Batteries: A European success story?

Batteries are a great example of a European success story, and seasoned professional, Charles Feld from Grayling’s Energy, Environment and Transport practice is here to tell us all about it

During the 2021 EU Industry Days, European Commission President Ursula Von Der Leyen stated, “the most innovative, long-lasting and clean batteries for electric cars will soon be ‘made in Europe’”. (1) This year alone, she visited a battery recycling plant in Canada alongside Prime Minister Justin Trudeau. She signed an updated trade agreement with the President of Chile to ensure greater access to raw materials, such as lithium, to power electric vehicle (EV) batteries.

These public displays from one of the EU’s top officials illustrate the hype around batteries, widely considered by decision-makers as one of Europe’s most strategically important industries for the future.

But why are batteries seen as a key industrial sector in Europe? How has the EU sought to bolster their production? What results has it achieved so far, and what challenges remain ahead?

The political consensus around batteries

Batteries are regarded by most in Brussels as one of the solutions to many of Europe’s problems. With the European Green Deal and Fit for 55 package, the EU committed to the energy transition, setting a target of at least 42.5% of renewable energy in its energy mix by 2030. In parallel, European legislators agreed to ban the sale of new CO₂-emitting cars by 2035.

This means entire industries, from transport, to energy generation, manufacturing or heating and cooling, will have to electrify quickly. To do so, the EU must ensure adequate energy storage, primarily in the form of industrial and EV batteries. With 30 million EVs forecast to be on the road by 2030 and a battery market with a predicted annual value of up to €250 billion by 2025, the EU sees the sector as a key driver for economic growth and employment.

The European Commission has become acutely aware of the EU’s dependence on foreign energy suppliers and battery imports, particularly from China. Many in Brussels still remember the painful memories of the European solar industry being swept away by Chinese imports and want to avoid the same situation.

The global policy environment has convinced European politicians they must step up the production of batteries. The strong political push for more European “strategic autonomy” has further created momentum for the battery industry. In a nutshell, battery production epitomises the EU’s ambitions to boost its economic, energy and environmental resilience.

Balancing batteries investment and regulation

Over the past decade, the European Commission has sought to build an entire ecosystem around competitive, safe, and sustainable batteries. To do so, it has tried to leverage public and private investment while creating a favourable regulatory framework, supporting both supply and demand.

After launching the European Battery Alliance (EBA), a public-private partnership aimed at establishing a complete domestic battery value chain, the European Commission outlined key measures such as securing access to affordable raw materials, supporting the growth of a sustainable cell manufacturing industry and training skilled workforces.

In parallel, the EU provided additional funding to several European platforms via the Horizon Europe programme and helped initiate two Important Projects of Common European Interest (IPCEIs) dedicated to batteries.

The Commission also relaxed state aid rules, enabling Member States to directly support the battery value chain by funding the development of gigafactories.

Beyond these financial incentives, the EU is developing a comprehensive set of policies aimed at regulating the entire life cycle of batteries, from production, to use and recycling. The European Parliament and Council recently adopted new battery regulations covering all types of batteries and setting additional requirements relating to recycling, labelling and due diligence, ensuring all products on the EU market, including imports, meet high-quality standards. The Net-Zero Industry Act (NZIA), Critical Raw Materials Act (CRMA), as well as the Regulation on end-of-life vehicles and new Euro 7 standards targeting the automotive industry, also aim to build more robust supply chains and improve the durability of batteries.

Batteries: staying on track

With all these incentives, is the EU closer to becoming a global leader in sustainable battery production and use? The latest data shared by the Commission in 2022 is encouraging. It shows 111 industrial battery projects are being developed across EU Member States, with some 20 battery cells gigafactories under construction.
The EU is set to meet 69% and 89% of its increasing demand for batteries by 2025 and 2030, respectively and should be capable of producing batteries for up to 11 million cars annually.

The total level of investment along the battery value chain amounted to €127 billion by 2021. Additional investment of some €382 billion is expected, and the annual added value created by the battery industry would be an estimated €625 billion by 2030.

However, the European battery industry must mitigate several risks to continue thriving. This includes reducing exposure to the rising cost of CRMs on the global market and tougher competition from countries like China and the U.S.

The industry will also have to navigate a web of increasingly complex rules that might create regulatory uncertainty and address some of the rising concerns around its environmental impact and safety. Finally, to build a truly circular industry, the EU must invest in downstream recycling, estimated to need an extra
€9 billion before 2035.

The European battery industry is now at a crossroads. Only the future will tell if it has lived up to its expectations. The EU is certainly attempting to create the right enabling conditions for it to thrive. Nonetheless, European decision-makers must continue building trust and support for this sector in the next parliamentary term (beginning in June 2024) to ensure ‘Made in Europe’ batteries become a success story rather than a missed opportunity.

Reference

1. https://ec.europa.eu/commission/presscorner/detail/fr/speech_21_745