Overview of Policy Barriers to Recycling of Critical Raw Materials

These latest EU regulatory initiatives, much like the United Kingdom’s (“UK”) Critical Mineral Strategy (“UK CMS”) and the United States’ (“U.S.”) Inflation Reduction Act (“IRA”), focus on increasing and diversifying critical raw materials’ supply. A lot of emphasis has been placed in these initiatives on promoting extraction and processing projects. Yet, a third, and central, pillar to securing supply chains is recycling critical raw materials and rare earth elements. This article first explores the provisions specifically promoting the circularity of critical raw materials within the U.S., UK and EU’s main critical raw materials initiatives. The article then turns to the different barriers faced in the promotion of recycling critical raw materials and whether these are sufficiently addressed under the U.S., UK and EU’s policies.

U.S.

The U.S.’s IRA recently celebrated its two year anniversary, having come into force on 16 August 2022. The IRA includes a few provisions which directly incentivise recycling: (i) section 48C expands an existing investment tax credit program to allow qualifying entities to write off up to 30% of their capital expenditures in facilities that recycle certain types of environmental technologies, including renewable energy generation equipment, carbon capture and sequestration equipment; (ii) section 45X creates a new advanced manufacturing production credit for certain types of components — including critical minerals and batteries — that are recycled within the U.S.; and (iii) section 13401 creates a tax credit — ranging up to US$ 7,500 — for consumers who purchase an electric vehicle with a battery whose components were manufactured or assembled in North America. That includes batteries made from — or with components made from — materials recycled in North America. The IRA however remains a subsidy programme for North American production and it does not set up the multi-faceted policies required to promote recycling.

At state level, several states in the U.S. are adopting new requirements for recycling components containing critical raw materials. As of 1 July 2025, the State of Washington will require manufacturers to provide for the recycling of modules at no cost to their owners.³ California also passed a regulation that took effect in January of 2021 that allows for end of life photovoltaic modules to be managed as universal hazardous waste.⁴ California’s universal waste regulation allows for modules being recycled or disposed of to be regulated under less stringent handling, transport, and storage requirements and prohibits the use of heat and chemical treatment and recycling processes.

UK

The UK CMS, first published in July 2022 and refreshed in March 2023, aims to “help deliver the secure, stable supplies of critical minerals needed by the UK industry now and in future”.⁵ The UK’s strategy can be divided into three objectives: (i) accelerating the UK’s domestic capabilities; (ii) collaborating with international partners; and (iii) enhancing international markets. The UK’s strategy seeks to develop a circular economy in critical minerals, by improving resource efficiency and recycling.

The UK CMS seeks to promote innovation for a more efficient circular economy in critical raw materials, by focusing on public R&D funding on recycling, reuse and resource efficiency and signposting financial support to accelerate the development of a critical mineral circular economy. Whilst these objectives are correct, the UK CMS does not currently propose any specific incentives, tailored measures or precise targets to achieve.

EU⁶

On 23 May 2024, the EU CRMA entered into force.⁷ The CRMA sets non-binding capacity targets within the EU for the extraction, processing, refining, and recycling of Strategic Raw Materials (“SRMs”) that are key to achieve the green and digital transition. To reach such targets, the CRMA empowers the European Commission (“Commission”) to recognize projects that extract, process, refine or recycle SRMs, including projects outside the EU, as Strategic Projects (“SPs”) so that they may benefit from easier access to financing, expedited permitting process, and matchmaking with off-takers. The Commission is expected to recognize the first SPs by the end of this year. Focusing on recycling targets, the CRMA sets non-binding targets to derive 25% of the EU’s annual consumption of SRMs by 2030 from recycled materials.⁸

The CRMA also requires Member States to adopt and implement a number of national programmes to increase circularity within two years from the date of entry into force of the CRMA.⁹ These measures include inter alia (i) measures to incentivise technological progress and resource efficiency to moderate the expected increase of consumption of CRMs, (ii) measures to increase the technological maturity of recycling technologies and (iii) measures to increase the collection, sorting and processing of waste with relevant CRM materials recovery potential. Finally, the CRMA focuses on permanent magnets. Permanent magnets are incorporated in a wide variety of products, such as wind turbines, electrical vehicles, cooling generators, heat pumps and a number of domestic appliances. Most permanent magnets, in particular the most performant types, contain critical raw materials, such as neodymium, praseodymium, dysprosium and terbium, boron, samarium, nickel or cobalt. Their recycling is possible but currently only performed in the EU at a small scale or in the context of research projects. The CRMA therefore prioritises them for increased circularity, with provisions providing for transparency on the labelling to identify permanent magnets and their share of rare earth elements.¹⁰

There are still a number of policy, supply and technological barriers facing full scale recycling of critical raw materials. For example, in the EU, the average end-of-life recycling input rate across the 34 critical raw materials identified in the CRMA is only 8.3%. The 15 elements that make up the rare earth metals group collectively have only around a 1% global recycling rate. These metals are often blended together with other minerals in magnets and touchscreens, and separating them has traditionally involved hazardous chemicals such as hydrochloric acid and a lot of heat. Extracting and repurposing lithium from batteries is also extremely labour-intensive and expensive, as there are a huge range of battery formats that typically need to be manually broken down. The expense of these processes also means that they can only take place where human capital is cheap, which therefore raises other concerns such as environmental protection and ESG. As is evident from the above, there are a number of barriers that still need to be addressed.

