The European Union is staking its claim in the global race to be a manufacturing hub for technologies critical to the climate transition and show it can compete with the US and China despite rising concerns about increased global protectionism.
(Bloomberg) — The European Union is staking its claim in the global race to be a manufacturing hub for technologies critical to the climate transition and show it can compete with the US and China despite rising concerns about increased global protectionism.
The European Commission, the bloc’s executive arm set out on Thursday that 40% of the critical raw materials it needs should be processed within the region, but didn’t lay out any plans for stockpiling.
The commission’s Net Zero Industry Act, also proposed Thursday, aims at keeping manufacturing within Europe with a 40% target for clean-tech in key sectors like solar panels and batteries by the end of the decade.
“It will create the best conditions for those sectors that are crucial for us to reach net-zero by 2050: technologies like wind turbines, heat pumps, solar panels, renewable hydrogen as well as CO2 storage,” European Commission President Ursula von der Leyen said.
The proposals — launched as a response to fears that crucial industries for the climate transition may flee Europe in favor of the US following its landmark package of subsidies — have stoked fears of a clean-tech arms race. In a recent report, the Brussels-based think tank Bruegel described the bloc’s planned response as “unabashedly protectionist.”
“Europe needs to ramp up clean-tech manufacturing to turn the green transition into an industrial opportunity,” said Simone Tagliapietra, a researcher at Bruegel. “This may justify unconventional policies, but it should not justify protectionism. That would just backfire.”
The plans still need to be approved by the parliament and member states, and could be amended before they’re implemented.
The 27-member bloc is seeking to reclaim a share of the industries where it once had the ascendancy, but lost out to China — like solar. It’s also trying to make sure it doesn’t lose out again in nascent sectors like heat pumps, electrolyzers and carbon capture and storage, which are seen as key for meeting its goal of climate neutrality by the middle of the decade.
Some industry groups said they were pleased to see the EU take action, but are worried about some of the specifics.
“Now the commission itself wants to determine which technologies the future belongs to and then promote them accordingly,” Oliver Zander, managing director of Gesamtmetall, a lobby group for German manufacturers, said in a statement. “This seems like a planned economy.”
While US President Joe Biden’s Inflation Reduction Act initially drew a sharp rebuke from EU officials, they have since sought to bury the hatchet, emphasizing the strength of the bloc’s single market and also the scale of its own financial incentives for business. Von der Leyen said she had “found solutions” on issues like tax breaks for cars in a meeting with Biden in Washington last week.
Currently the EU only produces around 10% of the solar panels it installs, while China is the dominant global supplier for two-thirds of the critical raw materials identified by the EU in 2020.
Another area where the EU still lags far behind is the price it pays for its energy. Russia’s invasion of Ukraine saw electricity and gas skyrocket. They’ve both since receded thanks to emergency measures and a mild winter, but remain many times higher than in both the US and China. A reform of the common EU electricity market this week offered measures aimed at calming volatility, but fell short of a radical overhaul.
Still, the question is whether the plans will be enough to put Europe back in the driving seat when it comes to nurturing clean technologies.
“Europe remains behind,” said Maximo Miccinilli, head of energy and climate at the consulting firm FleishmanHillard EU. “The problem remains that the US approach and way of contributing is much easier to apply and much easier to get the money.”
–With assistance from Alberto Nardelli and Jillian Deutsch.
(adds quote in fourth paragraph.)
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.