EU/US will not be able to overcome China's dominance in 'Green Technologies' race
By Olga Ivanova
Europe has set its sights on ousting China from the position of a monopoly in the production of green technologies. But she has more fears than ambitions
In May, renewable resources - wind and solar - for the first time gave Europe a record amount of energy, almost a third of the total.
Cross-country competition for dominance in the green economy and the desire for independence in the supply of appropriate technologies have become a new goal for a number of global players. The United States has taken a hardline stand against China and has openly announced that it is going to compete to protect its economic interests. Europe is fighting for the title of the greenest region and is trying to balance between continuing the old course for a carbon-free future with the help of Chinese technologies and a new course of restricting supplies from China, which will allow domestic production to develop to equip industries with a green economy. The countries of the East are joining forces and capacities to approach a carbon-free future, and Africa is reconsidering diplomatic relations with long-standing partners from the European Union in favor of China, with which it turned out to be
Will the EU and the US be able to reduce their dependence on China and how many years will it take? So far, the answers to these questions are disappointing: today, China dominates almost all links in the international supply chains of green technologies.
"Green Push" promises to be impressive
Analysts predict that by 2030 the global market for key mass-produced clean energy technologies will be worth $650 billion a year, more than three times the current level. However, this is only possible if all countries fully fulfill their commitments in the field of energy and climate. The number of green energy jobs will more than double by now, from the current 6 million to almost 14 million, and industry and employment are expected to grow further in the coming decades.
Analysts also expect a significant increase in corporate investment in the implementation of climate-friendly technologies in the field. Although recently everyone is only talking about artificial intelligence and the growth of investment interest in this topic within global corporations, as early as 2025 the direction of corporate investment will change: if funding for artificial intelligence is $ 1 trillion, then investments in "climate-friendly" technologies will reach 1.5–2 trillion The next five years will be decisive for determining the vector of development of critical areas of green technologies; the same time may be needed to outmaneuver key market players and redistribute spheres of influence in the new, green economy.
And many countries are striving to occupy a prominent place here. They compete to develop their own industrial strategies, redefine global diplomatic and economic ties. The Clean Energy Technology Era brings millions of new jobs in solar panels, wind turbines, electric vehicle batteries, hydrogen electrolyzers, heat pumps, and more.
In the United States, for example, the Joe Biden administration embarked on a $2 trillion program to transform the American economy. The money will be used to stimulate investment in battery technology and green hydrogen. In Europe, 670 billion euros have been allocated for climate goals - and this is only for the next few years; over the next decade, at least a trillion euros is planned to be spent for the same purposes.
But if the Western world has taken care of financing this area only recently, while China has been investing phenomenal sums there for many years. There are worrying protectionist aspects to this competition, but there are also upsides: for example, analysts believe that the race for subsidies and competition for dominance in green energy is boosting the clean-climate technology sector.
However, if the West wants to overtake China, it will have to seriously accelerate. The PRC invested $546 billion in the green economy in 2022 alone, almost four times as much as the US ($141 billion). The EU came in second in this rivalry, with European countries spending $180 billion in cleantech last year.
The PRC invested $546 billion in the green economy in 2022 alone, almost four times as much as the US ($141 billion). The EU came second in this rivalry with $180bn
Why should Europe break off relations with China?
The intention to separate economically from China and achieve maximum autonomy in supply chains by blocking the eastern stream was discussed by the US and the EU on the eve of the pandemic. But China still leads the way in green technology and global supply.
Europe joined the race unleashed by the United States. But what will it lose and what will it gain if it refuses to import most of its imports from China, will the region cope with the implementation of plans to decarbonize the economy and develop renewable energy?
“We must achieve complete independence from our eastern neighbors and be able to provide for the internal needs of countries on our own,” the EU leadership says. But the world needs China, economists retort. If European states really plan to build a carbon-free economy by 2050, they cannot do without the PRC. It will take decades to realize the ambitions of technological and raw material independence, and this will not be possible everywhere.
