Europe’s plans to classify lithium as toxic could potentially erode its energy security and climate goals, warns consultancy Rystad Energy.

The potential Category 1A reproductive toxin classification wouldn’t stop lithium consumption but is expected to have an impact in at least four stages of the emerging EU lithium battery supply chain: mining, processing, cathode production and recycling, Kallanish understands.

Rystad explains that several administrative issues, risk management and restrictions could hit each of these fledging industries in Europe, and consequently drive up costs. Initial proposals presented to the European Commission in March are now under review and consultation is ongoing through the summer. A first draft of the act is expected in the fourth quarter.

“The EU is a global regulatory powerhouse, so any decision to classify lithium as a Category 1A toxicant in the world’s largest single market will be keenly studied by regulators elsewhere,” says James Ley, senior vice president for analysis at Rystad. “Industry hates regulatory uncertainty, so the longer it takes for a ruling, the more it will delay existing and significant investment decisions.”

The lithium industry says an inappropriate classification of lithium salts (carbonate, hydroxide and chloride) would create business uncertainty and affect future investment. In fact, Ley notes that industry may divert investment to countries providing more clarify and a stable regulatory framework. The UK is due to propose its own classification by 30 June and, depending on its approach, may take advantage and shift investments away from the EU.

The classification is also set to make permitting processes for new mining operations harder and longer. Europe has announced plans to hold 8.3% of the global lithium carbonate production by 2025, according to Rystad research. The ambition is similar for the lithium hydroxide industry, which, even without the potential EC decision, is set to face a 218% processing deficit gap by the end of 2030.

“This is more than a technicality; the impact could be far-ranging and wide,” Ley warns.