Europe’s effort to rebuild strategic raw-material processing capacity is intersecting with the EU’s carbon-border regime, exposing differences in how the bloc supports domestic industry and prices emissions from imported goods. The Critical Raw Materials Act (CRMA) targets supply-chain resilience, while the Carbon Border Adjustment Mechanism (CBAM) applies a carbon cost to selected imports. Their coverage, however, remains uneven across the materials needed by European industry.
The strategic challenge extends beyond extracting minerals. European manufacturers need processed and refined inputs that meet industrial specifications, from battery-grade chemicals and separated rare-earth oxides to aluminium billet, cathode copper and high-purity graphite. Securing those materials requires investment in concentration, smelting, refining, purification, alloying and chemical conversion, not just new mines.
As of October 2026, the European Commission has designated 106 strategic projects under the CRMA. The bloc’s 2030 benchmarks call for domestic capacity equivalent to at least 10% of annual EU strategic raw-material consumption in extraction, 40% in processing and 25% in recycling. The framework also seeks to reduce excessive dependence on any single third country at relevant processing stages. A second EU list, adopted on October 9, 2026, added 46 projects across 16 member states.
CBAM covers major metal chains but leaves critical materials outside
The CRMA addresses extraction, processing and recycling, while CBAM targets carbon leakage by imposing a carbon cost on specified imported goods comparable to the cost faced by EU producers under the EU Emissions Trading System (EU ETS).
The definitive CBAM regime began in 2026, covering designated goods including iron and steel, aluminium, cement, fertilisers, hydrogen and electricity. In the metals sector, its reach includes selected upstream and intermediate materials as well as finished products. Covered goods include agglomerated iron ore and concentrates, including iron ore pellets under CN code 2601 12 00, alongside many iron and steel products and broad categories of aluminium products.
The result is a carbon-border framework around significant parts of ferrous metallurgy and aluminium production, rather than a universal carbon adjustment for all mining and metals. Copper concentrates, refined copper, zinc, lead, most nickel products, lithium chemicals, cobalt products, natural and processed graphite, rare-earth oxides and most other critical-material products remain outside current CBAM scope.
This creates a competitive gap for some European processors. A domestic refinery may face EU carbon costs and electricity expenses while competing with imported refined material that carries no equivalent CBAM charge because its customs classification is not included in the mechanism.
Energy costs remain central to European refining economics
Processing facilities can be more exposed to energy prices than mines. Smelting and refining may require substantial electricity, gas, hydrogen or process heat, while some operations also generate significant direct process emissions.
European operators must account for EU ETS liabilities, electricity network charges, environmental controls, permitting requirements and increasingly stringent financing standards. Competing facilities in third countries can operate under substantially different cost structures.
For materials covered by CBAM, the mechanism can reduce part of the carbon-cost disadvantage facing European production. For uncovered materials, more of the burden of building domestic capacity falls on other instruments, including CRMA support, state aid, long-term offtake agreements, recycling policy, public procurement and security-of-supply premiums.
The distinction matters when assessing whether a European processing facility can compete commercially without continued policy support or unusually favourable energy prices.
Three investment categories emerge across the materials chain
The first category comprises projects within clearly CBAM-linked value chains. Iron ore pelletisation, direct-reduced iron (DRI), pig iron, many ferroalloys, steelmaking and aluminium smelting operate in segments where carbon treatment increasingly affects market access and production economics.
For these projects, investment viability can be supported by low-emission process technology, verified emissions data, renewable electricity and the ability to demonstrate lower carbon intensity than competing high-emission materials. These factors can influence both production costs and the commercial position of the resulting material.
The second category includes strategically important materials that remain largely outside CBAM, such as copper, zinc, lead, lithium, cobalt, graphite and rare earths. Their investment cases depend more heavily on energy costs, processing yields, reliable feedstock, offtake quality, permitting and policy support because the current mechanism does not provide the same border-carbon adjustment.
A third category involves downstream industrial manufacturing, where the proposed expansion of CBAM could alter the treatment of imported goods used in European projects.
Proposed downstream expansion could affect imported equipment
The European Commission proposed in December 2025 extending CBAM from 2028 to 180 additional steel- and aluminium-intensive downstream goods. The Council’s position in June 2026 refined and expanded the list to approximately 200 products, while the European Parliament’s position in September 2026 proposed a substantially broader scope of 457 products.
The final product list remains under negotiation. These positions are proposals and negotiating positions, not a single settled extension already in force.
For mining and refining investors, the potential change is relevant because projects frequently depend on imported machinery, industrial components and fabricated steel and aluminium goods. If equipment falls within an expanded CBAM scope, its landed cost could be affected by the treatment of its metal content. The outcome would depend on the final rules and the classification of the imported goods.
Carbon policy is becoming part of project finance
Carbon regulation can affect both the cost and revenue sides of a European smelter or refinery. EU ETS and energy expenses influence operating costs, while the carbon treatment of imported substitutes can affect the competitiveness of domestic output.
A project that appears marginal under current commodity-price assumptions could become more competitive if comparable imports face a higher carbon cost. By contrast, a European facility producing an uncovered material may remain exposed to high-emission imports without an equivalent border adjustment.
Lenders therefore need to assess the full value chain rather than the mine in isolation. Due diligence should establish the final saleable product and its Combined Nomenclature (CN) code, whether it enters CBAM directly, through a covered precursor or not at all, and which EU ETS obligations apply to the European installation.
The analysis must also account for the plant’s electricity source, the ability to verify actual emissions, potential changes to downstream CBAM coverage and whether the project can demonstrate a lower carbon-adjusted landed cost than imported alternatives.
Processing capacity is the link between resource security and industrial demand
Europe’s raw-material strategy increasingly depends on connecting extraction, recycling, processing and manufacturing through a commercially viable industrial chain. Domestic mineral resources alone cannot provide that outcome if the intermediate stages needed to turn ore and recycled feedstock into usable industrial materials remain insufficient.
The CRMA is intended to support the development of this chain, while CBAM assigns a carbon cost to selected segments of international trade. The two frameworks currently intersect most directly in iron, steel and aluminium, leaving many strategically important non-ferrous materials dependent on other forms of industrial support.
For investors, the distinction between covered and uncovered materials will remain important when evaluating European processing projects, their exposure to imported competition and their dependence on policy assistance, strategic buyers or low-cost power.
