Europe is strengthening its industrial policy to secure critical raw materials and reduce carbon emissions, but a significant gap remains between its climate rules and its mineral supply-chain strategy. While the Carbon Border Adjustment Mechanism (CBAM) puts a carbon price on selected imports, many strategic metals and minerals remain outside its direct scope, potentially leaving European producers at a competitive disadvantage.
The Critical Raw Materials Act (CRMA) aims to strengthen domestic extraction, processing and recycling, reducing reliance on external suppliers. However, the two frameworks do not cover the same materials or industrial activities, creating different competitive conditions for European producers of copper, lithium, nickel, cobalt, graphite, rare earths and other critical minerals.
CBAM Covers Carbon-Intensive Imports but Excludes Many Strategic Metals
CBAM introduces carbon-related obligations for selected imports, including iron and steel, aluminium, cement, fertilisers, electricity and hydrogen. Its primary objective is to address carbon leakage by ensuring that certain imported goods face a carbon cost comparable to that borne by producers operating under the EU’s climate policies.
The mechanism’s coverage is determined by specific customs codes rather than by a product’s strategic importance to the European economy. Consequently, various iron and steel products, aluminium goods, direct-reduced iron, pig iron and certain ferroalloys can fall within its scope.
Copper cathodes, refined nickel, zinc, lead, lithium carbonate, natural graphite, cobalt products and rare-earth oxides generally remain outside CBAM’s direct coverage simply because they are considered critical or strategic materials.
This distinction creates a gap between Europe’s ambition to secure its mineral supply chains and its approach to carbon-related import costs. Materials essential to electrification, renewable energy, battery manufacturing and advanced industrial technologies can remain outside the border mechanism even as the EU seeks to expand domestic production and processing capacity.
Critical Raw Materials Act Targets Domestic Processing Capacity
The CRMA establishes benchmarks for strengthening Europe’s position across the strategic raw-material value chain. The EU aims to meet at least 10% of its annual strategic raw-material consumption through domestic extraction, 40% through processing and 25% through recycling. The legislation also seeks to ensure that no more than 65% of the EU’s annual consumption of a strategic raw material at a relevant processing stage comes from a single third country.
These targets reflect a broader industrial strategy that extends beyond opening new mines. Europe also needs refining facilities, conversion plants and recycling infrastructure capable of turning extracted materials and recovered waste into inputs for manufacturing.
The European Commission expanded the initiative by adding 46 strategic projects, bringing the total number of projects designated under the CRMA to 106. The programme is intended to support the development of European supply chains and improve access to materials essential for the energy transition and industrial competitiveness.
Yet strategic designation does not automatically translate into protection from carbon-related import competition. The CRMA addresses supply security, while CBAM determines whether specific imported goods are subject to the EU’s border carbon mechanism.
European Refiners Face Carbon and Electricity Costs
The difference between the two frameworks is particularly significant for mineral processing and refining. European industrial installations covered by the EU Emissions Trading System (ETS) must account for applicable carbon costs and invest in emissions reductions. Depending on the activity and installation, this can affect roasting, sintering, non-ferrous metal production, refining and primary aluminium manufacturing.
These facilities may also face substantial electricity procurement costs, alongside the investment required to improve energy efficiency, adopt lower-carbon technologies and comply with environmental regulations.
Meanwhile, certain imported refined metals can enter the EU without a corresponding CBAM charge. This means that European producers may bear carbon-related costs that are not directly reflected in the border treatment of competing imports. The resulting competitive imbalance is especially relevant to copper, nickel, zinc, lead and other non-ferrous metals that are important to European industrial supply chains but are generally not covered by CBAM in their refined forms.
The comparison is not absolute. Free allocation and product-specific treatment under the ETS can influence the effective carbon burden on European installations, while production methods, electricity sources, transport and other costs affect the competitiveness of imported materials. Nevertheless, the difference in regulatory coverage remains an important consideration for investment decisions.
Proposed CBAM Expansion Does Not Guarantee Critical Mineral Coverage
The EU’s carbon-border policy is evolving as policymakers consider how emissions and carbon leakage risks extend beyond basic industrial materials into downstream manufacturing.
The European Commission has proposed expanding CBAM to cover additional steel- and aluminium-intensive manufactured goods. Broader product lists are also subject to negotiations between the Council and the European Parliament.
Such changes indicate that the mechanism may evolve as supply chains become more complex and the risk of carbon leakage shifts between different stages of production. A proposed downstream expansion should not be interpreted as a decision to include copper, lithium, cobalt, nickel metal or rare earths. Their treatment depends on the applicable legislation and the specific products and customs codes covered by the mechanism.
For companies planning new mines, refining facilities or mineral-processing investments, this distinction is important. The EU’s strategic-materials policy may support the development of domestic capacity, but the presence of a material on a critical or strategic list does not automatically provide equivalent carbon-border protection.
Mining Investment Depends on Supply Security and Carbon Competitiveness
For miners, refiners, traders and lenders, Europe’s regulatory framework increasingly requires two separate assessments. The first is strategic relevance under the Critical Raw Materials Act. A project’s contribution to domestic extraction, processing, recycling or supply diversification can influence its policy significance and potential access to support mechanisms.
The second is exposure to carbon costs under CBAM and the EU ETS. This determines whether an imported product faces a direct border carbon charge and what emissions-related obligations apply to European production facilities.
The distinction can materially influence project economics. A strategically important mineral may benefit from policy attention while its European processing industry continues to face competition from imports that are not directly subject to CBAM. Conversely, projects that combine secure supply with efficient, lower-carbon processing may be better positioned to meet the EU’s industrial and climate objectives. Europe’s mining and critical-minerals strategy depends on more than increasing domestic production. The competitiveness of refining, conversion and recycling capacity will also be shaped by electricity prices, emissions regulations, trade rules and the treatment of competing imports.
As the EU develops its raw-materials policy, the interaction between CBAM and the CRMA will remain a key issue for investment in copper, lithium, nickel, zinc and other strategic minerals. The central challenge is to strengthen supply security while ensuring that Europe’s decarbonisation requirements do not undermine the economic viability of the processing capacity needed to support its industrial transition.
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