Europe's Net-zero Strategy — An Investor's Perspective

Strategic roadmap for decarbonisation

Achieving decarbonisation and sustainability is an incredibly complex goal, requiring cooperation and collaboration between multiple industries and sectors. Aware of this, the EU is adopting a holistic approach to pursuing its decarbonisation and net-zero emissions strategies, and recently introduced the Green Deal Industrial Plan.

According to the European Commission, the Green Deal Industrial Plan aims to provide more support for the manufacturing of net-zero technologies and products. First published in February 2023, the plan expands on the European Green Deal, establishing concrete objectives and standards that together mark a clear path towards the region's end goal of climate neutrality. The plan focuses on four key pillars to achieve that goal.

The first pillar is the Net-zero Industry Act, which is a simpler, more predictable regulatory environment for the production of materials and technologies that are essential to meet the region’s decarbonisation goals, including batteries, windmills, heat pumps, solar, electrolysers, carbon capture and storage technologies.

The second pillar is accelerating investment and financing in European cleantech. The commission will establish multiple funds for financing cleantech innovation, manufacturing and deployment. It has also amended several key pieces of legislation, including the Temporary State Aid Crisis and Transition Framework and the General Block Exemption Regulation, to aid this objective.

The third pillar focuses on finding and educating skilled workers who can support Europe's sustainability efforts, including those whose current industries will be affected by the green transition. The Commission is exploring multiple avenues, including reworked qualifications and requirements, expanded labor markets and specialised "Net-zero Industry Academies" to provide upskilling and reskilling.

Finally, the fourth pillar expands the Green Deal Industrial Plan's scope to the global stage, cultivating the EU's existing free trade agreements and partnerships while curbing unethical trade practices.

The Net-zero Industry Act

As part of the Green Deal Industrial Plan, the Net-zero Industry Act seeks to increase the resilience of the EU's domestic clean energy supply chain. It identifies a range of sustainable technologies with the potential to contribute to decarbonisation, and seeks to simplify both permit granting and regulatory compliance. It also sets a carbon capture objective of 50 million tonnes of injection capacity per year in strategic carbon dioxide storage sites in the EU.

At the market level, the Net-zero Industry Act includes measures to establish the aforementioned Net-zero Industry Academies, mandates sustainability and resilience criteria in public procurements and empowers member states to set up regulatory sandboxes in which they can test new net-zero technologies.

Finally, it conceptualises a collaborative Net-zero Europe Platform to facilitate communication and collaboration between industries, member states and governments.

The European Critical Raw Materials Act

The European Critical Raw Materials Act lays down a clear framework for the development of a European domestic supply chain. In addition to identifying a list of critical and strategic raw materials, it also establishes several ambitious production targets.

By 2030, the EU aims to meet 10 percent of its annual extraction needs, 40 percent of its annual processing needs and 15 percent of its annual recycling needs through domestic sources. The act also mandates that the EU cannot rely on any single nation for more than 65 percent of its annual demand.

Just as the Net-zero Industry Act streamlines regulations and permits for manufacturing and production, the Critical Raw Materials Act encourages greater development and exploration through a streamlined permit procedure and expanded access to funding.

Finally, the Critical Raw Materials Act will increase the resilience of the EU's domestic supply chains through advanced monitoring and testing capabilities, establish a Raw Materials academy for skills development, and explore several potential certification schemes targeted at encouraging recovery and recycling of critical raw materials.

Accelerating down the road to net zero

Lithium mining and exploration arguably represent the biggest benefactor where the Critical Raw Materials Act is concerned. Currently, Europe sources nearly all of its lithium from outside the continent. By 2030, it will need to establish at least 500,000 tonnes of locally sourced supply. That alone is certain to provide an enormous boost to Europe's resource sector, to say nothing of the increased demand for other minerals such as rare earth elements.

Electric vehicle production will also benefit. Because cleantech manufacturers will need to navigate fewer bureaucratic shortfalls and roadblocks, EVs will become significantly easier to produce. One of the mandates of the EU's industrial strategy is to provide greater funding for research and innovation and construct a robust domestic network of battery factories.

Coupled with the proposed redesign of the electricity market — which will involve a significant uptick in the availability of EV charging stations — it is expected that production and demand for electric vehicles will skyrocket over the next several years.

Replacing vehicles with internal combustion engines with electric vehicles has always been part of Europe's long-term strategy, and they plan to end the sale of combustion vehicles by 2035. It's hardly surprising, then, that the Green Deal Industrial Plan features several initiatives focused on fulfilling that objective.

Strong foundation for a domestic supply chain

The Green Deal Industrial plan is brimming with opportunity for the resource sector, which will play a crucial role as a foundation for the EU's decarbonisation strategy. Given the current geopolitical climate, global supply chains are more unstable than ever. The EU needs a secure and stable domestic supply of battery metals and critical minerals, and it needs that supply chain established sooner rather than later.

