Labour-linked think tank urges UK-EU energy alliance to counter China

A think tank with deep roots in Britain's governing Labour Party has made the case that the United Kingdom and the European Union should align their industrial and energy strategies specifically to reduce dependence on Chinese manufacturing. The argument, laid out in a report published on 1 September 2026 by the Institute for Public Policy Research, lands at a moment when the politics of green technology supply chains are shifting fast across the continent.

The strategic pitch

The IPPR is not a detached observer. It shaped policy under the previous Labour government and again under Keir Starmer's administration before Andy Burnham succeeded Starmer as prime minister. When this organisation says that Britain should complete the energy sections of the stalled EU reset, and then go further, the recommendation carries institutional weight within the party now running the country.

The core of the proposal is straightforward: Britain and the EU share an interest in building green energy supply chains that do not run through Shenzhen or Guangdong. Doing that separately is expensive and self-defeating. Doing it together, the authors argue, gives both sides a better chance of competing with the scale of Chinese state investment in batteries, solar panels and critical minerals.

The report frames this not as a return to EU membership, which is not on the table, but as a practical alignment of interests. The difficulty, which the authors acknowledge, is that practical alignment between a non-member and a bloc of 27 member states tends to become impractical precisely when it matters most.

What the report asks for

The IPPR sets out several specific measures. First, it wants the Burnham government to complete the energy chapters of the broader EU reset that Starmer began. That would mean linking the UK's EU Emissions Trading System with its British equivalent and reintegrating Great Britain into the European single energy market. These are not new ideas, but they have stalled amid the wider difficulties of the post-Brexit relationship.

Second, the report calls for Britain to rejoin the North Sea Energy Cooperation Group as a full member. Since leaving the EU, the UK has held only partial membership through a memorandum of understanding. Full membership, the authors say, would make it easier to coordinate investment in carbon capture and storage, offshore wind and subsea interconnectors, all of which require cross-border planning to work efficiently.

Third, the IPPR wants another extension of the grace period on electric vehicle rules of origin. These rules, which determine whether a car counts as sufficiently locally produced to qualify for tariff-free trade between the UK and the EU, have been a persistent headache for vehicle manufacturers on both sides of the Channel since Brexit took effect. Carmakers have warned that without further extensions, tariffs would hit models assembled in Britain with batteries sourced from Asia, making them more expensive overnight.

The China question at the centre

The report's most striking argument is about where green technology should be built. Battery production and the rest of the electric vehicle supply chain need to be moved as far as possible to Europe from China, the authors write. This is not a fringe position. The European Commission has spent two years trying to build a domestic battery manufacturing base through its Critical Raw Materials Act and subsidies under the Net Zero Industry Act. The United States has done something similar with the Inflation Reduction Act.

China currently dominates the production of lithium-ion batteries, refines the majority of the world's cobalt and lithium, and manufactures the bulk of solar photovoltaic panels. That concentration poses two kinds of risk. One is commercial: European and British manufacturers cannot compete on cost with Chinese producers backed by state subsidies and enormous economies of scale. The other is geopolitical: if relations between Beijing and Western capitals deteriorate further, access to those supply chains could be restricted or cut off entirely.

The IPPR argues that Britain and the EU should coordinate their approach to Chinese investment in net-zero industries, rather than competing with each other for the same capital. The implication is that without coordination, Chinese firms could play London and Brussels off against each other, offering investment to whichever side offers the most favourable regulatory terms.

Why the North Sea matters

The North Sea is where much of this plays out in physical terms. The shallow waters between Britain, the Netherlands, Denmark, Germany and Norway already host significant offshore wind capacity, and the region is central to European plans for carbon capture and storage, green hydrogen production and new electricity interconnectors. The North Sea Energy Cooperation Group exists to coordinate these investments across borders.

Britain's partial membership means it sits in some rooms but not others. The IPPR argues that full membership would smooth what it calls the technocratic planning challenges around grid build-out. That is a polite way of saying that laying undersea cables and building offshore substations across maritime boundaries works better when all the relevant governments are in the same meeting, with the same voting rights, rather than one of them attending as a guest.

