Europe looks to challenge US, China with green industrial revolution

The E.U. plans to fight for its place in the clean energy race. 

Ursula von der Leyen, head of the European Commission, announced at the World Economic Forum in Davos, Switzerland, on Tuesday that the European Union will create extensive new clean energy subsidies to keep firms from moving to the U.S. and China.

The goal is for the E.U. to become a leader in the transition to a clean economy and achieve net-zero emissions by 2050 — and von der Leyen said that both carrots and sticks were on the table.

“The net-zero transformation is already causing huge industrial, economic and geopolitical shifts — by far the quickest and the most pronounced in our lifetime,” der Leyen said. “It is changing the nature of work and the shape of our industry.”

The E.U.’s “Green Deal” industrial plan aims to make Europe a center for clean technology and innovation and to counter aggressive attempts to attract E.U. industrial capacities away to China and elsewhere.

In particular, the E.U. worries that its green tech firms will move to the United States, which last summer passed a $369 billion scheme to subsidize green production.

But she also singled out China, which she said “dominates global production in sectors like electric vehicles or solar panels … with the promise of cheap energy, low labor costs and a more lenient regulatory environment.”

The E.U.’s plans appear to involve heavy subsidies of its own to compete with the U.S. and China. Von der Leyen also announced that the organization will temporarily adapt the E.U. state aid rules to speed up and simplify permitting for clean energy production.

“We know we have a small window to invest in clean tech and innovation to gain leadership before the fossil fuel economy becomes obsolete,” she said.

She also connected the drive to attempts to wean the continent off Russian gas.

“In less than a year, Europe has overcome this dangerous dependency,” she said, noting that the continent had “replaced around 80 percent of Russian pipeline gas.”

But the move of clean energy firms to the U.S. and China worried her.

“For rare earths, which are vital for manufacturing key technologies — like wind power generation, hydrogen storage or batteries — Europe is today 98 percent dependent on one country – China,” she said.

She also pointed to lithium, for which three countries — Australia, Chile and China — control 90 percent of production, leading to “incredibly tight” supply chains.

“This has pushed up prices and is threatening our competitiveness. So, we need to improve the refining, processing and recycling of raw materials here in Europe … without creating new dependencies,” she said.

It’s not clear yet how much money will be given for the new clean energy subsidies — that figure will be part of the budget review later this year.

But the E.U. has already given 672 billion euros (about $725 billion) for member states to deal with the impact of the war in Ukraine — making it likely that a” massive” amount will be given for this new clean energy plan, The Associated Press reported.

The E.U. is also creating a new Net-Zero Industry Act as part of the Green Deal industrial plan. This act will focus on investments in projects along the entire supply chain, like simplifying and fast-tracking permits for new clean technology production sites.

A European sovereignty fund will also be created as part of the budget review. This fund will be used to avoid a fragmenting effect on the single market — which could be caused if national governments create their own subsidy regimes — and to support the clean tech transition across the whole bloc.