Over the past twenty-five years, western economies have experienced what could be called a “great inertia” in assessing the risks to their economic and power supply security. Convinced that only price and the globalised market should be the compasses to guide their strategic choices, the major western countries, and Europe in particular, have underestimated the element of security in favour of that of profit maximisation and cost reduction. 

The outbreak of the pandemic was the first jolt, which made clear the importance of having resilient production chains for critical products such as healthcare materials and pharmaceuticals. Based on these concerns, the European Commission recently identified some 137 products that are heavily dependent on imports, particularly from China. In the medium term, therefore, a new globalisation by blocks could emerge, with phenomena of re-shoring, near shoring and friend shoring. 

The recent crisis in semiconductors - components that are critical to the operation of appliances such as computers, televisions, smartphones, cars and refrigerators - was the second alarm for supply chains. Indeed, the post-pandemic economic recovery has led to a strong demand for these components from 2021 onwards; a demand that has not been met by sufficient supply, due to bottlenecks and production problems in crucial areas for the manufacture of chips, such as Taiwan. To address this structural fragility, the European Commission, in February 2022, presented the EU Chips Act, a plan worth 43 billion euros, that aims to bring Europe a 20% market share of the world’s chips produced by 2030, up from today’s 10%. The US responded through the US Science and Chips Act, with a budget of approximately 50 billion dollars to increase domestic production throughout the chip supply chain. Moreover, to access federal subsidies, American semiconductor companies will also have to commit to not expanding their production capacity in China for the next 10 years.

In the field of energy and raw materials, a structural strategic dependence has been worsening over the years, especially on Russia, with Europe importing 45% of its gas and 30% of its oil from Moscow during 2021. The outbreak of war represented the great awakening and return to reality, with the watchword becoming diversification and security. At the beginning of 2022, with the start of the conflict in Ukraine, geopolitics took precedence over economics: economic interdependencies that seemed unbreakable were broken in less than a year. Europe has focused on new suppliers and new sources of gas supply, with an increasing role for Norway, Algeria, and liquefied natural gas LNG (the latter to account for up to 40% of gas imports by early 2023). In particular, Rome has increased its flows from Algeria (now the first supplier), Azerbaijan, but also from countries such as Egypt, Qatar, Mozambique and the United States, in the form of LNG. 

Within this general framework, however, the race for renewables has not come to a halt, with solar registering a worldwide increase in installed capacity of +47% in 2022 compared to 2021 and +33% for wind power. The big question of networks also came up: the criticalness of hydrogen as a vector for the transition (particularly for sectors that are difficult to electrify) poses the need to adapt existing gas networks and build new H2-ready networks. Going in this direction is, for example, the H2Med project launched by Spain, Portugal and France with the subsequent entry of Germany, which foresees the transit of hydrogen produced on the Iberian peninsula and in France (via nuclear power) to central Europe: a project that alone, it is estimated, will be able to supply 20% of the European demand for hydrogen. 

And it is precisely this set of steps, consistent with the goals set out in the RePower EU plan to facilitate the energy transition and become independent of Moscow’s supplies, that opens a second chapter: geopolitical and economic competition for leadership in the cleantech sector, in order to lead the industry of the future and set its reference standards. An area in which China is still in the lead, unchallenged: Indeed, Beijing produces more than 75% of the world’s photovoltaic panels, 60% of the world’s electric vehicles, 90% of electric buses and 95% of electric trucks, as well as 75% of electric batteries. Moreover, 50% of the world’s installed wind power capacity in 2022 was in China. Absolute prominence also facilitated by China’s wealth in the metals and rare earths that are crucial to the energy transition industry: Beijing produces about 58% of the world’s rare earths and holds 36% of their reserves. 

In this game, the United States decided to accelerate plans to support its high-tech industry and the energy transition, through the US Inflation Reduction Act (IRA) of August 2022. A plan worth 390 billion dollars, in addition to the Bipartisan Infrastructure Bill of 2021, and includes major subsidies for the development of renewable energy, electric vehicles, related infrastructure, as well as for industrial decarbonisation processes. 

The US decision has triggered a race for subsidies and technology competition even among its allies, with the EU preparing to respond with new measures, including the Commission’s proposal for a Green Deal Industrial Plan, which will include simplifications in tenders, faster access to funding with flexibility in granting State aid for green technologies, and more flexibility on the use of Next Generation EU funds. However, these measures, in particular State aid, risk fragmenting the European single market and favouring countries with more fiscal room for manoeuvre, such as Germany and France. This is why many other European countries, including Italy, are pushing instead for the creation of a European Sovereignty Fund or the use of Eurobonds for joint EU funding in green and high-tech industries. A solution that naturally finds Berlin and the frugal countries opposed. 

Moreover, the resilience and security of European value chains are accompanied by infrastructure connected to the European market. This is why the Global Gateway, an investment plan launched by the EU at the end of 2021 that foresees up to 300 billion in investments by 2027 in developing country partners of the EU (with an important focus on Africa), will be crucial for countering Chinese investments and making European supply chains more resilient, also thanks to the planned adoption in mid-March of the European Critical Raw Materials Act. And on critical materials, even the recent discovery of a large deposit of rare earth oxides in Sweden, which will cover a significant portion of European demand, can be of help. 