In the meantime, Europe continues to implement the principles of a carbon-free economy. The European Union recently introduced green technology incentives within the region, aiming to "lead the cleantech revolution," European Commission President Ursula von der Leyen said. The industrial strategy of the EU assumes that by 2030 40% of environmentally friendly technologies will be produced on its territory. To do this, it is planned to start mining critical minerals here.
Formally, Brussels explains the need to limit Chinese imports by the PRC's desire to aggressively dominate the market. Ursula von der Leyen called on EU leaders to reduce the risks of engaging with China by gradually reducing dependence on the East, and to take a nearly as tough stance on this issue as the United States.
Europe's transition to "sun and wind" forcedly accelerated
Ember, an independent clean energy transition think tank, recently said that the EU is on the brink of a “colossal collapse” in fossil fuel energy this year. In May, renewable resources - wind and solar - for the first time gave Europe a record amount of energy, almost a third of the total. At the end of May, 14% of the total energy in the EU was received on the basis of solar energy alone, this is the maximum today. For the first time, the sun and wind managed to overtake coal: fossil fuels made it possible to produce only 27%.
“The transition to renewable electricity in Europe has reached hyperdrive,” says Sarah Brown, Head of Europe at Ember.
Spain has set a new record: more than 50% of the country's electricity comes from renewable sources. In this area, Spain has surpassed not only its neighbors, but the whole world, becoming the leader in the total amount of green energy produced domestically. Over the past decade, the state has actively invested in the development of the necessary infrastructure. Now most of the clean energy here comes from the sun.
The increase in the share of wind power plants is also in full swing, the generation of electricity from wind has increased compared to May last year. This January was a record one, when 23% of the unit's capacity was provided with wind energy.
Ursula von der Leyen called on EU leaders to reduce the risks of interaction with China, gradually reducing dependence on the East in terms of green technologies, and to take a nearly as tough stance on this issue as the United States
Between East and West: Africa is also in the game
Although the situation in different parts of the continent is very different, some African countries have a chance to take part in the next industrial revolution.
Previously, Africa has already offered to host enterprises related to the green sector on its territories. In addition, The Just Energy Transition Partnerships was recently launched, bringing together resources from South Africa, Indonesia and Vietnam; the alliance is now in the process of attracting billions in investment in clean energy projects, setting a precedent for emerging economies.
The relations between China and African countries are transforming into the new reality of the global green economy. The PRC is investing in the production of critical elements on the continent, and its diplomatic relations with African states are strengthening and developing. But cooperation between the southern continent and Europe has been shaken by the introduction of price regulation by the European Union based on carbon emissions. In addition, the Middle Kingdom does not put forward as many conditions regarding human rights as the EU countries, which Africa also likes. Chinese companies often bring with them entire teams of contractors, the necessary equipment and materials, which allows them to complete projects in the shortest possible time, and this gives them an unconditional and obvious advantage.
The European Union, in turn, is seriously concerned about building relations with Africa in the new reality, as it sees it as a potential ally in the transition to climate-friendly technologies. The EU considers some African states as partners in the field of alternative energy and suppliers of critical raw materials.
The relations between the European Union and Africa can hardly be called unambiguous. For example, the President of Senegal recently accused Europe of hypocrisy: EU countries are happy to conclude contracts for the supply of natural gas, but are not ready to finance local projects for the extraction of minerals, although new deposits need investment injections. The EU, on the other hand, pursues a policy of double standards, investing only in renewable energy programs and encouraging the production of environmentally friendly fuels, but at the same time buying gas from Africa.
The phenomenon of Chinese domination
Today, China is the undisputed world market leader in the technological production of equipment and components for the green economy. He controls the entire field of eco-technologies, from the primary production of raw materials to the final product.
In particular, China is included in 80% of the world's supply chains for photovoltaic panels for solar energy production. Components for panels are also almost entirely Chinese: 95% of components for solar panels are made in China. In addition, China is a major supplier of wind turbines, owning six of the world's ten largest factories.
But nowhere does China hold on to its leadership more tightly than in the field of manufacturing energy storage equipment. Batteries in the green industrial world are needed like oxygen - for electric vehicles, power grids, etc. In this area, China, in fact, has long become almost a monopoly, despite the fact that the necessary raw materials are mined mainly in other countries. For comparison: in the UK today there is only one plant for the production of batteries for electric vehicles, in China there are more than a hundred such plants.
