The major Western economies and Japan have agreed to work more closely together to secure the supply of raw materials and components for the energy transition. Public funding must be used for this. The decision can be seen as a step against China, which dominates the production chains of raw materials such as nickel, copper and lithium, as well as the market for certain battery components, for example.
The finance ministers of the G7 countries – the United States, Canada, Germany, France, the United Kingdom, Italy and Japan – decided in Washington on Wednesday to join forces in setting up new production chains for raw materials and components for green energy .
The ‘diversification’ of the now ‘highly concentrated’ green technology supply chains ‘could contribute to energy security’ while serving the climate, states in the explanation released by the G7 ministers. Japan’s finance minister Shunichi Suzuki, the current G7 chairman, said at a press conference that the decision is “not directed against any particular country,” but added that “in the case of clean energy, the focus is on China.” For ‘economic security’, concentration by one country is ‘not desirable’.
Read also: More Made in Europe, less dependence on China: how feasible are European plans for green industry?
China is dominant in green technology production in several ways. It owns many cobalt mines and controls the refining of cobalt, which is used in batteries for electric cars, among other things. The vast majority of magnets needed in electric cars and wind turbines also come from China. It is of increasing concern to Western politicians. The European Commission recently presented plans to bring the production of green technology to European soil.
Political signal
The G7 countries agree to “enhance cooperation” to secure supply lines, through the use of “public financing means”, such as “tax breaks, grants, guarantees, government loans and investments”. Poor and emerging countries, which produce raw materials and components, should also benefit from this.
The agreements are not yet concrete, but the political signal is no less: democratic countries must defend their own economic interests more strongly in times of rising geopolitical tensions with China and Russia. Japan and the Netherlands recently decided, under American pressure, to restrict the export of chip technology to China.
The pandemic – in which the West proved to be dependent on Chinese medical protective equipment – and the Russian war against Ukraine – which showed Europe’s dependence on Russian gas – have shown that “economic resilience” is important, the G7 statement said.
Economic fragmentation
The G7 ministers held consultations on the margins of the spring meetings of the International Monetary Fund and the World Bank. Ironically, one of the big themes at the IMF meeting is “geoeconomic fragmentation” – the breakup of the world economy into rival blocs. In fact, the G7 appointment is an example of this.
The IMF is concerned about this trend: the more barriers to free trade that arise, the more the global economy as a whole suffers. Decisions on trade and cross-border investment are increasingly being made on the basis of (geo)political considerations, and less on economic considerations.