How the Innovation Fund can supercharge our critical minerals aspirations

The global race for critical minerals is on. Put simply, the green transformation of our energy and transport systems is impossible without metals such as copper, lithium and rare earths. The challenge is at least three-fold: onshore some of the supply, ensure diversity of global supply, and do all this sustainably. 

This quest has seen a mushrooming of national industrial strategies. Critical minerals policies are now in place across the globe from Australia and Japan, to the US and Canada. While critical metals are mined in various countries, there is a clear gap in the midstream. Such metals processing, e.g. making active materials for cathodes in the case of lithium-ion batteries, is almost exclusively done in China, which has mastered critical minerals policies for decades with hefty subsidies as a key component. 

What about Europe?

The EU is finalising its Critical Raw Materials Act, designed to localise at least a tenth of critical metals demand, to process at least 40% of those metals locally, and to increase the contribution from recycling. 

But the targets are not matched by means. 

While rules on national subsidies have been relaxed in the aftermath of the US IRA, this has largely benefited companies setting up shop in richer Germany and France. Even these big wealthy countries competing with the US or China on their own would be like entering a F1 race with a Fiat 500. As part of the larger Union, we might stand a chance. 

Europe also risks losing its wider potential. Plans to process lithium and nickel stretch from Finland in the north, to Czechia in the east to Portugal in the south. Best locations for minerals processing depend on energy infrastructure, geology (if combined with mining) and local expertise. 

What’s needed is a European funding mechanism to match our critical metals aspirations. 

Fortunately, one such tool already exists: the European Innovation Fund. Funded by the emissions allowances of the EU’s carbon market, it currently supports dozens of projects in hydrogen, renewables, advanced fuels and batteries. 

But it needs beefing up. 

First, the current funding lacks focus on much of the midstream and upstream value chain that is key to securing green technologies resiliently. In theory, Europe can import battery materials and build batteries locally. In practice, this means outsourcing one of the most valuable parts of the battery supply chain to a highly concentrated market. (Just remember the chips saga of the last few years.) Outsourcing would also make Europe miss out on developing key expertise, similar to those needed for battery recycling. 

Future calls should target more projects midstream. These include battery cathode precursors (advanced material that contains nickel, cobalt and manganese chemicals) and cathode manufacturing itself. 

Second, the money itself. The latest proposal to create the Strategic Technologies for Europe Platform, or STEP, would only add €5 billion to the Innovation Fund’s current €50 billion budget until 2030. Supporting Europe’s green industrial transformation will require a lot more than that. In the US the budget is in the order of US $370 billion, likely more as there is no cap.

In the absence of political appetite for more money, the Innovation Fund needs to focus on a limited set of key technologies. Only zero emissions technologies aligned with the 1.5°C goal should make the cut, and they must be used in sectors where they are indispensable. (For example, green hydrogen-derived fuels for aviation and shipping, not cars.) Following the Hydrogen Bank, the next round should focus on a key strategic sector: battery cells and their minerals supply chain. 

Lastly, perfection should not be the enemy of the good, especially in technologies where Europe has no standing. Strict sustainability and eligibility criteria are important to ensure we get innovative best-in-class projects. But innovation for the sake of academic excellence should not become its own goal. 

Ultimately, deploying green tech at scale and speed is what’s needed for the world to avoid the climate emergency. Where Europe has little to no expertise, such as precursor manufacturing, the opportunity to develop know-how and scale up facilities should govern the selection of projects. 

Given its size, the European Innovation Fund is just the start. The next Commission should introduce a comprehensive and much larger package to help Europe transition – and securing critical minerals will be a necessary part of that. But Rome wasn’t built in a day. A beefed up Innovation Fund that has a clear focus on metals processing and gets European know-how off the ground is a good start.

This article was first published by EurActiv.