Will the EU’s proposed battery regulation drive the global ESG agenda for battery raw materials?

Batteries, notably those used in electric vehicles, play an essential role in the plans of the European Commission to deliver the EU Green Deal. They are considered as a critical and strategic technology to achieve Europe´s ambitious climate change mitigation targets and to move towards green and sustainable mobility.

The European Commission’s legislative proposal for a new EU battery regulation is currently being scrutinized by the European Institutions. The proposed new rules are set to have a wide-ranging influence on the entire battery value chain both within and outside the EU, planning to supply the EU market.

The Commission’s draft battery regulation proposal, published in December 2020 after over two years of preparation, is now under examination by the European Parliament and the EU Council as part of the EU’s political process. This involves the EU institutions going through it with a fine-tooth comb, proposing numerous changes to the 79 articles and 14 annexes in the text. Even though the process is time consuming, the European Commission expects the final regulatory framework to be adopted in 2022 and be applicable by 2023 the latest.

The proposed EU battery regulation is a key element to deliver the EU Green Deal and to move towards green and sustainable mobility

Sustainability, EV batteries and raw materials

The new regulation will replace the 2006 batteries directive which was seen to be outdated and not sufficiently comprehensive. The old directive does not cover new and emerging battery technologies, and focuses only on a few parts of the life cycle such as labelling requirements and end-of-life management.

In contrast, the Commission’s new proposal puts strong emphasis on sustainability, introducing a wide range of new requirements for batteries and key battery raw materials, with a specific focus on electric vehicle batteries. Given their increasing importance, the European Commission has made significant efforts to develop a comprehensive regulatory framework covering all parts of the EV battery life cycle, from mining to the end-of-life management.

EV battery value chain

Besides addressing climate change mitigation, the new regulation is expected to prepare the ground for the emergence of a competitive and sustainable European EV battery value chain. The aim of the Commission is to incentivize the establishment of the whole battery value chain in Europe, from mining and refining of battery raw materials, to cell manufacturing, battery assembly and recycling. While research and development are supported by other European Commission initiatives such as the European Battery Alliance, the proposed legislation is intended to create the necessary regulatory framework to establish a sustainable and circular EV battery value chain in the EU market.

What will be the impacts on raw material producers within and outside the EU?

EU legislation is not just relevant for companies within the European Union. Any company placing batteries on the EU market will have to comply with the manifold requirements in the regulation, independent of whether they operate in Europe or elsewhere in the world. All players will have to ensure that their upstream processes in mining and refining the materials, chemical processing, conversion into cells as well as assembling the batteries comply with the targets and requirements set by the legislation.

And this will be a huge effort for all actors in the EV battery value chain that wish to access the European market, regardless of where in the world they operate.

The proposed EU battery regulation will affect all companies globally placing batteries on the EU market as well as all associated upstream processes such as raw materials production

A blueprint for the world?

Moreover, it is likely that the European regulatory framework will serve as a blueprint for legislation in other jurisdictions or private initiatives elsewhere in the world which can be expected to follow soon. There are already examples confirming this trend: the establishment of a sustainable and responsible battery value chain is also the overarching aim of the Global Battery Alliance (GBA), a public-private partnership with more than 70 partners from businesses, governments, academia, and non-governmental organizations. This initiative, which was formed under the auspices of the World Economic Forum, became a legal entity in its own right in 2021. The first results and measures of this global initiative are expected to be published soon. Many of the requirements in the proposed EU battery regulation are also key elements that the Global Battery Alliance wants to cover in its Battery Passport, which aims to generate a digital twin for each battery produced.  

Full life cycle approach from mining to recycling

In its proposed EU battery regulation, the European Commission has taken a full life cycle approach. While EV batteries create significant environmental benefits during use, there is a recognition that a wide range of impacts might occur during other stages of the life cycle, such as mining and refining, battery manufacturing and the end-of-life management.

Therefore, a holistic and circular approach was chosen, covering all stages of the EV batteries´ life cycle.

Mining and refining as well as the end-of-life management are in some cases associated with adverse environmental, social or governance (ESG) issues. The proposal therefore puts special emphasis on both these stages of the life cycle and defines several requirements. They aim to ensure that impacts throughout the entire life cycle are addressed and mitigated, and that the use of batteries does not lead to ESG issues elsewhere in the world.

A full life cycle approach is also consistent with the European Commission´s objective to establish a full and sustainable batteries value chain in Europe. It helps to create adequate incentives in all parts of the life cycle to encourage companies in the EV battery value chain to establish themselves in Europe.

The proposed battery regulation follows a full life cycle approach, covering all steps in the batteries value chain from mining to recycling and will prevent impacts occurring in other stages of the life cycle

Requirements for EV battery raw material producers

Specific requirements are being formulated for certain EV battery raw materials, namely Lithium (Li), Cobalt (Co), Nickel (Ni) and Manganese (Mn). The focus on these battery raw materials reflects the importance that the Commission gives to Ni- containing EV battery technologies and the acknowledgement that these raw materials are an essential component for these batteries. The requirements address various aspects of the life cycle. Three main points are currently under discussion: due diligence requirements, carbon footprint and recycling.

1.  Due diligence requirements

Mining and production of battery raw materials can be associated with environmental, social and governance (ESG) issues. The proposed new regulatory framework requires those ESG issues to be identified and addressed through agreed and accepted standards.  The European Commission refers in their proposal to existing instruments from for example the OECD and the United Nations. This is one of the main topics which is – as part of the political process - still under intensive discussion. Several stakeholders want to extend the scope to additional battery raw materials (e.g., copper, iron, and bauxite); and also want to ensure that all potential ESG risks are covered. This means that EV battery raw material producers will have to be audited against a standard showing that environmental, social and governance risks are systematically identified, assessed, and addressed.

