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Exclusive-EU risks depending on China for batteries after quitting Russian energy -presidency paper

Workers are seen at the production line of lithium-ion batteries for electric vehicles (EV) at a factory in Huzhou

By Belén Carreño

MADRID (Reuters) -The European Union risks becoming as dependent on China for lithium-ion batteries and fuel cells by 2030 as it was on Russia for energy before the Ukraine war unless it takes action, a paper prepared for EU leaders ahead of an October summit said.

The document, obtained by Reuters, was compiled by the current Spanish presidency of the EU and will be the basis of discussions on Europe's economic security during a meeting of the bloc's leaders in Granada in Spain on Oct. 5.

Worried by China's growing global assertiveness and economic weight, the leaders will discuss European Commission proposals to reduce the risk of Europe becoming too dependent on China and the need to diversify towards Africa and Latin America.

The paper said that because of the intermittent nature of renewable energy sources like solar or wind, Europe will need ways to store energy to reach its goal of net-zero carbon dioxide emissions by 2050.

"This will skyrocket our demand for lithium-ion batteries, fuel cells and electrolysers, which is expected to multiply between 10 and 30 times in the coming years," the paper said.

While the EU has a strong position in the intermediate and assembly phases of making electrolysers, with a more than 50% global market share, it relies heavily on China for fuel cells and lithium-ion batteries crucial for electric vehicles.

"Without implementing strong measures, the European energy ecosystem could have a dependency on China by 2030 of a different nature, but with a similar severity, from the one it had on Russia before the invasion of Ukraine," it said.

According to the executive European Commission, in 2021, the year before the Russian invasion of Ukraine, the 27-nation EU took more than 40% of its total gas consumption, 27% of oil imports and 46% of coal imports from Russia.

Ending most energy purchases from Russia caused an energy price shock in the EU and a surge in consumer inflation, forcing the European Central Bank to sharply raise interest rates in a move that has curbed economic growth.

Lithium-ion batteries and fuel cells were not the only area of EU vulnerability, the Spanish presidency paper said.

"A similar scenario could unfold in the digital-tech space," the document said. "Forecasts suggest that the demand for digital devices such as sensors, drones, data servers, storage equipment and data transmission networks will rise sharply in this decade."

"The EU has a relatively strong position in the latter, but it shows significant weaknesses in the other areas," it said.

By 2030, this foreign dependency could seriously hinder the productivity gains that the European industry and service sector urgently require and could impede the modernisation of farming systems essential to addressing climate change, the paper said.

Spain took over the EU's six-month rotating presidency in July.

(Writing by Jan Strupczewski; Editing by Conor Humphries and Catherine Evans)