The Critical Raw Materials Act: our pathway out of Europe’s looming deindustralisation?

By Paul Voss | European Aluminium

07-12-2022

[European Aluminium]

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For decades, Europe has increasingly outsourced industry, manufacturing, and the production and processing of raw materials to low-wage countries, turning a blind eye to the sustainability (or lack thereof!) of imported products because it was expedient and made short-term economic sense. But the fallout of the pandemic and war in Ukraine is making the pendulum swing the other way.

Paul Voss is the Director General of European Aluminium.

Policymakers face the stark realisation that the EU is excessively reliant on third countries for the raw materials needed to accomplish its green and digital transformation. In an increasingly fraught geopolitical environment, this constitutes an unacceptable strategic vulnerability.

Aluminium: a strategic raw material and partner for Europe's critical goals

Aluminium is one of the strategic raw materials industries Europe cannot afford to lose. It is used in almost all energy generation, transmission, and storage technologies, particularly those that will deliver the energy transition, such as wind and solar power, alternative fuel cells, hydrogen production, high-voltage cables, and batteries. A study by KU Leuven shows that the EU energy transition alone will lead to a 30% increase in aluminium demand by 2040, with electric vehicles, solar power, and electricity networks as the main growth drivers.

The numbers speak for themselves: Europe will need aluminium in greater quantities than ever before. The only question is whether we will produce it here in Europe or outsource all aluminium manufacturing to countries like China, where the carbon footprint of production is up to three times higher and environmental and social standards are much lower.

If the European aluminium sector does not receive enough support to survive the tough year ahead, there is a genuine risk that there will be no strong European aluminium industry left to supply the demand. Our position on the global market has long suffered from Europe's relatively high energy prices and unfair trade practices, but since the start of the energy crisis, our competitiveness has been in a complete free fall.

This year, we have already lost 50% (1.1 million tonnes) of our primary aluminium production capacity. The economic viability of our semi-fabrication and recycling sectors, which depend on gas, has also been severely compromised. And while European plants are closing, China is hitting aluminium production records, adding to their already massive aluminium overcapacities.[1]

Stopping Europe's descent into deindustrialisation

We need a long-overdue European industrial agenda with structural and long-term policies supporting sustainable growth and our bloc's strategic autonomy to limit our dependence on third countries and avert a raw materials supply crisis. If designed well, the European Commission's upcoming Critical Raw Materials (CRM) Act can be our answer to the US Inflation Reduction Act and help prevent Europe from entering an age of deindustrialisation.

The signs we are receiving from the Commission are encouraging. Speaking at our recent panel debate, EU Commission official Peter Handley said the Commission will not limit their CRM Act to materials featured on the current Critical Raw Materials list but is also set to include "strategic materials for Europe's strategic goals," including aluminium. The Act will aim "to ensure we maximise circularity, resource efficiency and external diversification of supply sources" and focuses on "building capacities."

Critical Raw Materials Act: key factors for success

For the Act to achieve what it sets out, it needs a full value chain approach that accounts for all stages in manufacturing a product and ensures coherence across different policy areas. In the words of Anna-Michelle Asimakopoulou, Vice-chair of the European Parliament's trade committee: "We need to bring together energy policy, competition policy, chemicals regulation, environmental regulation, and funding schemes to create an ecosystem that is going to support the aluminium industry."

Secondly, raw materials production is often energy-intensive, so the CRM Act must go hand in hand with facilitating access to renewable energy and measures to address the disproportionately higher energy costs our producers face compared to global competitors. The emergency energy measures the Commission introduced are insufficient and do not make a dent in today's extraordinarily high energy bills.

Thirdly, the Act should help boost investor confidence by introducing de-risk mechanisms for private funding and directing more funding from existing EU financing schemes to targeted raw materials projects.

Finally, the CRM Act should create a stronger market for recovering and recycling secondary raw materials (SRMs) such as aluminium scrap. As Julia Poliscanova from the leading clean transport NGO Transport & Environment pointed out, our world-leading recycling industry is too hampered by red tape.

Simplifying licensing procedures and reducing the overall administrative and financial costs for shipping waste will allow more valuable secondary materials to remain in circulation instead of being shipped to third countries. Promoting measures to increase the efficiency of collection, sorting, and pre-treatment of SRMs, such as aluminium scrap, can close the loop further.

Our last chance to get this right

Europe is at a critical inflection point and has potentially one last opportunity to save its industrial base. And while the CRM Act might not be able to match the financial firepower of the US and China, Europe can still turn the tide by ensuring that the EU's ambitious green legislative framework translates into a competitive advantage for our best-in-class producers.

This article follows the policy debate "Strategic Raw Materials: Europe's Industrial Agenda for a Sustainable and Resilient Future" supported by European Aluminium.

[1] https://www.reuters.com/article/us-china-economy-output-aluminium-idUSKBN2740RD

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