With the outbreak of the war in Ukraine almost one year ago, the European Union brutally discovered how it was dependent on fossil fuels and on imports too.
It represents almost 70% of its energy mix. Words belonging to the past such as shortage, sobriety or stagflation, a combination of sluggish growth and soaring prices, are back in public debate.
Electricity is at heart of international competition
Market electricity prices, indexed to gas prices, have surged plus 150% in average in 2022.
For many households and companies, it has led to a huge and often unprecedented increase in their energy bills. For the European Union, it means a loss of competitiveness. When in the United States energy prices converted in euros remain way below.
To make matters worse, President Biden passed a law last August, the Inflation Reduction Act, with some shade of protectionism. It aims to grant federal subsidies to North American companies which make batteries and electric vehicles.
China, the great rival, is the main target. They have a dominant position in these sectors. 75% of lithium-ion batteries sold all over the world and a control of the metal inputs sector.
But European manufacturers are affected as well. The epicentre of their production is not in the United States. They also formed partnerships with Asian countries to build their electric vehicles. They will be de facto excluded from receiving US subsidies.
Europe has still major assets
It is a severe shock for the European Union but it is not overwhelming.
The EU is some way ahead of the USA in terms of energy transition which gives them a comparative advantage excluding costs.
Its highly interconnected electricity market produces far less CO2 emissions. Its transport or energy infrastructures suffer less stress and wear than those in the US. The deployment of charging stations, though it needs to be speeded up, goes further.
And European drivers, supported by the states, are far more numerous to adopt electric vehicles than in the United States.
And in terms of sales volume, the European market is three times larger than in the United States. Note that the Brussels authorities know as well how to support their markets via public aids.
We can mention the European partnership for batteries launched in 2021, a project of almost 9 billion euros. Concerning the Carbon Border Adjustment Mechanismon which the 27 member states have just agreed, it aims to rebalance the competition rules concerning the most polluting foreign productions.
To conclude, everything happens as if the war in Ukraine and also the awareness about climate change had accelerated, all over the world, the energy transition race. A race with fierce competition.
