruments, guidelines and principles.

4. BUDGETARY IMPLICATIONS

The proposal has budgetary implications for the Commission. Specifically, and when fully operational, it requires up to 33 full-time equivalents per year to implement the regulation and the related delegated acts over the period 2024-27 of the EU’s multiannual financial framework.

In addition to EUR 3.2 million counted under Heading 1 for performing a range of studies needed for the implementation of the Regulation, it requires commitments on existing budget lines, amounting to EUR 14.969 million in Heading 7 (Administrative Expenditure). The new commitments will be covered from the existing budgetary envelopes of the relevant programmes. The budget implications are mainly to carry out the work foreseen to:

- draft delegated and implementing acts necessary for the implementation of this Regulation, including:

- implementing acts related to the application of and annual report of Strategic Project; general exploration programmes; companies risk preparedness; specifying which end-of-life products and waste streams contain relevant amounts of critical raw materials; and

- delegated acts related to the definition of critical and strategic raw materials; recycled content of products incorporating permanent magnets; customs codes for products incorporating permanent magnets; and the calculation and verification rules and performance classes for the environmental footprint;

- provide the secretariat of the European Critical Raw Materials Board;

- handle the administration of studies and contracts;

- carry out tasks of monitoring, data gathering and risks assessment tasks, notably on: market monitoring and reporting of critical and strategic raw materials and the assessment of their criticality;

- coordinate information from the Member States;

- ensure the enforcement of Member State obligations on circularity measures, including the measures on extractive waste;

- assess the suitability of the environmental footprint method, develop calculation methods and monitor the application of measures;

- enforce actions on standardisation and prepare standardisation requests;

- coordinate the national exploration activities;

- coordinate Member States’ information on strategic stocks and the development of guidance when possible;

- provide continuous support and reporting for the Strategic Projects, notably on permitting processes, and provide support for the selection process.

In terms of staffing needs, the Commission has looked carefully at ways to share the work between DGs, reallocate staff where possible and outsource scientific and technical support for the preparation of delegated and implementing acts and for cross-cutting tasks. It remains apparent, however, that the high level of ambition of the measures and the increased importance of critical raw materials call for a structured approach to develop the EU’s capacity to take action on this matter.

5. OTHER ELEMENTS

• Implementation plans and monitoring, evaluation and reporting arrangements

8.

The Commission will evaluate the coherence, results, impacts, proportionality and subsidiarity of this proposal five years after the date on which it becomes applicable.


The main findings of the evaluation will be presented in a report to the European Parliament, the Council, the European Economic and Social Committee, and the European Committee of the Regions which will be made public.

In order to conduct the evaluation, the European Critical Raw Materials Board, the Member States and national competent authorities will provide information to the Commission on its request. In particular this will include information on progress in reaching the benchmark for the EU capacity across the value chain stages and the effectiveness of monitoring activities.


• Detailed explanation of specific provisions in the proposal

Chapter I of the Regulation outlines the general provisions and includes the definitions. The Regulation states that the general objective is to ensure the EU’s access to a secure and sustainable supply of critical raw materials by pursuing four specific objectives: to strengthen EU’s capacities along the different stages of the value chain, to diversify EU’s imports of raw materials, to improve monitoring and risk mitigation capacities and to ensure a well-functioning single market while improving the sustainability and circularity of critical raw materials. It sets benchmarks to mark progress on the first two objectives described here.

Chapter II sets out lists critical and strategic raw materials, to be reviewed at least every four years, using the methodologies provided in Annexe I and II. These lists set the scope of the different measures.

The Commission assesses more than 80 materials used in the EU economy for their supply risk and economic importance based on average data for the latest complete 5-year period. The supply risk is determined by global and EU supply concentration, EU import reliance, input of secondary materials, and technical substitutability. The economic importance is calculated by the share of use in NACE 2-digit-level-sectors and their value added, taking into account the economic substitutability. The raw materials passing the thresholds are so called critical raw materials.

This well-recognized methodology identifies supply chains challenges in the whole EU economy. However, a complementary approach is required to ensure a more dynamic perspective on expected global demand and supply developments. It should identify the raw materials needed to achieve the EU’s twin transition and defence and aerospace objectives, and it should analyse future challenges and key dependencies in the supply of these raw materials.

