Monday, March 27, 2023

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What’s in the EU’s “green” industrial policy against the US and China. Le Monde report

The European Commission has presented two bills to stimulate green industry through subsidies. “For too long,” Timmermans admitted, “we thought the market would fix everything.” Le Monde article

On Thursday, the Commission presented an arsenal of legislation aimed at building and subsidizing a zero-emissions European industry. Furthermore, it wants to secure the supply of strategic raw materials to the EU-27.

On a European scale, this is a revolution – we read in the Le Monde article. It may be that it is an unfinished work that still needs some legislative passages before being confirmed, but the paradigm shift is here and now. After years of refusing to consider it, the European Union (EU) is now talking about industrial policy. The aborted merger between the French Alstom and the German Siemens in 2019, following a decision by the Commission, and the endless debates on whether to create "European champions" seem a long way off.

The Covid-19 pandemic and, even more so, the war in Ukraine have confronted the old continent with its dangerous dependencies, with China for health and Russia for energy. The Inflation Reduction Act (IRA) presented by Joe Biden in August 2022, which provides 369 billion dollars (348 billion euros) for American green industry, then acted as a detonator, as many large European companies spoke out to relocate across the Atlantic to benefit from this aid. The EU has suddenly realized that its ambitious legislation to fight global warming, the Green Deal, had to be accompanied by equally proactive action in the industrial field if it were not to disappear from the map of future technologies.

On Thursday 16 March, the European Commission presented a draft law for a 'zero emission industry' of greenhouse gases, designed to improve Europe's competitiveness in clean technologies. The project was conceived in the same spirit as the semiconductor legislation that was made public in February 2022 and is currently under consideration by Member States and the European Parliament. Last week, Brussels also announced a simplification of state aid for these promising sectors.

To complete the building, the EU executive also presented on Thursday a draft law on “critical raw materials” – the very ones that green technologies and digital industries need so badly – ​​which aims to guarantee the EU a certain degree of autonomy in this sector, while it is largely dependent on third countries, above all China.

“Enough naivety”

“The mistake we made, in my opinion, was not having an industrial policy. For too long in Europe we thought the market would solve everything,” Commission Vice-President Frans Timmermans explained on Tuesday. “We now understand that the strategic choices made by China a decade ago have become a problem. Now we too must have our own strategy for the decades to come,” he added, after once again recalling the trauma of the EU-27, which saw the entire solar panel industry go to China.

Beijing's launch of the "Made in China 2025" program in 2015 did not worry Europeans too much, who saw it as the hallmark of Chinese planning. Since then, even if it has not achieved all its objectives, the Middle Kingdom has left its mark in strategic sectors such as electric cars.

"Music to my ears", commented Thierry Breton, commissioner for the internal market, when he heard his Dutch colleague make this mea culpa. It must be said that France, and President Emmanuel Macron in particular, have long been preaching in a vacuum for a more autonomous and less naive Europe: "Enough with naivety, it's time to act", continued the former minister of Economics by Jacques Chirac. However, "we have no ambition to compare ourselves to the United States in terms of interventionism and protectionism, and even less to China," he continued. “We are not in a planned economy,” insisted the French commissioner.

“We have resources in Europe”

But the EU has set itself precise objectives that outline a draft industrial plan. Just as it expects to produce 20% of semiconductors in its territory by 2030, it now wants to guarantee 40% of its need for green technologies – solar panels, wind turbines, electric batteries, heat pumps, etc. – with its factories within the same deadline. According to the Commission, this market should triple to reach 600 billion euros by 2030. All the more so as further growth is expected: by 2050, the use of renewable energies should quadruple, the use of heat pumps sixfold and the production of electric vehicles fifteenfold.

“There are no batteries without lithium, no wind turbines without rare earths, no ammunition without tungsten,” said Thierry Breton. “We have resources in Europe. We have to give ourselves the means to extract them,” he said. The EU executive wants the EU to no longer be at the mercy of some countries – China, Turkey, India, etc. – for strategic raw materials identified – lithium, magnesium, rare earths, tungsten, cobalt, magnesium, nickel, etc.

China has a "geopolitical tool" with its "virtual monopoly on rare earths," said Thierry Breton. In this context, the Commission proposes that, by 2030, the EU-27 will be able to extract 10% of its consumption from the soil (compared to 3% currently). It also sets targets for the EU in terms of refining and reusing these raw materials.

To achieve this, the Commission plans to simplify administrative procedures and speed up the granting of permits for green industry sites (less than 18 months), such as mines and refineries. Financial concessions are also envisaged (State aid, the possibility of using a portion of the proceeds from the companies' pollution permits – the ETS market – and the use of Community funds).

Strategic projects will be identified (in eight areas for the industrial part: photovoltaic, wind, batteries, heat pumps, electrolysers, biogas, carbon capture and storage, network technologies), which will benefit from particularly advantageous conditions. They could also be declared "in the public interest", which, the Commission explains, means that "they cannot be prevented for environmental reasons".

“The return of industrial planning”

There were heated debates within the Commission about which sectors could benefit from these adjustments. The nuclear issue was particularly difficult. As the days passed, the atom disappeared and then reappeared from the bill. Several commissioners, including the three vice-presidents Frans Timmermans, Margrethe Vestager and Valdis Dombrovskis, tried to exclude him from the project right up to the last minute.

In the finishing straight, France has finally obtained a less harsh arbitration from President Ursula von der Leyen: in the end, only the technologies of the future, such as small modular reactors, will be able to benefit from the status of green industry, but the atom will not appears in the list of strategic projects.

Other divisions – on the degree of interventionism or on the compatibility of these measures with the Green Deal – have crossed the debates in Brussels on these texts that outline a European industrial policy. They are set to resurface in the coming weeks as the 27 Member States and the European Parliament take turns addressing the issue.

In an article published on the Politico website on March 9, several economists at the Bruegel think tank denounced the "protectionism and dirigisme" displayed by the Commission in the draft law on "zero-emissions industry", which at the time had been widely disclosed. They spoke of the "return of the industrial planning of the 60s" and compared it to the defunct "calculation plan" that De Gaulle's France had elaborated in the 70s to develop European information technology vis-à-vis the United States and which it had ended in failure.

This is a machine translation from Italian language of a post published on Start Magazine at the URL on Sat, 18 Mar 2023 06:23:33 +0000.