Beneath the Surface: Recycling critical minerals in the circular economy

The primary focus areas for recycling critical materials include:

• Electric Vehicle (EV) Batteries: Recycling lithium, cobalt, nickel, and other materials from spent EV batteries and production scrap is a major focus due to the growing demand for electric vehicles.
• Consumer Electronics: Recovering rare earth elements, gold, and other valuable metals from discarded electronics.
• Renewable Energy Technologies: Recycling materials from decommissioned wind turbines, solar panels, and other renewable energy infrastructure.

Recycling efforts from mine tailings are also gaining traction as a way to recover critical minerals and reduce environmental impact in addition to providing the economic benefits by selling the recovered materials. Phoenix Tailings, based in Boston, Nibeenabe, based in Peru and Metso, headquartered in Finland are actively working on tailings recycling to recover valuable metals.

Several jurisdictions have recognised the importance of a circular economy for critical minerals. Many efforts have focused initially on EV batteries: if the sales of petrol and diesel cars in the UK and EU are phased out from 2030 and 2035 respectively as planned, then there will be both an increased need for critical minerals for manufacture of new batteries, and a significant number of batteries reaching the end of their (approximately 8-10 year) working life from 2030 onwards. 

Regulation

The EU Batteries Regulation came into force in August 2023 and sets out a regulatory framework which is intended to make batteries sustainable throughout their life, from sourcing of materials to battery collection, recycling and repurposing, with the overarching purpose of promoting the development of a competitive sustainable battery industry to support the energy transition.

It imposes comprehensive requirements in relation to all batteries, and affects all stages of the battery lifecycle from the design to redevelopment of waste batteries for a "second life", which includes reuse, repurposing and remanufacturing. 

The framework set out in the EU Batteries Regulation broadly covers the following areas:

1. Waste Management, including framework requirements for:
   • the collection of waste batteries by battery producers;
   • treatment of the collected waste batteries, including a requirement that they must comply with the "best available techniques";
   • recycling of waste batteries, requiring recyclers of waste batteries to achieve minimum recycling efficiency targets (from 2025, increasing in 2030) and material recovery targets (from 2027, increasing in 2031).  The methodology for calculating these metrics has not yet been published but should be shortly, since the Regulation requires it to be adopted by the European Commission by 18 February 2025; and
   • reporting obligations, which will be imposed on producers, recyclers and waste management operators, as well as on EU Member States.  These include the amount of batteries received for treatment, and data on recycling efficiency, recovery of materials and the destination and yield of the outputs.
2. Due Diligence, imposing extensive obligations on producers who place batteries on the EU market, to establish due diligence policies and related procedures in relation to specified raw materials and social and environmental risks.
3. Sustainability of Production and Safety for Use, imposing requirements relating to the material content of batteries.  These include prescribing minimum requirements for recycled mineral content for batteries of 16% for cobalt, 85% for lead, 6% for lithium and 6% for nickel from 2031; these will increase to 26% for cobalt, 85% for lead, 12% for lithium and 15% for nickel from 2036. 
4. Labelling and marking of batteries and requirements as to the information supplied to end users.  These include requirements for batteries to have:
   • a digital passport to increase transparency in relation to the battery's supply chain; and
   • a carbon footprint declaration, indicating its carbon footprint and carbon footprint performance class, and a maximum lifecycle carbon footprint threshold will apply in due course.  The methodology for calculating these metrics will again be set out in separate legislation.

For more detail on the EU Batteries Regulation, please see our briefing here.

The UK Government published a UK Battery Strategy in November 2023, which recognises the importance of the development of a circular economy for batteries.  While EV batteries have been used in stationary energy storage, a growing sector in the UK (see our briefing here), the Battery Strategy acknowledges the importance of recycling given the growing demand for EVs, the objectives of the UK Critical Mineral Strategy  and the minimum requirements for the use of recycled mineral content for batteries sold in the EU from 2031, which are set out in the EU Batteries Regulation and described above.  It will be interesting to see how the new UK Government progresses these aims.

