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, presented plans to process key metals in Europe and cutting dependence on China. At the center of the plans is the Net Zero Industry Act which aims at keeping clean tech manufacturing within Europe with a 40% target for 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.”
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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.
Tax credits
Some industry groups said they were pleased to see the EU take action, but are worried about some of the specifics.
Germany’s biggest association of carmakers and auto-parts suppliers said the policies fall short of what’s needed. While the VDA praised efforts to identify strategically critical raw materials, the group said the lack of EU-level tax credits or subsidies will create “misplaced” competition between member countries looking to attract investment.
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.
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.
Nuclear is considered “integral” to the energy mix, Thierry Breton, internal market Commissioner said at a press conference. But it’s not included on the list of strategic technologies needed for net zero published Thursday.
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, Jillian Deutsch and Joshua Gallu.
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