Europe is blessed with abundant and easily accessible mineral wealth and processing infrastructure.

On the industrial side, Europe has positioned itself as a center of excellence for R&D and high-end manufacturing, unchallenged by the extraction and processing of raw materials. Politically, Europe drives a global agenda on environmental, social and governance best practices. These policies have, to some extent, strengthened the separation of the region from the commodity world.

All of this makes sense in a world where supply chains are globally integrated. But the invasion of Ukraine highlights the risk of being too far from the source of supply.

Europe’s top priority is Find Alternative Energy, given its reliance on Russian oil and gas.However, if the region is to remain globally competitive in manufacturing, especially automotive, it also needs to Ensure reliable access to raw materials. Given the importance of lithium, nickel, copper and cobalt, rare earth, industrial and battery metals are high priority areas electrification.

European manufacturers must fundamentally review how they handle sourcing

Decarbonizing the global economy has always been a cause that Europe has rightly embraced. The region has developed the most mature carbon credit market. It is also the first to set a clear threshold for recycled content in battery manufacturing. The world is following the lead established by Europe.

But European companies need reliable and affordable commodities to produce what a decarbonized world needs.In this respect, Europe not only finds itself far less gifted than the United States or CanadaIt also lags far behind China, which has been systematically building supply chains for these critical minerals.

In the long run, China is unlikely to sell only battery materials or even batteries to Europe, but the consumer goods they power. Understandably, China wants to retain as much of the associated value creation as possible from its own electrification investments. This poses a far greater existential threat to Europe’s manufacturing base than short-term gas shortages or even longer-term energy price increases.

To be able to secure the supply of these critical minerals, European manufacturers must fundamentally review how they source. Western mining companies also need to rediscover their risk appetite.

Over the past 20 years, the western mining exploration and development sector has been systematically downgraded. There is a growing focus on existing large mines operating in developed countries, particularly North America and Australia. This trend is more pronounced in metals than in energy markets. In terms of incremental capital, even Latin American democracies such as Chile are seen as unacceptably high risk.

However, the inescapable fact is that the vast majority of critical mineral reserves are not located in first world regions. The West, especially Europe, cannot ignore developing markets in this way. Investors and NGOs alike should recognize that their influence in this area has been and remains enormous.

Europe has an opportunity to lead the way in reconnecting the best exploration and development projects with its most abundant and responsible capital. The ESG leadership championed by Europe should not be sacrificed, but rather a blueprint for the development of emerging markets, especially Africa, where there is a lot of incremental supply.

There are also substantial opportunities in Europe to help these emerging economies develop their processing sectors. This would allow developing countries to share more of the total value of the basic materials mined there. Initiatives such as the Fair Cobalt Alliance should be supported and replicated.

Maybe the Democratic Republic of Congo won’t make European cars yet, but there’s no reason for it to continue exporting unrefined ore to China. European manufacturers must also reassess how they ensure a reliable long-term supply of materials. This may include direct investment in mining assets.

Europe will also need to rebuild its own refining and smelting capacity, especially given the growing importance of recycling for decarbonization. The current “not in my backyard” position can only be changed through government policy.

Energy costs will remain an issue, but this must be balanced against security of supply. Europe can no longer afford to outsource everything that is challenging, dirty, or can be done cheaper elsewhere.

Europe needs to tackle the challenges posed by the war in Ukraine together, or risk becoming a museum of manufacturing and a mere holiday destination.

Paul Smith is a non-executive director of Trident Royalties

Product descriptions are online CFT Industry Review