Economic, Trade and Employment Implications from EVs Deployment and Policies to Support Domestic Battery Manufacturing in the EU

AuthorIoannis Charalampidis,Leonidas Paroussos,Kostas Fragkiadakis,Panagiotis Fragkos
Publication Date01 Aug 2020
DOI10.1177/0015732520920466
SubjectArticles
Economic, Trade
and Employment
Implications from
EVs Deployment and
Policies to Support
Domestic Battery
Manufacturing in the EU
Kostas Fragkiadakis1, Ioannis Charalampidis1,
Panagiotis Fragkos1 and Leonidas Paroussos1
Abstract
The decarbonization of the energy system requires the adoption of a mix of
zero or low carbon intensive technological options, which depends on their
cost-effectiveness, their potential to reduce emissions and on social acceptance
issues. Transport electrification combined with renewable energy sources (RES)
deployment in power generation is a key decarbonization option assessed in
many recent studies that focus on national or international climate policies.
The penetration of electric vehicles (EVs) together with a gradual retirement
of conventional oil-fuelled vehicles implies that a new ‘trade ecosystem’ will be
created characterized by different features (move from OPEX to CAPEX) and
supply chains. A key component of the EVs are the Lithium-Ion batteries, the
manufacturing of which is employment intensive and constitutes an essential
element of the EVs that can act as a driver for establishing comparative advantages
and increasing EV market shares. Our study focuses on the size of the EV market
that can be established within ambitious global and EU decarbonization scenarios
and investigates the economic, trade and employment implications considering
the production chain of EVs (i.e., the regional production of batteries and vehicles).
We use the large-scale global GEM-E3-FIT model to capture the trade dynamics
of decarbonization scenarios. We find that under ambitious climate policies, the
Article
1 E3-Modelling, Athens, Greece.
Corresponding author:
Kostas Fragkiadakis, E3-Modelling, Panormou 70–72 Street, Athens, Greece.
E-mail: fragkiadakis@e3modelling.gr
Foreign Trade Review
55(3) 298–319, 2020
© 2020 Indian Institute of
Foreign Trade
Reprints and permissions:
in.sagepub.com/journals-permissions-india
DOI: 10.1177/0015732520920466
journals.sagepub.com/home/ftr
Fragkiadakis et al. 299
global size of the clean energy technologies will be US$44 trillion cumulatively
over the 2020–2050 period. 44per cent of the market relates to EVs, which will
mostly be produced outside EU. For the EU to capture a significant segment of the
EV value chain, it needs to increase clean energy R&D and associated supportive
policies so as to boost the domestic capacity to produce competitively batteries.
JEL: F11, F13, F16, F18, F62, F68
Keywords
GEM-E3-FIT, clean energ y trade, battery manufacturing, decarbonization
Introduction/Motivation
The decarbonization of the energy system, to achieve the Paris Agreement goals,
requires the adoption of a mix of zero and low carbon intensive technological
options. The deployment of clean energy technologies depends on their cost-
effectiveness, their potential to reduce emissions and on social acceptance issues
(Capros et al., 2014). Transport electrification combined with renewable energy
sources (RES) deployment in power generation ranks high as an emission
abatement option as identified in many recent studies that focus on national or
international decarbonization strategies (including Fragkos, Tasios, Paroussos,
Capros, & Tsani, 2017; Van Soest, Reis, Drouet, Van Vuuren, & Den Elzen, 2018).
The rapid penetration of EVs in car markets coupled with a gradual retirement
of conventional ICE vehicles implies that a new ‘trade ecosystem’ will be created
characterized by different features (move from OPEX to CAPEX) and supply
chains relative to the current paradigm. In particular, a key component of the
electric vehicles (EVs) is the batteries that are quite employment intensive
(IEA, 2018) and constitute an essential element of EVs that can act as a driver
for establishing comparative advantages and increasing EVs market shares
(Karkatsoulis, Capros, Fragkos, Paroussos, & Tsani, 2016). The objective of our
study focuses on the size of the future global and EU specific market for EVs and
batteries that can be established within global energy system decarbonization
scenarios and investigates the economic, trade and employment implications,
taking into account the production chain of EVs (i.e., the regional production of
batteries). In particular, the study objective is to examine how the increased
penetration of EVs would impact economic activity, trade patterns and employment
in the presence of policy measures that would increase the EU share in the value
chain of EVs in the low-carbon transition context.
With respect to batteries, decarbonization will lead to a substantial increase in
EU demand, which, on current market and policy conditions, would largely be
supplied from the Far East, as Japan, China and South Korea currently dominate
the global market. The analysis considers two alternative scenarios with the aim
to increase the share of EU-based suppliers in the battery market. The first scenario
assumes that some form of EU regulation in battery imports leads to increasing

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