Europe relies on rare earths for renewable energy, electric mobility, advanced electronics and defence, while much of the world’s processing capacity remains outside the European Union. The EU is seeking to diversify supplies of these strategic materials, but the EU Carbon Border Adjustment Mechanism (CBAM) does not currently charge imports of rare-earth products solely because of their emissions footprint. Supply-chain challenges extend beyond mining to separation, refining, metal production and permanent-magnet manufacturing.
Weaknesses at these stages can leave European manufacturers dependent on external suppliers even when alternative raw-material sources are available. Separation, refining and magnet production are therefore central to building a rare-earth supply chain in Europe. The concentration of processing capacity abroad adds to the challenge of diversifying supplies.
EU imports show concentrated rare-earth supply
Eurostat reported that EU imports of rare-earth elements rose by 17.1% in 2025 to approximately 15,100 tonnes. By weight, China supplied 46.8% of imports, followed by Russia at 25.9% and Malaysia at 23.1%. In the broader Eurostat import grouping measured by value, China was also the largest supplier.
The figures highlight the strategic importance of a relatively small-volume market. Rare earths are used in products supporting electrification, industrial automation and advanced technologies, making reliable access important to several European manufacturing industries. Concentrated supply brings risks beyond price volatility: disruption at processing facilities or changes in export conditions can affect manufacturers with few alternative sources of qualified materials.
Processing and magnet production are key bottlenecks
Rare-earth processing requires complex chemical separation to isolate individual elements from mixed materials. Further processing produces metals and alloys, while permanent-magnet manufacturing depends on specialised technology and precise material specifications. These activities can be energy-intensive and technologically demanding.
Imported rare-earth oxides and metals do not currently face a CBAM obligation solely because of their carbon intensity. European projects therefore cannot use border-carbon adjustments to offset higher electricity, labour or environmental compliance costs. Developers must instead compete through reliable feedstock, efficient processing technology, strong customer relationships and secure energy access.
Building the full value chain can require coordination among separation facilities, metal producers and magnet manufacturers. Automakers, wind-turbine manufacturers, defence companies and electronics producers may seek long-term supply agreements to reduce dependence on concentrated processing capacity abroad. Such contracts can give new projects greater revenue visibility, especially when customers value reliable deliveries and diversified sourcing.
Investment depends on customers and feedstock
The EU Critical Raw Materials Act (CRMA) can support strategic projects through policy recognition, improved permitting conditions and greater visibility for investment planning. However, strategic importance does not automatically ensure profitability. European facilities still need suitable feedstock, must meet demanding product specifications and have to compete with established international suppliers.
Long-term customer commitments may consequently matter more to project bankability than expectations of future CBAM protection. Projects need to secure both the materials required for processing and demand for their products. Reliable supply agreements can help provide revenue visibility for new facilities.
Recycling could add feedstock for European processors
Recovering rare earths from discarded permanent magnets and complex electronic products could provide another source of material for European processors. Recycling may reduce dependence on primary extraction and help keep valuable materials within the European economy. Recovery remains technically challenging because rare earths are often embedded in complex products and mixed material streams.
Collection, separation and processing must be organised to provide enough suitable feedstock at commercially viable costs. Projects combining primary and recycled feedstock with separation technology and established magnet customers may be better positioned to develop resilient supply chains than facilities focused on only one processing stage.
CBAM does not currently cover rare-earth products
Extending CBAM to critical minerals would raise questions about emissions accounting and product comparability. Carbon intensity can differ across mining, chemical separation and metal production, and processing capacity is already concentrated. Any future approach would need to account for different production routes without creating unintended obstacles to diversifying European supplies.
For now, rare-earth projects should be assessed under the existing regulatory framework, not on assumptions that carbon-border coverage will expand. Europe’s immediate priority is to develop the capabilities needed to process, refine and manufacture strategic materials closer to industrial customers. The rare-earth sector illustrates a supply-resilience challenge in which carbon-border policy plays a secondary role; building domestic capacity depends on processing expertise, recycling, secure feedstock and long-term demand from industries that use these materials.
