Introduction

Is the EU trying to rush its year-end progress like a boomerang?

With the recent collapse of Northvolt, hailed as the "only hope for all of Europe (the village)," and its pursuit of bankruptcy reorganization (see the article "Europe's New Energy Vehicle Supply Chain: Rotten from the Root"), the farce of the "anti-subsidy investigation" into China's imported electric vehicles, which has been going on for over a year, is almost destined to end anticlimactically as news of a "final agreed price" between the two sides nears completion.

The EU's new energy vehicle sector, once a giant kite attempting to take off against the wind, has finally crashed back to earth after countless twists and turns over the past few years.

Faced with this dilemma, on December 3 local time, the European Commission announced an important plan to invest 4.6 billion euros in decarbonization technologies and clean hydrogen projects using funds raised through the EU Emissions Trading System (EU ETS). Abandoning the "invisible hand" in favor of a "visible hand" to directly regulate and even subsidize.

Wopke Hoekstra, the EU Commissioner responsible for this matter, said in a statement on the matter: "As promised, we are investing 4.6 billion euros to support cutting-edge projects in Europe in net-zero technologies, electric vehicle batteries, and renewable hydrogen."

Subsidy plan with restrictions on Chinese enterprises

Specifically, this massive 4.6 billion euro subsidy plan aims to support the advancement of decarbonization technologies and the production of clean hydrogen (i.e., green hydrogen). The specific subsidy details are as follows:

l 2.4 billion euros will be used to subsidize projects that manufacture renewable energy, energy storage, heat pumps, and hydrogen production components, with project evaluations based on criteria such as greenhouse gas emission reduction potential, degree of innovation, project maturity, replicability, and cost-effectiveness.

l 1.2 billion euros will be subsidized specifically by the European Hydrogen Bank to accelerate the production of renewable hydrogen (green hydrogen), with a focus on supporting high-efficiency water electrolysis hydrogen production technology and its application in industries, transportation, and other fields.

l The final 1 billion euros will continue to be invested in projects dedicated to the manufacture of power batteries for electric vehicles, with the hope of supporting projects that can produce innovative electric vehicle batteries or deploy innovative manufacturing technologies, processes, and techniques.

It is particularly noteworthy that the European Commission's statement regarding the last subsidy is that it hopes to optimize the European battery value chain and reduce dependence on external markets. Simply put, even though Northvolt has undergone bankruptcy reorganization, our goals remain unchanged.

It is worth noting that when announcing the plan, the European Commission still emphasized "reducing dependence on China."

Image | Wind turbines outside Amsterdam. The hydrogen produced by electrolyzing water using the electricity generated by these turbines is known as "green hydrogen."

Moreover, in the subsidies for green hydrogen, it is directly stipulated that the maximum proportion of electrolyzers procured from China in bidding projects cannot exceed 25%. Additionally, "bidders must provide a self-declaration guaranteeing that they will meet the flexible requirements for limiting procurement from China and explain how they will achieve this."

This clause is actually a continuation of the announcement made in September this year that due to the "increased dependence on imports of electrolyzers from China and the existence of significant and irreversible risks, which may threaten the EU's supply security," there will be restrictions on Chinese-made electrolyzers participating in EU tender procedures.

Furthermore, for projects dedicated to power batteries for pure electric vehicles, it is stipulated that bidding enterprises can obtain "additional points" if they commit to "reducing the procurement of cathode and anode materials and active materials from China."

Using risks to 'de-risk'

The European Commission's explanation for the restrictions imposed on the new stimulus policy is that all projects eligible for subsidies include "flexibility criteria."

Of the 2.4 billion euros earmarked for projects related to renewable energy, energy storage, heat pumps, and hydrogen production components, subsidy applications must consider the project's potential to improve flexibility for due diligence throughout the supply chain. Projects related to automotive power batteries and green hydrogen, on the other hand, include "more targeted" criteria, such as exploring new materials, components, and equipment suppliers that can "avoid dependence on China."

