More than a decade ago, Chinese government and industry made a conscious decision that they would dominate the manufacturing of lithium-ion batteries worldwide. This entailed locking down global sources of raw materials like lithium, cobalt, and manganese; becoming the center for processing the raw materials into battery components; and creating a monopoly in the production of the special carbon graphite material needed for lithium-ion battery anodes (negative electrodes).
Today, China’s lithium-ion success is evident: Chinese companies control 80% of the world’s raw material refining, 77% of the world’s cell capacity, and 60% of the world’s component manufacturing, according to data from BNEF. China also recycles 69% of all of the lithium-ion stock available for recycling worldwide. Meanwhile, China’s electric vehicle (EV) sales account for 55% of worldwide EV sales and China is the largest market for EVs.
Rapidly Changing Europe
Europe is the second largest EV market with EVs representing 10% of new car sales in 2020, and an expected 15% in 2021. Lithium-ion battery manufacturing in Europe only began in 2016, but with Tesla’s Gigafactory in Berlin, and new battery production plants under construction in locations across Europe, including Italy, France, Germany Hungary, Poland, Slovakia, and Sweden, things are rapidly changing.
EC Rule Changes
A new proposal by the European Commission (EC), “aims to modernize the EU's legislative framework for batteries.” It is part of the EU's Green Deal, a new growth strategy, with the goal, “…to transform the EU into a modern, resource-efficient and competitive economy where: (i) there are no net emissions of GHGs by 2050; (ii) economic growth is decoupled from resource use; and (iii) no person and no place is left behind.”
The EC battery rule proposal will tackle a number of key problems related to the single EU market. These include:
- an uneven playing field for batteries placed on the market since applicable rules are subject to interpretation
- barriers to the functioning of recycling markets
- uneven implementation of the Batteries Directive
- the pressing need for large-scale investment to respond to the changing market
- the need for economies of scale
- the need for a stable and fully harmonized regulatory framework
According to Alex Keynes from Transport and Environment, “…with dozens of gigafactories setting up shop in Europe and around the world, now is the time to establish rules to ensure all batteries used here are ethically sourced, produced with clean energy, and re-used and recycled at the end of their lives.”
The Environment is the Key
The proposal notes, “there are also a number of environmental problems related to the production, use, and end-of-life management of batteries. The environmental problems that are not directly covered by the EU’s environmental acquis, and which thus require regulatory intervention, can all be linked to the functioning of the single market.”
In fact, the ethical sourcing of raw materials, and the environmentally sound recycling and disposal of spent lithium-ion batteries, along with transparency in the entire manufacturing process is the focus of the EC proposal. The assumption is that building a clear certainty on the legal status of the sourcing of raw materials and disposal of spent batteries will provide competitive advantages for lithium-ion battery manufacturers who build their production facilities within the sphere of the European Union. The rules mean that any global manufacturers that want to make or sell their batteries in the EU would need to meet the new regulations or be banned from the EU markets. There are genuine economies that can be realized when batteries are built nearby to the plants that manufacture EVs, so it is believed that the rules in the new proposal will spark further investment and growth in the European battery industry.
Will This Work?
Is it possible to regulate your way into the status of a global market leader? China’s decade of success, bringing them to near-monopoly in both lithium-ion battery manufacturing and EV production, came as a result of tight regulation of their huge home market and strict control through domestic partnership requirements for foreign investment. But that’s a lot different than regulating ethical environmental stewardship. It can be argued that the creation of China’s lithium-ion powerhouse has come at the expense of environmental responsibility in favor of manufacturing dominance and expediency. The EU push is to, “…set requirements for ensuring a well-functioning market for secondary raw materials while preventing and reducing the environmental impacts from the production and use of batteries.” Will that be enough to blunt the onslaught of China’s dominant battery industry?