Rare earths are important to Europe’s renewable energy, electric mobility, advanced electronics and defence sectors, but much of the world’s processing capacity is located outside the European Union. The EU is seeking to diversify supplies of these strategic materials. However, the Carbon Border Adjustment Mechanism (CBAM) does not currently charge imports of rare-earth products solely on the basis of their emissions footprint.
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.
Although the market is relatively small by volume, rare earths are used in products supporting electrification, industrial automation and advanced technologies. Reliable access is therefore important to several European manufacturing industries. Concentrated supply poses 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
The rare-earth value chain extends well beyond mining. Separation, refining, metal production and permanent-magnet manufacturing are critical stages, and gaps in these capabilities can leave European manufacturers dependent on external suppliers even when other sources of raw materials are available.
Processing requires complex chemical separation to isolate individual elements from mixed materials, followed by further steps to produce metals and alloys. Permanent-magnet manufacturing also 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 rely on border-carbon adjustments to offset higher electricity, labour or environmental compliance costs. Competitiveness must instead be supported by reliable feedstock, efficient processing technology, strong customer relationships and secure access to energy.
Building the full value chain can also require coordination among separation facilities, metal producers and magnet manufacturers. Weaknesses at any of these stages can leave European industry reliant on processing capacity elsewhere, even where alternative raw-material sources are available.
Customer commitments and policy support could underpin investment
Supply-chain resilience is the main commercial case for European rare-earth processing. Automakers, wind-turbine manufacturers, defence companies and electronics producers may seek long-term supply agreements to reduce dependence on concentrated external processing capacity. Such contracts can give new projects greater revenue visibility, particularly when customers prioritise 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, however, does not ensure profitability. European facilities must still secure suitable feedstock, meet demanding product specifications and compete with established international suppliers.
Long-term customer commitments may therefore matter more to project bankability than expectations of future CBAM protection. Developers need to demonstrate that their operations can meet customer requirements and compete in the market. Reliable deliveries and diversified sourcing are among the factors that may support supply agreements.
Recycling could add feedstock, subject to technical constraints
Recovering rare earths from discarded permanent magnets and complex electronic products could provide European processors with an additional material source. Recycling may reduce reliance on primary extraction and help keep valuable materials within the European economy. However, 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 supply enough 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 extension would raise accounting questions
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, while processing capacity is already concentrated. Any future approach would need to account for differences among 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 build the capabilities needed to process, refine and manufacture strategic materials closer to industrial customers. The rare-earth sector illustrates that Europe’s critical-minerals strategy centres primarily on supply resilience, with carbon-border policy playing a secondary role; domestic capacity depends on processing expertise, recycling, secure feedstock and long-term demand from industries that use these materials.