15 Jul 2021

Vice-President of European Commission Šefčovič: Ukraine could be the key supplier of raw materials and components for future technologies for Europe

Maroš Šefčovič

Maroš Šefčovič
Photo: European Union, 2020. Photographer: Lukasz Kobus

Vice-President of European Commission for Interinstitutional Relations and Foresight Maroš Šefčovič gave an exclusive interview to Interfax.

Question: A Memorandum of Understanding on strategic partnership between the European Union and Ukraine on raw materials and batteries was signed during your visit. Mr. Šefčovič, please, explain us how exactly our cooperation in this area will be intensified due to this document?

Answer: It is very important to put it into the context because the EU is now really a number one if it comes to electromobility. Last year Europe had the highest number of electric vehicles sold in the world, despite of the Covid pandemic. Electric vehicles represented 10.5% of new cars sold in 2020. Sales of electric vehicles reached 14% in the first quarter of 2021. I am confident that this trend will continue.

On Wednesday, the Commission will adopt the Fit for 55 package comprising of 12 legislative proposals allowing Europe to reduce the greenhouse gas emissions by -55% already by 2030. It would be another important push for electromobility in Europe. This is translating also in huge efforts of the industry on the ground in the EU where we have currently ca. 70 major industrial projects developed along the entire value chains. Fifteen of them are the future battery cells gigafactories and we expect that by 2025 we will produce batteries for 6 to 8 million vehicles per year. For experts, this means ca. 450 gigawatt hours of manufacturing capacity per year. That led to the huge interest from the European and foreign investors. The level of investments in the sector reached more than 120 billion Euros in 2019 and 2020 alone, i.e. ca. 3 times more than in China.

So there is a huge dynamic. We are your neighbor. Of course, you are our associated partner and therefore I think that Ukraine should be a part of that effort, part of that success. That was the reason why we want to accelerate the cooperation in the area of raw materials and batteries.

Ukraine is a country of great potential. You have all the minerals. You have 117 of 120 minerals which are commonly used. From the European list of 30 critical raw materials you have 21. All critical sectors of the economy are dependent on a secure supply of raw materials, including digital technologies, windmills, photovoltaics, hydrogen, aerospace, drones - for all that you need these very specific raw materials. Therefore, this Memorandum of Understanding is so important because we can both look for what would be the best solution for Ukraine and for the EU. What it would mean in practice first and foremost for Ukraine - to get the raw materials from the soil. It would also be extremely advantageous to extract and process these materials in a sustainable and socially responsible way, meaning with the lowest carbon footprint, and ethic credentials. There is a commitment to restore the nature into its initial stage before extraction. Also, that labor laws are of course compatible with how we are treating workers in Europe which I have no doubt will be the case. Because this is very important for the subsequent use of the raw materials in the vehicles. People do not want to have the electric vehicles where somebody would say: 'Ok. You are clean now but your battery has very high carbon footprint' or 'The raw materials have been source in the way you destroyed the nature' or 'There have been employed the child labor' or something like that.

That is why we put so much emphasis that in the first phase we will be working very closely with our Ukrainian friends on approximation of policies and regulatory mining frameworks so all these important environmental and social aspects can be addressed. Therefore, as we did today we invite not only the representatives of Ukrainian government (in your case Ministry of Ecology is the first Ukrainian member in both European Battery Alliance and European Raw Materials Alliance) but also as many companies as possible so there could be the networking, mutual exposure to the possible business interest, so we can see concrete projects for which we can then look for business interest or financial support through the European Investment Bank (EIB), European Bank for Reconstruction and Development (EBRD) or other investors.. To conclude, the first is approximation of policies and laws. The second - better networking through these both alliances. And the third - it is important to work jointly on how to make sure that Ukrainian companies with the European partners can bid for financing of research and innovation projects under Horizon Europe which is the biggest publicly supported research fund with a total budget of almost 100 billion Euros for the next seven years, of which 925 million Euros for batteries alone. I would say these are three key parameters.

Let me also note that we have recently signed a similar agreement with Canada.

Q.: Can you give us some examples of these raw materials?

A.: I think that if it comes to these critical raw materials what we discuss most often is lithium. According to our foresight study, European battery industry would need 18 times more lithium already by 2030 and 60 times more by 2050. With this huge demand comes a huge opportunity for Ukraine not only for extracting lithium but also for refining lithium notably due to the unavailability of the refining capacity in Europe.

There will also be an increasing demand for cobalt. Currently, Europe imports close to 70% of cobalt from Congo and other places far away. And again Ukraine has deposits of cobalt.

Then, rare earths. Europe imports 98%-99% of rare earths from China, while some of its demand could be covered by supplies from Ukraine. We need rare earths for batteries, for magnets used in wind turbines, etc.

Q.: It is a big dream of Ukraine to become a new China for Europe. Is there really any chance of this happening?

A.: I think you can do better than China.

I understand the President, the Prime Minister and your business leaders who want to ensure that Ukraine builds an entire vertically integrated value chain around critical raw materials and that as much value added as possible remains in Ukraine... Ukraine clearly could be the key supplier of raw materials and components for these future technologies for Europe.

Q.: Yesterday we visited Irshansk ore mining and processing plant. Are any European companies interested in taking part in the privatization of this enterprise on August 31?

A.: That is to be seen. More generally, I think it would be good if your ministries and industrial actors become members of the European industrial alliances to allow for networking and matchmaking between your industrial projects and European companies and investors via the business investment platforms. All the biggest companies in Europe are members of these alliances. Information about interesting projects and auctions in Ukraine could be distributed via the Alliances. That I hope will be the practical consequence of having Ukraine in both alliances.

