The Commission’s actions on EVs may not be the last taken against clean technology from China, with trade measures having recently been considered for two more major pillars of Europe’s energy transition. 

An anti-subsidy probe into Chinese solar panel manufacturers bidding for a public project in Romania was closed after the targeted companies withdrew from the process. 

An investigation into Chinese wind turbine suppliers is ongoing. Both were launched under the new Foreign Subsidies Regulation. 

The risks of tariffs on decarbonization technologies

The EU is anxious to protect its companies from what it sees as unfair competition. It has bitter memories of the early 2010s, when cheap Chinese panels all but destroyed the European solar industry. 

The EU is right to identify clean technology as a crucial strategic industry, and to take action to mitigate the negative consequences of surging imports from China. Against a volatile geopolitical backdrop, it can be worth paying a premium for goods made at home. 

But decarbonization technologies like solar panels, wind turbines and electric vehicles share a characteristic that sets them apart from other traded goods. When swapped for fossil fuel alternatives, they reduce the quantity of planet-warming gases being pumped into the atmosphere. They are needed in vast quantities, and in very short order, to give any chance of avoiding the worst impacts of climate change. 

The EU has a legally binding target of net zero greenhouse gas emissions by 2050, and an intermediate target of at least a 55 per cent reduction by 2030, relative to 1990 levels. A target of 90 per cent has been proposed for 2040. 

These targets are ambitious, even if they are insufficient to limit warming to 1.5°C. With 2022 marking a reduction of 32.5 per cent, accelerated and sustained action will be needed. This implies deploying mass-market clean technology products like solar panels and electric vehicles in very large numbers. 

The costs of European manufacture

The EU wants these to be manufactured within its borders. In her 2023 State of the Union address, Commission President Ursula von der Leyen was unequivocal: the EU’s clean tech future should be made in Europe. 

The Green Deal Industrial Plan, announced in early 2023, seeks to do this by cutting red tape, increasing access to finance, boosting skills, and promoting fair trade. The Net Zero Industry Act sets a target for the EU to manufacture at least 40 per cent of the so-called strategic net zero technologies it deploys each year, by 2030. 

The Act proposes to achieve this through measures including requiring public authorities to consider non-price ‘sustainability and resilience’ criteria when procuring renewable energy. This would in theory increase the attractiveness of goods made on European soil. 

However, this requirement can be disregarded if it implies ‘disproportionate’ additional costs. It is therefore doubtful it will be enough to offset the large difference in production costs between Chinese- and EU-made solar panels, for example. 

Building the factories needed to hit the Act’s manufacturing targets for solar panels and batteries is estimated to require nearly $70 billion by 2030. 

But unlike in the United States, where the Inflation Reduction Act offers lavish subsidies, the EU’s Green Deal Industrial Plan provides little in the way of new finance. 

The Plan loosens state aid rules, enabling member states to subsidize green industry, and proposed a new EU-level fund for investing in strategic clean technology projects. 

However, the return of EU-wide fiscal rules will restrict government spending, including on the transition; the European Sovereignty Fund was scaled back and ultimately became a platform to mobilize private finance. 

Current levels of investment in the EU’s transition fall far short, with the annual climate investment deficit estimated at €406 billion, or 2.6 per cent of GDP – implying that climate finance will need to roughly double to meet 2030 targets. 

A June 2023 report by the European Court of Auditors found ‘no information that sufficient financing will be made available to reach the 2030 targets’. Climate-focused public spending is also likely to get squeezed by an increasing focus on security and defence.

With financial resources constrained, and the timeframe tight, the unit cost of each product needed to achieve the transition becomes an extremely important variable. 

And when it comes to cheap, clean technology, China is the undisputed world leader. Two decades of consistent and targeted industrial policy, combined with the benefits of a huge domestic market, mean that China today produces extremely competitively priced, high-quality, low-carbon goods. 

In 2023, solar modules in China were being manufactured at a cost of $0.15 per watt, compared to $0.30 in Europe. In France in 2023, the cheapest electric vehicles were priced between €22,000 and €30,000 ($24,000 – $32,500) while in China, over 50 electric models were retailing locally for less than CNY 100,000 ($15,000). Analysis by think tank Transport & Environment found that European automakers have prioritized large, premium electric vehicles at the expense of compact, affordable models. 

All else being equal, anything which stems the flow of the cheapest low carbon products will increase the cost of the transition and slow it down, increasing the risk of the EU missing its emissions reduction targets. 