There is a commercial dimension too. North Sea investment decisions are made on timescales of a decade or more. Uncertainty about whether Britain will coordinate its grid planning with its neighbours makes those investments riskier, and therefore more expensive, than they need to be.

The carbon border tax problem

The report also points to a coming regulatory collision. The EU's Carbon Border Adjustment Mechanism, or CBAM, places a tariff on imports of carbon-intensive goods from countries that do not price carbon at the same level as the EU. If Britain's emissions trading system diverges from the EU's, British exporters of steel, fertiliser and other covered products would face these border charges.

Linking the two trading systems would solve this at a stroke. British producers would be treated as if they were inside the EU system, and border taxes would not apply. The same logic runs in reverse for EU exporters to Britain, though the asymmetry in market size means the pressure is greater on London than on Brussels to make this work.

The IPPR's argument is that linking ETS systems is not just an environmental measure. It is a trade defence. Without it, British heavy industry faces a cost disadvantage that no amount of domestic subsidy can easily offset.

The awkwardness of cooperating from outside

The authors do not pretend this would be easy. Tazu Walden and Marley Morris write plainly that this type of partnership would not be straightforward. Their reasoning is worth noting. Cooperation outside formal EU structures can become more difficult during geopolitical turbulence, where coordination needs to be rapid, predictable and ideally institutionalised.

This is the structural problem that Brexit created and that no amount of good intentions can wish away. When the EU wants to respond to a crisis, it uses its institutional machinery: emergency summits, coordinated procurement, joint regulatory action. Britain, as a non-member, is outside that machinery. A memorandum of understanding works well enough when nothing urgent is happening. When something urgent does happen, the EU makes decisions for its members, and Britain finds out afterwards.

The report also notes that dynamic alignment, the kind of continuous regulatory adjustment that deeper cooperation would require, becomes harder during crises because the UK and European states might have policy responses that vary in their approach and effects. In other words, the very moments when coordination matters most are the moments when political pressures push governments in different directions.

The political constraints on Burnham

For all the sense the IPPR's recommendations might make in policy terms, the politics are treacherous. Andy Burnham leads a government that is already navigating the domestic consequences of Brexit without wanting to reopen the fundamental question of membership. Any proposal that looks like rejoining an EU structure, even a technical one, will be presented by opponents as a step back towards Brussels.

The NSEC question illustrates this. Full membership of the North Sea Energy Cooperation Group would mean accepting EU rules on energy market design and governance. That is a modest concession in practical terms, but it is a significant symbolic one. The same applies to linking emissions trading systems, which requires Britain to accept the EU's carbon price as its own.

On the European side, there is frustration with what some officials see as British cherry-picking. The EU has an incentive to make cooperation attractive enough that Britain chooses alignment, but not so attractive that other non-member states demand similar terms. The calibrated ambiguity is deliberate.

What the car industry needs

The rules of origin question is the most immediately pressing part of the report. Under the UK-EU Trade and Cooperation Agreement, electric vehicles must meet a threshold of local content to qualify for tariff-free trade. Batteries are the heaviest and most expensive component, and most are currently sourced from Asia. If a car built in Sunderland or Solihull uses a Chinese battery, it may fail the local content test and face a 10 percent tariff when sold into the EU.

Carmakers on both sides of the Channel have lobbied hard for extensions, and previous grace periods have been granted. The IPPR argues for another one, but it frames this as a temporary measure. The long-term objective, the report says, is to build enough battery manufacturing capacity in Europe that the rules of origin question becomes irrelevant because the batteries are being made locally.

That is a long way off. European battery gigafactories are being built, but construction timelines and production yields have repeatedly disappointed. Northvolt, the Swedish champion once held up as Europe's answer to CATL, has struggled with production problems and cancelled orders. Britishvolt collapsed entirely in 2023. Until European capacity catches up with demand, the rules of origin will remain a standing problem.