The Geo-Economics of Energy Storage: Lithium-Ion Battery Industry Development and Policy Strategies to Catch-Up

Mitigating climate change requires a fast and deep decarbonisation of the economy. The electricity and transport sectors are of particular importance as they make up for almost 40% of global greenhouse gas emissions. Improvements in cost and performance of battery technology have made it a viable solution to reduce emissions. This has led to the anticipation of a fourteen fold increase in global battery demand from 2018 to 2030, indicating a business opportunity of around $300bn in 2030. As of 2020, industry reports show that Chinese, Korean and Japanese firms are the most competitive and supply almost all of the world’s electric vehicle (EV) batteries. Western governments have caught on to these developments and declared their intention to catch-up with the Asian frontrunners. A systematic analysis of both the industry dynamics and the underlying policy efforts by governments and regulators, however, is missing in the literature. To overcome this gap, we conduct two analytical steps: First, we assess the global industry dynamics in terms of countries’ competitiveness and innovative capabilities (through analysis of lithium-ion battery cell manufacturing plants and patenting activities). Secondly, policy dynamics are analysed on the basis of a newly-created dataset of 220 policies from China, the Chinese province Guangdong, the United States, California, Europe, and the United Kingdom (enacted from 2001-2019). To conduct a comparative analysis of policy mixes, we combine an established measurement approach for assessing policy mixes’ general effectiveness (‘policy intensity’) with a new measurement approach for policy design characteristics that are specifically related to fostering innovation in complex technologies. Building on this new data and drawing on innovation and technology scholarship we appraise how countries are positioned in the global energy storage technology race. Regarding countries’ industry dynamics, we find that China has been successful in catching up with incumbents Japan and Korea in manufacturing capacities first, and, in a second step, in patenting activities as well. US firms, having only been able to establish a relatively small manufacturing base after 2011, de facto fell behind incumbents Japan and Korea and latecomer China. The EU lags behind both in terms of manufacturing capacity and patenting activity. Regarding countries’ policy dynamics, our data suggest that China and the US are located at opposite ends of a continuum of policy design styles, with the EU taking a position somewhere between: The Chinese policy mix is encompassing, well-designed and aiming at intervening into economic and innovation activities. Similarly, the EU policy mix also reveals an underlying belief in the appropriateness of intervening in the economy’s selection of technologies through active industry policy. The US policy approach, on the other hand, is generally much less interventionist, and has, more recently, also shown signs of policy stagnation and dismantling. Overall, our analytical approach underlines the challenges policymakers face: As policy design has to be both ‘technology-smart’ and effective, potential veto points for opponents are numerous, raising the question of how the trajectories of complex policy mixes can be actively designed as well, for example by including long-term feedback thinking.