Interview with Johannes Hahn + second TT • Table.Briefings

Dear reader,

Yesterday evening, Russia announced sanctions against parts of the gas company Gazprom Germania, which is under the trusteeship of the Federal Network Agency. President Vladimir Putin had already issued a decree on May 3 stating that no Russian entity may do business with companies and individuals on the sanctions list. Explicitly, no products or raw materials may be exported to them. So far, no details are available, said a spokeswoman for the German Federal Ministry of Economics and Climate Protection. Read more in the news.

What happens if there is an energy supply emergency in Europe? As an internal document reveals, the Commission is pushing for a coordinated emergency plan to govern industrial shutdowns. Common criteria for industrial dependencies and shutdowns are to be developed together with member states, reports Manuel Berkel.

“We will decide on Ukraine’s candidate status in June and I assume that this decision will be in Ukraine’s best interest” – this is what EU Budget Commissioner Johannes Hahn says in an interview with Hans-Peter Siebenhaar on Ukraine’s EU accession. For the candidate countries of the Western Balkans, too, the motto is “make do, not spill the beans”, especially at this time. At the same time, in view of the Russian war of aggression and its consequences for Ukraine and Europe, he pleads for an economic stimulus program.

Your
Sarah Schaefer

Johannes Hahn: “we need an economic stimulus package”

Austrian Johannes Hahn has been EU Commissioner for Budget and Administration since 2019.

Mr. Hahn, the EU recently provided €1.5 billion for the supply of weapons and equipment to the Ukrainian armed forces. What about financial aid for reconstruction?

The €1.5 billion mentioned come from the European Peace Facility, which is, after all, an extra-budgetary financing mechanism. For the reconstruction of Ukraine, we need a joint European, probably even international financial package. That is obvious. In the short term, we need to help Ukraine maintain the existing infrastructure of the state. In this regard, Ukrainian President Volodymyr Selenskyj spoke of a monthly need of about €5 billion. It is clear that this can only be achieved through the joint efforts of the international community.

Selenskyj is pushing for his country to join the EU. Can the EU cope financially and politically with rapid enlargement in Eastern Europe?

Basically, we have to take one step at a time. We will decide on Ukraine’s candidate status in June, and I assume that this decision will be in Ukraine’s favor. I am very confident that in the new geopolitical situation, enlargement as a whole will be accelerated by the Ukraine war. Of course, this also applies to the Western Balkan countries. For the admission of the applicant countries of the Western Balkans – from Serbia and Montenegro to Albania and Northern Macedonia – the motto in these difficult times is: chop, not spill. We not only have a political and economic interest in enlargement, but it is also essential for our security interests.

Where should or must the EU end?

Any democratic country on European soil can apply for EU membership according to the treaty. With one exception.

Which is?

The Vatican. After all, this is not a democracy, in the sense of a state. And there are no signs that this would change (laughs).

“Uptake can’t happen overnight”

How fast can the absorption of Ukraine go?

Ukraine needs a clear perspective for EU membership at this stage. We must combine the concrete conditions for membership with a reconstruction program worth billions. In this way, admission can be accelerated. Nevertheless, Ukraine’s admission to the EU cannot happen overnight. Even with an accelerated procedure, we are talking about a process lasting several years. All parties involved must be clear about this.

In view of the war and its consequences for Ukraine and Europe, do we need a new reconstruction fund, a Next Generation EU 2.0?

We will definitely need an economic stimulus program. The form is currently being discussed.

Italy’s Prime Minister Mario Draghi has proposed expanding the EU’s Sure short-time worker program, set up in the COVID-19 crisis, to cushion high energy prices.

Sure is a response to the economic consequences of the pandemic. The program is a success story for the EU and its member countries. However, I do not detect any desire among the majority of member countries at present that we should set up a new edition of such a program.

Should member countries then take on even more debt so that their citizens can pay their rising electricity bills?

With the comparatively small EU budget alone, we cannot help in budgetary terms, but at best in regulatory terms. In the medium term, our RePowerEU concept can help.

Are you concerned about the high debt levels of the southern European member states in particular?

