According to the EU, the system will help to set global standards and give confidence to consumers demanding more sustainable products.
The Circular System for Assessing Rare Earth Sustainability or CSyARES will be ready in about three years, according to the Rare Earth Industry Association (REIA) and Dutch supply chain traceability firm Circularise.
The EU is funding the project through EIT Raw Materials, an organisation implementing an EU action plan drawn up in 2020 to secure critical minerals and which forms part of Europe's attempts to accelerate domestic output of super-strong rare earth magnets used in EVs.
The system will track rare earths using blockchain tokens, or digital passports, through the complex supply chain from mining to end-of-life.
Five organisations are involved in the project including Circularise, REIA and Germany's BEC, Denmark's Grundfos and London-based Minviro.
Auditing firms already issue certificates for sustainability of mining products including some rare earths. Rare earths comprise of 17 related minerals and are used for motors in EVs and generators in wind turbines.
The processing of rare earths is complex and involves solvents and toxic waste that needs to be disposed of carefully.
Rare earths production is set to spread geographically as both the United States and Europe seek to wean themselves off dependence on China, which currently supplies about 90% of the world's rare earths.