The EU’s Critical Raw Materials Act aims to strengthen extraction, processing and recycling within Europe, while the EU’s Carbon Border Adjustment Mechanism is currently linked to carbon-leakage exposure in sectors connected to the EU Emissions Trading System. Most lithium, cobalt, graphite and rare-earth supply chains remain outside CBAM coverage. For these 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 is relevant for materials used in batteries, clean technologies and defence. CRMA designation can support efforts to accelerate permitting and strengthen a project’s position. However, it does not automatically offset differences between European carbon costs and those borne by overseas competitors. The separation also affects how investors view strategic policy support versus import carbon-cost treatment.
CRMA project list totals 106 but leaves most materials outside CBAM
The European Commission’s second list of CRMA strategic projects was announced in October 2026 and brings 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, CBAM coverage does not extend to these materials simply because they are critical raw inputs.
Lithium carbonate and lithium hydroxide are not covered by CBAM under the current framework. The same applies to cobalt products, graphite and separated rare-earth products. As a result, the mechanism does not provide direct border-carbon protection for most of these supply chains. CBAM’s product scope therefore does not align with CRMA’s strategic mineral focus.
Lithium and cobalt value chains rely on conversion and refining locations
Lithium projects can include a mine and concentrator, but battery manufacturers require lithium carbonate or lithium hydroxide with defined purity specifications. Chemical conversion is therefore a central step in the industrial process. Conversion facilities require reagents, heat, electricity, water, waste-management systems and quality control.
Conversion performance depends on recovery rates, reagent prices, energy costs and feedstock consistency. Without CBAM charges on imported lithium chemicals, European converters compete mainly through production costs, supply security, proximity to customers and policy support. The same pattern applies where carbon-border charges are absent from the relevant import products.
Cobalt faces a related challenge because Europe has limited primary supply and relies on international mining and refining networks. Strategic exposure concerns include both the origin of mined cobalt and where it is refined into products used for cathode manufacturing and other industrial applications such as superalloys. A European refinery operating under EU energy and environmental requirements may have a lower emissions profile than an overseas competitor.
That emissions difference is not currently reflected in a CBAM charge on cobalt imports. The current framework therefore does not translate lower emissions at refining sites into border-adjustment protection for cobalt product flows into the EU.
Graphite processing depends on electricity and heat but remains outside CBAM
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 that can be particularly energy intensive.
Electricity and heat influence both production costs and carbon footprints for graphite processing. Despite this linkage to emissions drivers, 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 by itself remove commercial pressures from competition with established producers.
EU rare-earth imports are concentrated; separation extends beyond mining
Eurostat data for 2025 shows the EU imported about 15,100 tonnes of rare-earth elements. This represents an increase of 17.1% compared with 2024. By weight, China accounted for 46.8% of imports followed by Russia at 25.9% and Malaysia at 23.1%. Together these three countries supplied nearly the entire volume of EU imports.
Rare-earth separation is technically demanding because elements have similar chemical properties. Commercial production can involve concentrate cracking, solvent extraction, oxide production, metalmaking and magnet manufacturing. Opening a European mine does not necessarily remove reliance on external processing or magnet production because separation steps can remain outside Europe.
CBAM does not currently address this dependency directly for rare-earth supply chains. Strategic projects supported by public financing, long-term customer contracts and industrial partnerships are described as playing a more immediate role in developing alternative supply routes.
Financing hinges on process performance; power procurement affects emissions intensity
For lenders, commodity-price forecasts alone are insufficient to determine whether a critical-material project is financeable. A lithium or rare-earth development can face difficulties even when long-term demand appears strong if its conversion plant fails to meet product specifications or if reagent costs rise and recovery rates deteriorate. Challenges can also arise if customers qualify competing suppliers first.
Technology risk is particularly relevant when European projects use flowsheets that have not been demonstrated at commercial scale or are adapted to lower-grade or unconventional feedstock. It also applies when designs aim to meet stricter environmental requirements than those used elsewhere in the supply chain.
Banks and equity investors therefore require 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 electricity procurement and contract structures influence bankability
Power procurement affects both production economics and the emissions intensity of critical materials even when CBAM does not apply to the relevant products. A reliable supply of low-carbon electricity can reduce a product’s footprint through lower emissions intensity. This may improve access to automotive, battery and technology customers that impose emissions criteria on suppliers.
The value of electricity procurement can extend beyond operating costs because lower-carbon production may align with customer procurement requirements before any formal carbon-border obligation is introduced for the material concerned. Offtake arrangements are also described as important for financing outcomes where buyers value local or diversified supply due to geopolitical disruptions that can impose costs beyond modest price premiums.
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. These contractual features are presented as part of how projects sustain bankability in critical minerals markets.
Future CBAM scope could shift if ETS-linked costs affect processing installations
The regulatory environment remains exposed to developments in international trade through export controls imposed by dominant producing or processing countries that can quickly alter the strategic value of alternative supply chains. Potential responses discussed include stockpiling, procurement rules, state aid and additional trade measures. These possibilities must be distinguished from legislation already adopted.
Future expansion of CBAM 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 coverage creates carbon-leakage risks where production is energy intensive and strategically important.
As of October 2026, however, lithium carbonate and lithium hydroxide remain outside the current CBAM framework along with cobalt products, graphite and separated rare-earth products. Investment cases for these materials therefore rely on industrial security considerations including processing capability, energy economics, customer qualification and financing arrangements rather than border-carbon charges tied to CBAM coverage.
The described project requirements include proven metallurgy; secure feedstock; competitively priced low-carbon energy; qualified buyers; and financing capable of withstanding commodity-market cycles. Strategic designation under CRMA can support development but does not replace commercially competitive processing needed for these supply chains.