• EU’s €1 trillion ($1.1 tn) climate plan will require significant critical raw materials
• lithium demand in EU for batteries forecast to grow x12 by 2030
• partnerships with mining companies and resource-rich countries essential
• Japan, South Korea, US also have huge national investment plans to decarbonize

The European Union’s trillion-dollar Green Deal Investment Plan is expected to generate huge demand for commodities in the coming decade — offering a unique opportunity for investors.

The plan, which aims to mobilize €1 trillion (US$1.1 trillion) in spending to cut carbon emissions by 55% by 2030, came into sharper focus for commodity investors after the EU issued its Critical Raw Materials Act (CRM) in March. The Act aims to increase the EU’s domestic production of critical raw materials, develop recycling technologies and build strategic partnerships.

It is expected to act as a catalyst to growing demand for critical minerals essential for electric vehicles and lower-carbon energy systems.

The European Commission’s Joint Research Centre forecasts “an unprecedented increase in materials demand” under which lithium demand for batteries could grow as much as twelvefold in the EU from 4,900 tonnes in 2020 to 58,000 tonnes in 2030; cobalt demand could grow sixfold to 54,000 tonnes in the same comparison; overall EU consumption of graphite is expected to increase to 26 times by 2050. 

The act, which is expected to come into force over the next few months, sets benchmarks for domestic capacities along the strategic raw material supply chain and aims to diversify EU supply by 2030: 

• at least 10% of the EU’s annual consumption for extraction
• at least 40% of the EU’s annual consumption for processing
• at least 15% of the EU’s annual consumption for recycling 
• not more than 65% of the Union’s annual consumption of each strategic raw material at any relevant stage of processing from a single third country

The act also makes clear just how much the EU depends on imports of rare earths, cobalt, lithium, battery-grade manganese, natural graphite and nickel, without which the EU will not meet its net zero targets.

For example, according to the latest EU report, China provides 100% of the EU’s rare earth elements, Turkey provides 48% of the EU’s supply of boron, South Africa provided 71% of the bloc’s platinium, and 79% of its lithium supply is from Chile.

“Global competition for resources will become fierce in the coming decade. Dependence of [sic] critical raw materials may soon replace today’s dependence on oil,” the EU’s study on critical raw materials said.

The EU is the world’s largest trading bloc and the plan is expected to have a big impact for companies, countries and investors who can position themselves to take advantage of the support offered, and not just within the EU.

One of the challenges for the EU’s mission to decarbonize has been its dependence on China and Russia — as highlighted by the war in Ukraine and supply chain stress during the Covid lockdowns — for raw materials needed for batteries, energy storage systems, wind farms and solar panels. With not more than 65% of the EU’s annual consumption of each strategic raw material at any relevant stage of processing no longer permitted to come from a single third country, these supply chains will now need to be diversified.

“Raw materials are vital for manufacturing key technologies for our twin transition – like wind power generation, hydrogen storage or batteries. And we’re strengthening our cooperation with reliable trading partners globally to reduce the EU’s current dependencies on just one or a few countries”

— EU president Ursula von der Leyen, Critical Raw Materials Act

The macro picture for the decarbonization of commodities and companies that produce and process them is compelling, based on the vast government legislation being passed, not only in the EU, but also over $370 billon in the US, $150 billion in Japan, South Korea and many others.

The EU’s latest legislation is in some ways a move to counter concerns over investment moving to the US. 

One observer suggests the US and EU could evolve into a larger trading bloc for critical minerals, a “metallic NATO“

To gain exposure:

• the obvious place for investors is in companies with assets already in place or close to production within Europe
• companies and investments with reliable and sustainable projects that can access the financial support from the new legislation
• also companies that have assets in countries that EU legislators have pointed to in terms of current or planned trade deals, specifically Canada, Japan, Vietnam, Chile, or Australia

As new legislation is announced by governments across the world to support the energy transition, stay subscribed to The Oregon Group to stay ahead. 

EU’s critical mineral legislation timeline

• November 2019: European Investment Bank announces €1 trillion in climate and environmental investment by 2020
• December 2019: European Union launches the European Green Deal, which plans to make the continent carbon neutral by 2050, and do so in a way that implements the UN’s 2030 Agenda for Sustainable Development, that is, by turning the challenge of climate change into an opportunity
• January 2020: EU details €1 trillion European Green Deal Investment Plan, which aims to make available the funding required for European Green Deal, partly through EU budget but also by facilitating private finance. Financing plans only partially overlap with EIB plans: together the two plans have potential to deliver EUR1.75 trillion
• September 2022: EU says it will create objectives to increase EU’s self-sufficiency for raw materials required by energy transition
• March 2023: EU president Ursula von der Leyden announces Critical Raw Materials Act
• next few months: CRM Act becomes law in EU