As a general rule, member countries that have reduced their debt have greater fiscal firepower. This is a competitive advantage. Debt sustainability depends very much on the future development of interest rates. If a boat is full of water, it won’t sink right away. But its steering ability is limited. But if there is a violent storm on the high seas, it becomes dangerous. That is obvious.

Strong demand for green bonds

It is becoming apparent that the European Central Bank will raise interest rates in July, following the example of the Federal Reserve. What would the interest rate turnaround mean for member countries’ budgets?

The purpose of raising the key interest rate is to stabilize prices and thus reduce inflation.

The Commission has proposed three new sources of revenue for the EU budget: from the new CO2 border adjustment, from the residual profits of multinational companies and a higher share from emissions trading. How confident are you that the proposed own resources will be supported by the member states?

Just recently, there was a meeting with the Council and Parliament to discuss our December 2021 proposal on own resources. The European Parliament in particular is playing a very constructive role in the talks. The French Council Presidency supports our proposals. But numerous detailed issues still need to be resolved. There is still a great need for talks. However, I am confident that we will make progress.

How much time do you give yourself?

Experience shows that such negotiations are time-consuming. At the same time, all sides have an interest in the rapid introduction of new own funds, as we need them for the repayment of Next Generation EU. Therefore, I remain confident.

The EU wants to become the world’s largest issuer of green bonds by 2026. Last year, you presented the framework for the green bonds in the amount of €250 billion. Do you have to revise that in view of the fragile situation?

No, on the contrary. The issuance of the bonds is a success story and, despite the volatile market situation, demand is high. This is particularly true of the green bonds. The most recent issue in March with a volume of €6 billion was thirteen times oversubscribed. Here we cover a market segment for sustainable finance that is in high demand. At the same time, this enables us to promote urgently needed sustainable investment.

Situation in Hungary “astonishing”

The Commission has activated the new rule of law mechanism against Hungary. How long will it take before the disbursement of EU funds could be suspended for unlawful use and corruption?

In the case of Hungary, we are at the beginning of a process which, if necessary, may lead to measures at the end, which may also be of a financial nature. We have highlighted cases of incorrect use of funds in our letter. To put it very diplomatically: It is quite astonishing when there is only one applicant in about 50 percent of public tenders. Such a situation does not exist in any other EU member state.

What are the next steps?

Hungary now has two months to find an answer to our letter from the end of April. If we as the EU Commission are not satisfied with the Hungarian government’s response, we will propose appropriate measures to ensure the correct use of European financial assistance. Yet, one thing is also clear: As the Commission, we make proposals. The decisions are taken by the Council. The Council has one to three months to make a decision. I assume that a decision will not be taken until the upcoming Council presidency of the Czech Republic. The Czech Republic takes over the EU Council Presidency from France on July 1.

Second TTC Meeting: positive dynamics

The war in Ukraine has a signal effect for both sides: the EU and the USA actually need to cooperate more closely. And the ten topics negotiated in the TTC in particular could mean significant progress for closer cooperation. But in many areas, even before the second meeting of the forum between the Commission and the Biden administration in a large round, this is primarily a declaration of intent.

“The cooperation on export control and investment screening is very good,” reports Trade Committee Chairman Bernd Lange (SPD/S&D). “In that respect, this platform is very suitable to exchange and to communicate regarding the Russian war in Ukraine.” Both are topics that are dealt with in the TTC in separate working groups.

But the core of the work changes little, says Reinhard Bütikofer (Greens/EFA): “Russia’s war of aggression against Ukraine and its effects do not raise any new questions for the TTC, as far as I can see.” However, the urgency of the relevant discussions is “massively underlined” by this.

Sustainability and supply chains as main topics

According to a circulating draft of the final declaration, the intention is to officially agree on the temporary lifting of all tariffs for Ukraine – a step that the EU has already proposed for itself. The US had most recently already lifted its 25 percent import tariff on Ukrainian steel, which dated back to the Trump era.

Commission sources say that, in addition to the Ukraine crisis, the second round will focus on supply chain issues and sustainability. Between the first official meeting in Pittsburgh on September 29, 2021, and the upcoming second round, there were a number of smaller rounds and discussions at the working level. Overall, good progress has been made, according to Commission sources.

