The 21st Century’s Great Game — ChAI
A few years ago, the European Union’s focus was seemingly on shutting out hazardous metals, as it implemented its Reach regulation on material safety. How times have changed, as Brussels this month updated its Critical Raw Materials (CRM) strategy to ensure that the EU has access to enough of the “right” kind of metals.
No surprise that the list heaves with those metals crucial to modern, clean or defence technologies, such as cobalt, used for batteries in electric vehicles. Additions this year include bauxite, used to make aluminium, while nickel is now on its watch list.
The problem for the EU, the USA and to a degree China, is that they have a shortage of these metals, which must be sourced from overseas. Sometimes it is because there isn’t any local production, for example rare earths in the USA. In other cases, such as aluminium in Europe, it is because local production was not profitable and it shut down.
The CRM strategy envisages the EU diversifying supply and reducing dependencies by finding alternatives, better recycling and efficiency, but also sourcing directly. With the OECD forecasting that global materials demand will more than double from 79 billion tonnes today to 167 billion tonnes in 2060, recycling and efficiency alone will not be sufficient, meaning that new ways of sourcing and engaging with overseas producers will be required.
The EU’s strategy is somewhat light on the detail of how the Commission will set about moving mountains, figurative and actual, to recast industrial policy and nature. Given the state of global politics and trade, it’s not going to be straightforward, with debate likely around the duties each bloc levies on one another’s goods, but also on issues as diverse as deglobalisation, climate change, state aid and the recovery from Covid.
The metal and steel industries have always been at the intersection between politics, economics, war and peace. The EU evolved from the European Coal and Steel Community after all, as European nations sought to rebuild after the trauma of the second world war. In the 1950s, Europe had all the coal and steel it needed — but this time it’s different.
In the nineteenth century, analogous with today’s pace of technical, social and industrial change, the great powers of Europe set about carving up Africa for its mineral wealth. Ore would be mined locally in countries such as the Congo, but refined back in Europe by companies such as Union Miniere, now known as Umicore.
With much of the world’s mineral wealth still located in Africa and other developing regions, the EU must explain how it will extract and process ores more equitably. The fall out will be on how it judges and taxes those countries that do not play by the same rules.
In recent years we have seen China invest heavily in Africa, in return for access to the minerals it needs. China’s involvement has been heavily criticised, from the nature of the debt created to human rights abuses overlooked in pursuit of trade.
Already private initiatives are springing up to trace minerals such as cobalt to ensure that it has been sourced appropriately, but we should expect to increasingly see governmental involvement in this new great game.
The EU was warned as it implemented Reach that it would increase costs for domestic consumers but not stop dirty third country production. It’s unlikely to make this mistake again.
An initial battleground may be aluminium, made from the bauxite now on the CRM list, which already enjoys protection dating back to the time that there was a large-scale aluminium production base in Europe that needed protecting.
Aluminium is energy intensive to produce, making production from hydro power in Russia or Norway more attractive in environmental terms than metal from the Gulf where natural gas is used. Higher carbon aluminium may in future be taxed at the border, changing the dynamics of the market once again.
There is growing awareness of low carbon aluminium as a product, and we should expect to see more regulatory support for such initiatives. Voters — the younger ones in the EU, at any rate — may support the notion of duties if they support environmental and social good. The next few years will test whether and how these voters are prepared to pay for it.
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Originally published at https://chai-uk.com on September 9, 2020.