The traceability of batteries—both their component parts and their production—has become an increasingly important priority for governments worldwide. Concerns regarding the climate crisis and national security provide distinct but equal motivations—particularly in Canada.

Batteries and energy storage systems play a crucial role in global decarbonization efforts; transparency in sourcing and manufacturing has become essential to ensuring sustainable and responsible supply chains. Separately, the strategic importance of battery technology in defense, energy system security, and critical infrastructure requires effective traceability, and amid intensified global competition, protecting supply chains from potential threats posed by adversarial or hostile actors is a key safety concern for end-users and governments.

In this article, we review battery traceability measures implemented by the United States ("US"), the European Union ("EU"), and Canada, as well as international collaboration efforts aimed at achieving global battery traceability harmonization.

Battery traceability in the United States and the European Union

In articles we published earlier this year, Gowling WLG updated readers on regulatory changes under the US Inflation Reduction Act of 2022 ("IRA").[1] The IRA aims to incentivize battery manufacturers and consumers to invest in green technologies by providing nearly $400 billion in tax incentives to reduce global greenhouse gas emissions.[2] Concurrently, regulations enforced under the IRA focus on localizing battery and critical mineral supply chains to the US and its trusted trading partners.

In our article Tightening American Clean Vehicle Tax Credit May Create Advantage for Canadian Firms, we discussed the new traced-qualifying value test, which requires manufacturers to carefully assess their procurement chains to ensure qualifying battery materials are tracked and traced to sources within the US or its trusted trading partners.

These enforcement measures were subsequently strengthened by new tariffs imposed by the Biden administration on $18 billion worth of imports from China, raising the tariff rate for certain critical minerals and battery components from 7.5 per cent to 25 per cent, effective in 2024.[3] These measures aim to make the US and its allies more self-sufficient and prevent entities labeled by the US as 'foreign entities of concern' ("FEOC") from supplying the US market in critical technological sectors. A FEOC is an entity that is "owned, controlled by, or subject to the jurisdiction or direction of a government of a foreign country that is a covered nation."[4]

Effectively, these rules primarily target China, the largest global electric vehicle and battery market, and its associated entities, and are aimed at limiting their influence over the US and its allies in these key technological areas.

Businesses with "impracticable-to-trace battery materials" are excluded from complying with certain FEOC requirements until the end of 2026.[5] These materials include graphite in anode materials and applicable critical minerals contained in electrolyte salts, electrode binders, and electrolyte additives. To obtain this transitionary exemption, a manufacturer is required to submit detailed reports to the US Department of Treasury describing how they plan to comply beginning in 2027. The determination of whether an entity is an FEOC involves a careful review of its legal nature, ownership and business structure, and it is possible for an entity to be deemed an FEOC only for those activities taking place in a covered nation[6].

In Europe, the EU is committed to becoming the first climate-neutral continent by 2050, with the European Commission identifying battery development and production as a "strategic imperative" for the 27-member bloc.[7] In 2023, the European Parliament and Council enacted Regulation (EU) 2023/1542[8] ("Reg. 1542"), setting high standards for batteries, and imposing strict supply chain due diligence obligations on businesses supplying the EU market.

Broadly, Reg. 1542 aims to provide businesses and consumers with greater certainty by establishing a harmonized regulatory framework covering the entire battery life cycle, including rules on sustainability, performance, safety, collection, recycling, and information disclosure to end-users. In June 2024, European lawmakers amended Reg. 1542 to further harmonize battery design requirements across EU member states, addressing the emergence of diverging and fragmented national approaches to the regulation's implementation.

Additionally, Reg. 1542 promotes circular economy principles by mandating minimum recycled content and setting carbon footprint limits, with added measures to enhance traceability throughout the supply chain. The introduction and codification of the "battery passport" under Article 77 of Reg. 1542 is a key component of the law, and is designed to track and trace batteries, as well as provide information on carbon intensity, material origin and renewable content, all to be made accessible via a QR code. Full enforcement of the battery passport requirements will take effect on February 18, 2027.[9]

Earlier this year, Volvo Cars partnered with Circulor to become the first automaker to issue a battery passport ahead of the EU requirements coming into law.[10]

Battery traceability in Canada

In 2023, the Government of Canada published The Canadian Critical Mineral Strategy ( "Canada's Strategy") with the stated aim of positioning Canada as a global leader for the entire life cycle of the battery supply chain, from mining and recycling of critical minerals, to manufacturing of battery components.[11]

Canada's Strategy integrates environmental, social, and governance ("ESG") principles across key sectors, with a focus on sustainable resource management, climate initiatives, and inclusivity. Although Canada has not yet codified battery traceability requirements as observed in the US and EU, the trend is in that direction. Canada's Strategy expressly emphasizes its commitment to traceability technologies to prevent products linked to conflict, child labour, or unsustainable practices from entering supply chains.

