Discover How Overcapacity in Green Technology is Actually a Hidden Advantage!

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It’s late summer in the Northern Hemisphere (although it doesn’t feel like it in London). Thanks to my colleagues Claire Jones and Chris Cook who ran Free Lunch throughout August: if you were absent, read Claire on how Italian Prime Minister Giorgia Meloni’s inadequate bank tax has its roots in loose monetary policy and Chris on how Russia is doing benefiting from design flaws in the ceiling on the oil price imposed by the West.

Late summer is a time of transition, to get out of the slow pace of hot summer days and hunker down for fall work. Transitions can take a toll on the human psyche, especially when it comes to long-term changes. So today’s article is about some attitudes I’ve noticed recently towards the green transition, which political and business leaders approach with somewhat split personalities.

On the one hand, they recognize (or should!) the massive industrial transformation now needed to give us the tools to decarbonise the economy in sufficient quantities. For example, within a few decades we will need to replace our entire car fleet with electric vehicles, roll out a huge number of batteries, and install enough renewable energy generation machinery, and related grids, to decarbonise a electricity which itself will have to grow a lot.

(It’s perhaps a matter of personality whether you instinctively see it as a forbidding task or an exhilarating opportunity. Like a paid techno-optimist, I expect the coming years and decades to be full of exciting innovations and technological improvements where the imperative of decarbonisation, which is absolutely achievable, will also bring about smarter, more efficient and more comfortable ways of organizing our economic life. Free Lunch Readers: What do you think?)

On the other hand, there is a palpable fear that other countries are producing so many of these things at such a low price that it is impossible for European industrialists themselves to compete. Two claims about “overcapacity” surfaced in my readings this past week.

The former comes in a file Interview with the FT with Oliver Zipse, the boss of BMW. He warns that with Chinese suppliers about to flood the European market, we should expect an EV price war – although, if you are to believe him, it will be a price war that would hit the market for cheaper cars rather than threaten the premium of his own company. Models.

It is worth noting that EV price wars are also happening in the United States. Tesla has been cutting prices on its models for some time ea news mentions several recent examples of 15 to 20 percent price cuts by other manufacturers as their EV offerings begin to outnumber customers willing to buy at original prices.

Nonetheless, there seems to be a particular fear among European, especially German, automakers towards Chinese-made electric vehicles, which apparently stole the show at the last Munich Auto Show. As I have mentioned before, it’s not just a matter of Chinese automakers outperforming German ones in the EV space, but that German automakers find it easier to produce EVs in China (in cooperation with Chinese manufacturers) and export them to Europe. They seem to find it easier than switching from traditional to electric production at home.

The less faith anyone has in the ability of Europeans to compete in the production of electric cars, the more their conviction is stronger that they may not need to, because so-called zero-carbon e-fuels will allow them to continue churning out the internal combustion engines they are so used to producing. But hoping that tomorrow will look like yesterday despite all the signs to the contrary is not a strategy.

The other recent warning of overcapacity concerns automotive battery manufacturing. My colleagues relationship that China is expanding production capacity so fast that it more than doubles demand for automakers’ batteries this year, with no prospect of electric car production absorbing its entire planned capacity anytime in the future.

These two are obviously related. If China ends up producing more car batteries than it buys for electric vehicles, more cars are likely to be exported at bargain prices. Alternatively, the batteries themselves will be placed directly into export markets. As my colleagues write, a European battery manufacturer “has warned that a 500 GWh supply gap in Europe in 2030 could be ‘offset’ by 1,100 GWh of overcapacity in China”.

I trust that at this point most Free Lunch readers are frowning at the inconsistency of all these concerns. Here are my three responses to both of these overcapacity warnings.

The first is to note that if there were excess capacity in battery production, either in China or globally, it should make it easier for European automakers to compete on electric vehicles: after all, they will have access to cheaper batteries, and the batteries are the best solution. most important cost component for electric cars. That may not be good for their profit margins, which could be captured by battery makers, but at least it alleviates the threat to jobs and plants that elected politicians worry about.

The second is that we shouldn’t be easily persuaded that the anticipated battery production capacity will, in fact, materialize. Just as common as fears of overcapacity are concerns that the world is not extracting anywhere near the amount of metals and other materials needed for current battery technologies. This difficulty could, however, be overcome as recycling of old batteries will take off in earnest: read the FT’s analysis at the next recycling revolution in electric vehicle batteries.

Third, and most importantly: the whole notion of “overcapacity” just seems weird when our biggest challenge is to decarbonise fast enough. If production forecasts for batteries, electric vehicles or other green technologies exceed projected demand, it is because projected demand is much lower than it should be. But lower prices are a solution to this problem, not a contribution to it (opponents tend to dismiss electrification of transport as electric vehicles are too expensive). The quantities needed to decarbonise are so much greater than the world currently produces that rapid increases in capacity are exactly what we need.

Get the batteries. Even if it were true that the world will soon produce more of them than is needed to electrify the global car parc, this is not the only use of batteries. Equally important will be the electricity storage capacity in homes or business premises.

European Energy Commissioner Kadri Simson wrote an article editorial on the FT this week, who rightly pointed out that Europe’s green future depends on a much more powerful and smarter electricity grid. Because the renewable electricity sources that will expand the most – solar and wind – are intermittent, grid capacity must be greater than that of on-demand sources (whether renewables such as hydroelectricity, or non-renewables such as nuclear or fossil power plants). ). But as he puts it succinctly, “flexible storage and demand response solutions can be crucial.” At the household level, daily power cycle management involves batteries with a comparable capacity (actually less demanding) than that common in electric vehicles. Any excess capacity in electric vehicle batteries could quickly be repurposed to provide storage solutions for homes and businesses.

In conclusion, we should not join the jeremiads about overcapacity. If the production of all things green technology expands strongly, there is reason to rejoice. If demand doesn’t keep pace, that means we need better policies to kick-start it, by tightening, not relaxing or deferring, the incentives and requirements for switching to low-carbon goods. That’s why I also said we should do it welcome a run on green subsidies: The scale of the decarbonisation challenge is such that no production capacity for green technology can be too much.

Others readable

• In my FT column This week I will describe how EU leaders are beginning to seriously consider how to deepen the bloc’s integration in preparation for new countries to join the union.

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