The EU could end its reliance on China for lithium-ion battery cells by 2027, Transport & Environment (T&E) has predicted. Europe is on track to produce enough Li-ion cells by then to fully meet domestic demand for electric vehicles and energy storage, according to the new analysis of battery makers’ announcements. However, the green group said the EU needs a policy to counter US subsidies or risk losing investment in the electricity supply chain.
China’s dominance of battery components can also be cut. Two-thirds of Europe’s demand for cathodes – which contain critical raw materials – can be produced domestically by 2027, the report also finds. Existing and planned cathode production projects include Umicore in Poland, Northvolt in Sweden and BASF in Germany. But companies could still move projects planned for Europe to the United States, tempted by tax breaks and other subsidies provided by the Inflation Reduction Act to locate battery supply chains in America.
Dependence on China for refining and processing battery metals could also drop dramatically: more than 50% of Europe’s demand for refined lithium could come from European projects by 2030, T&E forecasts. These include RockTech Lithium and Vulcan Energy Resources in Germany and Imerys in France. The materials will be sourced from mines abroad or directly from European projects under a planned EU law on critical raw materials, provided they meet high environmental standards.
Julia Poliscanova, senior director of vehicles and e-mobility at T&E, said: “The EU’s phase-out of internal combustion engines in 2035 has already spurred a lot of investment. Today, half of the lithium-ion battery cells used in the EU are already manufactured there . But the Inflation Reduction Act has changed the rules of the game, and Europe needs to put more money on the table or risk losing planned battery factories and jobs to America.”
A European sovereign fund to support green technologies should be established with cash raised through joint debt issuance, T&E said. This would provide a level European playing field and avoid money-rich countries leaving others behind by offering generous state aid to businesses. Only green production targeted by the US IRA, such as electric vehicles, batteries and renewable energy, should receive cash.
However, unlike Next Generation EU, the funds should be paid directly by the EU to companies to avoid the slow absorption rates seen under the Recovery and Resilience Facility (RRF). Spending under the RRF also lacks strategic focus, funds are often slow to reach businesses, and the money is not bankable in the same way as the US IRA production credits. The EU’s state aid rules must also be streamlined so that green projects can be scaled up using production support – as is already allowed in the US.
Julia Poliscanova said: “Europe needs the financial firepower to support its green industries in the global race with America and China. A European Sovereignty Fund would support a real European industrial strategy and not just countries with deep pockets. But spending rules need to be streamlined so it does not take the same time to build a battery plant as a coal plant.”
Analysis: A European Response to the US Inflation Reduction Act
Originally published by Transport & Environment.
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