The European Union is redesigning itself once again and relaunching the transition to clean energy with a purely industrial focus on self-sufficiency. The Net-Zero Industry Act and Raw Materials Act will do just that. This is a suite of proposals that the European Commission plans to respond to the Inflation Reduction Act (IRA), the US $375 billion maxi plan for ecological and digital transition, which has been accused of overprotection by various EU governments (especially in Germany). and France). But also to depart from China’s strategic raw materials.
In short: Brussels wants to avoid repeating the same mistakes made with Russian gas. The plans still need to be approved by the 27 EU member states and the European Parliament, and the process is expected to take months, perhaps more than a year. But the hawks already promise a tough battle.
Because the package envisaged by the new legislation on state aid aims to increase domestic production in order to limit the commercial competition of two major international rivals, the USA and China. Therefore, the design of the European Commission, the EU’s executive arm, is based on two proposals aimed at the production of clean technologies on the one hand and avoiding dependence on strategic raw materials, primarily China.
The Net-Zero Law’s macro goal is to produce at least 40% of the clean technology needed for the green transition in Europe by 2030. To this end, the EU is ready to offer a range of subsidies for all projects, above all involving eight strategically defined technologies: from wind to photovoltaic, from biogas to electricity. Easier permits, tax exemptions, regulatory sandboxes where new technologies can be tested in ad hoc environments are among the main tools Brussels will offer. And then again a hydrogen bank to spur the transformation of the fossil energy sector. The Commission also reached a compromise: nuclear power remained outside of strategic technologies, but fourth-generation nuclear power, which produces minimal waste, was returned to the plan as the target of targeted support.
The core of the proposal is to produce at least 40% of the clean technology needed by 2030 in the Old Continent, while ensuring that no more than 65% of any strategic raw material consumption comes from a single third country. is China. This means that Chinese companies will likely lose lucrative tenders to buy solar panels. According to the calculations of the Community statistical agency Eurostat, in 2021 European Union countries imported more than 9.8 billion euros of solar panels, compared to 1.3 billion euros for exports. Three of the four solar panels delivered to the union’s doors are made in China (equal to 89%).
Import of Chinese solar panels into the EU
Just look at six months ago. Shipments to 27 member countries from China’s Xinjiang region (where human rights violations against the Uyghur community took place) in August 2022 were worth $136.7 million, up 136.2% compared to the same month in 2021. Germany takes the lion’s share of imports of lithium-ion batteries (up 600% across the block) and Chinese photovoltaic solar cells, according to the South China Morning Post’s calculations for the latest Chinese customs data. But all of Europe is driving the demand for solar panels imported from China to grow. European capitals hope to accelerate the transition to renewable energy sources, with Russia’s natural gas supply being cut off and the resulting energy crisis.
The paradox of solar panels: 60% produced by coal
In the first seven months of 2022, China shipped photovoltaic (PV) modules with a total capacity of 51.5 gigawatts to the EU, according to data compiled by Infolink Consulting LLC; this is 25.9 percent more than last year as a whole. As one of the world’s leading PV module suppliers, Beijing supplies more than 80% of global PV products. In the first half of 2022, the country’s PV module production rose 74.3% year on year to 78.6 gigawatts, according to data from the Ministry of Industry and Information Technologies. Production of other products in the supply chain (polysilicon, wafers and cells) increased by more than 45% year on year.
Chinese supply thus meets EU demand. Frans Timmermans, Vice-President of the European Commission, assured that the EU will not try to compete with Chinese cheap solar panel manufacturers, but will instead focus on advanced solar equipment, so as not to spoil the already strained relationship between Brussels and Beijing.
Emulation of the “Made in China 2025” strategy
The new EU industrial plan for the green transition shows how much Brussels imitates the policies implemented by Beijing. Alongside the US, European eyes are looking to the “Made in China 2025” strategy, which aims to advance the Chinese economy digitally and technologically by 2025. “Home” production with the aim of achieving 70 percent self-sufficiency in the most important technological components in the next two years. Obviously with an eye on environmental policies.
However, the Chinese strategy has raised the concerns of European institutions, which have condemned China’s unfair trade practices on several occasions. In fact, openness to investments is not mutual, and Beijing imposes restrictions on foreign operators’ purchases. Therefore, the European Commission has already taken steps to limit incoming investments.
EU interests
The stakes are huge. The EU estimates that by the end of the decade, the global clean technology market will be worth €600 billion per year. In addition, the use of renewable energy will increase fourfold by 2050, the use of heat pumps will increase sixfold by 2050, and the production of electric vehicles will increase 15fold. With incentives, the EU Commission wants at least 10% of strategic raw material consumption to be mined locally and at least 40% to be processed locally by the end of the decade.
At the geopolitical level, the measure is less severe. And that’s where the Critical Raw Materials Act comes in, which looks at the critical materials supply chain to support the development of such technologies. The dependence on China for these materials is very high: the EU gets 98% of its rare earth elements and 93% of its magnesium from China. These materials are used in everything from solar panels to heat pumps to electric cars. Brussels won’t have to rely on Beijing to drive the green revolution in the coming years.
Source: Today IT
Roy Brown is a renowned economist and author at The Nation View. He has a deep understanding of the global economy and its intricacies. He writes about a wide range of economic topics, including monetary policy, fiscal policy, international trade, and labor markets.
