On March 16, the European Commission announced the legislative proposals for the Net Zero Industry Act and the Key Raw Materials Act, hoping to promote the low-carbon development of EU industries, strengthen local supply chains, and allow the EU to lead the green industrial revolution.
From supporting local industrial chains to protecting key raw materials, these two bills are not only a response to the US Inflation Reduction Act, but also key elements of the proposed EU Green New Deal industrial plan.
What are the main contents of the two bills? What is the background of the introduction? What impact will it have on related industries in China? These issues deserve a closer look.
Emphasis on local production capacity
From the perspective of content, the "Net Zero Industry Act" focuses on improving the local manufacturing capacity of the EU's net zero industry, and the "Critical Raw Materials Act" focuses on ensuring the upstream key industries of the EU's net zero industry, digital technology, defense industry, space technology and other strategic sectors. The supply of raw materials is secure.
Currently, one-third of the EU's electric vehicles, batteries and most of its photovoltaic modules are imported from countries outside the EU, most of which originate in China. In the past two years, the EU's original advantageous industries such as fan equipment and heat pumps have also experienced problems such as declining competitiveness and narrowing technological gaps.
The Net Zero Industries Act therefore seeks to scale up production of clean technologies in the EU in an effort to address the above issues and ensure that these industries are adequately prepared for the transition to clean energy. The EU plans that by 2030, local (strategic) zero-carbon technology production capacity should be able to meet 40% of the EU's needs.
Key zero-carbon technologies included in the Net Zero Industry Act include: photovoltaics and solar thermal, onshore and offshore wind power technologies, batteries and energy storage, heat pumps and geothermal energy, hydrogen electrolyzers and fuel cells, biogas, biomethane , carbon capture and storage (CCS) technologies, and grid technologies. Being included in the bill means that these technologies can obtain policy-level support, as well as financial and financial support such as subsidies, financing, and financial guarantees.
Another "Key Raw Materials Act" proposes that the EU should achieve more than 10% of the annual consumption of strategic raw materials locally, more than 40% of local processing, and more than 15% of local recycling by 2030. Each strategic raw material comes from The proportion of a single importing country shall not exceed 65% of the EU's annual consumption.
The bill contains 34 key raw materials, most of which are mineral assets. These raw materials are considered to be of strategic importance to the EU economy and carry high supply chain risks. According to the bill, the European Commission will address dependencies by diversifying material sources.
Among the key raw materials that the bill focuses on, lithium, cobalt, and nickel are key raw materials for lithium battery production, and rare earths are called industrial vitamins, which have excellent magnetic, optical, and electrical properties and can be used in aerospace, national defense, wind power, and new energy vehicles. and other fields.
At the launch of the legislative proposal, an EU spokesman pointed to the status of the supply of some raw materials. 63% of the world's cobalt is extracted in the Democratic Republic of the Congo and then refined in China; 97% of the EU's magnesium supply comes from China; 100% of the rare earths used in permanent magnets worldwide are refined in China; 71% of the EU's platinum group metals supply from South Africa; 98% of the EU's borate supply comes from Turkey.
The bill claims that the EU is highly dependent on many third countries for key raw materials. Coupled with the transition of the global economy to a digital and green economy, the global demand for these key raw materials has expanded, further contributing to the vulnerability of EU supply chains.
In addition to restricting imports, the bill also simplifies the licensing process for key EU raw material projects. The bill proposes that the European Union can name certain new mines and processing plant projects as strategic projects. Strategic mine projects will be licensed within 24 months, and processing facilities will be licensed within 12 months at the latest.
In addition, the European Commission will strengthen the development of breakthrough technologies for key raw materials, including the establishment of large-scale skills partnerships for key raw materials, the establishment of reserves where supply is at risk, the establishment of raw materials colleges, and the strengthening of the workforce in key raw materials supply chains skill improvement.
What is the impact of the "Inflation Reduction Act" on China?
In August 2022, the United States promulgated the "Inflation Reduction Act", providing subsidies and tax incentives worth US$369 billion for green technology. The bill is the most significant climate legislation in U.S. history, bringing in many investments in U.S. manufacturing. In the weeks since the bill was enacted, some companies have announced a combined roughly $28 billion in new investments in the U.S. in electric vehicle, battery and solar manufacturing.
The EU believes that the bill constitutes discrimination against the EU's electric vehicles, batteries, renewable energy and energy-intensive industries, and will have a negative impact on the competitiveness and investment decisions of European industries.
Under pressure from various European industry associations and companies, the European Commission decided to take measures to hedge against the US Inflation Cutting Act.
Judging from the intention of the above measures, the two bills are to support the pillar low-carbon industries in Europe on the one hand, and on the other hand to ensure the supply of raw materials at the source of the industrial chain and ensure the sustainable development of related industries.
However, this also means that the EU has set thresholds for the import of zero-carbon industry-related equipment and key raw materials, reducing import demand, and at the same time intensifying the competition for global key resources with limited increments.
At present, China is an important exporter of wind turbine equipment, photovoltaic equipment, lithium batteries and key raw materials in the world. In the field of net zero industry, more than 90% of the EU's photovoltaic wafers and components, and more than 25% of electric vehicles and batteries come from China. In the field of key raw materials, 97% of the EU's magnesium and 100% of the rare earths used in permanent magnets come from China.
If these two bills are implemented, they may affect the export of related products from China. On the other hand, some Chinese companies with technological advantages in net-zero industries and key raw materials may also invest directly in Europe.
However, some researchers pointed out that, like the problems in the "Inflation Reduction Act", the trade protectionism and some subsidy measures in the two bills violated the trade non-discrimination rules of the World Trade Organization (WTO). Researchers from the European think tank Bruegel wrote that the two drafts go back to the period of the failed industrial revitalization plan in the 1960s.
“The EU faces geopolitical challenges and should accelerate its green transition, which may justify some unconventional EU policies such as subsidies and pro-competitive industrial policies. But these factors cannot justify outright protectionism and government intervention. "
Previously, when the United States promulgated the "Inflation Reduction Act", EU politicians and senior officials of the European Commission accused the United States of its actions, believing that the act provided public subsidies for companies that conduct production activities in the United States, which harmed European companies. interests and disrespect WTO rules.
EU finance ministers said at a meeting that subsidies in the Inflation Reduction Act discriminate against the EU's automotive, renewable energy, battery and energy-intensive industries and have a significant impact on EU industrial competitiveness and investment decisions . The United States ignores the EU's concerns about this bill, which will make the EU likely to take corresponding retaliatory measures.
After the two bills were submitted, they have attracted opposition from many parties. In addition to the European think tank Bruegel’s criticism of the EU’s state intervention, a reporter from the American media Politico also wrote an article pointing out that in order to compete with China and the United States in the low-carbon industry, the EU lost the principle of free trade and put a new label on EU officials. Stop burning coal, and change to burning principles."
At present, the two bills have been submitted to the European Parliament and EU member states. The final legislative results have yet to be discussed by the European Parliament and various countries, and there are still large changes in the content of the bills.