Rare earths are important to Europe’s renewable energy, electric mobility, advanced electronics and defence ambitions, but much of the world’s processing capacity is located outside the European Union. As the EU seeks to diversify supply of these strategic materials, the Carbon Border Adjustment Mechanism (CBAM) does not currently charge imported rare-earth products solely because of their emissions footprint. The supply-chain challenge includes processing stages beyond mining, from separation and refining to metal and permanent-magnet production.
These stages are critical to the rare-earth value chain. Gaps in them can leave European manufacturers reliant on external suppliers even when alternative raw-material sources are available.
EU imports remain concentrated among three suppliers
Eurostat reported that EU imports of rare-earth elements rose by 17.1% in 2025 to approximately 15,100 tonnes. China supplied 46.8% of imports by weight, followed by Russia with 25.9% and Malaysia with 23.1%. In the broader Eurostat grouping measured by value, China remained the largest supplier.
The figures point to the strategic importance of a market that is relatively small by volume. Rare earths are used in products supporting electrification, industrial automation and advanced technologies, making reliable access important to several European manufacturing industries. Concentrated supply creates risks beyond price volatility: disruption at processing facilities or changes in export conditions can affect producers 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. Additional processing is needed to make metals and alloys, while permanent-magnet production relies on specialised technology and precise material specifications. These stages can be both energy-intensive and technologically demanding.
Imported rare-earth oxides and metals do not currently face a CBAM obligation solely on the basis of their carbon intensity. European projects therefore cannot rely on border-carbon adjustments to offset higher electricity, labour or environmental compliance costs.
Developers must instead build competitiveness through reliable feedstock, efficient processing technology, strong customer relationships and secure energy access. Establishing the full value chain can also require coordination between separation facilities, metal producers and magnet manufacturers.
Customer agreements and EU policy could support investment
Supply-chain resilience is the strongest commercial case for processing rare earths in Europe. Automakers, wind-turbine manufacturers, defence companies and electronics producers may pursue long-term supply agreements to reduce reliance on concentrated processing capacity abroad. Such contracts can give new projects greater revenue visibility, particularly when customers value reliable deliveries and diversified sourcing.
The EU Critical Raw Materials Act (CRMA) can support strategic projects through policy recognition, improved permitting conditions and greater visibility for investment planning. Strategic importance alone, however, does not ensure profitability. European facilities still need to secure suitable feedstock, meet demanding product specifications and compete with established international suppliers.
Long-term customer commitments may matter more to project bankability than expectations of future CBAM protection.
Recycling could add feedstock, but recovery remains difficult
Recovering rare earths from discarded permanent magnets and complex electronic products could provide European processors with another source of material. Recycling may reduce reliance 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 need to deliver sufficient quantities of suitable feedstock at commercially viable costs. Projects combining primary and recycled feedstock with separation technology and established magnet customers may be better placed to develop resilient supply chains than facilities focused on a single processing stage.
Any future CBAM coverage would raise accounting questions
Extending CBAM to critical minerals would raise difficult issues around emissions accounting and product comparability. Carbon intensity can differ across mining, chemical separation and metal production, while processing capacity is already concentrated. Any future approach would need to account for different production routes without creating unintended barriers to diversifying European supplies.
For now, rare-earth projects should be assessed under the existing regulatory framework, rather than on assumptions about expanded carbon-border coverage. Europe’s immediate priority is to develop the capabilities to process, refine and manufacture strategic materials closer to industrial customers.
Rare earths illustrate why Europe’s critical-minerals strategy is primarily a supply-resilience challenge, with carbon-border policy playing a secondary role. Building domestic capacity will depend on processing expertise, recycling, secure feedstock and long-term demand from the industries that use these materials.