*The following essay was contributed by materials engineer Beatriz Macedo.* 

There will be significant political and local impact of changes in the European Union's legislation around electric vehicle (EV) batteries. As regulations demand traceable materials and environmental, social, and governance (ESG) compliance from suppliers, battery manufacturers are likely to change sourcing locations with deep impact for the local populations. As of now, many minerals needed for the production of EV batteries are sourced and mined from locations that are not compliant with the proposed directives in many areas, including emissions and workers' rights. The pending regulations will have sizable knock-on effects on the supply chains of these minerals. This essay provides the relevant background for understanding these effects and lays out three scenarios that may result. 

# About the EU’s upcoming legislation

Given the important role they play in the rollout of zero-emission mobility and the storage of intermittent renewable energy, batteries are a crucial element in the EU's transition to a climate neutral economy. The EU is planning to introduce mandatory requirements on safety, end-of-life management, labeling for the marketing and putting into service of batteries, and sustainability—such as carbon footprint rules, minimum recycled content, and performance and durability criteria. These requirements will also include due diligence obligations for economic operators as regards the sourcing of raw materials.

## Proposed changes

The main innovations envisaged by the European Commission proposal include: 

* Carbon footprint performance category (as of 1 January 2026)
* A requirement to comply with maximum lifecycle carbon footprint (as of 1 July 2027)
* A recycled content declaration requirement (from 1 January 2027)
* Minimum electrochemical performance and durability requirements for portable batteries of general use (applying from 1 January 2027)
* For portable batteries, a new obligation of battery replaceability
* Safety requirements for stationary batteries
* Supply chain due diligence obligations. For this requirement on responsible raw material sourcing (as well as for those related to the carbon footprint and the recycled content levels), the Commission proposal envisages mandatory third-party verification through notified bodies.
* Material recovery targets; namely 90% for cobalt, copper, lead, and nickel, and 35% for lithium, to be achieved by the end of 2025. By 2030, the recovery levels should reach 95% for cobalt, copper, lead, and nickel, and 70% for lithium.
* A label with information necessary for the identification of batteries and their main characteristics (from 1 January 2027)
* A battery management system storing data needed to determine the health and lifetime of batteries. The system should be accessible to battery owners and independent operators acting on their behalf
* An electronic exchange system for battery information, with the creation of a battery passport or similar electronic record (from 1 January 2026)

# EV battery materials

## Nickel mining

Nickel is primarily extracted using underground and open pit methods. In some deposits, nickel is associated with platinum group elements, copper and, more rarely, cobalt and precious metals. In recent years, supply has shifted from sulfide to laterite deposits, as the more profitable shallow sulfide deposits have been depleted. The grade of both sulfide and laterite ores is generally relatively low (less than 3% nickel) and therefore much of what is mined ultimately requires disposal as waste. Deep sea mining of nickel-rich nodules and mineral crusts is on the horizon, but likely to be a contentious and controversial activity if it becomes a commercial reality. As of 2020, top producing countries are Indonesia, the Philippines and Russia while the biggest importer of nickel mattes (an intermediate product for refiners) is by far China, importing more than 40% of the world’s production.

According to the Nickel Institute, nickel use has been growing at a rate of about 4% a year since 2010, while use of nickel-containing stainless steel has been growing at roughly 6%. The metals market as a whole has recognized that green energy will play a key role in nickel’s future. The rapid rise of EVs and growing importance of battery technology are likely to increase demand for higher purity nickel. Currently, EVs account for only a small proportion of global automobile production—less than 1%—but their share is increasing and is forecast to accelerate rapidly in the coming years, perhaps as high as 10% by 2025, mostly powered by Li-ion (lithium ion) batteries. 

## Graphite mining

Graphite is a fundamental component of battery chemistry and the demand from this segment is set to grow. Due to the high cost of purification, graphite concentrate with limited impurities is the preferred feed material and therefore not every graphite deposit can be considered a source of graphite for use in lithium-ion batteries (and other high purity end-uses).To upgrade the graphite concentrate to a purity beyond 99%, aggressive chemical or high temperature purification methods are used. This upgrading process is expensive and wastes up to 70% of the initial graphite. Furthermore, given the locations of the main graphite refiners, there are also concerns of the sources of energy used being highly pollutant. Another environmental concern is that minimal recycling of graphite occurs at present.

Graphite is traded via informal, private supply networks and specialist traders who may sell on to intermediary refiners before the graphite reaches the final customer. Contractual arrangements and physical transfer of materials tend to be opaque, with price set by direct negotiation between the relevant parties according to graphite grade, purity, and flake size. Top producers in 2020 are China (which produces over half of the world’s supply), Mozambique, and Brazil. 

