In the context of the Industrial Strategy update, the European Commission made in-depth reviews of a number of areas that can be considered strategic for Europe’s interests. These reviews look into the nature of possible strategic dependencies, their impact as well as relevant policy responses, which in some cases are already ongoing. These assessments should not be considered as an exhaustive analysis of all the EU’s possible strategic dependencies, but rather as a first stage of assessments concerning a number of important areas.
|Metals and minerals are part of our daily lives. With the transition of Europe’s industry to climate-neutrality, the dependence on fossil fuels risks to be replaced with reliance on non-energy raw materials. Access to resources is fundamental for the entire EU industry and central to Europe’s ambition to deliver on the Green Deal and ensure the digital transformation of the EU economy.|
As the EU does not produce all the raw materials that are necessary to meet our demand, EU industry faces global competition in access to raw materials.
- Extraction of raw materials more than doubled globally since 1990
- Consumption is expected to grow by 40% by 2040
The Commission identified 30 critical raw materials in its 2020 list of Critical Raw Materials. These are raw materials that are very important economically and have a high supply risk.
|Rare earths are used in magnets that move electric cars and make wind turbines work||Gallium and indium are part of light-emitting diode (LED) technology in lamps.||Silicon metal is used in semiconductors||Platinum group metals are needed in hydrogen fuel cells and electrolysers|
|Several strategic sectors and technologies rely on access to critical raw materials|
|Global supply of some raw materials is highly concentrated in specific countries|
- 98% of EU’s rare earth element supply comes from China
- 98% of EU’s supply of borate comes from Turkey
- 71% of EU's needs for platinum come from South Africa
- Single companies supply the EU with hafnium and strontium
|Global production of raw materials is increasingly subject to export restrictions|
More than 70% of global production of cobalt, rare earths and tungsten is subject to export restrictions.
|Demand for key raw materials in renewables and e-mobility will increase multiple times from 2030 to 2050|
What can the EU do?
In its 2020 Action Plan on Critical Raw Materials, the EU has set out various actions to support the development of a resilient raw materials supply chain. Achieving resource security requires diversified supply from both primary and secondary sources, reduced dependencies and improved resource efficiency and circularity, including sustainable product design. The key actions being taken by the Commission include:
European Raw Materials Alliance
Established in 2020, the Alliance aims to build a resilient raw materials supply chain, with a specific focus on the rare earth magnets and motors. To do so, the Alliance has already identified investment projects from Member States and industry to support increasing EU production of rare earth magnets.
Other actions to support raw material projects
- Two Important Projects of Common European Interest (IPCEI) on the battery value chain
- Investment opportunities under the Recovery and Resilience Facility
- €300 million for raw materials research and innovation under Horizon Europe
- Strategic international partnerships to secure a diversified and sustainable supply of critical raw materials
- Support “product as a service” business model to incentivise recycling and reuse of raw materials
- Tracking of raw materials through technology, harmonised data requirements
- Improve permitting process to ensure predictability and maintain high environmental standards
- Develop principles for sustainable raw materials in the EU
Active pharmaceutical ingredients
|Medicinal products are critical for society. They offer therapeutic options for diagnosis, treatment and prevention of diseases and are important to address threats to public health, including the COVID-19 and any future pandemic. In this context, it is essential to ensure citizens’ access to safe, effective and high-quality medicines at an affordable price. However, our analysis shows that the EU appears to be dependent on foreign supply chains in a number of inputs and products in the health ecosystem.|
|Disruptions possible due to complexity of supply chain|
Given their complexity, pharmaceutical supply chains are faced with potential disruptions which can arise along the supply chain within and outside the EU. These can vary from trade disputes, cyberattacks, to uncoordinated stockpiling, export restrictions, disruptions in logistics, to closing of sites or on-site accidents as well as non-compliance with Good Manufacturing Practices (GMP).
|High integration of API supply chains|
The pharmaceutical supply chain has become one of the most integrated supply chains in the world. In particular, there is a large regional concentration in the production of generic active pharmaceutical ingredients (APIs). In addition, there is a further increasing trend in the concentration of generic APIs being produced in India and China.
Share of global generic API production value (2015)
- 66% in Asia Pacific (India and China)
- 24% in the EU
- 3% in North America
- 7% in the rest of the world
|High trade concentration|
European imports of APIs come from only a few sources.
- 80%of API import volume from 5 countries (China, US, UK, Indonesia and India) [China 45%]
- 80% of API import value from 4 countries (Switzerland, US, Singapore and China) [Switzerland and US both 30%]
What can the EU do?
The EU has a strong production capacity. However, it is not sufficiently clear to what extent the EU relies on capacities in third countries in terms of processes and input required for the manufacturing of APIs. It is essential to determine critical products, relevant from the point of view of public health, for which the EU does not have sufficient capacity to produce. To address this, the Commission has set up the following initiative:
Structured dialogue on the security of medicines supply
As announced in the Pharmaceutical Strategy for Europe, the European Commission has initiated a structured dialogue with relevant public and private actors of the pharmaceutical supply chain to:
- First gain a better understanding of vulnerabilities and potential dependencies, and
- Secondly, to take measures to strengthen the resilience of pharmaceutical supply chains and ensure the security of supply of medicines to patients in the EU
Lithium (Li-ion) batteries
Batteries are key to enabling the EU’s green and digital transformation. They are essential to achieving the European Green Deal ambition for the EU to become climate neutral by 2050. They also help companies become world leaders in clean products and technologies. Batteries are particularly important for the production of electric vehicles. They are increasingly used for energy storage and in other industrial applications such as machinery, power tools, or forklifts.
While there are different battery technologies, Li-ion is a key component for many types of batteries due to its superior performance, compared to various well-established and mature battery technologies.
Global production capacity of li-ion battery cells in 2018
- 3%in the EU
- 66%in China
- 20%in South Korea, Japan and other Asian countries
Enabling factors for increasing production capacity
|Li-ion batteries can now store 300% more energy compared to 1991||Decreasing cost (USD 1100/kWh in 2010 -> USD 156/kWh in 2019)|
|Global demand projected to increase to 4 000 GWh by 2040 from 90 Gigawatt hours (GWh) in 2016||European demand expected to reach 400 GWh by 2028|
|Access to relevant raw materials is key for battery production|
The EU produces just 1% of all battery raw materials. To cover the needs of the mobility and energy storage sectors, the EU needs:
- 7-18 times more lithium by 2030
- 2-5 times more cobalt by 2030
- 16-57 times more lithium by 2050
- 3-15 times more cobalt by 2050
|Access to processed materials and components|
- 84% of processed materials and components come from Asia
- 8-9% of processed materials and components come from the EU
- Several investments in battery materials announced in the EU, but additional ones needed
What can the EU do?
Given the importance of Li-ion batteries, the Commission adopted a Strategic Action Plan to develop a European value chain. As a response, public and private investments have been mobilised at scale over recent years, through the following initiatives:
European Battery Alliance
European Battery Alliance launched in 2017 is supporting the development of an innovative, competitive and sustainable battery value chain in Europe. In particular, it is helping to address the lack of battery manufacturing capacity in the EU. Its expected outcomes are:
- Build at least 15 giga-factories in the EU by 2025
- Supply by 2025 battery cells to power 6 million electric cars (360 GWh)
Europe could become the second largest manufacturer of Li-ion cells by 2024. Our share of global production capacity may increase to 14.7% by 2024 and 16.6% by 2029, compared to 5.9 % in 2019.
€60 billion of investments in Europe’s electro mobility value chain in 2019 alone, mostly private
|= 3.5 times as much as China|
About €270 million from EU research programmes between 2019-2020
€925 million proposed for the new European Partnership for an Industrial Battery Value Chain under Horizon Europe
|Important Projects of Common European Interest (IPCEI)||
First IPCEI grants: €3.2 billion in state aid, expected to leverage a further €5 billion in private sector investments
Second IPCEI grants: €2.9 billion in state aid, with a further €9 billion expected in private sector investments
Other ongoing initiatives
- New legislative framework for batteries to come into force likely in 2022
- Strengthening the resilience of the EU critical raw materials value chains
- Ensuring effective implementation of Horizon Europe funding of battery research
- Developing a European skilled battery workforce
Renewable or low-carbon hydrogen will be key in addressing critical challenges linked to the decarbonisation and competitiveness of EU’s industry. The EU is a technology leader in several clean hydrogen technologies with half of electrolyser manufacturers being European. However, the EU depends on imports of raw materials for key components as well as the supply of renewable energy.
Hydrogen has a wide range of applications across ecosystems, such as chemical and refining industries but also mobility, energy storage and heating. It has a high energy content per unit mass, which makes it suitable for example for heavy transport. But it must first be ‘extracted’ at an energy expense - either from natural gas or through the electrolysis of water.
Targeted increase in renewable electrolyser capacity
- 1 GWrenewable electrolyser capacity in 2020
- 6 GWrenewable electrolyser capacity by 2024
- 40 GWrenewable electrolyser capacity by 2030
The path towards a European hydrogen eco-system step by step
- Today - 2024
We will support the installation of at least 6GW of renewable hydrogen electolysers in the EU, and the production of up to 1 million tonnes of renewable hydrogen
- 2025 - 2030
Hydrogen needs to become an intrinsic part of our integrated energy system, with at least 40GW of renewable hydrogen electrolysers and the production of up to 10 million tonnes of renewable hydrogen in the EU
From 2030 onwards, renewable hydrogen will be deployed at a large scale across all hard-to-decarbonise sectors
|Large supplies of clean hydrogen needed|
To decarbonise major sectors (e.g. steel, chemicals or heavy transport), a large and reliable supply of clean hydrogen is required. Lack of renewable and low-carbon hydrogen supply in the short term and lack of infrastructure could delay investment decisions downstream.
- Connection of 80 to 120 GW of solar and wind energy production capacity needed to provide the necessary electricity by 2030
|Dependencies on imports of raw materials|
The EU depends on imports of raw materials for key components (such as electrolysers and fuel cells) required for the hydrogen economy.
- Around 30 raw materials are needed for producing fuel cells, electrolysers and hydrogen storage technologies. 13 of these are classified as critical raw materials.
What can the EU do?
- European Hydrogen Alliance: The Commission has set up the European Clean Hydrogen Alliance, as announced in the March 2020 Industrial Strategy. It is in the process to deliver an investment and project pipeline that implements the EU Hydrogen Strategy.
- EU funding. Several programmes can contribute to the development of a hydrogen value chain, such as the future Clean Hydrogen partnership under Horizon Europe, the Innovation Fund, the Connecting Europe Facility, the European Regional Development Fund and the Just Transition Fund.
- IPCEIs. There are ongoing discussions involving several Member States on the design of one or more potential IPCEIs.
- Cooperation with third countries. Global cooperation on research and development, standards and definitions of clean hydrogen will be essential for the emergence of a global, rules-based market for hydrogen.
- Dependencies. Actions in the area of raw materials under the Raw Materials action plan and the European Raw Materials Alliance are ongoing to limit dependencies when it comes to fuel cells and electrolysers.
|Semiconductors power the smart devices and services we use every day. They enable key industries to innovate and compete globally so that Europe can design and produce the most powerful processors. However, limited production capacity, high entry costs and lack of a level playing field are threatening the EU’s capacity to fully seize the opportunities of the digital transformation.|
The recent shortage faced by the automotive industry is illustrating the EU's challenges. Semiconductor chips are the basic building blocks of all digital products and services. They are embedded in cars, aircraft, medical equipment, cell phones, networks and supercomputers.
|Leading-edge chips have become more difficult and more costly to produce|
Designing and developing the most advanced chips today can cost up to €1 billion. A leading-edge fabrication plant requires investments of up to €20 billion. In 2020, only 2 manufacturers, TSMC (Taiwan) and Samsung (South Korea), produced the most advanced chips.
The EU is strongly dependent on the US for general design tools and on Asia for advanced chip fabrication.
|Level playing field|
Geopolitical tensions and the lack of a level playing field harm the competition in this area. The development and fabrication of chips has been increasingly subject to massive subsidies.
|Europe’s semiconductor footprint is small|
The EU share of global revenues is approximately 10% overall and around 6% for the computing and communication segments.
What can the EU do?
- Reinforce technologies. Joint European actions and initiatives will need to strongly focus on rebuilding capabilities in processors and semiconductor technologies critical to enable powerful and energy-efficient data processing, communication, infrastructure and the many applications of AI.
- A joint European effort. In December 2020, a large number of Member States have agreed in a joint declaration to work together to reinforce the ecosystem and to expand industrial presence across the supply chain.
- Alliance on processors and semiconductor technologies. The Commission is preparing the launch of this to bring together a wide range of stakeholders. The alliance will help achieve key EU policy objectives in microelectronics.
- Recovery and Resilience Facility. Semiconductors are among the areas identified for investment for the RRF in line with EU State aid rules. 20% of the European Recovery and Resilience plans should go to digital transition.
- Regulatory framework. The acquisition of companies, that have been supported financially by the EU and Member States, impacted the sector. The EU foreign direct investment (FDI) screening regulation provides the opportunity to assess the risks of foreign investments on security and public order. The newly proposed Regulation on foreign subsidies distorting the single market proposes a new tool to assess distortions caused by subsidies granted by foreign governments on the level playing field in the single market.
- Supply chain resilience. A coherent mix of industrial, research and trade policies can facilitate the process of diversification to alternative sources of supply and strengthen the existing supply chains through partnership and collaboration with global partners.
Cloud and edge computing
|Data is becoming a strategic asset for any organisation. Cloud computing technologies enable the functioning of technologies such as AI, Internet of Things and 5G/6G. They are a strategic key enabling technology for a green and digital future of EU industries and the public sector. Europe has a unique market opportunity in the next decade to strengthen its data processing technologies by capitalising on the changes to come, in particular related to edge computing.|
Cloud technologies offer on-demand, flexible and cheaper data storage and processing. They operate in centralised data centres, distributed facilities or on connected devices close to the user (edge computing). Many services that businesses, public administration and citizens use every day are based on cloud computing.
Opportunities for EU's autonomy
- 80%of all generated data is expected to be processed at the edge by 2025, with no current dominant market players
Strong growth in software services is a major opportunity for European providers to leverage their position
- 5G networks and multi-cloud computing (risk-mitigation tool) constitutes another opportunity
|Use of cloud in the EU is rising very slowly|
Despite some growth in recent years, the use of cloud services in the EU is still low. According to Eurostat’s data, while improved compared to 2018, only 36% of EU enterprises used cloud services in 2020, mostly for simple services such as for e-mail and storage of files.
|Small market share for EU actors|
The largest EU-based cloud provider accounts for less than 1% of total revenues generated in the European market. In comparison, the top 4 global leaders (Amazon Web Services, Microsoft Azure, Google Cloud and Alibaba Cloud) will account for over 80% of global revenues in 2021. The market position and scale of these hyperscalers makes market entries by other competitors less rewarding and prevents the rise of European leadership.
This situation is exacerbated by an estimated investment gap of €11 billion annually between what the US and China and the EU invest in cloud.
|Concerns of European users|
Cloud users have in practice a very limited if non-existing possibility to switch between different cloud service providers. In addition, they express their concerns with the use of foreign cloud services for reasons of personal data protection, cybersecurity or questions over applicable law.
What can the EU do?
- New Alliance for Industrial Data, Edge and Cloud. The Commission is preparing the launch of this to bring together a wide range of stakeholders, to help strengthen Europe’s industrial position in the global cloud and edge computing market, notably addressing the trend towards increasing distribution and decentralisation of data processing capacities and the need to enable federated and vendor-agnostic cloud ecosystem.
- EU investments in European cloud federation. Our ambition is to co-invest in European data spaces and a European cloud federation for the period 2021-2027. EU investments will be channelled through the Digital Europe Programme, Connecting Europe Facility 2 and Horizon Europe.
- Private and national co-investments. In October 2020, all Member States signed a joint Declaration and agreed to work together to upgrade existing capacities, shape the next generation cloud supply and stimulate the uptake of cloud services across the EU. The Recovery and Resilience Facility (as part of NextGenerationEU) will be a significant channel for Member States’ investments.
- Important Project of Common European interest (IPCEI). Several Member States launched a process to jointly prepare a possible IPCEI focusing on next generation cloud and edge infrastructure and services.