EU shifts to cleantech: subsidies rise, free market declines

BRUSSELS — On Thursday, the European Union unveiled plans to fundamentally overhaul its policy on promoting green technologies and handling critical raw materials, imposing restrictions on imports from countries like China, while providing subsidies and other financial incentives to boost domestic production.

The plans of the European Commission, the executive body of the EU, are essential for the transition to a climate-neutral economy, as well as for increasing the bloc’s strategic independence in a volatile world of geopolitical alliances.

In order to achieve its clean technologies and strategic goals, the EU is making a major economic departure from decades of preaching the gospel of laissez faire in the economy, free markets, when any contribution of public policy was considered intervention, reminiscent of a bygone era. Now the plans again require government assistance, guiding hands and financial incentives as key components of the transition from fossil fuels to a green economy.

“I think the only mistake we’ve made — and the only mistake that would be an outdated industry policy — is not having an industry policy. And this is what we have had in Europe for too long, thinking that the market will take care of everything,” said Frans Timmermans, Vice President of the European Commission.

And looking at China’s state-run economy, he said Beijing has taken the lead in the green and clean technology sectors that will dominate the global economy. The EU now gets 98% of its rare earth materials and 93% of its magnesium from China. “Now we understand that the strategic choice made by China ten years ago is now coming home. And we must also make our own strategic decisions now for the coming decades.”

The cornerstone of the proposal is a commitment to produce at least 40% of the clean technologies needed by 2030 in a bloc of 27 countries, while at the same time guaranteeing that no more than 65% of the consumption of any strategic raw material will come from a single third country – often in practice China.

In addition, the plan foresees that financial incentives from Member States will be much more welcomed and approved more quickly. “It’s not old fashioned. This is what you need to do when you are in the middle of an industrial revolution.”

EU Commissioner for the Internal Market Thierry Breton, standing next to Timmermans, could only say: “music to my ears.”

The EU move also comes after last summer’s $375 billion US Inflation Reduction Act, when President Biden pushed through a stimulus-laden and America’s first clean energy bill. After months of vehement protests against measures that would bar goods from the EU, the bloc accepted a truce, and Thursday’s plans for the Clean Zero Industry Act and the Critical Raw Materials Act underlined that joining a similar program was better than being beaten by it. .

“I totally disagree that we lost the race for subsidies,” Breton said. “That’s why I said we’re on the move… And I believe that’s what we did today.” The plans still need to be approved by the 27 EU member states and parliament, a process that will take many months, possibly more than a year.

The stakes are huge. The EU estimates that by the end of the decade, the global cleantech market will be worth 600 billion euros a year. In addition, the use of renewable energy sources will quadruple by 2050, the use of heat pumps will increase 6 times by 2050, and the production of electric vehicles will increase 15 times.

Since state aid and many incentives come from the member states themselves, and the EU must approve them through relaxed regulation, the plans do not provide precise overall estimates.

At the geopolitical level, the stakes are no less great, and this is where the Critical Raw Materials Act comes into play. In general, they are used in everything from solar panels to heat pumps and electric vehicles.

With incentives in place, the EU Commission wants at least 10% of the strategic raw materials consumed locally and at least 40% processed locally by the end of the decade.

At the same time, in seeking to break away from dependence on China by imposing import quotas, the EU is seeking to create a select club of critical commodity alliances with alliances such as the United States and Canada to further strengthen the Western bloc in Europe. an increasingly unstable global environment.

“We are strengthening our cooperation with trusted trading partners around the world to reduce the EU’s current dependence on just one or a few countries,” said European Commission President Ursula von der Leyen.

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