Unpacking the Critical Raw Materials Act

Market Instrumentalism and Extractivism in the Pursuit of Domestic Green Growth

The recently adopted Critical Raw Materials Act (CRMA) is framed as a milestone for the EU Green Industrial Plan and the twin green and digital transitions. In the context of emerging green industrial policies and the resurgence of the state as an economic actor, the Act encapsulates the EU’s attempt to instrumentalise markets for public objectives. Yet, the bid to generate tailored and specific market outcomes is undercut by the Act’s primary strategy of adjusting risks and returns for ultimately volatile, profit-driven private initiative. At the same time, the Act’s focus on domestic green growth, even if read charitably, remains myopic to the global challenge of climate change and perpetuates existing patterns of core-periphery extractivism.

Securing the Resources for the Twin Transition

In her 2022 State of the Union Address, President of the European Commission Ursula von der Leyen set the stakes: ‘Whether we talk about chips for virtual reality or cells for solar panels, the twin transitions will be fuelled by raw materials. Lithium and rare earths are already replacing gas and oil at the heart of our economy.’ Indeed, batteries for electric vehicles, wind turbines, solar panels, and semiconductors all require critical raw materials that are in short supply and subject to geopolitical antagonism. In the spirit of the urgency conveyed by its President’s quote, the European Commission presented in March 2023 a Proposal for a Regulation establishing a framework for ensuring a secure and sustainable supply of critical raw materials (the CRM Act). On 12 December 2023 – in record time – the European Parliament adopted the CRMA, which now awaits formal endorsement by the Council.

The key objective of the CRMA is to secure the resources required for the twin green and digital transitions, setting the EU Green Industrial Plan in motion. Envisioned as part of the EU’s response to the U.S. Inflation Reduction Act but also to China’s government-led industrial policies, the CRMA aspires to mobilise private investment to secure the raw materials required for green and digital infrastructure, as well as for defence and space applications. The CRMA seeks to strengthen the EU’s capacities along the different stages of the critical raw materials value chain (i.e., extraction, processing, recycling) and to diversify the EU’s imports, with no single third country providing more than 65% of the EU’s annual consumption of critical raw material. Specifically concerning extraction, the Act calls upon Member States to formulate national programs for comprehensive exploration focused on critical raw materials, placing mining within the EU firmly under the Act’s priorities.

Market Instrumentalism through Derisking

In many ways, the CRMA denotes a break from the established, ordoliberal paradigm of economic regulation in the EU. In this paradigm, economic regulation in the EU has been defined by a pro-competitive logic, assuming that competitive markets deliver on social goals through aggregate individual market activity and optimal allocation of productive resources. As such, the key function of economic regulation was securing market conditions through, primarily, the protection of a level playing field.

On the contrary, the CRMA, and more broadly, the Green Industrial Plan, operate on the assumption that markets are not an end in themselves but exist to advance articulated political objectives beyond enabling the exercise of private autonomy. The CRMA is not about safeguarding markets in the abstract, in the hope they ultimately deliver on the green transition objectives; it is about generating a specific kind of market activity, one that is shaped and geared to deliver on the goals of the green transition in a context of heightened geopolitical antagonism.

At first, this turn to market instrumentalism promises a politicisation of markets, viewing them as legal constructs that serve social and politically determined functions. This is consistent with the broader context in which the European Green Deal is to become purposeful, which has involved, for example, the extraordinary joint indebtedness brought about by the Recovery and Resilience Facility and the loosening of state aid rules.

This promise, however, is compromised as market reconstruction is concretised through a process political economists have referred to as ‘derisking‘: the mobilisation of private capital to achieve public policy priorities by tinkering with risk and returns on private investments. Ultimately, this follows the neoclassical model of correcting market failures, where interventions of public institutions do not subordinate private economic activity to public objectives but only correct price signals to guide private capital towards desirable policy outcomes. This may lead to concentration of investment around short-term profit opportunities at the expense of broader priorities (e.g., concentration of investment in electric car batteries as opposed to renewable energy in the context of the U.S. Inflation Reduction Act). Specifically in the context of the CRMA and the EU Green Deal, derisking has been decried as insufficient by industry and critical political economists alike, although for different reasons. While for the former derisking in the CRMA still fails to make the business case for ‘high-risk investment’, for the latter the absence of disciplining mechanisms for private capital amplifies the volatile nature of profit-driven investments and their inadequacy for projects of structural transformation.

