This is a time for resolve, not appeasement
Notes and opinion on the State Of The European Union (SOTEU) of 14 September 2022.
Key takeaways:
The strength of our social market economy depends on the success of the green and digital transitions. For this we need to answer three questions: Do we have an enabling business environment, do we have a workforce with the right skills, and do we have access to the raw materials we need?
A new Critical Raw Materials (CRM) Act was announced and probably released early 2023. The CRM Act is to ensure supply chain security, onshoring of processing and recycling capacity, and bolster materials autonomy.
New mechanisms and initiatives, such as the European Hydrogen Bank and single market taxation rules are to bolster economic strength of the European bloc.
The 2022 State of the European Union (SOTEU) began by stressing the watershed geopolitical moment in which we find ourselves now. European Commission President Ursula von der Leyen recognized and praised the resolve Europeans and allies show. The COVID-crisis was followed by the biggest war in Europe after the Second World War and by resulting energy and humanitarian crises. All this takes place with a backdrop of catastrophic results of climate change. The following is an overview of some of the points I picked up from SOTEU.
President Von der Leyen spoke about many topics during her address of about an hour. One of the key topics she spoke about was of course the Russian war in Ukraine and the consequences of this conflict. She stressed that Europe commits to continued support to Ukraine and already sent EUR 18 billion in support, excluding military backing. Import duties for Ukrainian goods to Europe have been suspended and the Ukrainian electricity net has been connected to Europe well ahead of its 2024 schedule. What stood out for me here, was the current work to integrate Ukraine into the European Single Market and that Ukraine will be brought into the European free roaming area.
Much of the SOTEU has been extensively discussed in recent EU press releases and in the media. For example, by now most of us are aware of the work of reducing dependency on Russian gas and that this dependency has been reduced from 40% to 9% during a very short time.
A striking remark I found was that President Von der Leyen openly stated that we [West-European countries and decisionmakers] should have listened to warnings about Putin and regime by Eastern Member States and allies. Now we are paying the price. We have experienced other energy crises, for example, the oil crisis of the 1970s. During the energy crisis of the 1970s few understood that [oil and gas] price was not the problem, but the fossil fuels themselves. Apart from the environmental effects of using excessive fossil fuels, I believe dependency is one of the crucial problems and this we should not repeat with renewables. The energy market mechanisms will be deeply reformed by, among other things, decoupling the electricity and natural gas prices.
With REPowerEU the renewable [green] hydrogen targets have doubled to an annual production of 10 million tons within the EU. To create the new hydrogen market a new European Hydrogen Bank will be launched to stimulate innovation in the field and guarantee market uptake of EUR 3 billion worth of hydrogen.
The EC wants to enable the right business environment for to strive for an independent, green, and digital Europe. SMEs generate around 70% of the value within our economies and need a workforce with the right skills, the raw materials we need to produce, and less red tape. To further support SMEs the Late Payment Directive will be revised, an SME Relief Package will be put forward, and a proposal for a single set of taxation rules for doing business in Europe will be proposed. The latter is called “BEFIT” and seems a step towards a more federalized Europe to support a level playing field.
Access to Critical Raw Materials determines the success of the dual transformations and thereby our European autonomy.
Image credit: omid roshan on Unsplash
Access to Critical Raw Materials determines the success of transformation towards a sustainable and digital economy. Materials such as lithium and Rare Earth Elements (REEs) will soon be more important than oil and gas are now. Lithium and REEs are trendy topics at the moment and we must remember that there are many more critical materials. Depending on how the green transformation, the digital transformations, and the geopolitical landscape develops determines which materials are critical. So-called basic materials, such as steel, aluminium, and copper are often overlooked in favor of more exotic materials.
In addition to supply chain security, processing capacity is crucial. President Von der Leyen seemed to focus on processing capacity for new energy materials such as lithium and REEs, but I would hope that the scope is much wider. We also should not forget that processing capacity for lithium requires supporting this industry in Europe and not increasing investment risk in the field by changing regulations. A new European Critical Raw Materials Act was announced to regulate how we deal with strategic material dependencies. The CRM Act probably will be released early 2023. The EC also announced an evaluation of supply chains, including processing and recycling, and strategic stockpiling for weak supplies.
In addition to raw materials access, we must onshore and build processing and recycling capacity in Europe.
Image credit: Dominik Vanyi on Unsplash
To underline the importance of the CRM Act and the success that can be achieved, Ms. Von der Leyen mentioned the successes of the European Battery Alliance, which was launched in 2017 and soon around 2/3 of [European] batteries [needs] will be produced in Europe. Last year European Chip Act was announced and the first chip gigafactory will break ground next month. Presumably this factory is Intel's USD 7 billion fab in Magdeburg, Germany. Further, the EC will increase financial participation in the Important Projects of Common European Interest (EPCEI) and will push to create a new European Sovereignty Fund. Details of this fund are to my knowledge not published at this stage.
President Von der Leyen stressed that we find ourselves in a watershed moment in the geopolitics of power, energy, and access to raw materials. The European Union is an intergovernmental structure and needs to rethink, or perhaps one could even say create, a common foreign policy. The term of the presidency of Ms. Von der Leyen is until the 2024 elections. I very much hope she can create the autonomy and Member State coherence she spoke about. Coherence and unified, strong foreign policy will determine whether we need to worry about Critical Raw Materials at all. As Ms. Von der Leyen put it, Europe must be a story of heart, character and solidarity. We must rediscover the values of the Maastricht Treaty. These are certainly admirable and necessary objectives. Perhaps it sounds boring, but industry, employment, and autonomy require a stable and reliable investment environment. In terms of business, boring is good.
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