Q.: How do you assess Ukraine’s green transition efforts? What perspectives does cooperation on climate change, environmental protection and decarbonisation of energy and mobility systems open for our country and for EU-Ukraine relations?

A.: I can totally associate and relate to Ukraine because I am your neighbor, I am from Slovakia. So I know that industrial transformation and the green and digital transitions are complex. And on the top of it you have huge tension at your Eastern border. So I appreciate your efforts in this area.

At the Climate change conference in Glasgow (COP 26) the whole world, every country will be there. What we believe is necessary is revising the climate goals upwards. So I understand that Ukraine is also considering increasing the ambition from minus 40% to a more ambitious target. I understand that also there are clear intentions to cut energy generated from coal and increase to 20% energy produced by renewable energy sources. These are all very important goals.

I was highlighting that I believe Ukraine has a huge potential in transport because technology exists. Of course what you need is charging stations what we called in our 'Brussels English' an alternative fuel infrastructure to charge electric vehicles or to have in the future hydrogen fuel stations - maybe for trucks. In Germany and some other countries they are already using hydrogen locomotives for trains and more and more hydrogen is considered as a fuel for maritime or ship transportations. That is one area where I think that Ukraine can do even more because you are a big country and you have a very important transport center.

Q.: What is the risk for Ukraine from the Carbon Border Adjustment Mechanism (CBAM)?

A.: The College of Commissioners will adopt proposals of 12 laws forming the so-called “Fit for 55” package, including the CBAM. CBAM, our climate instrument, will apply to sectors with high emissions and at risk of carbon leakage, such as iron, steel, fertilizers, cement and electricity. The idea there is to motivate our trade partners to effectively address the GHG emissions by ensuring that carbon has its price.

By putting the price on carbon, we are incentivizing the industry to look for the new clean and less energy intensive technologies and consequently fight climate change and preserve our environment and biodiversity. We encourage Ukraine to develop its emissions scheme and would be ready to share our experience and know-how gained under our Emissions Trading System (ETS).

Q.: Ukraine has a carbon tax of only 30 cents per ton. The Ukrainian government proposed 1 Euro per ton. Is this enough in your view?

A.: In the EU we use a market mechanism where the price is governed by supply and demand. The current price is 55 Euros per ton of CO2.

High carbon price creates an incentive for our industry to use clean technologies, and implement energy efficiency measures and so on and so forth. We recognize and appreciate that the point of departure for Ukraine is different than for EU Member States. Nobody expects Ukraine to reach this price level now. Ukraine should, however, consider adopting a roadmap that would guide its efforts to establish its effective ETS system with the right carbon price.

Q.: What are the EU’s expectations in the context of reforms in Ukraine, in particular judiciary reform and the fight against corruption? How much does further help from the EU, the European perspective of Ukraine depend on the progress of our country in these spheres?

A.: Ukraine's achievements over the last three decades have been very impressive especially because of the very difficult geopolitical environment you are living in. You had lots of challenges, you had invasion, annexation of your territory. As you know, the EU has always been at your side. If you look at the macro-financial assistance for 16 billion Euros - I think it's by far the biggest assistance Ukraine has received. And we are ready to continue with these efforts. If you look at what you have accomplished over the last years it is quite clear that you have made important progress in reforming media areas, public administration, anticorruption, macroeconomic stabilization. Now it is very important to continue this reform to strengthen further the rule of law. That is a very intense discussion we also have in the EU and our Member States. Now we are issuing rule of law reports every year where we are assessing how the rule of law is respected in all our Member States. So it is not something specific for Ukraine, it is a really important task because it is about the performance of the state, it is about common values, it is about what is the atmosphere in the society. Also, it is very important to see the determination of Ukraine's leadership to reform the judicial system in line with recommendation of the Venice Commission.

We also welcome President Zelensky's commitment to tackle oligarchs' interest and influence in Ukrainian political and economic life. All these steps, which I mentioned, will really contribute to make Ukraine stronger, more resilient. Also, it would bring other support through macro-financial assistance: 600 million Euros were disbursed last December and I think once all these steps which I mentioned will be accomplished, the second tranche would come immediately after that.

Q.: When do you expect the EU border will be open for Ukrainians again? And what are the prospects for mutual recognition by the EU and Ukraine vaccination certificates?

A.: I have to say that yesterday Prime-Minister Denys Shmyhal and I spent a lot of time together 'playing' with our smart phones and I was quite impressed with what he has in the smart phone: a Covid certificate which is exactly the same as I have. On top of it he has the birth certificate, a driving license, residence permit and all the documents which we are now recommending to our Member States to do exactly the same to put it into as we call it electronic wallet for the documents. I saw it myself. I am not technical expert but I think that it looks exactly the same as it looks in my phone.

Also, I know that if it comes to infections your numbers look very promising. So I believe that it is a matter of days when we can expect a positive decision. As you understand everybody here is very careful because we see how the situation is volatile. But everything points to a positive decision concerning opening the borders for Ukraine and respecting your Covid certificates.

Q.: And how about the vaccines. What vaccines among those recognized in Ukraine will be recognized by the EU?

A.: The European Medical Agency certified Pfizer, Moderna and European Astra Zeneca. We never got the full documentation for Sputnik, so that's not completed and the other producers did not ask. That probably is one of the things which still have to be discussed by the experts.

But as I said it looks quite positive. So let's keep fingers crossed that the situation will not deteriorate in Ukraine or in my country, your neighbors in Europe and that we can hopefully start travelling more normally as in the past.