Explainer Top Story

EU Plans for Hydrogen, Clean Tech and Mining, Explained

Europe’s answer to the American Inflation Reduction Act.

Mölsheim Germany wind turbines
Wind turbines near Mölsheim, Germany (Unsplash/Karsten Würth)

EU countries have agreed to increase their share of renewable energy. The European Commission has proposed to fund green hydrogen and set goals for clean tech as well as the mining of rare earth materials needed to make electric cars and solar panels.

The proposals fall under the European Green Deal, which aims to cut the bloc’s greenhouse gas emissions 55 percent by 2030 and to net-zero by 2050.

Critics worry the sustainability push will come at the expense of competition, nature conservation and free trade.

Here is an overview of what has been agreed, what has been proposed, the costs and the tradeoffs.

Renewable Energy Directive

Already in force, requiring member states to use at least 32 percent renewable energy by 2030. The European Parliament and member states have agreed to raise this goal to 42.5 percent.

The EU as a whole used 22 percent renewable energy in 2021. Although 60 percent of that “renewable” energy was generated by burning biomass, like manure and wood, which still emits CO₂. Emissions-free nuclear power is not considered renewable, because it requires uranium as a fuel.

Hydrogen Bank

A European Commission proposal to fund early green-hydrogen projects. The bank would use an auction system with a fixed price per hydrogen produced. A €800 million pilot, funded through the EU Innovation Fund, would be launched later this year.

Hydrogen is a replacement fuel for coal, oil and natural gas in steel manufacturing, shipping and other industries.

European Commission president Ursula von der Leyen last year mentioned there could be €3 billion in EU funding.

Her Commission estimates that between €335 and €471 billion in overall investment — public and private — will be needed to scale up green-hydrogen production to 10 million tons by 2030, or 14 percent of the EU’s electricity consumption.

“Green” hydrogen is made with electricity generated by biomass, solar or wind. In a concession to France and other nuclear states, the Commission is creating a separate “low-carbon” category for hydrogen. (Although nuclear plants don’t emit carbon dioxide.) Most hydrogen is currently made with natural gas. Countries with a large share of low-carbon hydrogen would get a rebate from the Renewable Energy Directive’s emissions subtarget for industry.

Net Zero Industry Act

Europe’s answer to the American Inflation Reduction Act, which spends $391 billion in subsidies and tax credits over ten years on electric cars, nuclear plants, wind farms and other green technologies.

The European Commission’s proposal, which will need to be accepted by the European Parliament and the member states, is to manufacture 40 percent of electric cars, heat pumps, solar panels and other clean technologies in the EU by 2030.

That’s a lot. Currently the EU imports 90 percent of its solar panels, and a quarter of its electric cars and batteries, from China.

To expedite EU production, the act would introduce sustainability criteria in public procurement. Currently governments have to go with the lowest bidder.

But the real push would come from permitting reform:

  • Prioritize permits for clean tech
  • Set a time limit on their review.
  • Designate one regulatory agency per country to process applications.
  • Give it the power to override environmental impact concerns.

Eurocrats appear to have borrowed their ideas from American senator Joe Manchin. The West Virginia Democrat last year proposed to allow the federal government to overrule state authorities to build power transmission lines, set a two-year target for environmental reviews, designate a lead agency to coordinate the review of all infrastructure permits, and limit court challenges to 150 days. President Joe Biden has said he supports Manchin’s ideas.

It can take up to seven years to get a permit for building a factory in Europe that manufactures solar panels or wind turbines.

Critical Raw Materials Act

Another Commission proposal is to mine 10 percent of so-called strategic raw materials, including lithium and rare earths for car batteries and solar panels, in the EU.

Europe mines only 3 percent of the materials it needs in clean tech. China dominates the market. It is the largest exporter of lithium and rare earths, and it is the main buyer of other miners, such as Chili and the Congo.