All raw materials screened within the assessment of their criticality are mapped according to their use in and importance to the technologies that support the twin green and digital transition and defence and aerospace objectives. To perform this qualitative scoping, the analysis relied on the “Materials Dependencies for Dual-Use Technologies Relevant to Europe’s Defense Sector”22 of 2019, the “Critical Raw Materials for Strategic Technologies and Sectors – a Foresight Study”23, the “Study on the resilience of critical supply chains for energy security and clean energy transition during and after the COVID-19 crisis”24 of 2020, and the “Supply Chain Analysis and Material Demand Forecast in Strategic Technologies and Sectors in the EU – A Foresight Study”25 of 2023. This analysis also takes into account the work of relevant international organisations such as the IEA26, the OECD27 and other data sources.

If the raw material is of high importance to a technology, additional factors are considered, based on a semi-quantitative approach laid out in Annex 1 of this regulation. To assess whether there may be a gap in supply and if so, its magnitude, demand projections towards 2030 and beyond are identified as far as reliable and available, and the projected demand compared with the current supply, both for the EU and globally. To assess how the production of the raw material would be able to react to market signals, known reserves are compared with the current global production volume of the raw material. The global production volume is furthermore quantified logarithmically, as large production volumes are more difficult to scale up. As a result of these considerations, the list of strategic raw materials introduced in Annex 1 is proposed.

Chapter III sets out the framework to strengthen the EU’s strategic raw materials value chain by selecting and implementing Strategic Projects, that will be eligible for streamlined permitting processes and facilitated access to financing opportunities, which will be also improved by better coordination.

Section 1 sets out the rules governing the selection and implementation of Strategic Projects, including the criteria for being recognised as a Strategic Project, the procedures for their recognition and implementation.

Section 2 sets out streamlined permitting processes for critical raw material projects and in particular Strategic Projects.

Section 3 aims to provide enabling conditions for Strategic Projects, including Member State support to accelerate their implementation, coordination of financial support and facilitation off-take agreements.

Section 4 lays out provisions to develop general exploration programmes in Europe to facilitate the development of exploration and extraction projects.

Chapter IV develops a mechanism for coordinated monitoring of critical raw materials supply chains and provides measures to mitigate supply risks. It sets out a framework for systematically monitoring critical raw materials supply risks at different stages of the value chains. It also sets out a framework for risk mitigation by coordinating strategic stocks for strategic raw materials, by requiring large importers and manufacturers to regularly audit their supply chains, and facilitating the joint purchases of strategic raw materials.

Chapter V contains provisions for developing the circularity of critical raw materials markets and lowering the environmental footprint of critical raw materials.

Section 1 sets out rules for Member States to adopt and implement measures on circularity, in particular with regard to waste streams with high critical raw materials recovery potential, and for Member States and extractive waste operators to assess the potential to recover critical raw materials from extractive waste sites. It also improves the circularity of permanent magnets by requiring information on the type and composition of permanent magnets incorporated in products as well as on their recycled CRM content. It provides, following a dedicated assessment, for the introduction of minimum recycled content thresholds.

Section 2 sets out rules for the recognition by the Commission of certification schemes related to the sustainability of critical raw materials. It also contains provisions regarding the declaration of the environmental footprint or critical raw materials placed on the EU market.

Section 3 contains rules on free movement, conformity and market surveillance related to products incorporating permanent magnets and CRMs for which the environmental footprint has to be declared.

Chapter VI provides a framework for cooperation on Strategic Partnerships with third countries related to raw materials and to achieve greater synergies between Strategic Partnerships and Member States’ cooperation with relevant third countries.

Chapter VII sets up a European Critical Raw Materials Board, composed of high-level representatives from the Member States and the Commission, which will chair the Board. The Board will provide advice to the Commission and assist with coordination, cooperation and information exchange to support the implementation of this Regulation.

Chapters VIII and IX are chapters with articles on delegated acts and implementing acts and on the amendments made to other legislation.

Chapter X contains articles on penalties, monitoring progress and on carrying out an evaluation of the Regulation. It also establishes a common reporting for Member States related to different measures and contains an article ensuring that confidential information collected under this Regulation is handled in a consistent manner.

Annex I sets out the list of strategic raw materials and the methodology to select them.

Annex II sets out the list of critical raw materials and the methodology to select them.

Annex III provides elements to be taken into account when assessing a raw material project’s compliance with the criteria for recognition as a Strategic Project.

Annex IV specifies the criteria that a recognised certification scheme must meet.

Annex V sets out the element to be taken into account when defining calculation and verification rules for the environmental footprint of critical raw materials.

Annex VI provides a list of Combined Nomenclature codes and product descriptions corresponding to the products covered by the permanent magnet circularity requirements.