Belgium (Brussels Morning Newspaper), The landscape of the new energy resources sector has undergone a seismic shift since the enactment of the Inflation Reduction Act in 2022 by the Biden administration. A discernible trend has emerged, with an increasing number of European companies opting for the United States. This choice is poised to exert a substantial influence on Europe’s journey toward electric vehicles and the associated industrial ecosystem. Despite the European Union’s earnest efforts to bolster its allure for new energy enterprises through a gamut of policies, the comprehensive policy framework, including subsidies, tilts in favor of the United States.
Furthermore, Europe faces challenges in securing a sustainable supply of key raw materials for batteries. The absence of robust free trade relations with technically advanced countries like China adds another layer of complexity, casting shadows over the smooth supply chain in its battery industry chain. The EU’s lack of free trade relations with mineral-rich countries, notably the absence of strategic collaboration with China, a powerhouse in battery raw materials, adds to the complexity. With abundant resources like cobalt, lithium, nickel, and natural graphite, China holds a pivotal role, making Europe’s battery industry chain more precarious in the face of these shifting dynamics.
The United States, propelled by a keen – selfish – focus on its own industrial and economic interests, seems to be completely ignoring the concerns of the EU. The Biden administration’s introduction of the Inflation Reduction Act in 2022 reflects a strategic intent to propel the U.S. towards a green economy with net-zero emissions. This legislative move aligns with the protectionist ethos of the “buy American goods” policy that gained prominence during the Trump era, aimed at attracting investment from Europe. With the implementation of the Inflation Reduction Act, the US government has embarked on an extensive subsidy program for electric vehicles, power batteries, and other new energy resource industries.
This initiative serves a dual purpose: bolstering domestic automakers and new energy companies by incentivizing investments and factory constructions within the United States. Consequently, it acts as a catalyst for the robust development of the domestic new energy industrial chain. The IRA marked a paradigm shift. The overarching objective is to fortify domestic automakers and new energy companies, thereby fostering the development of a robust domestic new energy industrial chain. Now Europe.
One striking feature of this interaction is the absence of exemptions granted by the U.S. government to the EU, particularly concerning the equitable treatment of European car companies and new energy enterprises within the expansive US market. Despite persistent efforts, the EU’s plea for parity remains unanswered, amplifying the challenge of navigating trade frictions arising from the Inflation Reduction Act.
Since its enactment in August 2022, the IRA has garnered over $65 billion in investments for the U.S. electric vehicle (EV) supply chain. This includes a substantial $49 billion allocated specifically for the establishment of new battery and battery component manufacturing facilities. This significant influx of funds signifies a substantial commitment to transitioning away from traditional combustion engine vehicles and bolstering domestic EV manufacturing capabilities throughout the entire supply chain.
Faced with what it deems as unfair competition from the United States, the European Union has displayed a measured response. In a strategic move to prevent the escalation of trade disputes, the EU has refrained from deploying trade remedies or resorting to the “Rules Against Foreign Subsidies” toolbox introduced in 2022. This cautious approach reflects the EU’s commitment to maintaining a delicate balance and preserving diplomatic channels, even as it concentrates on bolstering the competitiveness of domestic European companies.
The primary aim is to attract new energy resources and fortify the European market against external pressures. At the same time, the European battery sector finds itself navigating the ripples generated by the United States’ strategic maneuvers. In stark contrast to the overt subsidy framework outlined in the IRA, the European Commission unveiled its own arsenal of policy instruments in March 2023, signaling a commitment to accelerating the green transition of industry.
The centerpiece of this European initiative is the Net Zero Industry Act, a legislative move designed to propel the EU into a position of global leadership in the net-zero industry. This ambitious agenda revolves around enhancing local manufacturing capacity for eight key net-zero strategy technologies and their essential components. Concurrently, the European Union addressed the critical issue of ensuring a secure and sustainable supply of raw materials for power batteries.
The Key Raw Materials Act was instituted to fortify EU companies with access to essential resources, supporting battery processing, and recycling endeavors within the European market, and optimizing resource reuse efficiency. Notably, in 2023, the EU authorized a substantial sum of 6 billion euros in state subsidies, underlining its dedication to fostering innovation and sustainable practices within the European battery industry.
However, the resonance of the EU’s industrial policies has fallen short of creating a level playing field with the United States. To redress this imbalance, the EU stands at a crossroads, necessitating a fortified approach to investment and financing within the battery value chain.
The difference in subsidy approaches between the United States and the European Union unveils a stark contrast in their strategies to attract battery manufacturers. In the U.S., a comprehensive and centralized approach is evident, with a unified stimulus and subsidy program operating at the federal level. This is complemented by localized support policies at the state level, ensuring flexibility to address local competition needs.
The synergy of federal and state incentives creates a scenario where enterprises can enjoy “dual incentives,” maximizing benefits. Conversely, the European Union relies predominantly on member states to implement financial support policies.
While the EU establishes an upper limit for policy and financial support, the decentralized nature of execution places more reliance on individual member states. This divergence in subsidy mechanisms places the European Union at a distinct disadvantage in the competitive landscape. The United States, leveraging tools like the Inflation Reduction Act and the Infrastructure Investment and Jobs Act, has crafted a conducive environment for battery manufacturers.
The series of subsidies and policy incentives provided have successfully attracted investments and facilitated the establishment of factories in the United States. In contrast, the European Union’s more fragmented approach underscores the need for a reevaluation of its strategies to compete effectively in the global battery manufacturing arena.
The ambitious European Union (EU) targets for battery capacity expansion face an imminent threat of delay, exacerbated by the far-reaching consequences of the U.S. Inflation Reduction Act. This American legislation is poised to prompt a strategic shift among new energy companies. These companies are now contemplating redirecting their investments to the U.S., lured by the expediency of subsidies.
This potential realignment poses a formidable challenge to Europe’s aspirations, hindering its quest to boost capacity and meet the 2030 target. Central to this predicament is the stark disparity in industrial subsidies between the EU and the U.S. Europe’s lagging financial support acts as a substantial roadblock, making it arduous to compete on a global scale.
Moreover, the EU grapples with the critical issue of sustainable supply security for key battery raw materials. The IRA has further tilted the scales, pushing suppliers to favor the U.S. over Europe.
China has supremacy in this market and technology and the United States and the European Union are trying to fend off Chinese competition to ensure their own automakers’ access to batteries and crucial materials by mutual collaboration. But, paradoxically, both sides acknowledge the necessity of Chinese cooperation to achieve their electric vehicle (EV) goals.
The EU, in particular, has opted for a strategy of “derisking from China” rather than a more drastic “decoupling,” maintaining its strategic autonomy. However, the pursuit of a greater portion of electric vehicle (EV) investments remains a crucial goal for both the United States and the European Union. This competition is expected to intensify and grow more complex in the days ahead.
Opinions expressed in the op-ed section are solely those of the individual author and do not represent the official stance of our newspaper. We believe in providing a platform for a wide range of voices and perspectives, even those that may challenge or differ from our own. As always, we remain committed to providing our readers with high-quality, fair, and balanced journalism. Thank you for your continued support.Sincerely, The Brussels Morning Team
