In December 2020, the European Commission presented a proposal for a new Regulation on Batteries and Waste Batteries (see Covington’s webinar on the proposal).  The proposed Regulation seeks to achieve the objectives set out in the European Green Deal and subsequent strategies, such as the transition to a carbon neutral and circular economy and the growth of renewable energies and clean mobility.  The European Parliament and Council are currently considering the proposal for its adoption through the ordinary legislative procedure, which is not likely to be completed before mid-2022.

The proposal would introduce a broad range of product sustainability and safety requirements, conformity assessments, and end-of-life management obligations on all types of batteries and their producers.  For e-vehicle and industrial batteries, the proposal would impose specific and innovative sustainability and waste take back requirements—indeed a new regulatory framework, in order to boost their European market.  Apart from supply chain due diligence requirements, the proposal would impose on e-vehicle and rechargeable industrial batteries obligations on carbon footprint, recycled content, chemical restrictions, performance, durability, waste collection, treatment and recycling, material recovery, conformity assessment, CE marking, and disclosures to third parties, among many others.

One of the most innovative requirements of the proposal is its supply chain due diligence obligations for rechargeable industrial and e-vehicle batteries.  Economic operators marketing in the EU rechargeable industrial and e-vehicle batteries with an internal storage capacity above 2 kWh would be required to establish supply chain due diligence programs for what are critical raw materials of the batteries: cobalt, natural graphite, lithium, nickel, and the chemical compounds based on these raw materials.  These raw materials are not currently covered by the EU Conflicts Minerals Regulation, which only covers tin, tantalum, tungsten, and gold (“3TG”).

In general, the concept of economic operators would include any persons or entities (e.g., manufacturers, importers, authorized representatives, distributors) placing on the EU market (including importation) rechargeable industrial batteries and e-vehicle batteries with an internal capacity above 2 kWh as well as devices containing them.  For example, this could include EU manufacturers of rechargeable industrial batteries as well as importers of e-vehicles. Companies with links to the battery supply chain will be well advised to assess whether they are in scope of these requirements on a case-by-case basis.

The proposal’s due diligence requirements are both broad and deep.

  • Breadth: The proposal would require economic operators to establish a due diligence policy and associated internal systems that can identify adverse impacts on the environment (e., air, water, soil, and biodiversity), human health, occupational health and safety, labor rights (including child labor), human rights, and even the broad concept of community life.
  • Depth: Economic operators would also be required to adopt a supply chain policy, a system of controls and transparency, a grievance mechanism, a firm strategy to respond to environmental and social adverse impacts, as well as third-party verification of the due diligence measures by conformity assessment bodies that are specifically recognized by the European Commission for this purpose. Member State enforcement authorities would be empowered to request these third-party verification reports from economic operators.

Crucially, economic operators subject to the due diligence requirements would be required to show with documentary evidence the name and address of the supplier of the raw materials in the batteries, the raw materials’ country of origin, and the market transactions leading from extraction all the way to end-use.  In light of persistent difficulties to map global supply chains in the extractive industry sector, especially for cobalt, this specific obligation may be particularly burdensome on companies.

In its substantive obligations, the proposal mirrors and explicitly references the OECD’s Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas.  The proposal draws on the OECD Guidance in its concepts of risk assessment and risk mitigation, and to specify the requirements for acceptable third-party verification.  Thus, the OECD’s Guidance may be a good benchmark for companies as they assess what the EU’s rules may mean in practice—with the large difference being that the EU rules, if passed, would be mandatory and linked to penalties for non-compliance.  (The specifics of the enforcement regime will have to be decided by the individual EU Member States.)

The proposal also envisages the existence of general “due diligence schemes” developed and overseen by governments, industry associations, or other organizations.  The Commission would be empowered to officially recognize such due diligence schemes as equivalent to the proposed Regulation’s requirements about supply chain traceability, and economic operators could, as an alternative to the requirements set out above, establish compliance with the officially recognized due diligence scheme.  This recognition of equivalent due diligence schemes opens the door for significant industry collaboration in this area, and it is foreseen that the Commission would adopt further implementing acts to set out the criteria and methodology to recognize such schemes.

Companies in the battery supply chain that are affected by these developments now have two courses of action.  Internally, companies should assess their current compliance with these proposed rules.  The detailed tracing and documentation requirements may be of particular concern.  Externally, companies and their trade associations still have an opportunity to influence the details of the due diligence obligations both during the Parliament’s and Council consideration of the proposal, and, once the Regulation is adopted, during the Commission’s development of implementing legislation and guidance.

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Photo of Paul Mertenskötter Paul Mertenskötter

Paul Mertenskötter is an associate in the firm’s Brussels office and a member of the Public Policy and International Trade practice groups. He advises multinational companies, governments, and other clients on a range of matters related to public policy, international trade, and new…

Paul Mertenskötter is an associate in the firm’s Brussels office and a member of the Public Policy and International Trade practice groups. He advises multinational companies, governments, and other clients on a range of matters related to public policy, international trade, and new technologies. Mr. Mertenskötter’s practice encompasses advising clients on the European Commission’s Digital Single Market strategy, including on the Payment Services Directive (PSD 2).

Prior to joining the firm, Mr. Mertenskötter clerked at the International Court of Justice in The Hague, and was a Fellow at the Institute for International Law and Justice at NYU Law School. His work has been published with Oxford University Press and the Cornell Law Review.

Photo of Cándido García Molyneux Cándido García Molyneux

Cándido García Molyneux is a Spanish of counsel in the Brussels office of Covington & Burling.  His practice focuses on EU environmental law, renewable energies, and international trade law.  He advises clients on legal issues concerning environmental product regulation, emissions trading, renewable energies…

Cándido García Molyneux is a Spanish of counsel in the Brussels office of Covington & Burling.  His practice focuses on EU environmental law, renewable energies, and international trade law.  He advises clients on legal issues concerning environmental product regulation, emissions trading, renewable energies, energy efficiency, shale gas, chemical law, product safety, waste management, and international trade law and non-tariff trade barriers.  Mr. García Molyneux was very much involved in the legislative process that led to the revision and amendment of the ETS Directive and Renewable Energies Directive.  He is an external professor of environmental law and policy at the College of Europe.