One such instance of derisking can be found in the CRMA provisions around ‘Strategic Projects’. As such are identified the projects that strengthen the EU’s security of supply for strategic raw materials. Provided they fulfil certain additional conditions, such as technical feasibility and sustainable implementation, Strategic Projects may be recognised as such by the Commission and, as a result, benefit from a status of ‘overriding public interest’ (Art. 10, para 2). This involves accelerated permitting processes and ‘urgent treatment’ in all judicial and dispute resolution procedures relating to the projects. This priority status of Strategic Projects raises concerns with regard to the respect for the rule of law and equality before the law, as well the right to an effective remedy and fair trial, with NGOs warning of disadvantaging affected rightsholders with less time and information to prepare their defence. In this case, derisking assumes the form of an extraordinary legal guarantee to reduce administrative burdens and risks associated with establishing a new investment project.

Derisking also assumes the form of improved access to finance and the sharing of financial risks for Strategic Projects. This means, for example, enabling public support through guarantees, debt products, and even state aid, facilitating off-take agreements, or channelling resources from the European Investment Bank Group and other InvestEU implementing partners, who are given a role for coordinating financing for Strategic Projects. Overall, the derisking ambition of the CRMA was captured by the Rapporteur of the Act, MEP Nicola Beer, who referred to the objective of creating ‘project-planning certainty for private investors’.

At Whose Cost?

While – or precisely because – the CRMA seeks to secure domestic green growth, it is not limited to domestic raw materials value chains. In a Communication published in parallel to the Proposal for a Regulation, the Commission outlined its intention to pursue ‘strategic partnerships’ to ensure the steady supply of critical raw materials. One example is the partnership with Canada as part of the EU–Canada Comprehensive Economic and Trade Agreement (CETA). Yet, the EU has at the same time sought to constrain export restrictions of resource-rich countries, such as China and Indonesia, both based on WTO law and through the pursuit of Free Trade Agreements that prohibit export taxes or export monopolies and grant foreign investment access specifically in the field of raw materials (e.g., EU-Chile Advanced Framework Agreement).

Furthermore, the CRMA makes clear that Strategic Projects can take place in third countries. On paper, this comes with a set of guarantees, such as that the project must ‘add value’ to the third country, it must be implemented sustainably, and project promoters must try to improve the environmental state of the affected sites after the end of exploitation – but only subject to economic feasibility (Art 7 para 1.i). The European Parliament also inserted amendments concerning indigenous rights, such as meaningful consultation and fair compensation. However, these guarantees appear weak in the face of the known and well-established patterns of aggressive exploitation, human rights violations, and environmental degradation associated with raw materials extraction projects. ‘Adding value’ constitutes an economic framing that may allow friendly governments not to take realities on the ground into consideration, ‘meaningful’ remains vague as qualification for consultations which ultimately allow the ‘minimisation of adverse impacts on indigenous rights’ (Art 7, para 1.e), while ‘sustainable implementation’ can be determined by means of private certification – with even the commitment to obtain such certification in the future being sufficient for the Strategic Project to fulfil the sustainability criterion (Annex III, para 4.b). More broadly, the ‘overriding public interest’ accorded to such projects alludes to how the EU’s steadfast pursuit of critical raw materials is likely to further exacerbate inequalities between the Global North and South, accelerating dynamics of dependency and unequal development that aggravate the effects of climate change.

The CRMA is a crucial piece of the EU’s strategy for decarbonisation and climate neutrality. While a full assessment of its implications is beyond the scope of this article, the Act’s domestic priorities and commitment to private-led growth define the contours of its potential and underscore the absence of a climate justice vision.