These are not the only risks, however. If solar panels and wind turbines become more expensive, it will ultimately feed through into higher electricity prices, increasing the cost of living for citizens and exerting a downward pull on the fragile competitiveness of European industry.

To read the full expert comment as it was published by Chatham House, click here.

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The Effects of Weather Disruptions on the Supply Chain

For many businesses, the supply chain is an international issue. Domestic interactions can be costly, so outsourcing labor and resources across the sea is often an unavoidable task. For example, flood-related damage in China has a huge effect on crop yield, forcing the country to face a hefty $25 billion economic blow. This means businesses in the Western Hemisphere that rely on Chinese agricultural exports may not be able to produce necessary items for grocery stores or, say, create holistic wellness items.

These types of events force businesses to look elsewhere for the materials, labor, and other areas of the supply chain they need to amend. For reference, let’s take a look at the restaurant industry. Climate change, among other factors like COVID-19, has given way to increased food costs. Essential items, like grain and meat, have risen in price. Avian flu and temporary price increases at the beginning of 2023 caused restaurants to eliminate a good portion of meat-based meals from their menus.

Supply issues like these mean employees are also not being offered wages in alignment with recent inflation and the rising demands of their jobs. This gives way to larger economic issues that can potentially restructure the way we do business globally.

How Extreme Weather Events Affect Transportation Costs

Climate change and extreme weather events don’t only affect things like food production. It plays a huge role in the cost of transportation. Transportation is a necessary part of doing business. You need a method of transferring resources to a processing plant and then the completed product to a warehouse where it is shipped to yet another location.

Ultimately, climate change affects multiple areas of transportation in the global market. Since burning fossil fuels contributes to climate change, it causes a cyclic effect on transportation costs. Extremely hot weather can affect the performance of oil refineries, which then causes a delay in fuel production, making gas prices higher.

Also, there is the matter of delivery fees, which affects both businesses and consumers. Consumers tend to foot the bill for delivery fees since it can be a huge financial blow for businesses to take care of this fee themselves. Unpredictable weather can affect air freight schedules, and unusual snowfall can prevent trucks from making deliveries in a timely manner. Evolving climate conditions force consumers to eventually pay more in delivery fees.

To lower transportation costs, businesses should consider using energy-efficient vehicles to stave off the growing fuel costs. Should this not be an option, you can also consider using a diesel delivery service, which ensures all trucks are receiving high-quality fuel on a set schedule.

Combating Climate Change

Though climate change isn’t something that can be altered by a single person or entity, businesses can still do their part to create a more sustainable global market through several strategies and innovative technologies.

First, consider optimizing your supply chain by staying local. Use local vendors to create a reserve inventory and try not to outsource a large portion of your business operations overseas. This will reduce fuel costs and benefit the local economy at the same time. Second, invest in sustainable technological practices. Using solar power for warehouses can have a significant impact on energy costs and lower greenhouse gas emissions.

Agricultural industries can make adjustments to livestock handling as well to reduce negative environmental impact. Exploring lab-grown meat or creating an emphasis on plant-based meat alternatives for the restaurant and food industry can make a huge difference in issues like water pollution as well as toxic emissions.

Reducing your carbon footprint may not seem like the most cost-effective solution at first, but doing your part to combat climate change will only fare your business well in the long term. Consumers will be more apt to purchase your products or services if they see your practices are environmentally friendly. You will also end up financially benefiting from stable supply chain costs as climate change efforts increase.

The Big Picture

Eco-friendly business strategies are essential for increased performance and keeping costs stable across the board. Staying well-informed about sustainable supply chain practices and the location and environment of all areas of your business cannot be understated. At the end of the day, switching over to energy-efficient transportation options and investing in climate-friendly tech is just good for business – it provides a chance for future generations and industries to thrive.

To read the full article, click here.

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Their excitement over the Middle Corridor lies in its potential to reduce the time needed to ship goods between East Asia and Europe to as few as twelve days. If achieved, it would give the Northern Corridor and seaborne trade via the Indian Ocean—Eurasia’s other two major trade routes—a run for their money. The Northern Corridor, which includes the New Eurasian Land Bridge and the Trans-Siberian Land Bridge through Russia, requires nineteen days to traverse. And the traditional maritime route through the Indian Ocean takes twenty-two to thirty-seven days. A full realization of the Middle Corridor’s potential could transform trade across Eurasia and, perhaps, the centers of power within it. But to fulfill that potential, the countries along the corridor will have to tackle several daunting administrative, infrastructure, and political challenges.