EU demand for lithium is expected to rise elevenfold by 2030. Demand for rare earths is expected to increase almost fivefold.

The Commission would also set a 40-percent goal for the processing and refining of materials in the EU, up from 20 percent today.

Who will pay the bill?

France wants €365 billion in EU funding to match Biden’s Inflation Reduction Act.

The European Commission has called for a “sovereignty fund”, arguing EU funding is needed to avoid large and wealthy member states outsubsidizing smaller and poorer ones.

Germany and the Netherlands are wary. They point out there is money in existing funds, like the COVID-19 recovery program and the Innovation Fund.

What are the tradeoffs?

Where there is a choice to be made between protecting climate and nature, the Commission comes down on the side of climate. Many of the permits it would override include tests for wildlife protection and water quality, not seldom informed by the EU’s own habitats and nitrates directives.

Wind turbines in the North Sea — plans are to generate enough wind power for 230 million households by 2050 — can be lethal to birds and marine life. The New York Times revealed last year that ancient forests in Romania are chopped down to give wood to biomass plants. Europe’s second-largest known deposit of lithium is located underneath an EU-protected nature reserve in Brittany, France.

Another concern is cronyism. Politico Europe reports that the EU’s temporary lifting of restrictions on state aid during to the pandemic — which the new laws would make permanent — has been a bonanza for lobbyists, but it’s unclear if companies really needed it.

Bruegel, the premier Brussels think tank, worries that the EU will permanently weaken its single market, calling the Net Zero Industry and Critical Raw Materials Acts a throwback to the industrial planning of the 1960s:

  1. The proposals would set back, rather than accelerate, the EU’s green transition. Rather than buy cheap tech abroad, member states would have to set up their own manufacturing capacity, which takes more time.
  2. They don’t harmonize EU capital and energy markets. This disunion is the reason it’s often cheaper to import from China than to build in Europe.
  3. Friendly trading partners, like America and Japan, could retaliate.

In the Commission’s defense:

  1. It says it will make proposals for energy-market reform soon.
  2. It has made proposals to integrate European capital markets, which would make it easier for green entrepreneurs to find funding EU-wide. National governments have resisted.
  3. America arguably fired the first shot with its Inflation Reduction Act.

Is it really necessary?

Europe’s share of investment in lithium-ion battery production fell from 41 to 2 percent in the last two years, according to Bloomberg.

The clean-mobility lobby Transport & Environment believes that two-thirds of planned battery production sites are at risk of being delayed, scaled down or canceled. The group’s Julia Poliscanova says:

EU battery manufacturing is caught in the crossfire between America and China. Europe must act or risk losing it all. A green industrial policy focused on batteries with EU-wide support for scaling up production is urgently needed to react to US subsidies and China’s years of dominance.

Companies say they are thinking of relocating to North America to benefit from the Inflation Reduction Act’s subsidies. (Plants based in Canada and Mexico also qualify.) Volkswagen claims it could get €10 billion from the US government and is “waiting” for an EU response before making its decision. Tesla has announced a shift away from Europe back to the United States.

At least one EU diplomat is skeptical, telling Politico:

Sometimes we genuinely wonder: Are they legitimate concerns or are companies just seizing on the moment and testing how far they can go?

Is there an alternative?

Otto Brøns-Petersen and Line Andersen of the liberal Danish think tank Center for Political Studies argue there is a better way:

The cost-effective method to deal with the global climate problem is for the authorities to put a uniform price on CO₂ emissions. This tool creates equal incentives for all green technologies, leading to the adoption by market forces of the most cost-effective ones.

The EU has such a tool: the Emission Trading System (ETS).

Rather than undermining its effectiveness, by new direct subsidies, the ETS should be given an even more exclusive role.

Only energy producers and heavy industries, like chemicals and steel, currently need to buy emission rights. Aviation and shipping could soon be included. But agriculture and many manufacturing sectors, like cars, are exempt.