A new phase of globalisation is thus opening up, a reconfiguration of globalisation, with trade in critical products increasingly taking place on short, diversified supply chains, and possibly between like-minded countries. But this does not mean a structural crisis for international trade. It still enjoys good health, with trade increased by 25% in 2022 compared to 2019 (albeit with a slowdown expected in 2023). Strategic autonomy, a European objective but not only, need not mean a dangerous return to protectionism and closure in autarchy. It is therefore now up to the governments and industrial systems of the various countries to identify strategic priorities for their own economic security, well aware that a one-upmanship in subsidies is detrimental to the development of an efficient market and difficult for public finances to sustain in the long run.

By Alessandro Gili, Associate Research Fellow at the ISPI Centre on Business Scenarios (supported by Intesa Sanpaolo) and at the Centre on Infrastructure

Sales figures and new regulations show how the automotive scenario is set to change dramatically over the next ten years. 2.3 million electric cars were sold in Europe in 2021, an increase of 66 per cent compared to 2020. Those registered in Europe are one third of the global total, 6.6 million, a figure that has doubled year on year. The European Union is also one of the areas where the phase-out of fossil-fuelled cars will come first: the date has now been set for 2035. However, the growth of the market and the tightening of legal constraints have been accompanied by a series of doubts: what if the electric car is not so environmentally friendly? It is fair to address the topic, data in hand. The shadows are there, especially regarding the production of the key component, batteries, and the extraction of the critical metals of which it is made up.

The starting summary is: if we compare the electric car to not having a car at all (and moving around for example using only public transport or cycling), the electric car is a climate loser. But if we compare the electric car to petrol or diesel cars, the advantage for ecology and climate is gigantic. According to comprehensive research by the NGO Transport&Environment, the electric car is three times better for the Earth's future (on average) than a petrol car bought in the same year (2020 is used as a benchmark). The gap will then widen as the electricity that powers the battery becomes cleaner: according to current scenarios for the growth of renewable energy sources in the EU, by 2040 the electric car will be four times less impactful than diesel/petrol. Here we touch on the first key concept: the sustainability of electric cars depends on how the energy that produces or charges them is produced. It is different to drive one in the most carbon-intensive country in Europe (Poland) or in one heavily powered by renewables.

To date, the worst-case scenario for the electric car is for the battery to be produced in China, in coal-fired factories with no circular economy of raw materials, and for it to be used in Poland: even in this scenario, which is undesirable but all in all realistic, the climate performance is significantly better than the petrol or diesel equivalent: 30 per cent less impact. If we instead consider the most virtuous scenario, i.e. driving the electric car in an energy-clean system, performance is already five times cleaner. In an average scenario (which roughly corresponds to that of Italy), an electric car pays back its 'carbon debt' (the emissions caused by the production of the car and battery) within a year, and saves more than 30 tonnes of CO₂ over its entire life cycle. For a high-mileage shared vehicle (e.g. a taxi), the saving can even amount to 85 tonnes of CO₂ in the life cycle, when compared to diesel.

To summarise. A medium-sized electric car purchased in Europe in 2020 will have about 20 tonnes of CO₂ emissions over its lifetime, considered from when its production starts until it is scrapped. A diesel car, at the same time, will have emitted 53 tonnes of CO₂ at the time of decommissioning. One petrol car, 57 tonnes of CO₂. In the virtuous scenario par excellence (battery produced with green energy, recharged in a system powered by renewables) the overall impact of the electric car will be 11 tonnes of CO₂, almost six times less than its petrol-powered competitor.

The electric car is therefore already more sustainable today. To continue to diminish its impact, two issues are crucial: one internal to the industry and one external. The external one is the decarbonisation of the electricity grids: a reduction plan such as the European Union's (55 per cent less emissions within eight years) will allow cars to be cleaner. The theme within the industry, on the other hand, is the transition to more sustainable batteries. Many of the crucial key metals have a serious ecological impact, like lithium, due to its water-thirsty extraction (in fact, Europe has been plagued by protests against new mines in recent years) or cobalt, which is also linked to serious problems of human rights violations.

Technological research will give us a hand, making it possible to change the metallurgical 'dosages' of batteries and reduce less sustainable components (such as cobalt). However, the real key to a more ecologically and human rights compatible battery is circular economy. The European Commission is in fact working on a battery regulation that will be the European model to counter the Chinese dominance: a mandatory (yet to be determined) quota of metals from disused batteries will be reused. This step will help drastically reduce their ecological footprint. However, it will take a decade: by the time the market has come full circle, the first generations of cars will be disposed of. In 2030, 400,000 tonnes of batteries will reach the end of their life cycle and will be discarded. Then the circular economy will be triggered. It will be Europe's true entry into the clean car era: five years later the last petrol car will be sold.