Europe’s efforts to secure lithium, cobalt, graphite and rare-earth supply chains increasingly emphasize domestic processing and recycling, while most of these materials are not covered by the EU Carbon Border Adjustment Mechanism (CBAM). For strategic projects, commercial viability depends on processing performance, energy costs, customer contracts and public support rather than direct carbon-border charges on competing imports.
The policy distinction affects materials used in batteries, clean technologies and defence. The Critical Raw Materials Act (CRMA) aims to reduce strategic dependence by strengthening extraction, processing and recycling within Europe. CBAM coverage, by contrast, is tied to carbon-leakage exposure in sectors linked to the EU Emissions Trading System (EU ETS), rather than the strategic importance of individual minerals.
CRMA strategic project lists do not expand CBAM coverage
The European Commission’s second list of CRMA strategic projects was announced in October 2026 and brought the total number of designated projects to 106. The portfolio covers materials including lithium, cobalt, graphite, nickel, manganese, rare earths, magnesium, tungsten and silicon.
Even with CRMA strategic status, lithium carbonate and lithium hydroxide, cobalt products, graphite and separated rare-earth products are not covered by CBAM simply because they are critical raw materials. As a result, the mechanism does not currently provide direct border-carbon protection for most of these supply chains.
For investors, CRMA designation separates strategic policy support from the carbon-cost treatment of imports. Designation can strengthen a project’s position and help accelerate permitting. It does not automatically offset differences between European carbon costs and those faced by overseas competitors.
Downstream conversion shapes lithium and cobalt competitiveness
Lithium supply chains illustrate that extraction alone does not capture all value. Projects may include a mine and concentrator, but battery manufacturers require lithium carbonate or lithium hydroxide meeting defined purity specifications. Chemical conversion therefore forms a central part of the industrial process.
Conversion facilities require reagents, heat, electricity, water, waste-management systems and quality control. Their output depends on recovery rates, reagent prices, energy costs and consistency of feedstock. Without CBAM charges on imported lithium chemicals, European converters compete mainly on production costs, supply security, proximity to customers and policy support.
Cobalt faces similar constraints linked to Europe’s reliance on international mining and refining networks. Strategic exposure concerns extend beyond where cobalt is mined to where it is refined into products suitable for cathode manufacturing and other industrial uses such as superalloys. A refinery operating under EU energy and environmental requirements may have a lower emissions profile than an overseas competitor.
That emissions difference is not reflected in a CBAM charge on cobalt imports under the current framework. The carbon treatment therefore does not directly account for variations in refining emissions between regions.
Graphite processing depends on electricity and heat
Graphite requires multiple processing stages before it can be used as a battery anode material. Natural graphite concentrate must be purified, shaped, classified and coated to produce active anode material. Synthetic graphite involves high-temperature processing and can be particularly energy intensive.
Electricity and heat influence both production costs and carbon footprints. Despite this linkage to energy use, graphite remains outside the current CBAM framework. European projects therefore need to build competitive processing capacity while competing with established Asian suppliers.
Developers must secure suitable feedstock, demonstrate reliable product quality and manage energy costs without relying on direct carbon-border protection. Building European or allied processing chains does not remove commercial pressures associated with competing against established producers.
Rare-earth import exposure remains concentrated
The EU’s exposure to external rare-earth supply is reflected in Eurostat data for 2025. The bloc imported about 15,100 tonnes of rare-earth elements, up 17.1% from 2024.
By import weight, China accounted for 46.8%, Russia for 25.9% and Malaysia for 23.1%. Together these three countries supplied nearly the entire volume of EU imports.
Mining is only one part of the supply-chain challenge because rare-earth separation is technically demanding due to similar chemical properties among elements. Commercial production can involve concentrate cracking, solvent extraction, oxide production, metalmaking and magnet manufacturing.
Opening a European mine does not necessarily eliminate reliance on external processing or magnet production. CBAM does not currently address this dependency directly; strategic projects supported through public financing, long-term customer contracts and industrial partnerships are described as playing a more immediate role in developing alternative supply chains.
Financing hinges on conversion technology performance
For lenders, conventional commodity-price forecasts are insufficient to determine whether a critical-material project is financeable. Lithium or rare-earth developments can face difficulties even when long-term demand appears strong if conversion plants fail to meet product specifications or if reagent costs rise.
Problems can also arise when recovery rates deteriorate or when customers qualify competing suppliers first. Technology risk is particularly relevant when European projects use flowsheets not yet demonstrated at commercial scale or when processes are adapted to lower-grade or unconventional feedstock.
Banks and equity investors therefore rely on independent engineering assessments covering mass balances, pilot-plant data, recoveries, impurities, reagent consumption, residue management and production ramp-up assumptions. These inputs determine whether proposed processes can deliver required volumes and quality for industrial customers.
Low-carbon power procurement and offtake terms affect bankability
Power procurement can influence both production economics and the emissions intensity of critical materials. A reliable supply of low-carbon electricity can reduce product footprint even when CBAM does not apply. This may improve access to automotive, battery and technology customers that impose emissions criteria on suppliers.
Electricity therefore has potential commercial value beyond its direct operating cost. Projects that demonstrate lower-carbon production may benefit from customer procurement requirements before any formal carbon-border obligation is introduced for the relevant material.
Offtake arrangements can be equally important for financing. European buyers increasingly value local or diversified supply because geopolitical disruptions can impose costs greater than a modest price premium.
Long-term contracts incorporating floor prices, prepayments, strategic investment or take-or-pay provisions can translate supply-security value into more predictable cash flow for financing.
Trade controls and possible future CBAM expansion
The regulatory environment remains exposed to developments in international trade. Export controls imposed by dominant producing or processing countries can quickly alter the strategic value of alternative supply chains.
Potential European responses include stockpiling, procurement rules, state aid and additional trade measures. These possibilities need to be distinguished from legislation already adopted.
Future CBAM expansion could bring greater attention to critical materials if European processing installations face significant EU ETS-related costs while competing with carbon-intensive imports. Policymakers may then examine whether existing product scope creates carbon-leakage risks where production is energy intensive and strategically important.
As of October 2026, however, lithium, cobalt, graphite and separated rare-earth products remain outside the current CBAM framework. Their investment case is driven by industrial security needs, processing capability requirements, energy economics considerations, customer qualification processes and financing arrangements rather than border-carbon charges.
The projects described require proven metallurgy, secure feedstock sources, competitively priced low-carbon energy supplies, qualified buyers and financing capable of withstanding commodity-market cycles. Strategic designation under CRMA can support development but does not substitute for commercially competitive processing performance.