Green industrial policy in the EU – The state-driven transformation of the Battery Value Chain

Supervisors: PD Dr. Stefan Schmalz and Prof. Dr. Christina Teipen, University of Erfurt and HWR Berlin

Project Duration: 10/2022-09/2025

The geopolitical economy of battery production (Bridge/ Faigen 2022) is emerging as paramount in International Political Economy in the context of the 'Green race' for strategic future technologies, including raw materials. This shift is accompanied and enabled by the geopolitization of economic policies (Meunier/ Mickus 2020) in the EU, indicating a new paradigm for states and markets beyond purely regulatory approaches towards more interventionist modes of public governance (Horner/ Alford 2019). This is reflected, for example, in the new 'subsidy race' and the Twin Transition in the EU.

An intriguing governance instrument linked to increased state activity is the 'return of industrial policy' (Wade 2014). This policy instrument was long considered a policy 'that shall not be named' (Cherif/ Hasanov 2019) in the Global North. Simultaneously, concepts such as 'mission-oriented industrial policies' (Mazzucato 2018) or 'green industrial policy' (Rodrik 2014) are gaining interest to address socially and environmentally just transformation processes of global production. However, a neglected reality in industrial policy (design) is the rise of Global Value Chains (GVCs) since the 1980/90s (Chang/ Andreoni 2020). Nowadays, 70% of world trade is structured in GVCs (OECD 2024) - a fact that gained prominence, especially since the Covid-19 pandemic, sparking debates ranging from GVC risks, dependencies, and resilience to de-coupling, near-, re-shoring, and friend-shoring.

At the conjuncture of these events, this PhD project scrutinizes theoretically and empirically the role of EU state actors in coordinating and building up value chains through industrial policies in the context of a changing geopolitical and geoeconomic context, using the example of battery production. In detail, this cumulative research project is structured as follows:

1. Subproject

Factors that have enabled a shift in economic and industrial policy making in the EU are commonly considered to be deindustrialization and diverging industrial performances in the EU after the Global Financial Crisis, the green and the digital transition, the need for a social-ecological transformation of industrial production and geopolitical competition, in particular with China (Dullien 2021). This paper contributes with a systematic analysis of significant changes in the fields of trade and investment, competition, and industrial policy in the EU due to the internationalization of state-backed Chinese firms as causal linkage:

Gräf, H., & Schmalz, S. (2023). Avoiding the China shock: How Chinese state-backed internationalization drives changes in European economic governance. Competition & Change: https://doi.org/10.1177/10245294231207990.

2. Subproject

The second sub-project analyses changes in industrial policy in the EU against the context of geoeconomic and geopolitical challenges based on an illustrative case study of the Battery Important Projects of Common European Interests (IPCEIs) and related policies contributing to the battery eco-system.

3. Subproject

The third sub-project explores the impact on (production) countries in the (semi-) periphery in the context of this intensified catching-up process of the EU in particular vis-à-vis the USA and China.

Project description

The global automotive production network is undergoing significant transformation and has embarked on a green transition. A key trajectory is the shift to battery production and electric mobility, which is at different stages of development in different parts of the world. Whilst asymmetric power dynamics and strategic decisions made by lead firms have transnational value chain effects on their networks of subsidiaries and suppliers, states have increasingly started to further shaping these Global Value Chain (GVC) outcomes. In China, the USA, and Europe, the transition to e-mobility is strongly supported by subsidization, and green industrial policy has gained momentum. Moreover, new regulatory frameworks by states in the Global North target social and environmental outcomes in GVCs, such as the German Due Diligence Supply Chain Act. Brazil has been integrating into the global automotive production networks since the 1950s and has become a key production country, notably for foreign automotive firms. Hence, this research project investigates the transnational effects of the ongoing transition to battery production on firms in Brazil, and how these firms are dealing with the transition. The research focus lies on how states are shaping these effects through national policies and sustainability governance. The aim is to evaluate outcomes for economic, social, and environmental upgrading of Brazil in the current restructuring of the global automotive GVC. Theoretically, this paper builds on public governance linked to GVC up- and downgrading. Methodically, it develops a qualitative GVC mapping based on a single case study, which is informed by expert interviews and a secondary literature review, supplemented by quantitative data.

Literature:

Bridge, G. and Faigen, E. (2022) Towards the lithium-ion battery production network: Thinking beyond mineral supply chains. Energy Research & Social Science, 89, 102659. Doi: 10.1016/j.erss.2022.102659.

Chang, H.J. and Andreoni, A. (2020) Industrial policy in the 21st century. Development and Change, 51(2), pp. 324-351.

Cherif, R. and Hasanov, F. (2019) The return of the policy that shall not be named: Principles of industrial policy. IMF Working Paper 19/74.

Dullien, Sebastian (2021) Nach der Corona-Krise: Die nächste Phase der (De-)Globalisierung und die Rolle der Industriepolitik, IMK Policy Brief, No. 100, Hans-Böckler-Stiftung, Institut für Makroökonomie und Konjunkturforschung (IMK), Düsseldorf.

Horner, R. and Alford, M. (2019) The roles of the state in global value chains. In Ponte, S., Gereffi, G. and Raj-Reichert, G. (eds.) Handbook on global value chains, Edward Elgar Publishing, pp. 555-569.

Mazzucato, M. (2018) Mission-oriented innovation policies: Challenges and opportunities. Industrial and Corporate Change, 27(5), pp. 803–815.

Meunier, S. and Mickus J. (2020) Sizing up the competition: explaining reform of European Union competition policy in the Covid-19 era. Journal of European Integration, 42(8), pp. 1077-1094.

OECD (2024) The trade policy implications of global value chains. [Online] www.oecd.org/trade/topics/global-value-chains-and-trade/ (accessed 03.01.2024).

Rodrik, D. (2014) Green industrial policy. Oxford review of economic policy, 30(3), pp. 469-491.

Wade, R.H. (2014) Return of industrial policy? International Review of Applied Economics, 26(2), pp. 223-239.