A paper prepared for European Union (EU) leaders warns that by 2030, the EU could be as reliant on China for lithium-ion batteries and fuel cells as it was on Russia for energy before the conflict in Ukraine unless it takes significant action.
This exclusive document, obtained by Reuters, serves as the foundation for discussions on Europe’s economic security at an upcoming meeting of EU leaders in Granada, Spain, scheduled for October 5.
Addressing Economic Security in the Face of China’s Growth
The concerns stem from China’s growing global influence and economic power. EU leaders will deliberate on the European Commission’s proposals aimed at reducing the risk of overreliance on China while exploring diversification opportunities in Africa and Latin America.
The Growing Demand for Energy Storage
The paper highlights the necessity for energy storage due to the intermittent nature of renewable energy sources such as solar and wind. To achieve its goal of net-zero carbon dioxide emissions by 2050, Europe will need to significantly increase its reliance on lithium-ion batteries, fuel cells, and electrolysers. The demand for these technologies is expected to multiply between 10 and 30 times in the coming years.
EU’s Current Position and Vulnerabilities
While the EU maintains a dominant position in the intermediate and assembly stages of electrolyser production, with over 50% of the global market share, it heavily depends on China for fuel cells and lithium-ion batteries, particularly vital for electric vehicles.
The paper issues a warning, stating that without decisive action, Europe’s energy ecosystem could develop a dependency on China similar in nature, though different in specifics, to the one it had on Russia before the Ukraine conflict.
Parallels to Energy Dependence on Russia
According to the European Commission, in 2021, the EU was heavily reliant on Russia for energy resources, with over 40% of gas consumption, 27% of oil imports, and 46% of coal imports originating from Russia. Ending most energy imports from Russia following the Ukraine crisis led to a significant energy price shock within the EU, causing a surge in consumer inflation. Consequently, the European Central Bank had to raise interest rates substantially, impacting economic growth.
Broader Vulnerabilities in Digital Tech
The paper also notes that vulnerabilities extend beyond energy. A similar scenario of dependence could unfold in the digital technology sector. Forecasts indicate a sharp increase in demand for digital devices like sensors, drones, data servers, storage equipment, and data transmission networks in this decade. While the EU has a strong position in some areas, it exhibits significant weaknesses in others.
By 2030, this foreign dependency could seriously impede productivity gains, hinder the modernization of agriculture systems necessary for addressing climate change, and adversely affect the European industry and service sectors.
Conclusion
The EU’s growing reliance on China for critical technologies, particularly in energy storage and digital technology, presents a significant challenge to the bloc’s economic security. The document underscores the urgency of diversification and the need for strong measures to ensure Europe’s resilience in the face of increasing global competition.