It is helpful that a significant focus of the regulatory framework is on the outcome of the recycling process, without specifying exactly what recycling processes or technologies are used, which leaves scope for recycling technologies to develop.  However, the focus on the carbon footprint of batteries, together with the growing number of other regulatory and disclosure requirements, is likely to influence the direction of travel of the recycling technology which is being developed and influence innovation.

Battery recycling technologies

Whilst some recycling techniques are well-established, such as those for lead-acid batteries, many critical mineral recycling methods are still in development. Batteries are designed and manufactured in a variety of ways to suit their different requirements. For example:

• Nickel-cadmium batteries are generally used for portable electronic devices and power tools. The Cadmium is extracted using high temperature thermal vacuum vapourisation techniques.
• Alkaline/zinc-carbon batteries are often seen in low drain devices such as remote controls and torches. To extract the zinc, the batteries are shredded and processed in a rotary kiln to convert the magnesium oxide into zinc oxide.
• Nickel-metal hydride batteries usually found in laptops, digital cameras and other electronic devices. Steel can be realised from these batteries' recycling for use in stainless steel or building materials.
• Lithium-ion batteries, used most commonly in electric vehicles and electronic devices are most commonly recycled using the techniques shown in Figure 1.

Recycling processes for batteries is advancing but not yet fully optimised as it is not a straightforward process: batteries are not manufactured in a standardised way, so variations in their design and composition, and in the quality of the product which is left at the end of their useable life, makes recycling processes more complex. The intellectual property (IP) rights connected with battery designs also cause difficulties in understanding and standardising the recycling processes for batteries generally.

^{Figure 1.}

Focus on Black Mass

The recycling process has created a new tradable commodity: black mass is the black-coloured (black due to the high graphite content in the anodes) powder produced from the mechanical shredding and separation (the pre-treatment) of lithium-ion batteries and can be sold (often through a marketing agent or intermediary) to independent processors to further refine and process.

The price of black mass is typically based on the prevailing battery-grade mineral spot prices - in August 2023, Platts, part of S&P Global Commodity Insights, launched four daily spot black mass price assessments based on minimum content parameters of lithium, cobalt and nickel and a combined price for all three with stipulated minimum content. Black mass therefore closely follows the battery-grade mineral prices. Pricing varies significantly, especially in the Western markets, depending on the processes used at the pre-treatment stage. For example, if heat treatments have been used, lithium will be very hard to be extracted at the extraction phase (or may already have been melted out to the slag waste), so lithium content is often less likely to be fully priced in.

Several key players dominate the black mass recycling market. Notable companies include Umicore, BASF SE, and Tenova S.p.A. These companies are heavily involved in the processing and recovery of essential metals from discharged lithium-ion batteries. Additionally, the market is expected to see new competitors entering, which will drive further growth and innovation.

Intellectual Property Considerations

Given the cutting-edge technologies involved, intellectual property (IP) is likely to play a key role through the lifecycle of a company in the critical mineral recycling sector:

