This opinion piece examines the different geopolitical situations the USA and European Union find themselves in, and how this has shaped their sourcing strategies.

As concern for critical mineral supplies continues to ramp up, western governments have been looking at their sourcing strategies. The USA and EU are the only governments to have, at present, released fully developed strategies.

This opinion piece examines the different geopolitical situations the USA and European Union find themselves in, and how this has shaped their sourcing strategies.

To produce a comprehensive critical materials strategy, three overarching points must be considered:

1.      The strategic dependency of a geography’s economy on certain materials.

2.      The risk factors of each commodity within this materials portfolio.

3.      The feasibility of rectifying or mitigating risk factors within the relevant critical materials supply chains.

The main differences between both governments’ material sourcing strategies are the primary sectors of focus of each, and the methods employed in their executions.

European Union

Between the United States and European Union, the EU is significantly more reliant on imported commodities. While the EU does have a large number of mining operations spread across a variety of the sectors listed in its critical materials list, these operations are typically higher cost, smaller scale and are often not among the more competitive assets in their sectors. In addition, developing new mines presents challenges from local communities and the legislative environment of the countries within the EU.

The result of this is a material strategy that has focused primarily on shoring up imported materials supplies followed by developing a robust recycling sector to capture as much material supply as possible in future. In recent years, the EU has moved to sign critical materials agreements with a number of producer countries and is now in the process of working on deals with both Argentina and Chile to secure future lithium supplies. Additionally, the EU has set out aggressive recycling targets with its Battery Directive legislation aimed at retaining imported feedstock in the Union. The risk here is that battery manufacturers, who will currently be responsible for used battery collection, may be commercially incentivised to sell end-of-life Li-ion batteries to customers outside of the EU in the energy storage sector. Therefore, incentives for the manufacturers to retain batteries within the EU will need to be enforced in upcoming legislation.

Following the announcement of the United States Inflation Reduction Act (IRA) in February 2023, the EU released the Green Deal Industrial Plan. Largely seen as a response to the IRA, the plan seeks to make more funding available to support the development of new green energy transition-adjacent projects, as well as reduce the legislative barriers to developing these new projects. This latest development shows the EU is now having to anticipate difficulties in securing critical materials supplies for itself, while competing with the United States.

United States

The United States finds itself in a similar position to the EU in needing to secure critical materials supplies for its aggressive green energy transition targets, as well as for several other industries. The most recent and largest-scale piece of US legislation has been the aforementioned Inflation IRA. While this legislation is similar in aim to that introduced by the EU, the execution differs.

The USA has a greater capacity for mining operations and upstream resource development than the EU. As a result, the US is seeking to remove or mitigate its reliance on overseas imports of critical minerals and replace it with domestic sources. The US Government has given approval to a number of mining projects aimed at critical materials and sought to reduce federal permitting timeframes. Where domestic development is not applicable, the IRA incentivises consumers to import materials from countries with which the USA has a Free Trade Agreement (FTA). This is significant as the US has a number of free trade agreements with countries whose economies are heavily leveraged towards mining or which have significant mining industries, such as Canada and Chile.

Comparison

The result of the different geopolitical situation the US finds itself in compared to the EU, is that the IRA is more focused on incentives aimed at the downstream manufacturing sector, specifically regarding electric vehicles (EVs). This is achieved by offering subsidies on EVs to customers if specific percentages of the battery metals within the vehicle are manufactured in the US or a country with which it has an FTA.   

The reason for the contrast between the European Union and United States’ critical minerals strategies largely comes down to the resource situation both governments find themselves in. The US has a much greater appetite and capacity for mining operations and arguably has greater diplomatic relations with countries that have more established mining sectors. The result of this, and the United States’ more federalised political system, is a mineral strategy that focuses far more on indirect incentives such as subsidies aimed at consumers, than direct cash injections at the project level. Conversely, the European Union has taken a more direct approach to project development, relying on direct funding for clean energy and critical materials projects.