The EU's dearth of critical minerals leaves it reliant on problematic sources such as Russia and China, which have less regard for the environment and human rights and often have conflicting geopolitical objectives, as the EU strives to become climate neutral by 2050.

"Raw materials will play a hugely important part in our future, especially given the ongoing transition towards a green and digital economy — a trend not only accelerated but one which lies at the heart of our recovery," European Commission Vice President Maroš Šefčovič said Sept. 3 at a press conference on critical raw materials resilience in the EU.

Shortages of a number of commodities needed for everything from renewable energy to military hardware undermine the region's sustainability goals and its wider geopolitical priorities, particularly regarding resource-rich rivals. The EU imports between 75% and 100% of most of its metals, while China provides 98% of its rare earth supply, Šefčovič said as the bloc revealed a strategy to secure the supply of 30 critical materials including four newly added ones — bauxite, lithium, strontium and titanium.

To make matters worse, the coronavirus pandemic has taken a heavy toll on European industry, not least the metals and mining sector, which has been losing ground to foreign rivals since the 2008 financial crisis.

Beyond simple availability in an increasingly globalized world, many of these unusual commodities are also associated with higher risks of human rights violations and environmental degradation. The pandemic has also highlighted the vulnerability of the commodities' complex supply chains.

By 2050, the bloc will need almost 60 times more lithium and 15 times more cobalt for electric cars and energy storage alone, according to Šefčovič. Over the same period, demand for rare earths used in the permanent magnets of the likes of wind turbines could rise tenfold.

"The EU has grand visions of developing industries and supply chains that are going to need growing supplies," Ryan Castilloux, managing director of Adamas Intelligence, said in an interview. "Europe does have Canada and Australia as close allies, which are endowed in those minerals," Castilloux said, but they are probably years behind Europe in terms of trying to advance supply chains for batteries and electric vehicles.

While some critical elements such as lithium do occur within the EU's boundaries, developing deposits for exploitation is a long and drawn out process with many hurdles, not least environmental and social. At the same time, even run-of-the-mill commodities such as iron ore and coal can be more expensive to extract in the bloc due to higher regulatory standards and costs.

"We're entering an arena where countries that can repress rights perhaps then have an economic advantage over the exploitation of some of these green commodities, as was the case, you could say, with oil and gas in Saudi Arabia 30 [or] 40 years ago," John Morrison, CEO of the London-based Institute for Human Rights and Business think tank, told S&P Global Market Intelligence. "Human rights has become a competitive issue and creates additional cost for countries that have to respect human rights."

"What we're seeing is an acute version of something we've already seen over the decades before, and we know in the case of coal and ... oil and gas, that that sometimes can create huge geopolitical tensions that have created wars in the past," Morrison said. "What can be done differently this time to ensure that these commodities are as much as possible a global public good and not weaponized in trade disputes and geopolitical tensions, and how can we also create greater equity for the communities who are going to be affected most by the exploitation of these commodities?"

EU strategy

The first step of the EU's action plan is to launch an industry-driven European Raw Materials Alliance in the third quarter, "initially to build resilience and open strategic autonomy for the rare earths and magnets value chain, before extending to other raw material areas," the European Commission said. The EU will also develop sustainable financing criteria for mining and processing by the end of 2021.

While diversifying supply is among the first steps in the bloc's strategy, it will also look to make better use of its own resources and recycling. The regions has four industrial projects in sustainable mining and processing underway at a cost of nearly €2 billion that are expected to cover 80% of the EU's lithium requirements in the battery sector by 2025.

"The EU generally takes a more nuanced view on dealing with Russia and China than the U.S.," GPW senior analyst Florence Cahill told Market Intelligence. "Take Nord Stream 2 — the new U.S. sanctions on the pipeline provoked a strong backlash from Berlin, which claims the U.S. action interferes in Europe's sovereignty."

"Issues relating to human rights, the environment and so on will of course be considerations in acquiring the minerals," Cahill said. "However, it may be a case of the ends justifying the means. Arguably of greater concern would be [something like] violating sanctions."

The issue extends beyond mineral extraction to processing and refining where China leads the way, not least in the rare earth metals, which have featured prominently in the ongoing trade tensions between Beijing and Washington.

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Rare earth metals are a concern in particular because of the dominance of Chinese state-run companies in their production, according to Morrison. "They're not the kind of companies where human rights activists [and] human rights defenders can really gain much leverage," Morrison said. "And in fact, in the case of China over the past few years, it's very hard for even locals to protest against the environmental degradation and damage caused by some of this mining."

"With the EU being pretty much constrained in its ability to seek meaningful change in third countries absent political will to do so, I think the onus will still largely lie with EU-based importers," said George Voloshin, the head of Aperio Intelligence's Paris branch. EU regulation on conflict minerals will come into effect at the start of 2021, and work on draft regulations for the battery space is also underway, Voloshin noted. The "third countries" classification covers countries that are not part of the EU or the European Free Trade Association.

"It has also been stated that the commission could put forward a horizontal regulatory proposal on due diligence that would by the very definition extend to a wide number of raw materials, including those whose supply is limited to high-risk jurisdictions, because of scarcity and geographic concentrations," Voloshin said.

"We must take strategic action that will result in long-lasting changes and in Europe being economically as well as geopolitically more resilient," Šefčovič said.