Examining options for the EU as it competes for clean tech sovereignty

Governments and institutions around the globe are seeking immediate fixes and long-term solutions to the ongoing energy crisis, exacerbated by the ongoing war between Russia and Ukraine. Mainland China, already in pole position in terms of access to critical raw materials (CRM) and processing, is relaxing regulations to encourage energy intensive companies to relocate, while the Inflation Reduction Act in the US at the end of last year offered simple tax breaks enticing companies to set up shop in the country. Amid a push to retain its lead in the energy transition, the EU must do more than just play catch-up to secure sustainable energy to its citizens, and the worlds largest single market.

Rystad Energy analysis shows that the EU plans to deploy targeted anti-relocation measures, largely through a simplified regulatory framework and financial support mechanisms to accelerate deployment of clean tech. This may be enough to turn the tide, as regulatory bottlenecks and underdeveloped supply chains have held back clean tech development for years and now put the EU at a competitive disadvantage. We expect direct financial support, centralized one-stop shops for permitting and designated go-to areas for fast-tracked renewables development will contribute to accelerating the EU’s energy transition, but this will only be as effective as the administrative capacity allows.

In the battery and electric vehicle sector, which is the most contentious point between the EU and US, Rystad Energy believes that reducing administrative delays for battery supply chain projects may not be enough, and the EU could need to push forward all pillars in parallel. Although Europe has an existing and growing market base, the likelihood that the US increase its presence in the market has never been higher.

When it comes to green hydrogen, Rystad Energy analysis finds that the EU has high domestic production targets but has a long way to go to get there. To manage the risks of the US kickstarting its low-carbon hydrogen industry via simple production tax credits, the EU aims to provide a fixed premium for hydrogen production – however, as the proposed auction mechanism is bid based and will happen in increments, it may be too little too late.

To accomplish these goals, it is crucial for the EU to first secure access to CRMs and, second, foster industries to turn CRMs into clean tech. In this regard, CRMs are the oil and gas of the energy transition, and against the backdrop of the ongoing war in Ukraine, the EU sees a similarity between Russia’s use of energy as a weapon and a CRM supply squeeze potentially being used to hinder its energy transition. This comes as the EU depends on China for CRMs, and should Chinese policy become more protectionist, the EU would have to either stand on its own, lean on other trade partners, or fall short of meeting its ambitions.

“Europe has always been an importer of energy, so the energy transition offers an unparalleled opportunity for the EU to flip the switch and secure its energy sovereignty. However, the EU finds itself between China’s existing market dominance and the US’ fiscal firepower. We believe that the EU could use its clout as the single largest market in the world, as well as the Green Deal Industrial Plan, REPowerEU and other policy levers to earn its energy security, and become sustainable in the process,” says Lars Nitter Havro, senior analyst, clean tech at Rystad Energy.

Read more: RystadEnergy