One Steppe at a Time

Disappointingly for its advocates, progress on the Middle Corridor, until recently, has been slow. Since Turkey first conceived of the corridor in the late 2000s, creating the necessary ferry, port, railway, and road infrastructure across Central Asia, the Caspian Sea, and the Caucasus has been a long and complex process. At first, countries along the trade route tried to patch together their existing transportation networks. But that was not enough to make the route competitive. The Middle Corridor’s first big step forward did not come until 2014, when the Trans-Kazakhstan railway opened. The next big step was the completion of the Baku-Tbilisi-Kars railway in 2017, enabling rail passage through the Caucasus mountains for the first time since the 1990s. Even so, it was not until 2020 when the first train using the Middle Corridor trade route arrived in China from Turkey.

Since that time, cargo shipments along the Middle Corridor have risen rapidly, albeit from a very low base. Goods moved along the corridor grew from roughly 350,000 tons to 530,000 tons between 2020 and 2021. But what really boosted the corridor’s use was Russia’s 2022 invasion of Ukraine and the West’s subsequent economic sanctions on Moscow. Though the countries of Central Asia have remained neutral in the conflict, they have seen an advantage in having an alternative to the Russian-dominated Northern Corridor, not to mention better infrastructure to support greater intraregional trade. As a result, cargo shipments along the Middle Corridor swelled to 3.2 million tons in 2022. Some now anticipate that the Middle Corridor’s capacity will climb to 10 million tons, given Turkey’s completion of the Marmaray railway under the Bosporus Strait, enabling rail cargo from Central Asia to travel directly into the heart of Europe. Indeed, European shipping companies have taken notice. Austria’s Rail Cargo Group, Denmark’s Maersk, Finland’s Nurminen Logistics, and the Netherlands’ Rail Bridge Cargo have all begun to use the Middle Corridor.

Seeking Alternatives in Central Asia and the Caucasus

Given the geopolitical uncertainty created by Russia’s 2014 invasion of Ukraine, it made sense for countries in Central Asia and the Caucasus to search for an alternative overland trade route to global markets independent of Russia. Azerbaijan, Georgia, and Kazakhstan, in particular, actively collaborated to turn the Middle Corridor into a reality. Together with China and Turkey, the five countries have held a series of conferences and ministerial meetings to improve their cross-border rail links and reduce trade friction between them.

Kazakhstan’s interest in the Middle Corridor has extended beyond trade to the geopolitical arena. Almaty likely sees its construction of a key segment of the Middle Corridor (as well as a part of the Northern Corridor) as important for not only its Bright Path (Nurly Zhol) domestic development strategy, but also for its grand strategy of better balancing its foreign relations with Beijing and Moscow. At the same time, the Middle Corridor promises to enhance its profile as a regional power center. With similar ambitions, other Central Asian countries, like Kyrgyzstan, Turkmenistan, and Uzbekistan, have emulated Kazakhstan’s approach and sought to build their own railways that would connect to the corridor.

China’s Efforts to Bypass Russia and the United States

China has been no less keen on the Middle Corridor. That is because Beijing has regarded all new trade routes across Eurasia as broadly beneficial. They give Chinese industry greater access to international markets and the Chinese government more clout in Central Asia, a region where Beijing and Moscow have long vied for influence. Indeed, that rivalry in large measure is what motivated Beijing’s enthusiasm for the Shanghai Cooperation Organization in the past. China appreciates that while it may currently share a “no limit” partnership with Russia, the longevity of that partnership is not guaranteed.

However, the extent to which China has influenced the Middle Corridor’s development is not so clear-cut. Pointing to the increasingly close ties between China and Kazakhstan and the praise that Azeri and Kazakh leaders regularly heap on China’s Silk Road Economic Belt Initiative, some have argued that Beijing may have shaped the infrastructure priorities of the corridor’s key countries. But while there is no doubt that those countries see China as crucial to making the Middle Corridor a success, few have taken out loans from China’s Belt and Road Initiative to build out their transportation networks. The reality of the situation might ultimately have as much to do with an alignment of Central Asian and Chinese goals as it does with China’s regional designs.

Whatever its intentions, China has invested in the logistics infrastructure that supports the Middle Corridor. It built the Khorgos Gateway and financed the Khorgos-Eastern Gates special economic zone, which together constitutes a vast rail transshipment center that straddles the Chinese-Kazakh border. Clearly, from Beijing’s perspective, having a trade route that Russia does not dominate (as in the case of the Northern Corridor) and the United States cannot directly interdict (as in the case of the traditional maritime route) is of strategic value to China.

