Decarbonizing Without Dependencies

Julia Tréhu

The road to decarbonization increasingly passes through China, the world’s largest manufacturer of cost-efficient legacy renewable and clean technologies. Beijing’s supremacy, however, has eroded Europe’s previous leadership in these industries. The trend need not be permanent. Europe can learn from past mistakes and implement options that boost its competitiveness, and help it decarbonize and achieve security and energy sovereignty, via investment in frontier technologies along clean-tech value chains.

China’s dominance is clear: 80% of current solar photovoltaic (PV), 76% of battery, and 64% of wind manufacturing takes place in the country. In 2025, almost three-quarters of all electric vehicles (EVs) manufactured globally came from China. Beijing’s rise in these sectors has been recent and rapid, driven by cutthroat domestic policies. The value of Chinese exports of six key technologies—solar PV, wind, EVs, heating and cooling systems, grid tech, and batteries—increased more than five-fold between 2018 and 2026. A recent OECD report attributes 60% of Chinese firms’ gains in global market share since 2005 to industrial subsidies (compared to 22% for non-Chinese firms). The new ubiquity of inexpensive Chinese green tech exports to Western markets can seem like a ready-made solution for rapid decarbonization. 

The necessary debates about China’s clean-tech dominance and its impact on the European economy largely focus on legacy green technologies, overshadowing innovations in clean and negative-emissions technologies or strategic nodes within legacy tech stacks. To benefit from those, targeted European investment in cutting-edge areas and key technological components across the energy stack is necessary to decrease dependence on China and its attendant risks. Currently, Europe’s decarbonization agenda requires foreign technology that introduces cyber and other security risks. Such reliance negatively impacts domestic manufacturing, thereby undermining energy sovereignty and democratic support for the energy transition. But combining existing trade tools with demand-side measures focused on new technologies would allow Europe to meet its climate and competitiveness goals while ensuring future energy security.

The following represents a selection of key technologies in energy production, distribution, and storage in which targeted investment can help Europe pursue competitiveness, decarbonization, and security.

Energy Production

  • Inverters are the “brains” of a renewable installation, converting direct current (DC) to alternate current (AC), and generating important (and sensitive) data as they communicate with energy grids. European industry remains an important supplier of many electrical and electronic components integral to solar and wind energy production systems, holding about 20% of global market share but increasingly squeezed by imports. Fully 70% of inverters installed in 2023 were from Chinese suppliers. As energy grids become increasingly digitized, inverters’ software represents a cyber vulnerability, and undocumented communication devices have been discovered in some imported inverters. Strategically targeted policies such as the Industrial Accelerator Act’s “Made in Europe” requirement for inverters used in publicly funded solar projects are a key step in fortifying European industry and security. These policies address challenges in areas in which Europe has a comparative advantage but faces significant security risks from adversarial products.

  • Geothermal energy harnesses underground heat to produce steam, which drives turbines for electricity generation. This energy source was traditionally limited to areas of active geologic activity, such as volcanic Iceland. But advances in next-gen geothermal are expanding the geographic and geological availability of geothermal power in Europe. According to a study from Ember, a think tank focusing on energy issues, new geothermal could replace 42% of Europe’s fossil fuel needs at a price comparable to that of other energy sources. Geothermal plants, which can operate continuously, can help stabilize energy grids while reducing the use of imported fossil fuels, creating opportunities for domestic energy production at a time when dependence on foreign energy sources and technologies is increasingly risky. The EU’s Net Zero Industrial Actidentifies geothermal as one of eight key technologies, making it eligible for accelerated permitting procedures and other support for attracting investment.

 

Energy Distribution

  • Grid-enhancing technologies (GETs) refers to a group of technologies that help maximize electricity flow across energy grids, including sensors, power flow control devices, and smart meters. Integration of these technologies is crucial for avoiding congestion and optimizing transmission capacity for an increasingly renewables-heavy grid. Unused grid capacity varies among EU member states and is a major impediment to integration of new renewable projects. Fully 40% of Europe’s grids are over 40 years old, which means, according to the European Commission, an estimated €584 billion in baseline investment needs. Systematic integration of GETs could increase European network capacity by 20%-40% by 2050, allowing “more with less” as countries maximize existing energy capacity and allocate resources to other needed investments. The December 2025 European Grids Package calls for incorporating such “energy efficiency first” principles into network planning and infrastructure development.

  • Virtual power plants (VPPs) are decentralized networks of distributed energy resources such as rooftop solar and EV chargers that together can help stabilize energy grids and reduce reliance on fossil fuels during peak hours. Europe (especially Germany) is a leader in VPP application and build-out with 42% of global installed capacity, “virtually all” operators of European origin, and a 24% compounded growth rate by 2030 according to a recent study by the European Commission’s Directorate-General Energy. The 2024 Electricity Market Design reform moved the EU closer to a harmonized energy market, but VPP implementation and policy frameworks still vary widely among member states. Further build-out of VPPs in Europe and reducing policy fragmentation, for example by aligning grid connection rules with EU standards, can help optimize existing green and clean capacity and increase grid resilience, decrease reliance on imported fossil fuels, and strengthen energy sovereignty.

 

Energy Storage

  • Growth in next-gen energy storage solutions is required as renewable energy production increases. Europe is now highly dependent on China for raw materials such as graphite, processed lithium, and manganese, which are needed for storage technologies such as lithium-ion batteries. European investment in emerging energy storage technologies such as sodium-ion batteries, compressed air storage, pumped hydropower, and thermal storage can help decrease dependence on foreign inputs at key nodes in the energy stack and increase and diversify storage capacity. The EU’s 2025 Clean Energy Competitiveness Progress Report, however, presents a mixed picture in this area. It notes that the bloc has developed a solid base in novel energy storage, with 18.5% of European venture capital investment, the largest share of such investment, in net-zero technology from 2021-2023 flowing to relevant frontier technologies. The EU also supports investment with complementary instruments such as the Innovation Fund and InvestEU. But European firms continue to face investment barriers and scaling challenges due to an incomplete and fractured single market.

A comprehensive EU policy response to Chinese clean tech should combine approaches from the three pillars of industrial, trade, and security policy. Investment in technologies across the energy stack can go hand in hand with addressing China’s dominance through industrial policies such as the Industrial Accelerator Act and the Critical Raw Materials Act. Both represent first steps toward making the most of Europe’s strategic assets along clean-tech value chains. Such moves also provide a demand signal that complements other possible European trade measures including the International Procurement Instrument, the Anti-Coercion Instrument, and the Foreign Subsidies Regulation, which could limit supply via tariffs or outright bans. Combining these instruments can help Europe expand the single market and coordinate with allies on limiting predatory dumping of Chinese clean tech into the European market. The recent Tech Sovereignty Package and other measures such as the updated Cybersecurity Act and Cyber Resilience Act address security risks, including those stemming from Chinese technology supply chains and sensitive technology in critical infrastructure.

Green economic security, trade, and industrial strategies can shield early-stage development of new or strategically sensitive clean technologies, and mitigate adversarial risks through cybersecurity strategies tailored to specific industries. These strategies must act in concert with the suite of competitiveness policies to spur local clean-tech industrial development. China’s green industrial dominance may get all the attention, but Europe can still secure its place in the next generation of innovation in the sector.

The views expressed herein are those solely of the author(s). GMF as an institution does not take positions.