Carbon Footprint Legislation Raises Bar for European Market (AI Translation)

【周刊提前读】碳足迹法案抬高欧洲市场门槛 宁德时代如何争取“入场券”？

Contemporary Amperex Technology Co. Limited (CATL), the world's leading lithium battery producer, is facing a significant crisis that threatens billions of yuan in export profits. The European Union's impending battery regulation will impose stringent carbon footprint limits on batteries sold within the region, risking non-compliance with European standards by 2028, thus affecting Chinese battery exports [para. 1]. In 2023, CATL's overseas revenue surged by 70.29% year-on-year to 131 billion yuan, with a notable increase in the share of overseas revenue to 32.67% of total revenue [para. 2].

The EU's new Regulation on Batteries and Waste Batteries came into effect in August 2023, mandating carbon footprint reporting and recycling ratios for battery products sold in the EU [para. 3]. Notably, from February 18, 2025, power battery products entering the EU must provide a carbon footprint report, with further restrictions introduced in 2026 and 2028 [para. 5][para. 6]. Despite internal delays within the European Commission, industry experts believe the introduction of this legislation is inevitable [para. 7].

Calculating and reporting carbon footprints involves tracking the emissions throughout a product's lifecycle. Failure to meet the required standards will bar Chinese battery companies from entering the EU market by 2028 [para. 8]. The regulation challenges the battery industry to quickly adapt to the EU's calculation rules and gather compliance data. The EU Battery Regulation is believed to be a strategic move to strengthen local production capabilities and attract overseas manufacturers to Europe [para. 10].

"The battery carbon footprint," which covers the entire lifecycle of a battery, with over 60% stemming from electricity consumption, significantly impacts Chinese suppliers due to their reliance on coal-powered electricity [para. 12]. Currently, China's average carbon emission factor is significantly higher than that of EU countries, creating challenges for compliance and a need for green electricity direct supply [para. 13][para. 15].

Efforts to meet EU regulations include CATL's proposal to utilize local green power sources, such as nuclear and hydro power, to bypass the national power grid. This ambitious attempt faces substantial policy and technical hurdles [para. 16][para. 17][para. 18][para. 21]. CATL has invested in distributed photovoltaic systems and aims to secure direct supplies from nuclear and hydro power stations to reduce its carbon footprint [para. 24][para. 25][para. 26].

A new strategy involves moving production bases to regions abundant in renewable resources, but this poses logistical and cost challenges. Chinese firms remain committed to maintaining domestic production advantages while increasing overseas presence [para. 30]. Although the EU’s stringent regulations are seen as a move to protect local industries, China's vast domestic production capacity forms a key part of the global lithium battery supply chain [para. 35].

The focus on green power supply reform reflects CATL's commitment to staying competitive in historically lucrative markets like the EU, accounting for nearly 30% of China's lithium battery exports as of mid-2024 [para. 33]. Maintaining exports ensures that Chinese lithium battery firms can sustain utilization rates of domestic factories, a critical factor given the rapid expansion and resultant capacity glut in recent years [para. 39][para. 41].

Despite ongoing challenges, CATL continues its efforts to reduce carbon footprints and comply with evolving regulations, with a broader implication on the ability of Chinese battery companies to compete globally [para. 43]. The regulatory changes underscore the need for strategic adaptability within China's battery sector to sustain its formidable position in the global market. ■