EU could fall short of net-zero goals due to insufficient battery production: study

The European Union could fall short of its 2035 net zero goal as insufficient access to critical raw materials, rising costs and intense global competition threaten to hinder investment in battery production capacity, the EU's financial watchdog warned in a report published June 19.

In the report titled 'The EU's industrial policy on batteries: New strategic impetus needed,' the European Court of Auditors concludes that EU manufacturers face a looming shortage of battery raw materials from 2030 onwards owing to rising global demand and limitations on domestic EU supply.

The report said that although the EU's battery production capacity is developing rapidly, with the potential to grow from 44 GWh in 2020 to 1,200 GWh by 2030 this projection is by no means guaranteed and could be derailed by a series of geopolitical and economic factors.

The ECA warned that battery manufacturers may abandon the EU in favor of countries like the US, where legislation such as the Inflation Reduction Act directly subsidizes the domestic production of minerals and batteries.

"Battery manufacturers may reverse their plans to deploy production capacity in the EU in response to more attractive financial conditions offered by other world regions," it said.

The report also noted challenges arising from historical underinvestment in the European mining sector as well as the EU's heavy dependence on imported raw materials from countries with which it lacks trade agreements.

According to the ECA, 87% of the EU's raw lithium imports come from Australia, 80% of manganese imports from South Africa and Gabon, 68% of raw cobalt imports from the Democratic Republic of Congo, and 40% of raw natural graphite imports from China.

"Several of the main EU supplier countries are developing countries associated with low governance indicators, thus raising concerns about the social and environmental conditions under which these raw materials are extracted," it noted.

In addition, the ECA warned that the competitiveness of EU battery production may be hindered by rising raw material and energy prices.

"Increases in the cost of production factors such as energy and raw materials may render batteries, and consequently electric vehicles, unaffordable to a large segment of fleet owners and operators, thereby reducing demand for electric vehicles and the economic rationale for investing in production facilities," it said.

The ECA also criticized the lack of "quantified, time-bound targets" with respect to assessing how the EU battery industry will meet demand from the approximately 30 million electric vehicles expected to be on European roads by 2030.

It warned of two worst-case scenarios should battery production fail to increase as projected. Firstly, the EU could be forced to delay its ban on internal combustion engines beyond 2035 and thus fall short of its net zero objectives. Another possibility is that the EU could be forced to rely on non-EU produced batteries and electric vehicles, to the detriment of its domestic automotive industry.

In order to prevent these scenarios materializing, the ECA proposed a series of actions including updating the EU's strategic action plan on batteries with a focus on securing access to raw materials, strengthening monitoring of the battery value chain, improving coordination and targeted funding for the battery value chain, and ensuring a level playing field for all participants in Important Projects of Common European Interest on batteries.

Platts, part of S&P Global Commodity Insights, assessed seaborne lithium carbonate and lithium hydroxide at $46,000/mt CIF North Asia and at $48,500/mt CIF North Asia on June 19, respectively, down 39% and 42% since the start of 2023.