Revitalizing European industry, enabling Europe’s green transition, and sustaining its growing defense industry – while reducing crucial dependencies on foreign states, particularly China – requires a comprehensive approach to critical minerals. Rapid action is needed to make the management of such minerals sustainable and secure; these objectives must be seen as complementary rather than competing. This DGAP Memo argues that a comprehensive approach must prioritize three overarching goals: enacting supply- and demand-side reforms with speed, embedding security considerations throughout the product cycle, and achieving sustainability through demand reduction and circular resource management.
Speed
Demand for critical minerals is only increasing, particularly in industries essential to European security. The 2023 foresight study that accompanied the EU’s Critical Raw Materials Act (CRM Act) expects lithium demand in the EU to increase 12-fold from 2020 to 2030 (and 21-fold by 2050), with similar increases in other materials. Even low-demand scenarios forecast requirements exceeding current supply by 2050. Further, European rearmament demands increasing supplies in military-relevant materials. As seen in the conflicts in Ukraine and Iran, the use of large quantities of higher-end one-way munitions dramatically increases material consumption. EU priorities in renewable energy and AI infrastructure – among others – put additional pressure on supply. Consequently, waiting to address these concerns not only delays action but also increases the magnitude of the problem.
Developing technologies and redesigning industrial processes to enable demand-side reductions will inevitably take time. To not imperil Europe’s defense, energy transition, and industry, implementation will take years and even decades. Therefore, it is imperative to begin addressing both supply- and demand-side factors immediately. While the EU’s CRM Act is a starting point, it focuses on diversifying supply and reducing administrative burden rather than long-term transformation. The German government and the EU Commission can address this gap by acting immediately to ensure the challenge does not reach unmanageable scales. They must shape incentives to ensure that goals of sustainability, industrial and defense actors, and markets are aligned.
Security
In a changing European security landscape, critical mineral dependencies are increasingly visible chokepoints for Europe’s defense and resilience capacity. For decades, while building the world’s largest regulated marketplace, Europe outsourced the extraction and processing of materials critical to its security for cheaper investments, trusting in a stable international order. Exploiting Europe’s approach, China’s comprehensive public policy consolidated material supply chains. China’s 2025 export controls on seven rare earth elements show how upstream and midstream market dominance translate into geopolitical leverage.
A whole-of-supply chain approach rests on diversification within the EU and with trusted partners abroad. Beyond the EU, like-minded partners such as Canada, Australia, and Japan have built their own resilience strategies to secure their critical minerals supply. Japan, for example, has deepened cooperation with other middle powers to reduce dependence on China through joint venture investment public-private partnerships and fiscal incentives that include subsidies and debt guarantees. Closer coordination would also drive the EU to define where, how, and with whom it sets its own strategic priorities. The recent G7 Leaders’ Declaration on critical minerals supply demonstrates some interest in multilateral action, as does the US-EU Critical Minerals Action Plan. The EU must take a leading role in diversifying partnerships beyond these existing alliances.
Meanwhile, industry has little incentive to integrate resilience criteria into business plans. Competition to scale production at minimal cost is rapidly pushing industrial actors in a different direction. Moreover, the EU does not make a recurring assessment of the greatest increasing material dependencies. The EU Cyber Resilience Act (CRA) might offer a precedent: It introduced a Software Bill of Materials that obliges companies to provide transparency about the software components built into digital products. The G7 now brings in resilience criteria, such as joint procurement instruments and diversification requirements, as a market-structuring tool. Embedding the same security-by-design logic and adding resilience as a criterion for pre-commercial public procurement would make equipment more secure, efficient, and sustainable in the long run.
Sustainability
Mismanaging the push to diversify mineral supplies could wreak environmental havoc. Mining and material processing can cause habitat destruction and air, soil, and water pollution that lasts for centuries. Any of this would worsen the already critical state of the Earth system by aggravating biodiversity loss or the climate crisis. As of last year, seven of nine planetary boundaries were already breached. Degradation of water quality could also cause serious social and political contestation. Accordingly, as Europe expands mining and reprocessing, sustainability must be a key consideration.
Recycling will be central for reducing dependency on external supplies and the impacts of new mining. According to projections by the International Energy Agency (IEA), secondary materials will provide up to 15 percent of total demand by 2035 and 40 percent by 2050. The CRM Act is more ambitious, aiming for up to one quarter of the EU’s annual critical mineral consumption to be met by recycling by 2030. Building this capacity in Europe, however, will be difficult. China already dominates – it controls three-quarters of global battery recycling. Moreover, the process itself is dirty and technically complex; it also requires a stable market for recovered materials and a constant supply of expended products.
In these conditions, Europe and Germany can counterbalance a share of demand growth by pivoting to circularity and efficiency. Current processes are not optimized for finite or constrained supplies of critical minerals. A report from the EU Commission’s Joint Research Center found that 46 percent of all critical minerals used in small electronic equipment were not recovered and that most permanent magnets from wind turbines are lost to bulk waste. Applying circular principles to product design and processing can address these losses and be further improved with material efficiency. The batteries for smaller and lighter electric vehicles can be three to five times smaller than those used in larger sport utility vehicles (SUVs). Demand-side innovation on material efficiency will be equally central for achieving climate targets with constrained natural and public resources.
Recommendations
To remedy their security and economic dependencies, Germany and the EU must act according to the key principles of speed, security, and sustainability. Reforms can be implemented immediately on both demand and supply sides, improving Europe’s ability to achieve its defense, industrial, and green transitions.
First, the EU must build transparency and intelligence across its critical mineral supply chains through low-threshold obligations for European industry. This can be done by mirroring the disclosure requirements that European firms face in third countries. For example, under MOFCOM Notice 61 issued by China’s Ministry of Commerce in October 2025, any foreign company trading or exporting goods containing Chinese critical materials is required to collect and disclose detailed information about their supply chains. This disclosure provides the Chinese government with comprehensive information about the state of supply chains and potential vulnerabilities. To avoid the resulting information asymmetries – and the supply vulnerabilities that result from them – the EU should, as a first step, consider requiring any EU company to communicate any information sent to China under this requirement to the EU as well. The EU has already recognized the value of systematic supply chain monitoring in other areas, such as in its aforementioned Cyber Resilience Act. Such systematic information collection would allow the EU to identify changed or increased critical vulnerabilities in supply that have so far gone undetected. Consequently, it could minimize previously unforeseen risks of disruption, particularly hostile state action.
Second, Germany and the EU should use this information on strategic vulnerabilities – as well as their role as major buyers – to support lead markets to incorporate “resilience by design” into purchasing criteria for supply chain resilience, particularly in pre-commercial defense procurement. This support must entail more than just adopting strategies and targets. Industry should be incentivized to adapt their processes in a way that accounts for the strategic importance of these materials through circular processing, material efficiency, supply diversification, and demand reduction. Rewarding companies and industries that act in this direction will provide market incentives to encourage industry transition toward increased sustainability and resilience. These measures will ensure that the key principles of speed, security, and sustainability guide European policy while reducing European foreign dependence in defense capabilities and entrenched vulnerabilities elsewhere in the supply chains.