In general, the world market for lithium-ion batteries is three-quarters owned by China, and batteries manufactured in other countries use Chinese-made components.
This is one of the most important reasons for global market competition, and therefore the lion's share of new financial flows from the EU and the USA are directed to the development of their own sector of mining of minerals relevant to the green economy, and the production of batteries. However, the forecasts are disappointing: analysts are confident that by 2030 at least 70% of the batteries for the global market will still be supplied by China.
Today, 80% of the rare earth elements used in energy storage systems are of Chinese origin. However, there are deposits of these minerals in other countries, including Vietnam, Brazil, India, Australia and the United States. States are already actively developing mines in California, but it will be many more years before significant progress can be made. The same is true for other countries: the potential to create a competitive market exists, but investment and time are needed to achieve the desired results.
Demand for lithium, nickel, cobalt, copper and other rare earth elements will soar at least six times by 2050; today's production growth has not kept pace with increasing demand, and this is one of the critical problems of the green economy. For example, to achieve carbon neutrality by mid-century, lithium production would need to increase 40 times.
In the production of magnets required for the field of advanced electronics, China is also in the lead, providing 95% of the market.
Another area that is predicted to grow strongly in the next few years is battery recycling, where recycling of cells can partially satisfy the demand for products. Therefore, the United States, for example, allocated $ 3 billion for the development of mineral recycling technology. Experts are predicting the green battery recycling industry to skyrocket from the current $1.83 billion to more than $17 billion by 2030.
The EU has also taken up this issue, obliging electric car manufacturers to use at least 4% lithium and 12% cobalt obtained from recycled materials in new devices from 2030. True, battery recycling technologies are still in the development stage, and methods for extracting lithium, nickel and cobalt from products require new, environmentally friendly solutions.
The resource lobby of the green economy
It is significant that China was able to take control not only of the production of the batteries themselves, but of the entire supply chain, including rare earth elements, many of which are mined in other countries.
Let's take lithium for example. Surprisingly, the PRC is considered the world leader in its production, although about half of all the raw materials mined today are of Australian origin, and another 10% come from Chile. Together, these countries own two-thirds of the world's lithium deposits. Together with China, they account for 90% of developed mines. However, 60% of lithium is processed in China; in addition, the Chinese company Tianqi Lithium owns a controlling stake in the world's largest lithium deposit Greenbushes in Australia.
In addition to lithium, a key component in the production of batteries is cobalt, the most valuable of the essential minerals. And here again, the correlation between the geography of production and the final ownership of the product is indicative. 70% of the cobalt supplied to the world market is mined in the Democratic Republic of the Congo. Congo's status as a world leader in this area could be called into question due to numerous human rights violations, the use of illegal child labor. But this is unlikely to happen in the near future: nowhere in the world is cobalt mined in such quantities, although there are also small deposits in Russia, Australia, Canada, the Philippines and Cuba.
But what does China have to do with it, in which, by the way, there are also only modest deposits of a valuable element? How does China manage to control almost the entire chain of output and creation of the final value of the mineral on the world market? The fact is that the Celestial Empire is the main investor in African deposits, 15 out of 19 large cobalt mines in the Congo are either partially financed or wholly owned by Chinese companies. As a result, two-thirds of the world's cobalt is processed in Asia.
In order to slightly reduce dependence on China, the world is actively developing deposits of nickel, which can become an alternative to cobalt: it has a higher energy density and, therefore, increases the range of electric vehicles. Demand for nickel, which is also much cheaper than cobalt, is growing rapidly. Currently, about 30% of nickel comes from Indonesia, and this figure will only increase in the future.
The PRC is also the leader in graphite production (accounting for more than two-thirds of the world's reserves) and owns the largest manganese deposits in Asia. China accounts for 53% of the world's cathode processing, 78% anode processing, 62% electrolytes and 66% separator processing.
