EU-China Climate Ties: Cooperate, Don’t Compete, Says Report

Green Tech Race Offers Chance for Shared Prosperity

Instead of erecting trade barriers, the European Union should seek common ground with China on clean technology trade and investment. Leveraging its strengths in rule-making, the EU can shape a global deployment environment that benefits both economies.

China’s Green Tech Dominance

Chinese companies are setting rapid paces in green technology, evident in advancements like Contemporary Amperex Technology’s electric vehicle batteries capable of 520km range after a five-minute charge. BYD Co.’s recent ultra-fast charging system launch and China’s annual solar panel production capacity exceeding 1.2 terawatts highlight this leadership.

Europe’s Strategic Crossroads

Faced with China’s formidable green manufacturing capabilities, Europe has a critical decision. It can adopt a defensive industrial policy, focusing on supply chain security and tariffs, or pursue a collaborative agenda. The latter allows Europe to utilize its expertise in setting regulations, building international coalitions, and establishing norms to guide green investments and standards.

Interdependence in Climate Transition

Despite recent strains in EU-China relations, collaboration on clean trade is achievable. The climate transition presents a shared challenge where both blocs are interdependent. Europe’s decarbonization pace impacts Chinese assets, while China faces potential repercussions for non-alignment with global norms. The critical question is how they can manage this interdependence constructively.

A Pragmatic Partnership Framework

Seizing the opportunity for a climate partnership requires a deal that serves both parties’ economic interests. For the EU, this means reducing dependence on Chinese imports while advancing its own value chain. For China, it involves maintaining access to crucial export markets amidst a changing global trade landscape. This necessitates a pragmatic approach from both sides.

Key Pillars for Cooperation

Effective cooperation hinges on several factors. Firstly, agreement on local content requirements is crucial. The EU aims for at least 40 percent domestic production of green technologies by 2030, emphasizing higher-value activities like research and development (R&D) to foster job creation and resilience.

Secondly, fostering joint ventures is vital. These have been instrumental in China’s technological advancements and are emerging within the EU’s battery and automotive sectors. Properly structured, joint ventures can drive mutual benefits and embed cooperation into long-term industrial strategies.

Thirdly, trade measures must be carefully considered. EU tariffs on Chinese EVs, though substantial, cannot solely bridge competitiveness gaps. Such measures should complement strategic efforts like local content rules and industrial partnerships. Misapplication risks further weakening Europe’s technological standing rather than facilitating its catch-up.

Fourthly, structured mobility schemes are essential. Restricting visas for Chinese engineers is counterproductive. Facilitating talent exchange between EU and Chinese firms would encourage R&D and design activities to occur in Europe, not just final assembly.

Economic and Geopolitical Dividends

Collaborating on decarbonization promises significant economic and geopolitical advantages for both the EU and China. Such cooperation would enhance the EU’s resilience, strengthen its industrial base, and solidify its leadership in clean technology. China could offload surplus green goods, secure market access, and demonstrate its commitment to green growth internationally, particularly as the United States scales back its climate action.

Shared Interests in Green Growth

The EU and China share more common ground than often recognized. Both are net importers of fossil fuels and major producers of zero-carbon technologies, creating a shared interest in sustaining global demand for green products. Amidst growing global uncertainty, both have prioritized the energy transition as a pathway to innovation and competitiveness.

The current window for establishing a climate partnership is closing. The upcoming months are critical for adhering to the Paris Agreement’s 1.5°C goal. While the recent EU-China Summit set a foundation for closer cooperation, the September Council of the EU meeting, under Danish presidency, will be pivotal as EU nations finalize their 2035 climate targets ahead of the UN Climate Change Conference in Belem, Brazil.

With key European nations advocating for a robust industrial and investment plan, EU leaders must devise a framework for industrial transformation at the September meeting. This framework must include how the bloc will engage with China.

Europe appears to be adopting China’s strategy of building new systems before phasing out old ones. However, to succeed, it must emulate China’s coherent, long-term planning across the entire clean tech value chain.

China, in turn, should commit to an ambitious 2035 emissions reduction target aligned with its 2060 net-zero goal, signifying approximately a 30 percent decrease from projected peak emissions this decade. This would bolster its international credibility and create space for a strong EU target.

Europe and China have both invested heavily in green growth. To secure the full benefits of decarbonization, they must find common cause on clean trade and investment—an area where strategic self-interest and global public goods align.