20 Sep - Commercial Awareness - Energy sector
Topic: EU’s dependence on China in the energy sector
Link: https://ig.ft.com/rare-earths/
China’s dominance of the raw materials industry is harsh. Last year, China dominated 70% of rare earth mining production, a staggering jump from 58% in 2021. The raw materials are used to produce permanent magnets, which is a key component in wind turbines and electric cars, produce that are critical to green energy, hence the energy sector. (Side note: in military, it is used to put together a fighter jet).
EU intends to reduce its dependence, especially in the wake of the Ukraine conflict, but it is difficult.
Current legislation: EU proposed the Critical Raw Materials Act (CRMA) to strengthen raw materials supplies.
What are the challenges in curtailing the dependence on China?
One, China is ahead with the technology of extracting raw earth materials. The technology is extremely complicated but they have been perfecting it for the past 30 years and it would be difficult to catch up within 5 years.
Two, the extraction facilities need to be built near the mining site. The only site that has raw materials in the EU is very close to the borders of Russia and EU now has a sensitive relationship with Russia.
Three, environmental concerns such as granting permits. A company struggled that get a permit for a mine in Serbia. Even if it’s a sustainable project, local communities don’t want to live next to a mine.
Four, labour costs in China is much lower than in the EU, which gives it a competitive advantage.
Five, China imposed export quotas.
Other developed countries that are rushing into the competition: Japan and US are reducing their dependence. The latter has a mining facility in California.
EU explore its relationship with new partners. Australia resisted EU’s call to cancel export price control. Malaysia ban export of raw materials to boost the domestic industry. It is believed that EU cannot achieve its climate goal without China.
