This article is part of our special report Raw Materials.
After an aborted first attempt last week, the European Commission lifted the veil yesterday (2 February) on plans to secure access to essential raw materials for European companies. At the request of France, the updated draft now includes measures to improve the transparency of financial and commodity markets.
Commodity markets were included in the plan at the last minute, after France insisted on highlighting the link between speculation and the rise in commodity prices.
Tackling volatility in commodity markets tops the agenda of the French G20 Presidency this year.
"In order to secure supply of raw materials for the European industry for coming years, we need to link this policy with our reforms of the regulatory framework for financial markets," said Commission President José Manuel Barroso, stressing the need to better understand the synergy between the two.
Addressing food price volatility, Internal Market Commissioner Michel Barnier noted that between a quarter and a third of investments and contracts in agricultural products are currently made by investment funds.
"Agricultural products are no longer simple foodstuffs but have also become financial assets," Barnier said, insisting that they should remain at the service of the real economy.
Increased regulation and transparency is needed "to know who is doing what and when," he continued.
The EU executive's plans to curb speculation on commodities include forcing traders to disclose their positions and imposing so-called 'position limits' to stop mega-trades that could upset markets.
The Commission also plans to review the bloc's directives on market abuse and on markets in financial instruments to improve the integrity, transparency and stability of commodity derivatives markets.
Accessing raw materials on world market
Raw materials would now form a full part of the bloc's free trade agreements, with 'raw materials diplomacy' aimed at securing strategic partnerships with key supply countries. Improved cooperation with the African Union in particular is being envisaged.
Together with the European Investment Bank (EIB), the EU executive hopes to help resource-rich developing countries improve their transport, energy and environmental infrastructure, the lack of which limits their ability to harness their mineral wealth.
To tackle corruption, the Commission also suggests offering more financial and political support for good governance in supply countries, via the Extractive Industries Transparency Initiative (EITI). Help should be provided for developing countries to implement the EITI, the Commission said.
Raw materials extraction in Europe
Within Europe, the Commission notes that investments in extractive industries are hindered by heavy regulation and competition with other uses of land.
In late 2010, the Commission already provided new guidelines on reconciling demand for mining valuable raw materials with its Natura 2000 network of protected sites.
To promote mining activities inside the bloc, it suggests that member states define "national minerals policies," set up land use planning policies for minerals and ease the authorisation process for minerals exploration and extraction. Progress in these areas would be monitored by a series of indicators.
The EU executive notes that the extraction of useful materials from urban waste – or "urban mining" – is one of the main sources of metals and minerals for European industry. But these secondary raw materials are yet to be fully exploited, it says.
To improve Europe's recycling industries, new market-based instruments favouring secondary raw materials could be introduced, the paper notes.
Reviews of the bloc’s waste and recycling strategies are planned for 2012 and the Commission said it will carry out an ex-post evaluation of laws to bring more coherent deterrents and penalties for breaches of EU waste rules.
Resource efficiency could also be increased early on, at the manufacturing stage, to ensure that products are recyclable and durable and promote the use of secondary raw materials using the EU Ecodesign Directive.
Stockpiling critical raw materials
To help secure critical raw materials such as rare earths, for which the EU is almost entirely dependent on China, the Commission intends to explore new options such as recycling and stockpiling.