The New Gold Rush: Why Europe’s Capital Markets Are Betting Big on Lithium and Rare Earths

World is facing a surge in electric cars and renewable energy, driving market appetite for lithium and rare earth minerals. Incentives and regulations, like the European green deal (legally binding targets for 2030 and 2050), are encouraging, or more precisely demanding, businesses to meet environmental standards and reduce emission. The increasing need for new technology is rising consumption of critical raw materials (CRMs). The reshaped market strongly influences stock markets, which are funding the mining industry and alters relations among countries, adjusting their bargaining power. 

CRMs play a crucial role for the European Union to meet its environmental goals and maintain defence. As climate change took a dramatic turn, the EU is actively participating in the decarbonizing process - embedding renewable energy to every-day life, electrifying industries to cut usage of fossil fuels. However, implementing those approaches requires supply of rare earth elements and critical minerals. The European Union is only able to produce a fraction of CRMs compared to what it consumes (about 3~5%). To address the resource gap, the union is forced to import the majority of rare earth elements from China, as it processes 90% of market share of REEs. While China is not only supplier for the EU (it gets a significant amount of elements from South Africa, Turkey, Congo), high demand is leaving The European Union vulnerable and exposing it to a high risk of supply shortages, not to mention that China has exercised its power several times in past years. Hence, the political and economic bloc is staying dependent on “quasi-monopolistic third country suppliers”. As electric cars, batteries and solar panels rise in popularity and expand market presence, the world is facing a significant uptick in demand for mentioned minerals. The European Parliamentary Research Service is expecting that consumption of lithium will 18-fold by 2030 and increase up to 60 times by 2050,escalating the problem.

How is the EU managing risk exposure?

The European Union is actively working to eliminate potential downsides. The 2022 Versailles declaration laid the ground for the critical raw materials act, which entered into force the following year. The act covers future goals and restrictions, outlines a renewed list of CRMs and addresses supply chain’s potential problems. In more comprehensive terms, the EU plans to cover no less than 10% of its annual consumption domestically and 25% by recycling. Further, regulation sets an upper limit of 65% for strategic raw material, which are sourced from a single third country. The act will tackle significant issues mainly by broadening and diversifying its procurement network. With thorough precision under the regulation, the supply chain is monitored to evaluate vulnerabilities, technological development is financed and obligatory recycling is in force by implementing national measures. Further, The Spanish Confederation of Mineral Raw Materials Industries initiated  the idea for countries within the bloc to undergo geological research, trying to find supplies and mitigate the pressure - relieving the burden of external reliance for almost half a century.

The European Union has established a broad framework with a focus on circularity. One of the initiatives included - the Circular Economy Action Plan - emphasises the meaning of product durability and its recycling abilities. Setted policies cover details, which vary from eco-friendly engineering to product passports, all aiming to “pave the way for cleaner and more competitive Europe”. The central premise is to extend the life of resource-intensive products by reuse, recycling or even offering repairing services. The plan sets its sights on reducing the overall consumption of CRMs by implementing and monitoring circularity. The EU further tries to target major obstacles (like batteries) distinctively. Battery regulation, which came into force in 2023, addresses the issue by taking a full life-cycle approach. To increase circularity, electric-vehicles will have to meet certain requirements like recycled content quotas. 

Partnerships with High-Risk Nations

Despite the efforts to domestically meet the demand of vital elements, realistically the Union will always be subject to foreign leverage, and the gap between ambition for strategic autonomy and possibility remains unbridgeable. For this reason, the EU is eager to broaden its list of partners, diversifying the “suppliers”. The bloc established the Critical Raw Materials Clubt to broaden their sourcing channels. In like manner, The EU plans to fund the rare earth mining process in Africa, which is said to meet environmental standards (Global Gateway Initiative).  

In an effort to reduce reliance on China, the EU has turned to African nations like the Democratic Republic of Congo (DRC) and Rwanda, both rich in lithium, tantalum, and other strategic minerals. However, these partnerships raise complex ethical and geopolitical dilemmas. Rwanda, for instance, has been implicated in fueling armed conflict in the DRC through support of rebel groups, including the M23 movement. This has led to international scrutiny of Rwanda’s role in mineral exports, particularly those sourced from conflict-prone areas.

The EU-Rwanda Memorandum of Understanding, signed in 2023, was aimed at securing sustainable supply chains for strategic minerals. However, it has been criticized by human rights organizations and members of the European Parliament. The Guardian reported increasing pressure on EU policymakers to freeze or reassess this agreement in light of Rwanda’s alleged involvement in regional instability.

Strategic Vulnerabilities in Processing

Even if Europe succeeds in securing diverse sources of raw materials, it still relies heavily on China for processing and refining, especially in rare earth separation and lithium hydroxide conversion. For example, China processes over 80% of the world’s lithium, giving it considerable influence over pricing, availability, and export policies. Any escalation in geopolitical tensions or trade restrictions, such as those recently enacted by China on gallium and germanium, could pose severe disruptions to Europe’s supply chains.

These dependencies present a strategic vulnerability — not only in terms of logistics but also regarding energy transition timelines and the viability of Europe’s EV and green tech industries. As such, reducing these geopolitical risks is not only a matter of economic policy but also one of national security.

Environmental and Social Impacts

The drive to extract and process critical raw materials within Europe comes with significant environmental and social costs, often at odds with the sustainability goals the green transition seeks to achieve.

Local Opposition to Mining Projects

In many European countries, local communities and environmental groups have strongly opposed new mining projects. "Not in my backyard" (NIMBY) movement, where broad public support for green technologies does not translate into local acceptance of the extractive industries required to enable them. This friction slows down progress on domestic sourcing and places greater reliance on imported materials — precisely what the CRMA aims to avoid.

CC: Mariam Labadze