Europe’s problem with minerals
Since Donald Trump’s January inauguration, two countries have been mentioned as prime annexation candidates: Greenland* and Canada. Putting aside how ludicrous it is for a US president to consider annexing his allies, there’s a commonality here. Both have huge reserves of minerals, including lithium, nickel, copper, and the rare earths. This matters.
The green transition requires a lot of these minerals. This is a consequence of the physics: solar panels and wind turbines need semiconductors and magnets. Internal combustion engines don’t. We can compare them. A new unit of offshore wind energy requires 15x more of these minerals than we would to build a new unit of natural gas.
These minerals are often called critical minerals, as they’re key to modern day industries. The European Council has defined a list of 34 critical raw materials, of which 17 are of particular strategic importance.
But geology gets in the way: critical minerals aren’t distributed evenly. Some countries have an abundance. Many other countries have none.
Europe is clearly struggling here. This isn’t purely down to geology though. Economics and politics play a role. Indonesia has half of the world’s nickel production, but 20% of global reserves. Their hefty reserves gave them a headstart. But cheap (dirty) power, easy access to Chinese demand, and targeted government policies propelled them to production dominance. The EU has 4% of global nickel reserves, but European nickel would be undercut by Indonesian exports.
The global leader in critical minerals extraction and production is China. This is a risk for Europe: our supply chains and modern industries are entirely reliant on Chinese exports. The EU passed the Critical Raw Materials Act (CRMA) earlier this year to mitigate this risk. Under the CRMA, by 2030, the EU’s critical material consumption must be: 10% from local extraction; 40% from on-shore processing and 25% from recycled materials. But there are a few problems.
Firstly, we can’t extract what’s not there. Let’s take lithium as an example. In 2021, the EU produced around 0.1% of global lithium. The EU only has 1% of global lithium reserves. It’s not realistic for us to reach 10% local extraction for our lithium consumption within 5 years. We lack extraction and production capacity.
This leads to the second problem. Processing minerals isn’t easy. It’s environmentally damaging, takes a long time to scale capacity, and requires new supply chains being built (importing the raw minerals alongside the array of chemicals needed to extract and refine them). I don’t think the existing processing methods could scale in Europe. One reason why China is the world leader in refining rare earth elements (a group of elements that are essential for a lot of modern tech) is that they’re one of the few willing to actually refine them. Imagine huge open pools of sulphuric acid, slowly leeching into the nearby soil, and generating radioactive waste (including bits of uranium) from leftover ore. I can’t see any EU country convincing their populations to support this.
The third problem is the economics. Countries like China have “perfected” the art of mineral extraction and refinement. Say the UK opened up a rare earth recycling plant, getting virgin grade rare earths from recycled electronics. This sounds like a lovely idea, but it just wouldn’t be cost competitive with virgin materials coming from China. We would need the price of rare earths to double for today’s recycling approaches to become commercially viable. But the price is falling year on year.
Let’s take a quick trip back to Greenland. Greenland has a lot of these critical minerals, and as the ice melts extraction is becoming more and more viable. This is partially why America is interested, and why some people are arguing Europe should develop those resources instead. I won’t go further into detail on this topic here. Instead, let’s talk about how tech and innovation can address some of these problems. There are some areas of innovation which I think are most promising.
Firstly, through reducing our consumption of these critical minerals. This year I’ve already seen startups making automotive motors that deliberately avoid rare earth magnets as a constituent part. We’ll see more of this across all industries that use rare earths. Reducing our consumption reduces our reliance on Chinese exports, helping the environment and making our supply chains more resilient.
Secondly, we can improve our extraction and processing of these materials. For example Thunderstone, an early deep-tech startup, are pioneering a new type of mining that uses pulses of lightning sent underground to extract the metal, without having to excavate. This could have huge environmental benefits, reduce the amount of energy required, and also bring the material cost down. There could be a future where Portugese nickel could one day be as cheap as its Indonesian counterpart.
The third is improving our recycling capabilities. Of the three, I think this is the furthest ahead. One example is Cyclic, who recently announced their $53m Series B, to build out the supply chain and capability for rare earth recycling. Recycling kills several birds with one stone. We use local material feedstocks, reduce landfill and waste, and build local economies and industries.
Overall, I’m optimistic. Meeting the CRMA will not be easy, especially when the public purse is being stretched in other areas (including but not limited to rearmament, social care, and ballooning debt payments). But, the CRMA and the broader trends for European resilience and independence are huge tailwinds that could encourage the private sector to take more notice. A potential trade war may also be in our favour. The USA exports a lot of lithium, graphite, cobalt and other materials to Europe. Potential future tariffs could rejig the calculations, and make recycled material streams far more profitable. Europe used to be the global hub for timber and coal production. Could we do the same for these critical minerals?
*I am aware Greenland is not technically a country