Reinhard Bütikofer expects the second official round at the TTC to produce “serious, pragmatic deliberations” on a whole host of issues. “However, the fact that there are still no final results after two formal rounds of negotiations should not surprise anyone who has dealt with trade policy a bit,” Bütikofer says. “I see a positive dynamic.”

The core of the discussions in Saclay is likely to be questions of independence from certain third parties for the two negotiating parties. After all, the basic idea behind the TTC, long before the Ukraine war, was greater autonomy for the transatlantic economic bloc, above all from China. In the technology sector in particular, the dependence on both sides of the Atlantic for some intermediate products is so massive that there is fundamental agreement here: Resilience must be massively increased through diversification. However, both the EU and the USA are dependent on cooperation with third parties for these projects, for example when it comes to rare earths and their processing.

Different ideas for more sustainable procurement

On the issue of possible convergence in government procurement, Bernd Lange sees little progress at present: “There are different perspectives here, and we won’t be able to overcome that.” It is true that both sides are working on aligning their respective regulations more closely with geostrategic and political goals as well. But ideas for more sustainable procurement differ in both goal and methods. Agreements on this are therefore unlikely even in the medium term.

Expectations are somewhat more optimistic on the subject of standards: here, talks between the two main meetings are already further advanced.

The TTC still does not address the issue of the successor to the Privacy Shield: the Commission does not intend to announce the specific form of the Trans-Atlantic Data Privacy Framework until the summer. In the meantime, questions of data regulation and technology platforms will continue to be addressed – even though the EU has already largely defined its regulatory position here with the DGA, DMA, DSA and Data Act.

There has not yet been any result on the question of how far-reaching transparency of the TTC negotiations can be established vis-à-vis the Parliament. The European Parliament had criticized the fact that minutes and agendas were not available to parliamentarians.

EU Commission wants common shutdown criteria in case of petrol emergency

The Commission only mentions the case at the very end. In a 14-page internal document published yesterday by Contexte, the commission first lists all the steps it intends to take to avert an emergency in the energy supply. Only then does it describe the preparations to be made in the event of a large-scale outage. It asks for leniency, for example, if one of the member states has not taken precautions to shut down large consumers. Less affected countries should also show solidarity if the country in need has not done its homework for a shortage situation.

For a coordinated EU-wide approach, the Commission specifies its plans in the document. The SoS Regulation makes it the guardian of the “coherence and effectiveness” of the measures taken nationally in relation to the Union. To this end, there is now to be a coordinated European plan for industrial shutdowns. So far, the Federal Network Agency in Germany, for example, has been working on its own criteria. The Commission now wants to conduct its own analyses of important supply chains in dialog with industry. For this purpose, it is naming the sectors of security, defense, food and health. The consequences for the competitiveness of various territories are also to be included in the assessment.

Common criteria for industrial dependencies and shutdowns are then to be developed with the member states. The aim is to provide guidelines and best practice examples for the member states as well as an early warning system.

Billions for biogas and pipelines

According to the Commission’s estimates, in order to do without fossil energy supplies by 2027, the EU member states would have to invest €195 billion – in addition to the consequences of the Fit for 55 package, which already provided for a strong expansion of renewables and hydrogen. In return, however, the member states would also save billions on fuel imports.

Investments in doubling biogas production alone would consume €36 billion. Another €29 billion would be needed for investments in electricity grids and an as-yet-undisclosed sum for gas infrastructure. According to the Commission, the greatest need for the latter is in northern Germany, in addition to central and eastern Europe.

Restrained demand for German LGN terminals

In the case of the hotly disputed LNG terminals, however, a map – albeit still preliminary – identifies only a low level of demand. According to the map, only two floating terminals have been identified as necessary for the German North Sea coast within the framework of REPowerEU. Just a week ago, Germany had chartered four terminals.

The Commission wants to increase the energy savings target for 2030 in the Energy Efficiency Directive to 13 percent, after initially proposing 9 percent. In the short term, a savings campaign is to help reduce gas and oil consumption by five percent each. The Commission is also looking at behavioral changes and not just technical measures.

In addition to the already known targets for accelerated expansion of wind and solar energy, the Commission now mentions geothermal energy for the first time in connection with REPowerEU. For the rapid ramp-up of hydrogen, the authority wants to approve 100 IPCEIs by the summer. For imports, the new International Energy Strategy initially focuses on three corridors: the Mediterranean, the North Sea and, in perspective, Ukraine. The global European Hydrogen Facility is intended to make projects more eligible for financing.

