China and the cleantech supremacy: Implications for Europe

Despite the political noise around climate action, China has remained focused on developing a world-class clean technology sector. The country saw in the transition a unique opportunity, and has pursued it through a heavily subsidised strategy. Today, China invests more in cleantech than the EU and the US combined, it controls 70% of global cleantech manufacturing capacity and 80-90% of critical materials processing, and accounts for half of the global installation pipeline for multiple clean technologies. This has driven innovation, cost declines and global decarbonisation, but has also contributed to creating large global imbalances, partly fuelled by uneven subsidy systems.

Re-levelling the playing field 

As trade tensions intensify, so do the challenges to European cleantech sectors, with a widening trade gap, strategic overdependencies and de-industrialisation. Calls to action are growing, and recently the EU's stance has become increasingly assertive. A large investment plan backing strategic industries and lowering energy prices should be the foundation of the EU's response, in our view, but is unlikely in the near term. Instead, a combination of targeted barriers, climate policy changes and selective incentives is a more likely scenario, we believe. Based on a framework we have developed, freely inspired by Mario Draghi's EU competitive analysis, we highlight what we view as the most likely policy changes in such a scenario.

Countermeasures the EU could adopt to address the trade imbalance with China

Source: Nordea 

We identify four areas that would benefit from increased EU assertiveness:

1. Basic commodities: The start of the EU carbon border adjustment mechanism in January, in combination with the newly proposed EU trade barriers (steel and ferrosilicon safeguards), offers a convergence of tailwinds for 2026, supporting prices and in some cases volumes.
    
2. Critical minerals: The EU is soon set to present a plan (RESourceEU) to secure access to alternative sources of critical minerals. It will start with circularity, but could also entail EU-level stockpiling and boosting mining investments in like-minded countries.
    
3. Climate deregulation: Counterintuitively, climate policies continue to be diluted in pursuit of short-term gains. CO2 penalties and targets for cars and trucks could continue to be watered down.
    
4. “Made in EU” tech: The EU’s automotive package published in December, car manufacturers will be able to benefit from “super credits” for small affordable electric cars made in the European Union.