Minerals, raw materials, precious metals, and rare earth elements are at the base of all the finished goods we use in our daily lives – from the cutlery we use to eat, to phones and laptops, to electric vehicles, to the wind turbines, solar panels and electrical cables that power our activities.
Global economies are placing an increased focus on these raw materials. Why? What is their role in a carbon-neutral future and how is the EU preparing to ensure access to secure and reliable supplies?
To answer these questions, let’s first learn what raw materials are.
What are raw materials?
Raw materials are unrefined natural resources, be they metalic or non-metalic, that are processed and used to produce finished goods. They are fundamental for a strong industrial base, playing a key role in international trade and economic growth.
A common classification identifies three types of raw materials depending on their extraction process: mined (iron ore, nickel, cobalt, precious metals, etc), plant-based (wood, resins, wheat, corn) or animal-based (milk, meat, etc). Following processing and transformation, they become critical components of a product’s primary production.
Another classification distinguishes between direct and indirect materials. While direct raw materials are directly used by a company in the manufacturing of end products, like wood for a table, indirect materials contribute to the production process of a finished good, such as rare earths used to manufacture permanent magnets which are a critical component of wind turbines. Some of these raw materials are also considered primary commodities and are traded on raw exchange markets or on factor markets – as they are production factors for certain manufacturers.
Most minerals have a relatively inelastic supply which means that producers cannot easily ramp up output to meet changes in demand. This can lead to upward price trends as demand grows faster than supply. Lithium carbonate, for example, a key material to produce cathodes used in electric car batteries, registered a 496% year-on-year price increase in 2021 amid supply disruptions and increased demand.
To tackle supply shortages and reduce exposure to volatilities in global markets, companies are now diversifying their supply bases while exploring stockpiling and purchasing buffer inventories from suppliers.
Ramping up recycling – which results in secondary raw materials – is another solution for companies. Recycling helps reduce mining needs and costs, improves waste management and further supports a sustainable circular economy across multiple sectors.
Examples of raw materials used in the electricity industry
Some examples of the extensive list of materials and minerals used across the electricity value chain include:
An alloy made of steel and additional elements that increase its strength, hardness, and wear resistance properties. It is a critical component of transformers, which are used to shift the voltage of electricity – from high to medium or low voltage, thus enabling the power flowing across transmission lines to reach the distribution grids which then bring electricity to businesses and households.
An electrically conductive, malleable, corrosion-resistant metal that is used in multiple applications, including circuit boards, batteries, connectors and the distribution cables that bring electricity to consumers.
Thanks to its lightweight, corrosion-resistant properties, aluminium is widely used for wind turbines production.
In an interview for Euractiv in 2018, Maroš Šefčovič, former European Commission Vice President said: “To produce a 3-megawatt wind turbine, manufacturers need 335 tonnes of steel, 4.7 tonnes of copper, 1,200 tonnes of concrete, 3 tonnes of aluminium, 2 tonnes of rare earth elements as well as zinc.”
These figures alone highlight the importance of raw materials for a carbon-free economy powered by clean and renewable electricity.
Why do we need raw materials for decarbonisation?
Human activities, principally through emissions of greenhouse gases (GHG), have unequivocally caused global warming, with average global surface temperatures being already 1.1°C above pre-industrial levels. Every increment of temperature increase will intensify multiple and concurrent hazards. While some future changes are unavoidable and irreversible, others can be staved off through rapid annual GHG reduction.
Limiting global warming requires net-zero CO2 emissions and even net-negative emissions. The latest International Panel on Climate Change report highlighted key mitigation measures. These include electricity systems that emit no net CO2, widespread electrification, energy conservation and efficiency, and a greater integration across the energy system.
Large contributions to emissions reductions are coming from solar and wind power, but all technologies will be needed to power a clean energy system. Climate-responsive energy markets, updated design standards on energy assets, smart-grid technologies, and improved capacity to respond to supply deficits are other feasible measures with mitigation co-benefits in the medium- to long-term.
As the world accelerates its transition away from fossil fuels, the demand for raw and processed materials, like lithium, copper, aluminium, wafers and permanent magnets is exponentially increasing. The European Commission estimates that “the EU demand for rare earth metals is expected to increase six-fold by 2030 and seven-fold by 2050, for lithium, EU demand is expected to increase twelve-fold by 2030 and twenty-one-fold by 2050.”
With China as the indisputable hegemon in raw materials mining and processing, the EU must find new ways to break free from dependencies that might put its carbon-free path in jeopardy.
How is the EU preparing to ensure access to reliable and secure supplies of raw materials?
The COVID-19 pandemic has exposed multiple vulnerabilities in worldwide supply chains. As protracted lockdowns halted production facilities, travel restrictions reduced the ability to source supplies and transport them across borders. The chips shortage experienced in 2020 was a first warning that industries need to increase the resilience of their supply chains and have sufficient stocks in their inventory.