Council reaches agreement on gas storage facilities

For the short-term filling of gas storage facilities, the Permanent Representatives Committee already agreed on a common position yesterday. Accordingly, the obligation is to expire in 2026, according to a Council communication. The law stipulates that gas reserves should be 80 percent full this year by Nov. 1 and 90 percent full in the next few years. Parliament had also already set its position, so negotiations can begin to ensure the law enters into force in time for winter.

The states also agreed to count stocks of liquefied natural gas (LNG) in the storage volumes. In addition, the obligations for countries that have particularly large storage facilities that they do not use completely themselves are to be adjusted. EU countries that do not have gas storage facilities are to be given access to reserves in other countries and share the costs. Exceptions to the mandatory reserves are to be made for Cyprus, Malta and Ireland, as long as they are not linked to the gas networks of the other EU countries. with dpa

Russia imposes sanctions on parts of Gazprom Germania

Russia on Wednesday evening announced sanctions against parts of the gas company Gazprom Germania, which is under the trusteeship of the Federal Network Agency. The government’s website in Moscow listed a total of 31 companies against which unspecified measures will be imposed. EuRoPol GAZ PA, the owner of the Polish section of the Yamal-Europe natural gas pipeline, is also among them.

Russian President Vladimir Putin issued a decree on May 3 stating that no Russian entity may do business with companies and individuals on the sanctions list. Explicitly, no products or raw materials may be exported to them.

A spokeswoman for the Federal Ministry of Economics and Climate Protection said the announcement was being evaluated. “We do not have any details yet.” She referred to the May decree on sanctions. “According to this, concretizations should be made within ten days.” The Federal Network Agency also referred to the lack of details. “The German government and the Federal Network Agency, as trustee of Gazprom Germania, are therefore already taking the necessary precautions and preparing for various scenarios.”

Gazprom Germania is one of the largest gas suppliers in Germany and operates the transport, distribution, and storage of natural gas. This includes the country’s largest gas storage facility in Rehden, Lower Saxony. Economics Minister Robert Habeck has placed the company in the trusteeship of the Federal Network Agency until the end of September, after the Russian parent company Gazprom gave up the subsidiary. rtr

Gas flow via Ukraine stalls – Norway steps in

The war in Ukraine is stalling the flow of petrol to Europe and Germany. The Russian Gazprom Group announced on Wednesday that it was continuing to supply gas to the west via Ukraine, but less than recently. The Ukrainian network operator GTSOU had previously announced that it could no longer operate a compressor station because of the conflict in the Luhansk region. Therefore, the petrol flow via this route will be stopped. According to the Federal Network Agency, this means that a good quarter less gas will arrive in southern Germany than on Tuesday, although Norway and the Netherlands compensated for this with higher deliveries. There are currently no significant price increases on the wholesale markets.

Economics Minister Robert Habeck said the incident was no reason to upgrade the current gas early warning to the following alert level. The outage can be compensated, he said. This is probably theoretically possible over the summer, so that the supply is secure, he said. “Especially since I hope and think that at some point the amount of gas coming through Ukraine will go back up to the level that came through Ukraine before.” He said the Ukrainian side has given assurances that it is looking for other ways to transit the fuel.

In the eastern Ukrainian region of Luhansk, various pipelines come together and feed into the Transgas pipeline. This in turn arrives in Austria and southern Germany. In addition, with Nord Stream 1 and the Yamal pipeline, there are other major connections leading from Russia toward Germany and Europe.

According to the Ukrainian grid operator GTSOU, pro-Russian separatists in Luhansk have piped transit gas to areas under their control. The region around the hub has been under separatist control for weeks. According to GTSOU, however, it would be possible to allow transit gas to flow further north through Ukraine. Gazprom denied this as technically impossible.