In August 2024, Accelerate Alliance, a Canadian-based industrial alliance, published the Canadian Battery Innovation Roadmap (the "Roadmap"), with funding from Natural Resources Canada.[12] This 94-page Roadmap outlines three primary geopolitical objectives:

  1. Reducing the use of conflict minerals.
  2. Ensuring ethical sourcing.
  3. Enhancing geopolitical independence

To meet these targets, the Roadmap calls for increased investment in transparency and traceability tools within the supply chain to verify the origin and ethical standards of battery materials. [13]

Canada also actively supports efforts by international organizations, such as the Global Battery Alliance ("GBA") and the International Standards Organization ("ISO") to strengthen the interoperability of global traceability frameworks. In early 2023, the GBA introduced its first battery passport proof-of-concept, to which the Minister of Natural Resources commented:

"The Government of Canada welcomes this milestone for the Global Battery Alliance's Battery Passport. We endorse robust, multi-stakeholder initiatives that advance responsible and sustainable global battery supply chains, including our participation in the Sustainable Critical Mineral Alliance, launched by Canada last month. We look forward to ongoing collaboration with the GBA and its partners."

The GBA aims to mobilize businesses and governments across the world to establish a harmonized multi-stakeholder approach to managing the global battery supply chain. As a member of the GBA and its Track & Trace working group, Natural Resources Canada supports the alliance's digital tracking system, which provides detailed insights into the origins of battery materials, ESG metrics, and carbon footprint data.

Other international initiatives supported by Canada include efforts undertaken by ISO.[14] In October 2024, ISO introduced ISO 59014[15], a standard outlining principles, requirements, and guidelines for environmental management, traceability, and the recovery of secondary materials. ISO 59014 is designed to be broadly applicable to various recyclable materials, with more specific guidelines targeting the battery supply chain expected in future ISO publications. Through its Guidelines and Standards for Responsible Business Conduct[16], Canada has also underscored its expectation that Canadian businesses operating internationally adhere to best practices and internationally recognized standards for responsible business, including those developed by ISO.

The extent to which ISO or GBA guidelines, or similar measures taken abroad will become codified into Canadian legislation remains uncertain. However, Canada's Strategy, the Roadmap, along with recent international and domestic partnerships, underscores Canada's push toward fostering a domestic battery ecosystem aligned with internationally recognized standards and guidelines for traceability, transparency, sustainability, and ethical sourcing.

Conclusions

The drive towards greater transparency and accountability to foster sustainable and reliable battery supply chains through robust traceability systems is well underway. With an increasing global adoption of stringent regulatory frameworks, oversight mechanisms, and tax incentives, businesses are being mobilized to support national and international efforts to achieve climate goals.

Companies operating in Canada should take special note of this evolving trend towards greater transparency and traceability and consider the resulting implications for their business and supply chains.

The Transportation & Mobility Team at Gowling WLG will continue to monitor developments in Canada and globally regarding battery traceability laws, requirements, evolving standards and best practices, as well as how these changes may affect Canadian businesses. We welcome questions from readers interested in better understanding how these evolving developments may impact their business.

[2] White House, Clean Energy Tax Provisions in the Inflation Reduction Act (last accessed October 30, 2024).

[4] The Infrastructure Investment and Jobs Act, § 40207(a)(5). For clarity, a "covered nation" includes China, Iran, North Korea and Russia.

[5] Department of Treasury, Internal Revenue Service, Clean Vehicle Credits Under Sections 25E and 30D; Transfer of Credits; Critical Minerals and Battery Components; Foreign Entities of Concern, 89 FR 37706, § 1.30D-6(b)(2), May 6, 2024.

[6] Supra, footnote 4.

[9] Reg. 1542, Article 77(1).

[11] Government of Canada. The Canadian Critical Minerals Strategy (last accessed October 30, 2024) [Canada's Strategy].

[12] Accelerate Alliance, Canadian Battery Innovation Roadmap (last accessed October 30, 2024) [Roadmap]. See also the Government of Canada's press release announcing its $500,000 investment in Accelerate Alliance on September 18, 2023: Canada Invests in Battery Innovation Roadmap - Canada.ca.

[13] Roadmap, at pages 46-47.

[14] Canada's Strategy, at page 19.

[16] Government of Canada. Guidelines and Standards for Responsible Business Conduct (last accessed October 30, 2024).