Sustainability, Supply Chain Due Diligence and Batteries: EU Proposed Battery Regulation Modernisation

As part of the EU Green Deal, existing EU legislation on batteries will be modernized so that all batteries on the EU market will be "sustainable, high-performing and safe all along their entire life cycle". This initiative will require manufacturers, producers, importers and/or distributors of all types of batteries within the EU market to make significant changes by way of labelling, end-of-life management and supply chain due diligence. Batteries are essential for crucial sectors of the economy and increasing in numbers, and this proposal is seen as critical to the Green Transition by policy makers. The European association for manufacturers of automotive, industrial and energy storage batteries (EUROBAT) has welcomed the proposal but highlighted the challenges for companies operating in the industry. Entry into force is expected in 2022. 

Background

The EU first implemented specific legislation to restrict the use of hazardous substances in batteries in 1991(Directive 91/157/EEC). The current framework on the manufacture and disposal of batteries is contained in Directive 2006/66/EC, as amended. A new regulation is on the table (2020/0353(COD) adopted by the European Commission on 10 December 2020) (the "Proposed Regulation") repealing Directive 2006/66/EC and amending Regulation (EU) No 2019/1020 on market surveillance and product compliance. This proposal is one of several initiatives in the proposed European Climate Law, aimed at making the goal of achieving climate neutrality by 2050 for the EU legally binding, which was provisionally agreed by the European Parliament and Member States on 21 April 2021. It is important as it will effectively shape the increasing market for industrial batteries and those used in key sectors such as e-vehicles.

The Proposed Regulation is the next step in the EU's efforts to ensure that EU market batteries are sustainable and safe throughout their life cycle by requiring businesses to do more to protect workers, communities and the environment. The Proposed Regulation is now proceeding through the ordinary legislative procedure. It is currently being considered by the Member States in the Council and the European Parliament, and it may still be amended before it becomes law. It will delegate substantial decision making power to the European Commission on technical issues, including on due diligence. 

Who will the Proposed Regulation apply to?

The Proposed Regulation will impact all "Economic Operators", defined as manufacturers, producers, importers and distributors of all types of batteries which are placed within the EU market, i.e. industrial, automotive, electric vehicle and portable, independent of their origin.

When would the Proposed Regulation come into force?

The Proposed Regulation states that it will apply from 1 January 2022 – but it seems that this is optimistic, and adoption will likely not take place until Q1 or even Q2 2022. Several requirements are due to come into effect immediately the Regulation enters into force and others are set to be staggered with later implementation dates.

What is being proposed?

The Proposed Regulation introduces mandatory requirements on:

• sustainability and safety;
• labelling and information;
• supply-chain management; and
• end-of-life management.

Sustainability and safety

The proposal provides that Economic Operators will need to comply with the following deadlines (which may change in the finally adopted legislation): 

1. from July 2024, include a carbon footprint declaration in respect of certain rechargeable industrial and electric vehicle batteries (above 2kWh) that are placed within the EU market. 
2. from January 2026, batteries must feature a carbon intensity label, 
3. from July 2027, maximum carbon thresholds will be implemented.
4. from January 2027, industrial and electric-vehicle batteries with internal storage will have to declare the content of recycled cobalt, lead, lithium and nickel used in production.

The Proposed Regulation continues existing restrictions on the use of hazardous substances in all batteries, and in particular prohibits batteries containing mercury and cadmium. In addition, minimum levels of recycled content within batteries will be imposed in 2030, and those minimum levels will be increased in 2035. There are further proposals for minimum requirements on performance and durability (to come into force in 2026 and 2027), removability of waste batteries (to come into force in 2022) and replaceability of batteries in appliances (to come into force in 2022).

Labelling and information

All batteries will need to be "CE" marked to demonstrate conformity with health, safety, and environmental protection standards. Furthermore, batteries will need to be labelled to provide information on lifetime, charging capacity, requirement on separate collection, the presence of hazardous substances and safety risks.

It is proposed that starting in 2023, a QR code must be placed on batteries, which will provide relevant information. By 2026, large batteries will have unique electronic records or "battery passports" which will trace the management of these batteries.

End-of-life management

The Proposed Regulation would introduce enhanced obligations for the separate collection of waste batteries (with a 70% collection target by 2030 for portable batteries and a requirement to ensure there is no loss for all other batteries) and a total prohibition on landfilling waste batteries.

There will also be compulsory targets for the recovery of materials from batteries in respect of cobalt, copper, nickel, lead and lithium.

Supply chain management

By 2023, Economic Operators who place certain rechargeable industrial batteries and electric vehicles batteries (over 2kWh) on the market would be required to adopt due diligence policies for supply chains of cobalt, natural graphite, lithium, nickel and other chemical compounds. Economic Operators would also need to establish and operate a system of controls and transparency over supply chains and incorporate supply chain policies into agreements with suppliers (e.g. including risk management measures). The social and environmental risk categories would include biodiversity, human health, labour rights, human rights and community life, with reference to international human rights law. In an effort to harmonise obligations across supply chains, the risk management measures and third party audit principles would need to be consistent with OECD Due Diligence Guidance for Responsible Supply Chains of Minerals for Conflict-Affected and High-Risk Areas. The Proposed Regulation foresees that that Commission will be able to adopt further legislation to amend the list of raw materials and risk categories subject to due diligence requirements, and amend the due diligence obligations required. 

Impact on industry players within the EU market

Many "Economic Operators" as defined under the Proposed Regulation, are aware that their current compliance procedures may not be adequate to satisfy the requirements set out in the Commission's proposal.

Overall, the industry as represented by EUROBAT, welcomed the EU-wide regulation as a step towards a level playing field at EU level, reducing differences among national markets. However, EUROBAT warned that some aspects of the proposal, such as the labelling requirements, risk creating a disproportionate administrative burden for the industry. Among EUROBAT's reservations are the following:

1. similar sustainability requirements should also be developed for products directly competing with electrochemical batteries;
2. there is a need to clarify enforcement mechanisms, especially for those batteries imported into the EU
3. avoid duplication of labelling and information systems, and 
4. ensure the non-retroactive application of the regulation.

EUROBAT's full position paper can be found at this link.

If the Proposed Regulation's entry into force on 1 January 2022 is maintained, then Economic Operators need to take steps now to put in place proper systems to ensure compliance with requirements, including due diligence policies for supply chains of cobalt, natural graphite, lithium, nickel and other chemical compounds.

Connor Gray (White & Case, Trainee Solicitor) contributed to the development of this publication.

This publication is provided for your convenience and does not constitute legal advice. This publication is protected by copyright.
© 2021 White & Case LLP