Bookings through the hub in the Luhansk region fell to zero on Wednesday, according to the network operator. Gazprom said it delivered 72 million cubic meters of gas on Wednesday, down from 95.8 million cubic meters on Tuesday. It said it was fulfilling all its obligations to customers. Kremlin spokesman Dmitry Peskov stressed, “Russia has always fulfilled its obligations and intends to continue doing so.” rtr

Food security: Özdemir wants to boost wheat production

German Agriculture Minister Cem Özdemir (Greens) now wants to take measures to safeguard grain production after all, in response to the impact of the Ukraine war on the global supply situation. This was announced by the Ministry of Food and Agriculture (BMEL) on Wednesday. However, the German government still wants to forego the option granted by the EU Commission to temporarily also cultivate ecological fallow land.

Instead, the minister’s initiative is aimed at postponing the so-called crop rotation regulation provided for in the EU’s Common Agricultural Policy (CAP). This stipulates that, from 2023, the same type of cereal as in the previous year may no longer be grown on the same area in order to maintain the fertility of the soil.

This means that the cultivation of winter wheat several times in succession will no longer be possible, but is common practice in Germany. As the most important cereal for food production, winter wheat accounts for around a quarter of total arable land, according to the BMEL, and has so far been cultivated in about 20 percent succession.

Özdemir is now calling for crop rotation not to be fulfilled until 2024 in order to safeguard wheat production. “In this way, we achieve two goals at once. We contribute to global supply and we preserve the few areas for species protection that some would like to abolish,” he said.

Peter Jahr (CDU), CAP rapporteur in the EU Parliament, welcomes the demand, but nevertheless calls it a “sign of uncoordinated trade”. Suspending crop rotation and setting land aside at the same time does not go together, he said. “Incidentally, we plead for a two-year postponement, because the consequences of the Ukraine war will unfortunately be felt for longer.” A decision by the EU Commission is still pending. til

CO2 fleet limits: ENVI votes to phase out combustion engines in 2035

MEPs on the EU Parliament’s Environment Committee (ENVI) voted on Wednesday to raise CO2 fleet limits for passenger cars and light commercial vehicles. However, the vote on the report by Renew‘s lead rapporteur Jan Huitema resulted in a stalemate of 44 votes in favor and 44 against. The increase in the targets was thus not yet adopted for the time being.

The stalemate is surprising because the expected majority of Liberals, Greens, Social Democrats and Leftists did not materialize. FDP politician Andreas Glück voted against his own group’s report and thus against the targets of -40 percent emissions for cars (-35 percent for vans) by 2027 and -100 percent from 2035 (equivalent to phasing out internal combustion vehicles).

Commission proposal receives majority first

So after the Huitema report failed to get a majority and the alternative compromise of EPP, ECR, and ID (-90 percent from 2035 and a crediting system for alternative fuels) also narrowly failed, the Commission proposal was voted on. This finally received a narrow majority with 46 votes in favor and 44 against. The Commission proposal also provides for the phase-out of internal combustion vehicles from 2035, but without the interim target for 2027. The interim target for 2030 of -55 percent is retained under the Commission proposal.

“The future lies in e-mobility, the end of the combustion engine is coming,” commented Michael Bloss, environmental spokesman for the Greens in the EU Parliament. He added that the industry had waited a long time for this clear political signal. “Anyone who still relies on the combustion engine is acting irresponsibly,” Bloss said.

EPP shadow rapporteur Jens Gieseke, on the other hand, expressed disappointment that his proposal for a crediting system for e-fuels was rejected. “Liberals, Social Democrats and Greens have positioned themselves today against the principle of technology openness.” The CDU man believes the sole focus on e-mobility is wrong. It is not yet known whether it will be possible to sustainably meet the necessary electricity demand and provide the charging infrastructure by 2035, Gieseke commented. The final vote in the plenum of the EU Parliament is expected on June 7. luk

Germany supports Northvolt battery factory with €155 million

Germany is supporting planned investments by the Swedish battery specialist Northvolt with €155.4 million. Federal Economics Minister Robert Habeck presented the company with the corresponding grant notice on Wednesday. The state of Schleswig-Holstein, where Northvolt is planning to set up a large battery cell production facility, will contribute 30 percent of the funding.

According to the Ministry of Economics, the factory is to supply hundreds of thousands of electric cars with sustainable batteries per year when completed. Around 3000 jobs are to be created. Northvolt had reached a letter of intent with Schleswig-Holstein in February. The final location decision is to be made in July.