2.  Carbon footprint:

The carbon footprint of EV battery production is significant, and battery raw materials are one of the main contributors. To reduce greenhouse gas (GHG) emissions and promote the production of low-carbon batteries, the European Commission proposes a three-step approach via new mandatory requirements applicable to EV batteries as well as rechargeable industrial batteries. The first step is to develop a method to calculate the battery carbon footprint. Secondly, carbon footprint classes will be established. And thirdly, a binding carbon footprint threshold will be set for EV batteries placed on the EU market. This means that a battery can only enter the EU market if its carbon footprint is below a defined threshold. These requirements will affect battery raw material producers significantly and they will be obliged to provide the data for their production sites. The data collection process will have to follow a globally agreed and accepted ISO standard (ISO 14040 /44), and the data audited by an independent third party. The European Commission’s assumption is that the thresholds expected to be set in the medium term will incentivize all actors in the EV battery value chain to further reduce their GHG emissions.

3. Recycling:

Raw material producers active in recycling and supply to the battery market will have to comply with several requirements concerning the efficiency in recycling of the entire battery system as well as the raw materials contained. For EV batteries, an overall and ambitious recycling target must be achieved, comprising all components of a battery and going beyond the metals contained. For the battery cathode materials (cobalt, lithium, nickel), highly ambitious material recovery targets will have to be achieved in the medium term. Additionally, companies further upstream in the battery value chain must ensure that a certain amount of the battery raw materials used in EV batteries originate from recycling (“recycled content”). 

Details of both the recycling and recycled content values as well as the dates of implementation are still under discussion by EU policy makers. However, the levels of ambition are very high. The aim of these requirements is to boost circularity and resource efficiency with increased recycling and recovery of key battery raw materials. This is seen by the EU Commission and many EU policymakers as necessary to foster a “circular economy” and enhance the EU’s “strategic autonomy” and increase EU resilience against possible supply and trade disruptions of raw materials.

An ongoing process

As the proposed EU battery regulation is still under discussion, some of the detailed requirements and  aspects highlighted above may still change.  However, it is clear that these measures and key requirements will be found in the final regulatory framework and battery raw material producers will have to take action if they want to have a slice of  the EV battery value chain.

But it doesn’t end there. Several of the proposed requirements will be further specified via so-called EU “secondary legislation”. These acts will be drafted and adopted by the European Commission in the years to come and – depending on the regulatory procedure – this will involve, to a various degree, the other EU institutions (European Parliament and EU Council). The carbon footprint targets, as well as the methodologies to calculate the specific material recovery and recycled content targets are just three examples of key aspects that will be defined in more than 30 pieces of future EU secondary legislation.

The final regulation might only be published later in 2022 and changes might still be incorporated; nonetheless it is already becoming clear how the requirements for battery raw material producers will look like.

How the metals industry is preparing

The requirements in the proposed regulation make joint efforts necessary across the entire battery value chain. Several of the requirements such as those related to the carbon footprint and due diligence will be company specific. While most obligations are on the battery manufacturers and the companies placing the battery on the market, battery raw material producers will also have to provide evidence that they comply with the requirements.  

At a practical level, the standards and frameworks on how to collect the data and how to prove compliance with the legislation will be generic for the entire industry. This means there is an important role to play for industry associations such as the Nickel Institute. Their involvement in the ongoing work to establish the protocols ensures that they will be sound, based on science and evidence; aligned with internationally agreed standards and rules, and consider the characteristics of metals and their production processes. To fulfill due diligence requirements, the Nickel Institute is collaborating with other metal commodity associations to develop a responsible sourcing framework allowing nickel producers to demonstrate that they comply with the requirements of the proposed EU battery regulation. 

We also are working with our member companies on updating their company and site-specific carbon footprint data. Life cycle data including carbon footprint information for nickel metal and nickel sulphate, major EV input materials, is already published on the Nickel Institute’s website to provide information on the average carbon emissions of our member companies. This work is aligned with the requirements of internationally agreed standards that the European Commission stipulates for the carbon footprint calculation in the proposed EU battery regulation.

Looking forward

It is still unclear whether the new EU regulatory framework on batteries will be finally adopted in 2022, as expected by the European Commission. Given the complexity of the proposal and the hundreds of amendments under consideration, this timeline could be optimistic.

But what is clear is that this legislation is part of the European Union’s wider climate change mitigation commitments and it will happen. Its application will affect battery raw material producers within and outside the EU who are planning to supply their raw materials to the EU batteries value chain. The measures that battery raw material producers, notably those producing Li, Ni, Co and Mn, have to comply with are already defined in general terms. The ongoing discussion focuses on the detailed level of ambition, the targets, and the dates of implementation.

The Nickel Institute is working on ensuring that nickel producers comply with the upcoming requirements and can continue to provide essential battery raw materials to the batteries value chain and recycle them once they become available. And it is apparent that the requirements around the EU battery regulation will in the near future also become relevant in other jurisdictions around the world or for public-private partnerships, such as the Global Battery Alliance. We therefore strongly believe that companies active in battery raw materials production need to get engaged now.

This article originally appeared in Benchmark Quarterly Q4 Review 2021, January 2022