There is a lack of specific rules requiring the provision of information about the magnets included in different end-of-life applications. Due to this lack of labels, the magnet scrap has to be extracted from each specific application, sorted and analysed to verify the type of magnet and material composition. This a lengthy process fraught with uncertainty and inefficiency. The EU CRMA’s new provisions on labelling of permanent magnets should promote the recycling of rare earth elements contained in the magnets; however, global initiatives are required to ensure the recycling of all end-of-life appliances.

Policies are also required to implement specific financial incentives to support secondary markets for critical raw materials and rare earth magnets. There is still a competitive disadvantage in secondary production compared to primary production. Financial support to rare earth and critical raw materials recycling projects should be increased through public R&D programmes. Public funding should also focus both on bringing existing recycling technologies into the market and at the same time channelling financial support for the breakthrough innovations that are still required for the sector. For example, a UK fund, Driving the Electric Revolution, has already deployed over £8 million to projects related to critical minerals, such as rare earth recycling.¹¹

Policies should also consider the importance of product design for downstream recovery of rare earth permanent magnets. There should be proactive thinking about disassembly and recycling when designing products, particularly for electric vehicles. These considerations should take place at an international level to ensure the disassembly and recycling of critical raw materials of end-of-life appliances designed and built globally. Finally, the lack of certification for recycled critical raw materials is hampering confidence along the supply chain for the use of recycled permanent magnets and other critical raw materials.

Notwithstanding progress on the policy barriers set out above, there are supply limitations. There is still an insufficient secondary feedstock to meet a significant share of material demands. Only a handful of electric vehicles and batteries have reached end-of-life. The International Energy Agency (“IEA”) models show that significant volumes of spent battery metal are only expected to become available after 2030.¹² In the meantime, significant supply would have to continue to come from primary resources.

It is clear that the EU CRMA, the UK CMS and the U.S.’s IRA place the right emphasis on the recycling of critical raw materials as part of the effort to secure supply chains. However, when reviewing the barriers facing the full scale development of critical raw materials, these initiatives are insufficient. A global coordinated approach is required to ensure that end-of-life appliances and components can be recycled, irrespective of the origin of the rare earth elements and critical raw materials they contain, or where they have been built or assembled.

¹ You can read more on the memorandum in our insight ‘Serbia Signals Dedication to Lithium Mining with EU MoU?’

² Lucia Sconosciuto, ‘EBRD and EU to mobilise up to €100 million for critical raw materials investments,’ EBRD (31 July 2024) https://www.ebrd.com/news/2024/ebrd-and-eu-to-mobilise-up-to-100-million-for-critical-raw-materials-investments.html.

³ Wash. Rev. Code § 70A.510.010 Accessible at: https://ecology.wa.gov/waste-toxics/reducing-recycling-waste/our-recycling-programs/solar-panels#:~:text=Manufacturers%20are%20required%20to%20finance,co%2Dbrand%20of%20PV%20module.

⁴ Photovoltaic modules (PV modules) – Universal Waste Management (April 2020), Cal. Dep’t of Toxic Substances Control Accessible at: https://dtsc.ca.gov/wp-content/uploads/sites/31/2020/10/C.-RegTextFinal-PVM-09252020_no-watermark-PV-Regulations.pdf.

⁵ UK CMS, Department for Business & Trade, Critical minerals refresh: delivering resilience in a changing global environment (13 March 2023) Accessible at: https://www.gov.uk/government/publications/critical-minerals-refresh/critical-minerals-refresh-delivering-resilience-in-a-changing-global-environment.

⁶ This article focuses on the CRMA; however, a number of other regulations include provisions for the recycling and reuse of components which contain critical raw materials and rare earth minerals, such as Regulation (EU) 2023/1542 on the recycling of batteries.

⁷ Regulation (EU) 2024/1252 of the European Parliament and of the Council of 11 April 2024 establishing a framework for ensuring a secure and sustainable supply of critical raw materials and amending Regulations (EU) No 168/2013, (EU) 2018/858, (EU) 2018/1724 and (EU) 2019/1020, Accessible at: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32024R1252.

⁸ Ibid, at Article 5.1(a)(iii).

⁹ Ibid, at Article 26.

¹⁰ Ibid, at Articles 28 and 29

¹¹ Driving the Electric Revolution Website Accessible at: https://iuk.ktn-uk.org/electronics/der-iscf-challenge/#:~:text=The%20Driving%20the%20Electric%20Revolution,machines%20%26%20drives%20(PEMD).

¹² IEA (2021), “Mineral requirements for clean energy transitions,” The Role of Critical World Energy Outlook Special Report Minerals in Clean Energy Transitions (2021), accessible at: https://www.iea.org/reports/the-role-of-critical-minerals-in-clean-energy-transitions/mineral-requirements-for-clean-energy-transitions.