The state aid comes from a major European project (IPCEI) to promote battery cell production in the EU. The aim is to make Europe less dependent on supplies from Asia. According to the Ministry of Economics, investments of more than €15 billion in battery cell plants have been announced until 2030. There will be further investments in the areas of raw materials, battery materials, components, and recycling. rtr

AI Act: more time for amendments

There still seems to be a great need for discussion among the members of the two committees IMCO and LIBE around the provisions of the planned KI law. In any case, the deadline for submitting amendments to the draft report of the two rapporteurs Brando Benifei (IMCO) and Dragoş Tudorache (LIBE) on the AI Regulation has been extended by two weeks until June 1. This was announced by the chairmen of both committees at the joint meeting yesterday. On June 30, the two committees want to discuss the amendments. This puts the ambitious schedule of Benifei and Tudorache in jeopardy.

At yesterday’s meeting, the two rapporteurs presented their draft report on the AI Act. In doing so, they repeatedly emphasized that the draft only included those aspects on which they were able to reach agreement. The Italian MEP and his Romanian colleague have drafted a total of 297 amendments.

More duties for users

The two MEPs agreed, for example, to define AI as broadly as possible and to exclude special regulations for general-purpose AI that can train systems for different tasks. They also advocate the distribution of responsibilities along the value chain. In particular, more duties should be imposed on users. Tudorache and Benifei also agreed that the role of the GDPR in AI law needs to be further strengthened.

Another commonality concerns the list of prohibited practices. Both want to add “predictive policing,” which they say “violates the presumption of innocence and human dignity.” They also want to expand the list of high-risk AI systems. Among other things, the two rapporteurs recommend adding to this list those AI systems that “aim to shape children’s development through personalized education or cognitive or emotional development.”

Enforcement mechanism required

Another important innovation is an “enforcement mechanism” inspired by the Digital Services Act. This would empower the European Commission to initiate proceedings in the event of a serious breach of the regulation. Tudorache and Benifei also want to ensure that a natural or legal person can take legal action if the use of an AI system violates their rights. In their draft report, both advocate for a stronger role for the AI Committee to ensure, among other things, uniform application of the law.

The outstanding issues include, in particular, the conformity assessment and details around the planned reallaboratories. The two deputies also discussed a mandatory impact assessment in relation to fundamental rights, but were unable to reach agreement. One of the most sensitive issues will be remote biometric identification. The Commission wants to limit this to a few cases. While this approach is supported by conservative MEPs, many are calling for a complete ban. Most of the committee members’ amendments are likely to revolve around these points, as the ensuing discussion showed. ank

EU copyright: Google wants to pay more than 300 publishers money for news

Google wants to pay more than 300 publishers in Germany, France and four other EU countries money for their news. In addition, a tool will be introduced to make it easier for others to sign up as well, the US company announced in a blog post on Wednesday.

“So far, we have agreements with more than 300 national, local and specialized news publications in Germany, Hungary, France, Austria, the Netherlands and Ireland, and many more discussions are ongoing,” said Sulina Connal, Google’s director of news and publishing partnerships. Two-thirds of the group are German publishers, including “Spiegel,” “Zeit” and “Frankfurter Allgemeine Zeitung,” according to the statement. The blog did not reveal how much the publishers would be paid.

The move follows the passage of landmark EU copyright legislation three years ago that requires Google and other online platforms to pay musicians, artists, authors, news publishers and journalists for the use of their works.

Publishers are among Google’s harshest critics and have long urged governments to ensure that online platforms pay fair compensation for their content. Australia made such payments mandatory last year, while Canada introduced similar legislation last month. In Germany, Google and publishers have been arguing for years over the interpretation of so-called ancillary copyright.

The tool offers publishers an expanded news preview agreement. This is to allow Google to show text excerpts and preview images – snippets and thumbnails – in exchange for a license fee. rtr

Renewables: less dependence on China for supply chains

The EU should quickly rethink its supply chains for green energy technologies and take action to reduce its dependence on China in some areas. This is the view of the European Council on Foreign Relations (ECFR) and the Rhodium Group in a policy paper published today. They say this will require stronger domestic policies and greater cooperation with key partners and allies. However, keeping China completely out of the supply chain is neither possible nor desirable.

