Assessing the impact of federal funding mechanisms on the electric vehicle value chain: part 2

This past March, the European Union (EU) unveiled its Critical Raw Materials Act (CRMA) in a bid to secure the resources needed for technologies such as renewable energy and battery power. The proposed act aims to make the EU more self-reliant in mining, processing, and recycling, representing a response to US Inflation Reduction Act (IRA) and its protectionist stance against competition from China.

In this capacity, the EU and the US share a common goal—to revitalize their industrial base and mitigate foreign dependance on the critical minerals and materials required to advance clean energy adoption. While each government is deploying a distinct set of policy mechanisms, they have both introduced landmark legislation with vast implications across the critical mineral value chain. Alignment around requirements—which will require delicate and coordinated communication—has the potential to bolster transatlantic trade relations, maximize policy effectiveness, and maximize the effectiveness of government funding opportunities designed to accelerate the clean energy economy.

With the aim of strengthening Europe’s access to strategically important resources, the CRMA would encourage the EU to increase domestic production as well as limit the sourcing of critical minerals from non-EU countries by 2030. In this regard, the CRMA outlines objectives that involve increasing supply security by improving access to 34 raw materials from non-EU countries through international cooperation agreements. Beyond raw material sourcing provisions, the CRMA seeks to promote environmental sustainability, mitigate negative externalities associated with resource extraction activities, and create incentives for communities most affected by resource exploitation activities through social responsibility initiatives.

While similar to the IRA’s critical mineral and battery value chain components in that the act incentivizes domestic production while limiting foreign imports, the CRMA proposes a vastly different approach on implementation. Most notably, the CRMA places a 65 percent target limit on the import of any one strategic metal from a single country, whereas the IRA requires critical minerals eligible for the electric vehicle tax credit be from certain countries with free trade agreements (FTAs) or alternative critical mineral agreements in place.

Rather than deploying financial incentives for critical mineral and battery production, the CRMA would consider raw material projects for “strategic project” status, granting it a streamlined permitting process among other administrative support functions. The CRMA also directs that member states must designate an authority for facilitating and coordinating the permitting process for strategic projects, without lowering environmental protection levels.

Comparison of the EU CRMA and the US IRA

Underscoring the global supply chain shift, the CRMA reflects concerns voiced by European leaders that investments in the region’s energy and automotive sectors will be hindered by the inability to compete with US subsidies. While celebrating the IRA for advancing North America’s clean energy economy, EU representatives contended that the IRA is “discriminatory” and risks a “subsidy war” fueled by federal policies. South Korea, the UK, and others have raised similar concerns.

In recent months, however, policymakers have been deliberating an EU-US trade deal specific to critical battery materials, aligning the two regions to meet their respective objectives to secure access battery supply chains and making EU-produced critical minerals eligible for US subsidies. According to early speculation, this agreement may follow precedent set by the US-Japan trade deal signed in March although uncertainty remains around oversight concerns that such arrangements would not comply with global trade practices.

Between deliberations on the CRMA’s passage and an EU-US trade deal, the EU is shaping the foundational governance necessary for achieving its critical material diversification and production targets over the next decade. By addressing the critical issues in the way of the ambitious localization and economic development targets amidst complex and unprecedented global trade dynamics, both the EU and US can usher in transatlantic economic growth fueled by the clean energy economy. For incumbent and novel stakeholders in the electric battery value chain, these transatlantic developments will unlock opportunities for expansion fueled by alignment with government objectives.

How Hatch can help

Our battery market solutions team has worked with clients across the value chain—from raw material producers to battery and vehicle manufacturers—to evaluate, optimize, and implement strategic initiatives and major capital projects in consideration of federal funding opportunities and requirements. Together with our clients, we bridge technical expertise with management consulting excellence using a collaborative approach that delivers actionable outcomes.     

Analyzing the European Union’s Carbon Border Adjustment Mechanism (csis.org)

Click here to read Part 1 of this blog series.

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