Most EV brands, including Tesla, Volkswagen and Hyundai, are dependent on Chinese battery companies to some extent. Take, for example, Shenzhen-based BYD, the world's largest manufacturer of electric vehicles and the second largest manufacturer of electric vehicle batteries. Together, BYD and CATL, a giant that is also associated with China, own half of the global electric vehicle battery market.
As for the widely discussed topic of hydrogen as an alternative to the usual energy storage devices, China was ahead of everyone here, taking first place in the production of this gas and entering the top three in the production of electric vehicles based on hydrogen fuel cells.
In addition, the country itself is the largest consumer of automotive products, selling half of all products. Half a million local electric buses account for 98% of the global market.
However, despite all the efforts and records, China still remains the main polluter of the atmosphere and soil. By some estimates, the country emits more greenhouse gases into the atmosphere than the entire developed world combined, and these emissions could peak in 2030.
Batteries in the green industrial world are needed like oxygen. In this area, the PRC has long become almost a monopoly, despite the fact that
the necessary raw materials are mined mainly in other countries. For comparison: in the UK there is only one plant for the production of batteries for electric vehicles, in China there are more than a hundred such plants.
Separate from China: geopolitical ambitions or a "green plan"?
Although the PRC has taken control of the global supply chains of key resources and technologies for a green economy, the desire of other major world players to reduce their dependence on the eastern partner and diversify logistics has certain grounds, even if it will take at least a decade. According to experts, the Chinese phenomenon of dominance in the market of green technologies and raw materials is associated not so much with the geographical location, but with a successful industrial policy, and therefore, other countries have a chance to become a leader.
During and after the pandemic, the world has already grappled with the consequences of building “tight and narrow” supply chains. One of them is the increase in prices for products for environmentally friendly technologies, which continues to this day. The increase in the cost of cobalt, lithium and nickel led to the first ever increase in the price of batteries for electric vehicles in 2022 - by 10%. Prices for wind turbines and solar photovoltaic systems continue to rise. Market diversification and reduced dependence on China can stabilize price increases and help countries create an internal safety cushion.
There are other opinions as well. So, if states become more reliant on their own resources, technology will become too expensive. A number of analysts also believe that the desire of Europe and the United States to reduce the role of China in the market, restructure all logistics and focus on domestic markets will lead to higher prices and the failure of investors. In addition, restrictions imposed by the EU on the purchase of Chinese green technologies may be contrary to international trade rules.
Despite the active protectionist tendencies in the industrial policy of major world players, as well as a number of soft and hard restrictions on imports imposed by the US and the EU, the global energy transition to clean technologies and a carbon-free economy will still largely depend on China and its industrial success - at least in the coming years. Experts fear that if geopolitical ambitions take over, it will undermine the goals of achieving carbon neutrality and moving away from fossil fuels.
However, the competition has already begun. And the first step towards gaining relative independence is the extraction and processing of critical minerals on the ground. Europe has its own deposits of minerals necessary for a green economy. Deposits of rare earth elements are concentrated in Sweden, lithium - in Spain and Portugal, copper - in Romania. However, local communities strongly resist their development. It will probably take at least a decade before Europe decides on large-scale projects in the region. Yes, and whether it will be decided, because mining without damage to nature is impossible. Europe is facing a "green dilemma": on the one hand, it needs to seriously expand the scope of environmentally friendly technologies, on the other hand, the participating countries will have to come to terms with soil and water pollution, loss of biodiversity, about which environmental activists are already warning. China is less principled in this regard, and therefore only in 2022 increased domestic production of rare earth metals by 25%.
Clearly, the diversification of green technology supply chains should benefit governments by accelerating the transition to a carbon-free future. However, it is important that competition in the field of environmentally friendly technologies is fair and does not interfere with the development of international cooperation.
Of course, geopolitical ambitions can overshadow everything else - then the countries will begin to recreate the necessary capacities and production in areas that have long been established in other regions. However, such an approach will not necessarily lead to success, and such a restructuring will take a lot of time. This means that the logistics of green technologies in the coming years can become the most important factor in modern geopolitics.
This article originally appeared in Russian at expert.ru and was translated and edited by Rhod Mackenzie