The paper summarizes the main risks in the supply chain of green energy technologies. For many key steps in the supply chain, the EU and other customer countries rely on countries such as China, for example, for the mining and processing of raw materials or the manufacture of intermediate and end products. Geopolitical tensions, such as currently with Russia, or simple operational disruptions in the manufacturing country can therefore affect the entire supply chain and limit access to technologies. The lack of know-how in the customer countries and cyber security are also a danger.

Risks differ for each industry

The different industries that use renewable energy technologies face different risks, the analysis says. The energy storage industry, for example, which is important for both power grids and electric vehicles, poses high risks throughout the supply chain, it says: battery production requires raw materials that are both scarce and geographically concentrated, such as cobalt, nickel and lithium.

In the solar industry, the risks related to critical minerals are the lowest, “because the raw materials that make up the majority of panels, especially silicon dioxide, are abundant worldwide.” On the other hand, the risk of geographic concentration is all the higher, he said, because most of the production chain takes place in China. Seven of the top ten manufacturers of polysilicon, for example, are Chinese, he said, and China accounts for 97 percent of global ingot and wafer production.

In turn, the risks for critical minerals in the wind industry are high, as rare earths such as neodymium are needed for the production of wind turbines and are mined and refined mainly in China. In the production of intermediate and final products, on the other hand, European and other Western companies are still competitive, for example, the EU is “a world leader in the export of wind turbine generators.”

For the green hydrogen industry, he said, the supply chains are still too fragile to fully name the risks. However, electrolysers and fuel cells require rare minerals such as platinum and iridium, the largest deposits of which are found in Russia and South Africa. He also said that European companies are currently competitive in the production of electrolyzers. However, China’s massive investments in this area could create risks similar to those in the solar industry in the future, the paper said.

Green energy technology as critical infrastructure

ECFR and the Rhodium Group also formulate strategies that the EU can use to ease its dependence on China. First, they say, the EU must conduct a “thorough and realistic assessment of supply chain risks” and treat green energy technologies as part of critical infrastructure. Dependence on China should be reduced in order to build more local supply chains with other economic partners instead, he said. China need not and cannot be completely excluded; “in areas where security concerns are lowest,” supply chains should be selectively maintained.

A complete reshoring of the production processes is not an option, as this would involve immense costs and ultimately even delay the energy turnaround. Reshoring should therefore only be considered for the processes with the greatest safety risks, they say. The EU should therefore diversify its sources of supply in any case and use targeted incentives such as subsidies or tax breaks to do so. It should also seek to harmonize norms and standards with like-minded partners. Greater stockpiling is also conceivable for certain goods and materials.

It will take years and “require significant public and private investment” to mitigate risks in supply chains, he said. The EU must therefore improve the competitiveness of domestic companies and ensure predictability and continuity in its policies, he said. At the same time, high environmental and ethical standards must be maintained to ensure that the technologies actually achieve sustainability goals. leo

China’s policy on Russia: the West must engage Beijing

William Klein

Europe is watching closely how China responds to the war in Ukraine. During their recent meetings with the Chinese leadership, EU leaders called on China to use its close relations with Russia to support efforts to end the bloodshed in Ukraine. On April 28, the German Bundestag was more direct, adopting a resolution that, among other provisions, accused China of endorsing the war and warned that efforts to undermine sanctions or supply Russia with weapons would be met with more economic and personal sanctions. As these concerns demonstrate, the choices that China makes with respect to Ukraine could further damage its already fraught relations with Europe for years to come.

What direction might China take moving forward? Can Europe, working with likeminded partners, still influence Beijing’s choices? It’s well known that China views Russia as a key partner in its geopolitical competition with the United States, but domestic factors shaping much of Beijing’s current thinking on Ukraine are less well understood. It’s worthwhile, therefore, to examine China’s domestic politics for possible answers to these questions.

Partnership with Russia indispensable

The Communist Party has two main long-term domestic goals: ensuring the legitimacy of one-party rule and modernizing the country to reach the development levels of the world’s most advanced economies. Officials are straightforward that these goals are intricately linked since they view economic modernization as crucial for the party’s legitimacy. Officials are equally straightforward in their assessment that the United States has the capacity, and the intention, to disrupt China’s efforts to achieve these goals. This became a near consensus view during the Trump Administration, and views of US intentions have only hardened under President Biden.

