Digital Sovereignty: How Europe can break China's grip on rare earths

Contents

A new study by the Office of Technology Assessment at the German Bundestag (TAB) analyzes structural dependencies on rare earths and shows ways out for a more resilient supply. These raw materials are found in almost everything that drives the digital and green transformation: from powerful permanent magnets in offshore wind turbines and electric motors to hard drives, fiber optic networks, and state-of-the-art military technology such as fighter jets or guided missiles. In the course of digitalization, decarbonization, and demographic change, demand is increasing sharply. However, the geographical distribution of reserves reveals a dilemma, as around half of the world's deposits are located in China.

Even more serious than pure mining is according to the paper the Asian dominance in technologically demanding refining and further processing. The People's Republic reportedly controls around 90 percent of global value creation here.

A look at import data shows how vulnerable Western industry is. Germany obtains almost half of the early processing stages and even 84 percent of further processed rare earth metals directly from China. Large-scale stockpiling has so far failed due to the chemical instability and toxicity of the processed intermediate products. The Middle Kingdom strategically uses this market power and has repeatedly issued restrictive export bans on separation and processing technologies in recent years to control the global value chain and react to trade conflicts with the USA.

Hurdles for European Raw Materials Plan

The EU's Critical Raw Materials Act is intended to serve as a political protective shield. The regulation sets ambitious targets for 2030: at least 10 percent of domestic consumption should come from European mining, 40 percent from its own refining, and at least 25 percent should be covered by recycling. Furthermore, no third country should supply more than 65 percent of the annual demand for a critical raw material. However, reality lags behind ambitions. It usually takes decades from the initial exploration of a mine to actual production in mining. Outside of China, there are currently very few advanced projects.

The TAB study makes it clear that merely hoping for new mines in politically friendly countries is not enough. Instead, various measures must be interlinked to achieve true raw material sovereignty. The authors therefore advise –  similar to consultants in a study for the BDI – to significantly expand the circular economy. The potential is great, as more and more electric cars and wind turbines will reach the end of their life cycle in the coming years.

To efficiently recover these valuable old magnets, the experts are calling for improved collection and take-back structures as well as an expansion of producer responsibility. Digital product passports could provide exact information about the materials used and facilitate sorting. So far, European recycling suffers from a lack of a closed system: because refining capacities are lacking, secondary raw materials often have to be exported back to China for final separation.

From Circular Economy to High-Tech Substitution

A second pillar, according to the authors, is substitution research. Since material recovery is often energy- and environmentally intensive, avoiding critical materials is becoming increasingly important. Research is primarily focused on nanostructuring to reduce the use of heavy materials such as dysprosium or terbium in permanent magnets or to replace them with artificial alternatives such as tetrataenite or high-temperature superconductors.

To bridge the economic dry spells until these technologies are established, TAB is discussing flanking market-shaping measures. Since European recyclates are currently more expensive than Chinese primary products due to high environmental and labor standards, state-guaranteed reference prices or the European carbon border adjustment mechanism could offer protection. The researchers also recommend building strategic raw material reserves as a bridging instrument against extreme price volatility.

Scenarios until 2035: Collapse or Sovereignty?

In three overviews, the authors venture a look ahead to 2035. In the bleakest case of a blocked sovereignty turnaround, the world would split into isolationist blocs, consolidating China's dominance and leading to Europe's failure to achieve independence. A fragmented turnaround would bring isolated successes through hard-won raw material partnerships, but would leave the old continent vulnerable to supply chain disruptions.

Only the scenario of a proactive sovereignty turnaround promises success: by consistently focusing on recycling, substitution, and a European security reserve at an early stage, the EU could permanently withstand geopolitical blackmail, as a large proportion of the required raw materials would already be in circulation within its own territory. Individual measures are ineffective. According to TAB, only an integrated approach that considers primary production, recycling, and substitution together can secure Europe's technological future.

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