Caught in the crossfire: Why the EU and India must collaborate on clean technology

The European Union and India are busy making their way through the terms of their trade deal. But at almost half way, there is one more thing they could be bonding over. Both Brussels and Dehli want to become more self-reliant on clean energy technologies. For now, however, their ambitions are caught in the crossfire of a trade war, fighting off China’s state-led, export-driven overcapacity and America’s tariff-driven industrial policy.

Shared struggles

The main culprit of their concern is fierce Chinese competition. Mass production bolstered by state subsidies, has led to an oversupply of cheap yet competitive clean technologies. For example 95% of solar panels installed in the EU come from China. Chinese wind turbine manufacturers have also quickly captured the Indian market, taking 40% of the market share.

Meanwhile, Trump’s tariffs, while toned down, still stand at 10% tariffs on all products, creating huge economic insecurity. The administration’s direct cuts to federal grants and subsidies—which were aimed at boost renewable energy deployment—will make access to the US market more costly and unpredictable for European clean technology producers.

On top of this, clean technologies are far from immune from the intensifying US-China rivalry. The US is using its trade negotiations with countries to pressure them to help stop Chinese products from dodging tariffs. This has the potential to greatly change value chains in the clean technology industry and bring higher prices for everyone sourcing from China, including EU countries and India. The US has already announced plans to impose tariffs on solar panel imports from South-East Asian countries, which are heavily dependent on intermediate inputs from China. Washington’s hope is that it will curb what it calls “transnational subsidies” linked to China, effectively trying to isolate Chinese clean technology production.

Beijing, on the other hand, sees the trade confrontation with America as a political ‘struggle’. It is ready to stay calm and fight back, retaliating hard, for example through weaponising China’s dominance in critical minerals, including those essential to clean technologies. Beijing has introduced export restrictions on heavy rare earth metals and permanent magnets, critical components for clean technologies like wind turbines and electric vehicles. Chinese officials are reportedly restricting exports of permanent magnets not only to the US, but to other countries as well, including Japan and Germany. The mutual reduction in tariffs between the US and China has created some space for negotiations, but so far Beijing has not needed to give in on anything for the US to retreat from its escalatory measures.

Shared strength

The EU and India should coordinate more closely to address the twin risks of Chinese overcapacity and supply chain vulnerability

But as the recent Trade and Technology Council (TTC) between India and the EU suggests, in shared vulnerability also lies shared opportunity. The EU and India—both wanting to become manufacturing powerhouses in advanced clean energy—should coordinate more closely to address the twin risks of Chinese overcapacity and supply chain vulnerability. The surge of low-cost, state-subsidised clean technology products from China, now with more products that would have been bound for the US, threatens to undercut local renewable industries. At the same time, Beijing cutting off critical mineral inputs is no longer a distant risk.

For some sectors, such as solar, the EU’s and India’s aspirations are complementary. The EU’s solar supply chain is in urgent need of diversification. India, meanwhile, has set goals to achieve self-sufficiency in the production of solar panels and its components and has already significantly reduced its reliance on China in this sector.

For other sectors, such as wind power or electrolysers, in which both the EU and India aim to maintain significant domestic production, they should ensure reciprocal market access while defending market distortions caused by subsidised imports from China to maintain competition. Such coordination is essential if industries in the EU and India are to scale up and stand a chance in competing with China’s well-established clean technology giants.

Both the EU and India have already put in place policies to strengthen self-reliance in the clean technology sector. The EU has introduced the idea of “non-price criteria” such as sustainability, the cyber or data security of products for public procurement of renewable electricity.  India meanwhile has implemented quality control orders to curb low quality imports and incentive schemes to boost domestic production.

Together, they should work to ensure these measures do not create barriers to market access for each other’s businesses. The EU should also address India’s concerns over the carbon border adjustment mechanisms, which could place an extra burden on Indian exports, by supporting India companies to meet compliance requirements and deepening cooperation on carbon pricing. The mechanism has also long caused tension in the trade deal talks, which Brussels and Delhi want to finalise this year.

Joint projects under the TTC and India-EU Clean Energy and Climate Partnership should go beyond deployment on clean technologies to include manufacturing, especially upstream components such as ingots or wafers for solar. At the same time, research and innovation collaboration initiatives could include next generation technologies, especially solar.

Finally, as part of the trade agreement, they should include plans to develop a diversified and resilient critical mineral supply together with third countries such as Australia and South Africa through co-investment in minerals processing and mining projects. The EU could help lower the risk of investments in third countries through offtake agreements and price-stabilisation instruments, for example, via the joint purchase mechanism of the proposed EU Critical Raw Material Centre.

The EU and India may disagree on the scope of each other’s transition—from divergent views on the pace of phasing out coal to the disagreement on the Just Energy Transition Partnership between US, India and European countries. Nevertheless, they share a strategic interest in building resilient, competitive and diversified clean technology supply chains that can weather geopolitical tensions, not least the US-China rivalry, which is here to stay for the foreseeable future. Between the crossfire, it is time Indians and Europeans focus on their strengths.