Turkey Eyes Central Asia

At the European end of the Middle Corridor lies Turkey, a country whose interest in the corridor matches, if not exceeds, that of China. Ankara has seen the corridor as a way to not only build stronger economic ties to Central Asia, but also improve its strategic position. Turkey has hoped to do that by leveraging its common linguistic roots with Turkic-speaking countries in the region and offering them a trade outlet that is an attractive alternative to those of Iran or Russia, Turkey’s longtime rivals.

In fact, Turkey made the Middle Corridor the centerpiece of its foreign policy in Central Asia. Between 2013 and 2015, it inked agreements with Azerbaijan, China, Georgia, and Kazakhstan to improve the corridor’s connectivity to Europe. True to its word, Turkey built the Eurasia Tunnel and Yavuz Sultan Selim Bridge in Istanbul in 2016 and is completing the Edirne-Kars High-Speed Railway and the Northern Marmara Highway today. Diplomatically, Ankara even tried to bring Armenia and Azerbaijan together to facilitate the construction of a new Middle Corridor railway through Armenia’s Zanguzur region.

Slow-Motion Transformation

After Russia’s 2022 invasion of Ukraine, Middle Corridor advocates brimmed with excitement as geopolitical and economic interests put a global spotlight on the trade route. And, given that major components of the Middle Corridor are now complete, it appeared as though trade along the corridor was ready to boom. But several challenges still hold it back and must be addressed before cargo shipments can really surge: underdeveloped infrastructure and transfer services, the Caspian Sea’s summertime climate, border-crossing delays, and periodic political instability.   

The first challenge concerns the Middle Corridor’s reliability. A trade route is only as good as its ability to move goods cheaply and on schedule. That requires efficient facilitation and intermodal transfer services, neither of which have been fully developed along the Middle Corridor yet. In contrast, Russia’s Trans-Siberian railway benefits from a network of services that was developed over many decades. Plus, the railway transits through large Russian and Belarussian industrial and population centers, which adds cargo volume and thereby defrays costs. While the Middle Corridor also hopes to foster more intraregional trade, the industrial and population centers in Central Asia and the Caucasus are far smaller than Russia’s.

Another challenge is the climate around the Caspian Sea, a body of water over which much of the Middle Corridor’s trade must pass. The Caspian Sea’s notoriously rough waters during the summer can delay ferries for weeks at a time, exacerbating the often-bad congestion at the port of Baku. While Azerbaijan has sought to expand Baku’s port capacity with new terminals and ferries, it can do little about the weather. That is likely one reason why Rail Bridge Cargo still estimates its cargo transit time through the corridor to be thirty-six to forty days.

Still another challenge for the Middle Corridor is red tape. Since the Middle Corridor passes through multiple countries, border delays due to customs and tariff collection are common. To be sure, the problem is well known. For years, representatives from Azerbaijan, Georgia, Kazakhstan, and Turkey have met to sort them out. But it was not until November 2022 that they crafted a roadmap to do so. Unfortunately for them, the roadmap is expected to take at least five years to fully implement.

A final issue deals with the prospect of civil and international conflict along the Middle Corridor that could, at the very least, raise insurance premiums for trade. The issue is not an academic one. In January 2022, Kazakhstan experienced three weeks of unrest that required the intervention of Russian troops to quell. Kyrgyzstan experienced similar periods of unrest in 2010 and 2020. And, in September 2022, armed clashes between Azerbaijan and Armenia resulted in over 800 casualties and led the former to block access to the disputed Nagorno-Karabakh enclave three months later, hardly a solid basis for cross-border commerce.

Certainly, trade along the Middle Corridor has grown, despite concern over weak demand that existed as recently as 2021. But that growth should be kept in perspective. Even as the countries along the Middle Corridor strive to triple their capacity to 10 million tons of cargo, Russia’s Trans-Siberian railway alone moved 144 million tons of cargo in 2020 and the traditional maritime route will convey well over one billion tons in 2023. And, should global demand slacken, budding trade routes like the Middle Corridor could get pinched. Russia’s invasion of Ukraine may have set the Middle Corridor on the right track, but its destination may still be some distance away.

Felix K. Chang is a senior fellow at the Foreign Policy Research Institute. He is also the Chief Operating Officer of DecisionQ, a predictive analytics company, and an assistant professor at the Uniformed Services University of the Health Sciences.

To read the full analysis, please click here.

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