• For a company in its early stages, particularly where it is looking to market new and innovative technology which it has developed in-house, funders will be looking to see that the company has appropriate IP protection in place to ensure that its technology cannot simply be copied by competitors.
• Where a company builds a business which depends upon technology licensed in from third parties, it is important to ensure that the terms of any licence are sufficiently robust to ensure the company's continuing access to, and ability to successfully commercialise, the technology. The ability to do this will depend on the respective bargaining positions of the parties, but the licensee should seek to future-proof the licence to the extent possible (for example, by seeking to build in safeguards around what happens to the licence upon the insolvency of the licensor).
• It is also important to think about how IP should be protected, and who will own it, during any collaborations with third parties to develop new technology. Where IP is jointly developed, there can be many complexities around ownership and licensing, and the right to use that jointly developed IP in future products. While the temptation is often to put such detailed conversations off in favour of signing a simpler agreement and getting on with the interesting research and development, such an approach can store up trouble for later. These issues should therefore ideally be agreed at the outset of a collaboration, so the respective parties have a secure position on which to build their businesses going forwards.
• As a company develops, successfully protecting its IP – whether through patents or confidential trade secrets – will continue to be important for maintaining its competitive advantage. Patent protection is often the first thought when considering protecting tech innovation and patents are obviously a key part of the toolkit, particularly for innovations competitors can easily copy once a product hits the market. In 2023, there were 170,000 patents or patent applications published globally in the battery field. Trade secrets can also play an important role in protecting IP, either instead of or alongside patents. Protection as a trade secret – keeping the information confidential – avoids the need to publicly disclose your innovation as is required when a patent application is published, which may give competitors a leg up. However, protecting battery innovation through trade secrets in isolation comes with its own risks – such as employees moving to a competitor with valuable IP.
• Where the IP takes the form of patents, companies may choose to enforce their monopoly right through litigation to keep competitors off the market, with injunctions being the most significant tool in their armoury in this respect. Alternatively, companies may seek to monetise their IP portfolio to generate revenue streams in parallel to their core business, for example by entering into licences allowing third parties to use the technology in return for royalty payments. There has recently been an increase in 'patent pool' activity in battery technologies. This is where established innovators who own the rights to key technologies offer licences of their IP to others in the industry as a single package.
• It is important to note, however, that IP enforcement can work both ways, so companies and their investors also need to be aware of the risks that third party IP might pose. Given the risk that a third party ultimately seeks an injunction to prevent any commercialisation of technology which infringe their patents, this can be an existential risk if not carefully managed. It is therefore generally advisable to monitor the patent landscape and carry out periodic freedom to operate (FTO) analyses to ensure that any third party patents which might be infringed by the company's core technology are identified early on. Such FTO processes may well be required as a condition to any investment. Where a risk is identified, this may be resolved by developing a 'design-around' in the technology or, if that is not possible or practicable, taking a licence to the third party IP (though with a knock-on effect on the profitability of the technology) or, in the most concerning cases, taking proactive measures to seek to invalidate third party patents in litigation. 

The bottom line is that IP is of fundamental importance in securing a company's access to, and ability to commercialise, key technology thereby maintaining a competitive advantage. It should therefore be considered proactively, particularly in a rapidly developing field like critical mineral recycling. 

Funding Considerations

Critical mineral recycling project and technology companies are comparatively new players in the financing markets, therefore there are relatively few examples of funding structures to identify as commonplace. The use of nascent technologies will be a key consideration for lenders and investors more widely as there is an unknown and unproven risk to grapple with.

In seeking the most appropriate funding structures for recycling projects reference can be made to other relatively new technology projects where we have seen funding at the corporate level or structures based more closely on project financing or prepayment principles.  Some form of blended finance could be used initially, to increase lenders' confidence in funding these projects. Funding sources are likely to include:

• Government grants / subsidies. For example in the US, the Department of Energy provides grants through the Battery Manufacturing and Recycling Grants Program. These grants aim to support the construction of commercial-scale facilities, demonstration projects and retrofitting existing facilities.
• Debt instruments (commercial loans / bonds). Financial institutions are keen to invest in green projects such as battery recycling. These types of loans / bonds often come with favourable terms to encourage sustainable practices.
• Private Equity. Venture capital and private equity firms are increasingly interested in funding sustainable projects by way of equity investment.
• Public-private partnerships. Collaborations between government entities and private companies could provide both funding and helpful resources for battery recycling projects.
• Crowdfunding. Platforms like Kickstarter or Indiegogo can be used to raise funds from the public, particularly if the project has a strong environmental appeal.

The regulatory landscape will be of great interest to investors, in terms of subsidies and other incentives as well as potential for certain design standardisations to facilitate efficient recycling.  This area is developing rapidly, as can be seen above, across a number of jurisdictions, and inter-operability of those regulatory regimes will be key.

Conclusion

The recycling of critical minerals has already been recognised as an important part of the energy transition in the drive to net zero and to energy security. Recycling projects will require financing support to establish themselves, and while many of these projects may need to rely on developing technologies, Government and supra-national policies and a relentless focus on the energy transition should assist. If you would like to discuss any issues raised in this briefing in more detail, please do get in touch.