Most Chinese policymakers still see their country as the more vulnerable player in geopolitical competition with the United States, even as confidence is growing that time is working in Beijing’s favor. For these reasons, Beijing views its partnership with Russia as indispensable to advance not only its geopolitical goals, but also to mitigate an existential risk domestically. The ties to Russia may endanger China’s relations with the West, but the leadership clearly still deems the threat posed by America to be greater.

Europe’s key role

Can the West influence this threat assessment? China still relies on economic interdependence with the West for its modernization goals, so it will calibrate its stance on the war to reduce the risk of incurring the types of sanctions that Western countries have imposed on Russia. Yet to get China to move further the strategic distrust at the heart of the heart of the relationship between the United States and China must be addressed. Of course, the heavy lifting for such an endeavor lies with Washington, but Europe has a key role to play. It must continue to coordinate its messaging to Beijing with the United States, and it can remind Washington of the benefits to the West of engagement with China with a nuance that is often missing in the deeply polarized political atmosphere in the United States.

There are of course risks to this approach. The EU leaders were clearly frustrated at China’s stance at the recent summit, with foreign affairs chief Josep Borrell calling the discussions a “dialogue of the deaf.” In the United States, some of the many critics of high-level strategic engagement with China may see an opening to weaken the Biden Administration politically. Beijing, for its part, may have ideas on how to manage distrust that the Western partners can’t accept. But not engaging China hasn’t proved to be any more effective than dialogue. Ultimately, the West can only fully test Beijing’s direction vis-à-vis Russia, and determine what paths are possible, through direct, determined and coordinated engagement

High threshold for change of course in Beijing’s policy on Russia

How likely is such an approach to succeed? That depends on the benchmark for success. At least three domestic factors point to continuity in Beijing’s approach to the war.

For one thing, evidence suggests that public opinion supports the current approach. Vladimir Putin’s narrative of an aggressive, deceitful West humiliating a weakened Russia resonates with much of the Chinese public that now believes that the United States refuses to accept China as a peer power. Most Chinese don’t yet feel the costs of the war. If inflation spikes and

growth slows further, most people will probably blame the West, and not their leaders. China’s foreign policy experts are not of one opinion about Beijing’s stance on Ukraine, but it’s debatable how much influence the proponents of a change in course actually have.

Secondly, China’s highly personalized approach to its relations with Russia is evidence of its commitment to its current policy. Domestic political narratives link the deepening of the “no limits” relationship to the personal bonds between Xi and Putin. Because of this direct association with Xi, the threshold for any overt modification of Beijing’s Russia policy will be exceedingly high.

Stability is in the foreground

Finally, China’s political calendar influences its tolerance for policy changes. The Communist Party Congress, which takes place every five years, will be held in the autumn. Officials traditionally become more conservative, and policymaking more cautious, in the run-up to the congress. Even Xi’s re-election to a third five-year term as party leader, an expected outcome of the congress that will break with loosely institutionalized term limits, isn’t making the party any less cautious. Against the backdrop of uncertainties caused by slowing economic growth, resurgent COVID, and the Ukraine war, the party has announced that “stability” – which also means caution in Chinese policymaking – is paramount as it prepares for the congress.

None of these factors suggest that an evolution of China’s stance is impossible, however. It’s worth the risk to explore the boundaries of China’s current approach via diplomacy, as China isolated on the side of Putin’s Russia cannot be the West’s preferred scenario for the future. But the West must expect any changes to China’s current direction to be piecemeal, and possibly so subtle that outsiders may easily overlook them. A policy shift could also assume the form of planned actions not taken, such as forsaking the delivery of weaponry to Russia. Given China’s view of its interests, such outcomes should be viewed as a victory for diplomacy.

William Klein is a Consulting Partner at Finsbury Glover Hering, based in Berlin, and a non-resident senior associate at the Freeman Chair in China Studies of the Center for Strategic and International Studies in Washington, DC. A retired member of the US diplomatic corps, he served as Acting Deputy Chief of Mission of the US Embassy in Beijing from 2019 to 2021.

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Till
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