Empowering the EU's Future: The Strategic Role of CRMs
The EU's shift towards renewable energy and digitalisation has made CRMs fundamental to Europe’s economy. A range of modern technologies, from smartphones to wind turbines and electric vehicle batteries rely on these materials. As the EU is scaling down its dependence on fossil fuels, the demand for CRMs within the next years will rise exponentially. Its lithium demand alone is expected to increase 12-fold by 2030. However, the Union has limited deposits of CRMs and lacks mining and processing capacities to meet its domestic demand independently. This highlights the EU‘s reliance on third countries for advancing its green and digital future.
Why Latin America is key to Europe´s transition
The CRMs market remains dominated by fewer suppliers, mainly China, leading to high dependency and an increased risk of supply disruptions. Recent geopolitical tensions, such as the US-China trade conflict and the war in Ukraine, have exposed the vulnerabilities of this imbalance. In response, the EU has adopted a "de-risking" strategy, diversifying its supply chains through partnerships, including African countries such as the DRC and Zambia, which are key suppliers of cobalt and copper.
Latin America, with its wealth of CRMs, stands out as another promising alternative for the EU to secure its supply. Out of 34 critical raw materials, 25 can be found in Latin America. More precisely, the region holds over 60% of global lithium reserves, primarily concentrated in the "Lithium Triangle" of Bolivia, Argentina, and Chile. It is also home to around 40% of the world’s copper reserves, with Chile and Peru leading as top producers. Other CRMs, such as nickel and rare earth elements, are also abundant on the continent. The strategic importance of Latin America is underscored by the fact that, in 2023, 24% of the EU’s imports of CRMs originated from the region.
The conclusion of the EU-Mercosur Agreement at the end of 2024 was a critical step in strengthening this partnership. The trade deal enhances access to raw materials by reducing tariffs on mining products, which ultimately paves the way for more streamlined and cost-effective CRMs trade between the two regions. A further landmark development in 2024 towards securing CRMs cooperation with Latin America has been the EU’s deepened partnership with Chile.
Economic Growth and Development
In addition, from the Latin American perspective the trade of CRMs presents substantial economic benefits. For instance, Chile has benefitted from significant foreign investments in the lithium sector stimulating local technological innovation and infrastructure development. By the same token, the trade of CRMs has significant potential to spur local economic growth. In Peru, the extractive sector, accounts for around 11.3 % of the GDP, generates 1.2% of employment and constitutes around 68% of the country’s total exports, making it a vital contributor to fiscal stability. However, the extraction of CRMs across Latin Americas faces social and environmental challenges, which underscore the need to balance economic growth with sustainable practices.
The challenges of CRMs extraction
To build equitable partnerships, it is vital to understand local needs and the specific context of each region. While the economic opportunities for Europe and Latin America from CRMs trade are evident, criticism cannot be overlooked. The overarching goal is to create a positive environmental impact and support the green transition. However, mining activities can leave a significant carbon footprint, including greenhouse gas emissions, water pollution and – depletion. To be more precise, the extraction of one ton of lithium requires approximately 2.2 million litres of water. In Chile’s Atacama Desert, lithium mining consumes about 65% of the region’s water supply, exacerbating water scarcity and affecting agriculture and farming. Another example of ecological damage related to mining is the 2019 Brumadinho dam disaster in Brasil, where the collapse of a tailings dam at an iron ore mine led to the deaths of over 270 people and long-term contamination of water resources.
From a human rights perspective, another issue is the absence of the free, prior and informed consent (FPIC) principle in the Critical Raw Materials Act. This principle would ensure that communities are consulted on decisions affecting their lands and livelihoods. Human Rights Watch has criticized voluntary schemes as inadequate for protecting local communities. In line with this, mining projects in Latin America often face strong opposition from local communities, with a total of 45% of worldwide reported mining conflicts originating in Latin America.
These socio environmental issues illustrate the tension between sustainability and development goals. While the EU is dedicated to advancing the 17 Sustainable Development Goals (SDGs), including SDG 6 on sustainable water management and SDG 15 on safeguarding ecosystems and biodiversity, the extraction of CRMs could compromise these very commitments. Without the adoption of sustainable technologies and responsible mining practices, CRMs extraction risks undermining global sustainability objectives.
What role can the EU play in addressing these interwined challenges?
Latin America holds vast reserves of critical raw materials, but its main challenge lies in the limited capacity for processing these resources. This implies that most raw materials are exported in their unprocessed forms, leading to missed opportunities for economic development. By exporting raw materials without refining them, Latin American countries forfeit higher profits associated with manufacturing. Additionally, unprocessed exports increase the continent ‘s reliance on foreign industries, particularly on China, that dominates the global supply chain for critical materials.
The EU has a unique opportunity to step in by providing financial support for processing facilities. For instance, funding lithium-refining plants would enable the conversion of raw lithium into battery-grade material. Likewise, funding copper smelting plants could help Latin America to produce higher-value copper products, leading to increased economic benefits and decreased dependencies on external markets. Existing instruments could facilitate these efforts, such as Public-Private Partnerships (PPP), the EU’s Development Cooperation Instrument (DCI), and the Latin America Investment Facility (LAIF).
In light of the environmental challenges linked to CRMs extraction, the EU could provide technical expertise in sustainable mining practices. Concrete examples of such practices include the use of clean mining technologies that are more energy- and water-efficient, as well as water recycling and treatment systems designed to reduce water consumption. One recent initiative to connect extracting practices with environmental sustainability was launched in November 2024 by the EU and IDB. The €6.3 million grant supports the development of critical minerals and their value chains in countries like Chile and Argentina while improving mining sector governance and implementing water-efficient technologies. Furthermore, social considerations are essential. Promoting the active involvement of local communities in decision-making processes through local NGOs and governments and ensuring they benefit from mining projects is key for the long-term success of this cooperation.
Overall, well-targeted support from the EU would allow the region to profit more from the CRMs value chain and strengthen their local economies. At the same time, this presents an opportunity for the EU to demonstrate its commitment to equitable international partnerships, creating a mutually beneficial relationship with external partners.
Green, digital and secure – prospects for the new Commission
The new European Commission, in office since December 2024, will more likely place even greater emphasis on the supply chains of CRMs. While the green and digital transitions will continue to drive an urgent demand for CRMs, they will also be sought after in order to secure resilient, high-tech defence systems. Balancing such diverse and frequently competing demands, ranging from sustainability to economic growth and security, will present a key challenge for this new legislative period.
Background
“EU Development Policy in Focus” is a series of articles exploring the European Union's foreign and development policy ambitions, its role, and its visions across various topics and regions. Through an EU lens, we analyse international dynamics and underscore the importance of international cooperation.
