Strike a Balance: Trade Agreements for Resilient & Responsible Supply Chains

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5 suggestions for commerce policy-makers.

To safe the demand for battery minerals, the EU must set the proper commerce framework to spice up resilience, sustainability and mutual profit. A brand new report and briefing discover how Free Commerce Agreements will be one technique to strike this steadiness.

As Europe races to safe the crucial mineral wants for clear vitality applied sciences, similar to electrical automobiles (EVs), agreeing commerce partnerships will likely be crucial as annual battery steel volumes in 2050 are estimated to be 4 to 10 occasions increased than immediately. Even within the situation of accelerated innovation and smaller batteries, the electrification of EU passenger transport will nonetheless require round 5.4 Mt of nickel and 1.9 Mt of lithium.

Whereas the long-term imaginative and prescient is circularity, Europe will likely be depending on imports for many years to return. By 2030, the EU will depend on overseas imports of battery metals within the order of 30% to 65%, relying on the steel.

The necessity for extra crucial minerals requires a strategic reassessment of the EU’s world strategy to producer nations in an effort to safe required supplies, scale sustainable and accountable sourcing and processing practices, and keep away from over-concentration. Free commerce agreements (FTAs) are an important piece within the bigger puzzle of constructing diversified provide chains, alongside Strategic Partnerships or the not too long ago adopted EU Company Sustainability Due Diligence Directive (CSDDD).

By offering a structured framework, FTAs might help the EU to behave as a dependable and cooperative associate and supply a legally binding framework with clear obligations on either side. Nicely-designed FTAs can safe unrestricted commerce flows, encourage EU corporations to spend money on native processing amenities, assist producing-countries to scale their inexperienced industrialisation and improve sustainability by constantly making use of Environmental Influence Evaluation and provide chain due diligence.

T&E has commissioned Tulip Consulting to conduct a authorized research to discover how FTAs can promote mutually helpful commerce in crucial uncooked supplies for all events concerned. This implies securing the minerals the EU wants for the vitality transition whereas selling accountable practices and including worth in resource-rich nations. This briefing summarises how this may be finished, serving as a memo for commerce policy-makers.

To make FTAs work for each events, T&E means that policy-makers ought to:

1. Permit beneficial uncooked materials costs for producer nations’ personal inexperienced objectives

Permitting resource-rich nations to tender their uncooked supplies cheaper regionally, as is completed in Chile, could make worth addition extra enticing. To this finish, FTAs ought to embrace particular carve-outs in twin pricing provisions to permit producing nations to promote uncooked supplies extra cheaply to native downstream sectors. The EU ought to be certain that acceptable situations are hooked up to those carve-outs, similar to implementing a workable or eliminating a value ground, to scale back overly stringent necessities to set off these carve-outs. On the similar time, export restrictions ought to be prohibited, together with to different events other than the EU.

2. Improve greatest practices within the extractive sector

Whereas extractive operations can harm the surroundings and native communities, greatest practices to scale back affect exist and ought to be constantly carried out. FTAs ought to incorporate due diligence necessities particular to mining actions, together with administration plans for water, waste, biodiversity and mine decommissioning.

As well as, FTAs ought to require obligatory compliance with worldwide due diligence requirements, i.e. these set by the OECD on human rights and surroundings.

3. Strengthen Environmental Influence Assessments

Environmental Influence Assessments (EIAs) are important for figuring out challenge flaws, bettering future actions and enhancing accountable provide chains by gathering key knowledge for mitigation and enchancment. Whereas many FTAs already discuss with EIAs, the use and extent of these assessments varies from settlement to settlement.

Commerce policy-makers ought to make EIAs obligatory for all related actions with a major affect on the surroundings, with out jeopardising nationwide allowing deadlines or quicker processes for strategic tasks. The scope of EIAs ought to be expanded to incorporate affect on public well being, biodiversity, land, soil water, air, local weather and cultural heritage and performing upon EIA findings made obligatory.

4. Beef up technical and monetary help

Lots of the necessities to strengthen sustainability will fall on resource-rich nations, who typically lack the monetary and technical sources to deal with these successfully. Whereas binding technical and monetary help provisions have been unusual in FTAs so far, the brand new EFTA-India FTA does set binding funding targets for the EFTA bloc and might function a blueprint.

FTAs ought to embrace monetary help and technical help as an ordinary, together with devoted monetary help for sustainability initiatives in resource-rich nations. Implementation and monitoring of those commitments ought to be included into the evaluate progress.

5. Inexperienced premium for sustainable uncooked supplies

Sustainably and responsibly sourced crucial minerals typically require increased preliminary funding into greatest accessible know-how, similar to fossil free processing applied sciences, clear water and secure waste disposal. The issue is that that is at the moment not rewarded on commodity markets and cleaner tasks battle to compete with cheaper, high-emitting provide as at the moment seen with nickel from Indonesia.

Rewarding cleaner provide on western markets by joint efforts can create the mandatory funding incentives. Initiatives such because the at the moment negotiated EU-US Essential Minerals Settlement or the Minerals Safety Partnership might facilitate the uptake of responsibly sourced, low-carbon minerals.

Within the quick time period, T&E recommends like-minded governments to agree on a transparent CO2 threshold as an entry situation to the markers of — e.g. — the EU, the US, Japan, South Korea and others. Provide coming from sources that don’t meet the standards ought to pay a penalty or not be admitted. As well as, purchasers of these supplies ought to be required to implement the OECD human rights and environmental due diligence and require the suppliers to endure at the very least one self-assessment underneath the Initiative of Accountable Mining Assurance (IRMA) by 2026.

Within the case of nickel, T&E has recognized that setting a CO2 threshold of 30-40 kg CO2e per kg of nickel sulphate (or nickel steel) would help the marketplace for cleaner nickel amenities.

In the end, attaining the vitality transition and constructing resilient, accountable battery provide chains depends upon world collaboration. FTAs might help by permitting producing nations to profit from their sources whereas attracting the mandatory funding from European corporations, significantly within the midstream battery worth chain wanted to satisfy the demand for European battery manufacturing. Addressing this problem in a sustainable method with greatest practices in neighborhood engagement, sourcing and waste administration is the problem of the twenty first century, underlining the significance of decision-makers adopting modern approaches and forward-looking methods.

Article from T&E.