Rare earths are central 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, the Carbon Border Adjustment Mechanism (CBAM) does not currently charge imported rare-earth products solely on the basis of their emissions footprint. The supply-chain challenge extends beyond mining to separation, refining, metal production and permanent-magnet manufacturing.
Gaps in these processing stages can leave European manufacturers reliant on external suppliers, even when alternative sources of raw materials are available. The stages are essential to turning rare-earth materials into products that manufacturers can use, and each forms part of a wider value chain.
EU Imports Show Concentrated Rare Earth Supply
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 Eurostat’s broader grouping measured by value, China was also the largest supplier.
Despite the market’s relatively small volume, rare earths are used in products supporting electrification, industrial automation and advanced technologies. Dependable access matters to several European manufacturing sectors, and concentrated supply creates risks beyond price volatility. Disruptions at processing facilities or changes in export conditions can affect manufacturers with few alternative sources of qualified materials.
Processing and Magnet Production Present Key Bottlenecks
Rare-earth processing requires complex chemical separation to isolate individual elements from mixed materials. Further processing produces metals and alloys, while permanent-magnet manufacturing 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 incur a CBAM obligation solely because of their carbon intensity. European projects therefore cannot depend on border-carbon adjustments to offset higher electricity, labour or environmental compliance costs. Their competitiveness must instead draw on reliable feedstock, efficient processing technology, strong customer relationships and secure energy access.
Building the full value chain may also require coordination among separation facilities, metal producers and magnet manufacturers. The stages must connect to supply materials suited to downstream production requirements.
Long-Term Contracts Could Support European Projects
Supply-chain resilience is the strongest commercial case for European rare-earth processing. Automakers, wind-turbine manufacturers, defence companies and electronics producers may pursue long-term supply agreements to reduce reliance on concentrated external processing capacity. 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 guarantee profitability. European facilities still need to 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.
Recycling and Future CBAM Coverage
Recovering rare earths from discarded permanent magnets and complex electronic products could provide European processors with an additional material source. Recycling may reduce dependence on primary extraction and help retain 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 volumes of suitable feedstock at commercially viable costs. Projects combining primary and recycled feedstock with separation technology and established magnet customers may be better positioned to develop resilient supply chains than facilities focused on a single processing stage.
Extending CBAM to critical minerals would raise questions about emissions accounting and product comparability. Carbon intensity varies across mining, chemical separation and metal production, while processing capacity is already concentrated. Any future approach would need to account for differences between production routes without creating unintended obstacles to diversifying European supply.
For now, rare-earth projects should be assessed under the existing regulatory framework, rather than assumptions about expanded carbon-border coverage. Europe’s immediate priority is to develop the capabilities to process and refine strategic materials and manufacture products closer to industrial customers. Rare earths illustrate that the critical-minerals strategy is primarily a supply-resilience challenge, with carbon-border policy playing a secondary role; building domestic capacity depends on processing expertise, recycling, secure feedstock and long-term demand from industries that use these materials.