The second warning came with Russia’s invasion of Ukraine, and their deliberate constriction of gas supplies towards Europe. The overreliance on a single supplier, for over 57% of its gas and oil demand, pushed Europe into one of the biggest energy crises in history. But, it also brought the realisation that the energy transition away from fossil fuels cannot be delayed anymore.
REPowerEU, the bloc’s strategy to regain its energy independence, highlights the urgent decarbonisation needs. To get there, 753 GW of wind and solar should come online by the end of the decade in addition to the 62% electricity generation capacity increase which is required to deliver on the fit for 55% targets. One of the key enablers of this transformation is access to critical raw materials.
Eurelectric’s Power Barometer has shown that already in 2021 the global price rise of lithium, cobalt, nickel, aluminium and copper has triggered an average cost increase of 16% for solar modules, 9% for wind turbines and 20% for battery packs. Economic cost reduction efforts and an expansion in sustainable domestic production are essential efforts that could be taken to address this issue before it slows down project deployment.
How does the EU define critical and strategic raw materials?
European industries are highly reliant on international markets to access a wide range of raw and processed materials. The domestic extraction and production of minerals and materials is limited, in part due to the geological structure. Thus, in most cases, the EU is dependent on imports from third countries.
The European Commission’s assessment shows that China provides 100 % of the EU’s supply of heavy rare earth elements (REE), Turkey provides 99% of the EU’s supply of boron, and South Africa provides 71% of the EU’s needs for platinum and an even higher share of the platinum group metals iridium, rhodium, and ruthenium.
In response to the risks associated with the concentration of production and processing, the European Commission has adopted a proposal for a Regulation on Critical Raw Materials, also known as the Critical Raw Materials Act (CRMA). The Act seeks to equip the EU with the tools to ensure the EU's access to a secure and sustainable supply of critical raw materials, mainly by setting clear priorities for action including import diversification and investments in research and innovation.
The Act identifies a list of 34 critical raw materials and 16 strategic raw materials. While the criticality factor was determined through a methodology that assesses the economic importance and supply risks of an element, the strategic aspect was based on whether a technology’s material was critical for decarbonisation, like the ones used for solar, wind, batteries and electrolysers.
Both for strategic and critical raw materials, the Regulation sets into EU law clear benchmarks for domestic capacities by 2030. These include non-binding targets to ensure:
- 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,
- No more than 65% of the Union's annual consumption of each strategic raw material at any relevant stage of processing coming exclusively from a single third country.
Risk management and mitigation
To ensure the resilience of Europe’s manufacturing capacities and of the overall economy, the CRMA elaborates on the need to monitor the inventories, stress-test the supplies and coordinate strategic stocks.
In addition, it sets risk preparedness obligations on large companies producing strategic technologies – as defined by the Net Zero Industry Act. These strategic technologies include renewables, batteries and storage, electrolysers, as well as the electricity grid.
A sustainable and circular EU economy
Multiple studies have shown that technically the Earth has sufficient reserves of minerals to build the clean technologies required for a net-zero economy. Yet, their presence is concentrated in certain geographical areas, raising new geopolitical concerns over dependencies, and driving the need for innovation.
Some materials can be sourced domestically, and for that the EU will have to ramp up extraction following the highest sustainability, safety, social and environmental standards. But the exploration process, and the opening of new mines are capital intensive, time consuming (as it could take around 10 years), and present high risks. Thus, it is hard to make the business case and gather support from investment banks.
Moreover, the geological structure of the continent cannot be changed, and some ores simply cannot be sourced domestically.
In response to this challenge, countries and business operators can explore several courses of action. On one hand, they can source the needed material or mineral from third countries that apply similarly high standards in their mining processes. On the other, they could explore the use of secondary raw materials, which result from the recycling of recovered material-rich waste.
In this regard, the CRMA sets requirements on recyclability and recycled content, to help improve the circularity and sustainability of materials placed on the EU market.
Diversifying the Union's imports of raw materials
While international trade is the cornerstone of efficient sourcing and global production, ensuring diversification of supplies is essential. To mitigate the risks of overdependence on single third countries, the EU seeks to:
- Create an alliance or ‘club’ with like minded countries interested in cooperating to strengthen the global supply chains;
- Devise trade agreements to secure and diversify access to sustainably sourced raw materials;
- Build strategic partnerships with a value chain approach and strong sustainability standards;
- Support connectivity and development of hard and soft infrastructure to deploy projects along the raw materials value chain;
- Work with EU Member States to establish an EU export credit facility, thus lowering the risk of investment abroad.
Interested to learn more about the electricity sector? Check out our In Detail section to read all about electricity.