money & economicsanalysisDialogue Earth

Why subsidies won’t work for EV battery recycling in China

the gist

China has so many electric cars that a wave of worn-out lithium batteries is coming, and most of them are not expected to last much beyond eight years. Recycling them is hard to make profitable because China's dominant lithium iron phosphate batteries hold far less recoverable metal than the cobalt and nickel batteries used elsewhere. Legitimate recyclers struggle to compete with informal workshops that skip costly safe processing and pay more for old batteries. China's past experience with appliance recycling showed how subsidies can backfire: the fund was owed nearly CNY 20 billion by the end of 2022, and money went to buying more appliances rather than upgrading equipment. The alternative is a rule requiring batteries to contain recycled material, which the EU adopted in 2023.

how it works

Lithium iron phosphate batteries contain iron, phosphorus and lithium, which are cheap, so recovering them yields little value compared with cobalt and nickel. Recyclers need steady supplies and stable metal prices to plan, but lithium carbonate prices fell sharply between 2022 and 2025, making output hard to sell at a predictable price. Recycled material is chemically identical to new material, so buyers can only prove it is recycled by tracking it through the supply chain.

so what

Battery recycling decides whether the metals in millions of retired electric-car batteries get reused or leak into the environment through informal processing. The comparison with appliances and tyres suggests that paying recyclers per item can reward volume over quality. Requiring recycled content shifts the incentive to where the demand is.

Dialogue Earth · CC BY-NC-ND 4.0

Illustrative photo · Engel, Hauke, Patrick Hertzke, and Giulia Siccardo, CC BY-SA 4.0, via Wikimedia Commons