Image | Contrary to previous stereotypes, rare earth refining has long since ended the era of high pollution and high energy consumption and is now highly dependent on technology and specialized processes

The European Commission's explanation for the introduction of the subsidy policy and the restrictions is that Chinese enterprises have already established a complete industrial chain from raw materials to manufacturing in key areas such as photovoltaic panels, lithium-ion power batteries, and even more upstream rare earth materials, with economies of scale, technological accumulation, and cost advantages. In contrast, EU member states currently have strong capabilities only in some basic research and high-end technologies but have obvious shortcomings in large-scale production and raw material mining and processing capabilities.

In summary, both the subsidy policy itself and the restrictions on the conditions for granting subsidies are aimed at "de-risking" their own supply chain.

The European Commission's explanation is self-consistent within its logic, but all explanations intentionally or unintentionally overlook two issues.

Firstly, whether it's photovoltaic panels, permanent magnet electric motors, or power batteries, these basic equipment related to the establishment of a "low-carbon economy" rely on many basic industrial raw materials that are not available locally in Europe, such as rare earth elements and lithium. The procurement of these raw materials from other locations may be addressed through "safe countries" recognized by the European Commission, such as Australia and Canada. However, their transportation requires global shipping routes, and even their processing and manufacturing rely on technologies from countries outside Europe. The so-called "de-risking" operation ultimately just replaces one risk with another.

Image | European Commission Building

Secondly, based on the above, developing a separate system in Europe not only requires independent research and development of a large number of technologies, such as rare earth mining and economically viable refining processes, but also requires huge investments in industrial construction and a long period of financial support. The cost of doing this in Europe, as evidenced by the example of Northvolt, is significant. Even 4.6 billion euros may not be enough, and adding another zero might still not cover the costs.

Moreover, if these industrial chains are to be established within Europe, should they be dispersed among EU countries or concentrated in one country? The former would face enormous logistical and even construction pressures, and with Europe's current operating costs, the entire project may need financial support throughout. If concentrated in a few or even one country, would other EU countries also demand "de-risking"?

In summary, creating new problems to solve one problem, and even more than one, is logically chaotic and incomprehensible.

Around the same time that Northvolt was on the brink of bankruptcy and seeking reorganization, European automakers and component manufacturers collectively entered a mode of layoffs and contraction. In fact, this is not just a contraction of a single industry but a decline in the overall economy.

According to data from Markit, a renowned European financial data and technology service provider, the manufacturing PMI index for EU countries fell below the 50-point threshold at the end of September, reaching an absolute alert range of 44.8. The composite indices for October and November still hovered just above the 45-point mark.

Image | The European automotive industry and manufacturing sector as a whole are currently facing a severe situation

It is evident that a new round of economic recession in Europe is a done deal. The only uncertainties are the ultimate scale of its impact and the duration of its persistence. Moreover, the source of this recession is undoubtedly the unsustainable operation of the entire European low-carbon economy, represented by European new energy vehicles.

However, all of this has been progressing since the beginning of this century. Even though European countries have been inefficient and slow to act, with a quarter-century of continuous investment, the entire "low-carbon economy" has reached an irreversible state, not only economically but also politically and ideologically.

Policymakers at the European Commission and in European countries must understand that whether it's the new energy transformation of the automotive industry or the global green transition from a higher perspective, there is only one correct path - more open and collaborative international cooperation with a more trusting attitude towards each other.

Image | Cooperation leads to mutual benefit. Abandoning political paranoia and focusing on business is the best strategy. The image shows Wang Wentao, Minister of Commerce, meeting with Valdis Dombrovskis, Executive Vice-President and Commissioner for Trade of the European Commission, in Beijing on September 24, 2023.

They should first abandon the imagined "risks" and the paranoia and ignorance of politicizing all business and even industrial development.