From Dependence to Autonomy

Abstract

Research Objective & Methodology
The COVID-19 supply disruptions and the energy crisis triggered by the Russian-Ukrainian conflict emphasize the EU's structural supply dependencies and potential damages during crises. It underscores the critical risk factors, particularly Rare Earth Elements (REEs), which are highly susceptible to supply disturbances due to their increasing demand, limited supply, and reliance on a few suppliers, notably China. REEs are contrary to their name quite abundant, however, their extraction and processing are environmentally intensive, complex, and expensive. These REEs are utilized in numerous applications, including applications used in the energy transition because they exist in the Neodymium-Iron-Boron permanent magnets (Nd-Fe-B PMs). These magnets are used in wind turbine generators and traction motors of EVs. In these technologies, magnets are necessary to convert electricity into kinetic energy in EVs and vice versa for wind turbines.

This thesis focused on understanding how the EU can bolster its autonomy regarding its access to REEs, counterbalance supply risks, examine existing strategies, evaluate their effectiveness, and identify additional institutional interventions to strengthen the EU's position. This led to the following main research question:

How can the European Union improve its autonomy regarding its access to rare earth elements to achieve material security in the context of the European Union's energy transition?

The qualitative approach was chosen as the most suitable design approach to answering this main research question. It enabled a nuanced understanding of the EU's REE dependency issue by considering multiple dimensions and facilitated the development of well-informed and contextually grounded institutional interventions. The findings are triangulated between a literature review, desk research, and semi-structured depth-interviews with seven experts in this field.

This study performed REE value chains, actors, institutions, and PESTEL factor analyses. These four analyses offered a multifaceted insight into the complexities and interactions within this domain. Moreover, the illumination of various perspectives enhanced the overall comprehensiveness and facilitated a more holistic view of the EU's quest for enhanced REE autonomy.

Findings
Regarding the global REE value chain, China's unparalleled dominance, facilitated by generous lines of credits and subsidies, strategic partnerships and initiatives, geopolitical influence, manufacturing capabilities, technology, infrastructure, low labor cost, and lax environmental regulations, presents significant challenges. China's extensive control, especially in REE processing and Nd-Fe-B PM manufacturing, underscores the complex global dependence on China’s REE industry. The critical issues identified include a single third country supply dependency, rising demand for Nd-Fe-B PMs, challenges in recycling and circularity, high cost, stringent environmental regulations, and the need for skilled labor. These concerns, especially during the processing stage, underscore the complex barriers to achieving a resilient REE supply chain.

Globally, the REE landscape is predominantly shaped by China and the US. China maintains its pre-eminence through strategic initiatives, while the US is actively trying to close the gap. Acknowledging the imperative of strategic autonomy, the EU has instituted ambitious regulations, exemplified by the Critical Raw Materials Act (CRMA) and the Net-Zero Industry Act. These regulations established industry benchmarks for domestic extraction, processing, and recycling. However, the effectiveness of the CRMA in ensuring robust REE supply security is questionable.
 
The legislation lacks clarity on achieving and implementing industry benchmarks, presenting significant challenges in compliance, environmental and societal impacts, navigating shortened lead times for permitting, and addressing hurdles in private investment and fiscal alignment.

Institutional Interventions
This research identified enabling and constraining factors for the EU's autonomy regarding REE. Whereafter institutional interventions were created to cope with these issues. To achieve enhanced autonomy regarding REE access, five main strategies and several interventions are suggested. Conclusively, it is vital to note that the approach here is not a binary choice between strategies; rather, it necessitates the integration of a synergistic blend of the five proposed strategies.

Firstly, ‘Supply Diversification’ addresses the introduction of incentives for private demand for diversification, and the enhancement of strategic partnerships with REE-rich, EU-friendly countries.

Secondly, ‘Domestic Supply’ discusses: regulations incentivizing internal capacity; levelling the playing field; including Nd-Fe-B PM domestic manufacturing benchmarks; raising public acceptance; expanding funding; standardizing long-term contracts; and introducing low-energy zones.

Thirdly, ‘Circularity’ Encourages Nd-Fe-B PM demand reduction; incentivizes EoL practices; establishes CRMA PM labeling requirements; sets Nd-Fe-B PM collection targets; provides incentive structures; standardizes circularity by design; introduces extended producer responsibility; expands support programs; and impose an export ban on EoL Nd-Fe-B PMs.

Fourthly, ‘Substitutes for Nd-Fe-B PMs’ proposes: an increase in funding for R&D and innovation; and incentivizes substitutes for EV and wind turbine applications.

Fifthly, ‘Strategic Stockpiling’: addresses deficiencies in communication, transparency, and clarity by investigating obligation possibilities for Member States to monitor and strategically stock Nd-Fe-B PMs

Furthermore, the European Commission is instructed to consider introducing sub-benchmarks per individual CRM, improving understanding within governmental entities, increasing overall investment, and acknowledging the criticality for the EU to extend its policy horizon beyond 2030, given the long-term impacts of most proposed options. Moreover, EU policy alignment between Member States is critical, especially for creating an EU-level playing field for internal capacity and circularity. Enhancing autonomy in the realm of Rare Earth Elements (REEs) poses significant challenges, yet this thesis equips policymakers with essential findings and tools to navigate and improve access to REEs.