The European Union needs to invest more in research and development and boost mining and processing of critical raw materials to ensure its clean technology companies can compete in the future, Ursula von der Leyen said on Wednesday.
Speaking to MEPs in Strasbourg, the head of the European Commission said that "the race is on" to determine "who is going to be dominant" in the clean tech market in the future.
Von der Leyen's address to MEPs came a day before the Commission is set to unveil two key legislative proposals: a Net-Zero Industry Act to boost the production and installation of clean tech in the EU and a Critical Raw Materials Act to ensure steady supplies of the rare earths needed to power the green transition.
The proposals are part of the European Green Deal industry Plan released last month and designed in response to $369 billion in subsidies Washington has started doll out to its clean tech manufacturers, sparking fears EU companies could up and leave the bloc to take advantage of the money offered by the US's Inflation Reduction Act.
"We must get our act together if we want to stay front runners," the Commission chief told MEPs.
According to the EU's executive, global investments in the clean transition rose by 30% year-on-year to total $1 trillion in 2022. It is expected to triple by 2030.
One of the key issues highlighted by the Commission president that hinders European companies is the bloc's low production of critical raw materials as well as low capacity to process them.
"We get 98% of our rare earth supply from China. 93% of our magnesium from China, 97% of our lithium from China and you can continue this list over and over again," she said.
"The pandemic and the war have taught us a bitter lesson about dependencies. If we want to be independent, we urgently have to strengthen and diversify our supply chains with like-minded partners," she added.
To curb this dependency on China, von der Leyen has already proposed the creation of a Critical Raw Materials Club with "like-minded" and "reliable" partners to source raw but also processed rare earth. She discussed the topic with US President Joe Biden and Canadian Prime Minister Justin Trudeau during her visit to North America last week.
But the EU needs to go further.
"We want to extract more ores and minerals here in the EU . We want to boost our processing capacity to at least 40% of annual consumption. And of course, we need to recycle more," she said.
'We need much more'
The second big issue hampering European companies' ability to compete is funding and red tape, according to von der Leyen.
"We Europeans have set ourselves the target of spending 3% of our GDP on R&D (research and development) by 2030. Slowly but surely, we are getting closer to that target. But that is not enough. Others are quicker and better. While the amount we spend on R&D is slowly rising, our share of global R&D expenditure has fallen from 41% to 31% over the last 20 years," she said.
According to the European Investment Bank's annual Investment Report released two weeks ago, corporate spending on R&D in the EU stood at 1.5% of GDP in 2020, whereas the US and Japan had rates of 2.6%.
The survey also found that EU firms are less likely to innovate or to adopt new technologies than US firms with the gap widening by around 10 percentage points to 19 percentage points.
To remedy that, the Commission is to propose an increase of the EU's common target for research spending, von der Leyen said.
She is also urging governments to slash the bureaucratic burden on cleantech companies, to make authorisation procedures simpler and faster.
Portuguese MEP Pedro Marques (S&D) said the announcements on reducing red tape "are ok, but we need much more."
"We need a true European response, that means help to all the countries in Europe to really green their industries, and not just Germany and France," he added, referring to the fact that the two countries, which are the EU's biggest economies, dolled out over three-quarters of all the state aid programmes approved by the Commission in 2022.
EU leaders will discuss the Commission's proposals to boost the bloc's green transition and competitiveness at a Council summit in Brussels next week.