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Export credit agencies (ECAs) are set to play a vital part in the EU’s Critical Raw Materials Act (CRMA), introduced to help secure supplies of metals and minerals needed for the transition from fossil fuels to sustainable energy.

The act is part of the EU’s bid to minimise the effect of rocketing prices and supply chain disruptions in the wake of Russia’s war with Ukraine and the pandemic, as well as to mitigate its reliance on a small number of countries, including China, for access to minerals and metals essential to the production of more environmentally friendly energies.

According to an OECD trade policy paper on raw materials for the green transition, China is among the top three producers of six out of the 10 most production-concentrated critical raw materials.

Globally, trade in critical raw materials has grown faster than trade overall, the OECD says, rising 38% from 2007 to 2009 and 2017 to 2019, versus 31% for all goods, while lithium trade has ballooned by 438%.

The race to diversify the supply of these materials has been seen elsewhere in the world, notably with the US’ Inflation Reduction Act.

The European Commission released details of the CRMA last month, including a series of targets covering the proportion of strategic raw materials that should be locally produced, plans to help selected projects access finance and the introduction of shorter permitting timeframes.

It also intends to set up an EU export credit facility and a critical raw materials “club” aimed at all countries interested in strengthening global supply chains.

The EU’s list of critical raw materials includes nickel, lithium, aluminium, cobalt and graphite, which are crucial for technologies such as solar photovoltaic panels and electric vehicles.

Major investment is required to set up upstream, midstream and downstream operations in Europe.

ECAs have played a role in the development of the critical minerals sector for some time, with Export Finance Australia providing loans to companies developing graphite processing projects last year.

Sylvain Eckert, head of metals and mining, energy transition and natural resources at French investment bank Natixis CIB, tells GTR that export credit agencies will likely play an increasingly important role, though projects will take time to be developed.

“The BRGM’s [Bureau de Recherches Géologiques et Minières] French Geological Survey estimates that it takes on average 17 years from the moment a mining project is discovered to when it’s put into production,” Eckert says.

He notes that midstream and downstream operations, such as gigafactories used in the production of lithium-ion batteries, can be made operational far more rapidly than upstream processes.

These are also some of the most critical parts of the production process for countries wanting to reduce their dependence on China.

“In terms of pace of development, it’s much quicker than upstream because you don’t have the exploration. Processing plants can be developed on existing industrial sites, for which the environmental impact assessment studies have been advanced and promoters have started to do baseline studies,” Eckert says.

“We’ll see export credit agencies ramping up their guarantees for these projects,” he says.

 

Ambitious targets

The CRMA distinguishes between critical and strategic raw materials, the latter being raw materials that are “those most crucial for strategic technologies used for the green, digital, defence and space applications”.

It has set a series of benchmarks for domestic capacities of strategic raw materials to be reached by 2030, including at least 10% of the EU’s annual consumption to be mined locally, at least 40% of the bloc’s annual consumption of refining and processing to take place in the EU, and the recycling of at least 15% of its annual consumption.

According to the European Commission, EU demand for rare earth metals is expected to increase six-fold by 2030, while demand for lithium is expected to increase twelve-fold by 2030.

Natixis estimates that while the voluntary targets for mining manganese and graphite are realistic, those for boron are less so and the chances of achieving the targets for rare earth elements and titanium are unlikely.

Eckert explains that the practicality of meeting the targets depends on the commodity in question.

“For example, you have to multiply the production of lithium by 15 between 2020 and 2030 to meet the projected demand of electric vehicles,” Eckert says. “That is probably less of a problem than multiplying copper production by 1.5 or 2, because we’re talking about moving from almost negligible amounts to large quantities.”

Eckert says that the CRMA represents a step in the right direction, suggesting that people are beginning to realise that the energy transition will require an increase in the production of metals, but points out that a major stumbling block in Europe will be the “social acceptance of developing new mines and new industrial sites”.

“People do need to realise that if they want to control supply chains, they will have to cope with redeveloping some sort of mining industry in Europe as well,” he says, adding that this varies by region and country.

“In areas of Spain where mining hasn’t stopped for the last 2,500 years, redeveloping mines doesn’t appear to be an issue. But if you want to reopen a small mine in France where mining has stopped for the past 40 years, it’s going to be much more challenging,” Eckert says.

Another hurdle will be acquiring mining permits, though the CRMA aims to streamline the process while ensuring “high social and environmental protection”.