The Chinese natural graphite industry has undergone major consolidation in recent years and has seen a series of closures for environmental reasons. Almost all amorphous mining is now under the control of one state-owned enterprise, South Graphite, which has permanently closed around 90 of its 210 mines since it began to take ownership in 2010.

China continues to shape the graphite industry through a system of trading taxes and rebates aimed to encourage the domestic production, while at the same time discouraging the import of high value products and the export of graphite as a raw material, thus keeping a large percentage of the refining within Chinese borders.

## ESG compliance in the EV battery supply chain

Issues that come up often in this context include: forced labor, workers' and human rights, and occupational health and safety standards.

Forced labor becomes a greater risk in sectors characterized by high levels of informality. As an example, a number of automobile manufacturers have been implicated in supply chains sourcing car products and components from facilities in Xinjiang, where there are widespread and credible reports of forced labor of Muslim minorities. Anti-Slavery International has repeatedly highlighted that audits are not effective means of detecting forced labor in supply chains due to the hidden nature of the phenomenon and the inherent limitations of audits. As such, where suspicions arise, further investigation and inquiry independent of audit processes is required.

## Environmental risks

The capsizing and sinking of cargo vessels with unbalanced ore can be expected to have negative implications for local marine life. Moreover, upgrades to transport infrastructure to accommodate project traffic through, for example, road widening can have land use and biodiversity implications that can be extended by the creation of borrow pits and quarries to provide the necessary construction materials. Roadkill, noise, dust, and the fragmentation of habitats and movement corridors can likewise impact flora and fauna during road transit.

Other issues include air quality, water quality, and dust and other emissions, as regulation in this area may be underdeveloped or disregarded in many cases.

The mining sector in general has frequently been implicated in general poor business ethics issues, such as intimidation of those complaining about their operations. Issues of corruption are also indicated in countries where doing business implies a high degree of graft in navigating administrative and regulatory processes, such as China and India. As demand for battery materials increases, it is likely that there will be a growing number of new companies entering the market in the mid-stream. There is a risk that these comparatively smaller producers or traders flout good business ethics to advance in what may become an increasingly competitive field. (And whether these will be put into practice will be very hard to verify and audit.) 

# Future outlook

Given the current scenario and planned future legislation, there are three possible scenarios for those who wish to enter the European automaker’s markets:

* Scenario 1: Guarantee the due diligence as intended by changing suppliers
* Scenario 2: Guarantee the due diligence by getting current suppliers to comply with the new regulations
* Scenario 3: Choose suppliers without engaging in due diligence risking that they may have passed audits but still engage in dubious practices

## Scenario 1

This scenario will result in a short term increase in pricing all across the supply chain, centered around the higher cost of labor, with very significant consequences both for countries losing out on the mining business but also for those that will see a newfound interest in smaller or less significant mineral deposits. An example is a small but significant lithium deposit in Portugal that has not been mined up to this point as the price would not be competitive. Newfound interest has already resulted in corruption accusations as licenses for mining have been provided to newly founded companies. Said companies have won these licenses in a process that has faced accusations of insufficient transparency and the presence of politicians on the boards of these companies further increases suspicion of foul play.

This example illustrates that while ESG requirements are pursued, other consequences may loom on the horizon for the places where these commercial interests flourish. 

## Scenario 2

Companies may choose to keep their current supply chain with a cheaper labor force and implement changes that lead to compliance with the new regulations. The work needed to implement these regulations, as well as the additional expense of certification may be passed on to the next element of the supply chain, resulting in a significant increase in the final price of EV batteries.

These changes in workers' rights or environmental standards may also have a significantly positive effect on the local populations around current mines, raising their standard of living and having a ripple effect on the local economy. The impact can be as great as the share that the mining sector represents for its economy and could also result in significant positive public perception of the involved companies.

## Scenario 3

Depending on the amount of diligence and audits required it is also possible that no significant changes to the sector occur and that the effort of compliance is only done as much as is needed to retain contracts and clients. Dubious business practices like poor waste management and forced labor still exist because the incentive of retaining customers by offering the lowest price still exists. The EU’s upcoming legislation does not eliminate this pricing incentive and it is entirely possible that some elements of the battery supply chain retain some of these problematic practices while seeming to comply with regulations.

## Conclusions

The upcoming EU regulations around battery supply chain due diligence will surely introduce some changes in the sector, especially so in locations where companies are not already compliant with these standards. Special attention is given to the mining sector due to its influence on the pricing of minerals, its placement at the beginning of the supply chain and the fact that most of these suppliers lie outside of the European Union, where it is much easier to supervise the business practices of your suppliers.

Due to the unique ESG concerns surrounding the mining of battery materials, there are multiple possible scenarios for the future. Whether competitive pricing or assurance of ethical business practices, many factors can tilt the scales one way or another.

Included here is my own forecast on the levelized cost of battery storage in 2027, given my analysis of the relevant factors: