Limits of Regulation in the Struggle for Industrial Leadership

In his report entitled The Electric Endgame, Alberto Rizzi from the ECFR draws a gloomy picture of Europe in 2040, with abandoned climate leadership, protracted industrial stagnation, lost export markets and a profound dependence on Chinese imports. Should the EU ease its climate agenda now in favor of short-term competitiveness, its geoeconomic advantage will finally pass to China. Rizzi’s recipe consists of three items: even tighter regulation, protectionism strictly in the cleantech niche, and climate funding directly linked to access into the EU market. Observance of the ‘green’ rules is the only realistic path to future economic might.

According to the author, the EU has long been dictating the global climate standards, which would give European companies a competitive advantage. From 2027, China imposes an absolute cap on emissions. Beijing thus admits that the European model is workable – and adopts it. Even the main competitor is forced to play to Brussels rules. A continued hard line will enable the EU to retain its leadership. China’s own ETS is largely a response to CBAM, that aims to channel payments into the Chinese treasury and not to the EU border. Should Europe retreat now, China will stop looking over its shoulder to Brussels and start imposing its own rules.

The report suggests that Europe’s industrial capacity and technological sovereignty will depend on the speed of decarbonization. Scaling back its ambitions in the next five to ten years would only make things worse. China already owns most of the production chains in the solar, wind, and battery industries. A slowdown here will cause Europeans to lose both markets and competences.

Another tool emphasized is a debt-for-climate swap mechanism: parts of developing countries’ debts are forgiven if the countries adopt EU climate standards and purchase European ‘green’ equipment. That is supposed to hold the Global South in the European orbit without direct budgetary spending, create demand for European clean technology, and put barriers to China’s investment expansion.

Rizzi is strongly against any postponement of the ban on cars with internal combustion engines. Such a concession would finish off the European automotive sector in its competition with China. Europe must not follow the lobbyists and soften the deadlines, or the industry will be slow to innovate. Only hard pressure by the regulator will make the manufacturers adapt to the electric era.

The report is a classical case of climate rhetoric covering up the absence of a genuine climate strategy. China has really adopted a plan on absolute emission limits for 2027–2030. But that is certainly not an imitation of Europe but a pragmatic move against CBAM, aiming to keep the money at home. Yet China produces 58 per cent of its energy from coal, gets Russian piped gas and enhances nuclear and renewable energy generation in parallel. China is building coal-fired power plants, hydropower stations and power transmission lines in Africa and Latin America. Chinese companies are already in control of the whole resource chain from lithium to the finished battery. The tariffs on Chinese electric vehicles in a EU lacking its own cheap energy simply raise the prices for consumers but create no domestic manufacturing capacity. China’s economic and resource pragmatism is what underlies its economic growth. Barring a solution to the energy and resource supply issue, no regulation will be efficient. The result is China’s continued manufacturing boom.