The resource sector is perfectly positioned for a massive boom, particularly given the EU's plans to streamline mining, exploration and development. In the immediate future, mining companies will benefit from simpler permitting processes and regulations. At the same time, the resource sector will increasingly be under pressure to adopt sustainable mining practices to reduce its carbon footprint and environmental impact, and support Europe's journey towards net-zero emissions.

Companies may also need to contend with a number of sociopolitical hurdles. Although the EU aims to establish a domestic supply, it does not intend to be fully reliant on that supply — it also seeks to establish strategic partnerships with other countries for resource extraction.

This opens the door for a range of additional concerns, including local and regional resistance to mining projects, potential resource conflicts and human rights issues. Mining companies should therefore do what they can to guide European investment towards stabler, less volatile markets.

Extract, process, produce, thrive

It's important to note that Europe currently does not host any major lithium production mines, and other major mining projects are relatively sparse. With that said, there are several lithium projects that show a great deal of promise. Any of these could, once operational, go a long way towards fulfilling the EU's lithium needs.

Situated in Northern Portugal, the Barroso project has a resource of 27 million tonnes grading 1.06 percent lithium oxide for 285,900 tonnes of lithium oxide. The project's owner and operator, Savannah Resources (LSE:SAV,OTC Pink:SAVNF), maintains that this mine alone could produce enough lithium to meet Europe's demands for over a decade or more. Once completed, it will be Western Europe's largest lithium mine.

However, when the project moved to the public consultation stage in 2021, it was met with resistance, and Savannah was asked to complete further work on its environmental impact assessment. The company has now resubmitted its application, and it expects the Portuguese Environmental Agency to issue its statement on the application by the end of May.

Vulcan Energy (ASX:VUL,OTC Pink:VULNF), meanwhile, maintains the Vulcan lithium project in Germany's Upper Rhine region. This project is most notable for its unique extraction method, as Vulcan intends to use geothermal energy to power a lithium brine extraction process, producing zero-carbon lithium. The project is expected to enter full production in 2025.

In France, multinational corporation Imerys (EPA:NK) owns the EMILI project. Currently the site of a quarry that produces roughly 30,000 tonnes of kaolin per year, the EMILI project contains an estimated 1 million tonnes of lithium oxide. Imerys anticipates production to begin in 2028.

European Metals Holdings (LSE:EMH,OTCQX:EMHLF) owns and operates the Cinovec project in the Czech Republic. Situated roughly 100 kilometres from Prague, the project has the potential to produce roughly 30,000 tonnes of battery-grade lithium per year over 25 years.

European Lithium (ASX:EUR,OTCQB:EULIF) has a heavy presence in Austria, particularly in the nation's Styria mining district. There, it has acquired the Bretstein-Lachtal, Klementkogel and Wildbachgraben projects, which are located in an underexplored area adjacent to the company's Wolfsberg lithium project.

Lithium production, however, is only one segment of the supply chain. If the EU truly intends to develop a domestic lithium supply chain, it needs domestic processing capabilities as well. Although several of the projects mentioned above will incorporate a processing plant at some point, many of them are planned to be standalone mines.

Infinity Lithium (ASX:INF) is among those with plans for a fully integrated lithium production and processing plant. Located in the Extremadura region of Spain, the company's San José project will draw from a large JORC-compliant hard-rock lithium deposit, notable for its extensive strike and surface outcrop. Infinity Lithium plans to operate a lithium chemicals conversion plant directly adjacent to the resource area.

“Extremadura is the European region with the highest production of renewable energies and also has large reserves of lithium, which could meet a significant part of the demand forecast for 2030 in Europe.

“These two facts, together with the current development of Gigafactories in Extremadura, allow the development of a complete value chain in Europe,” said Ramón Jiménez, executive director of Infinity Lithium, noting the European Commission’s commitment to supporting the Extremadura region as one of the leading regions in accelerating the permitting of sustainable mining projects.

Infinity Lithium plans to mine the deposit entirely through underground extraction to minimise ecological disruption, and the company is exploring the possibility of an electric underground fleet powered entirely by renewable energy.

The San José project is poised to become a major player in the European Union’s lithium supply chain and, once operational, would become a significant and sustainable source of battery-grade lithium chemicals.

Takeaway

Europe's Green Deal Industrial Plan sets a number of ambitious targets to establish both a sustainable resource industry and stable domestic production. It also provides the public and private sectors the necessary resources to pursue those targets. As a result, the European Commission's current efforts have the potential to create explosive long-term growth in multiple sectors, particularly in lithium mining, creating a wealth of promising investment targets, which in turn will promote further growth.

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