Outer Limits? Economic Security and the European Space Sector

CSDS POLICY BRIEF • 15/2024

By Antonio Calcara and Giovanni Tricco

17.5.2024

Key issues

• The European Economic Security Strategy does not explicitly mention space, but an economic security approach is fundamental to revitalising European ambitions in space.
• The IRIS² and European launcher cases show that Europe has to strike a difficult balance between protecting the space industry and being open to innovation from start-ups and commercial companies.
• The space sector needs to be governed by a holistic approach, linking it to other initiatives dealing with chips, critical raw materials and quantum computing.

Introduction

The European Union (EU) has signed an agreement with the United States (US) company SpaceX to launch four Galileo navigation satellites on a Falcon 9 rocket at a cost of €180 million. This is higher than SpaceX’s usual price because it includes a 30% premium to allow EU and European Space Agency (ESA) personnel access to the launchpad and to restrict access to sensitive European technologies. Many commentators and experts have pointed out that the decision to rely on SpaceX is itself a consequence of the impossibility of relying on the Russian Soyuz rocket, due to sanctions imposed over the war in Ukraine and Europe’s difficulties in developing autonomous launch capabilities. The difficult transition between the Ariane 5 and Ariane 6 launchers, due to the latter’s delay, has also thus far prevented Europe from gaining autonomous access to space.

The Galileo-SpaceX affair highlights the current challenges Europe faces in ensuring its economic security. Economic security can be defined as the ability to protect the economic, industrial and technological base from external interference. It consists of three principles: 1) supply-chain diversification; 2) investment in economic, technological and industrial sectors considered strategic; and 3) cooperation with like-minded partners to minimise dependence on potentially unstable foreign actors. On this basis, the EU aims to strike a delicate balance between addressing risks to the EU’s economic security, ‘while ensuring that the EU remains one the most open and attractive destinations for business and investment’.

On 20 June 2023, the EU adopted a Joint Communication on a European Economic Security Strategy, but it does not explicitly mention space. Instead, it more generally refers to supply-chain diversification, investment in critical technologies and cooperation with like-minded partners are all key factors for competitiveness in the space sector. Applying an economic security approach is not an easy endeavour: the Galileo-SpaceX affair is a good illustration of this search for a delicate balance between the desire to reduce dependences on third parties, the desire to develop its own sovereign industrial and technological base and the need to make compromises and rely on trusted suppliers. Although the European space sector has many success stories, applying an economic security approach to the space sector is complicated by the difficulty of defining the boundaries of the space sector and its multi-layered value chain. There is a further complication because of the current phase of technological innovation that is reshaping the landscape for the next generation of space projects, thanks to advances in reusable launch vehicles, artificial intelligence (AI) and quantum computing.

This CSDS Policy Brief focuses on how to apply an economic security approach to the space sector. It analyses the difficult choices that Europe has to make in order to reconcile supply-chain diversification, the protection of its space industry and cooperation with like-minded partners, and proposes some policy recommendations along these lines. The Policy Brief uses the cases of the future European constellation IRIS² and European launch capabilities as two paradigmatic case studies to assess the opportunities and challenges of European economic security in space.

The economic security of space 

Taking stock of an increasingly competitive and fragmented geopolitical context, the EU’s 2023 European Economic Security Strategy proposes a strategy to assess potential risks to its technological and industrial capabilities, to ensure the resilience of its supply chains and critical infrastructure and to address the risk of weaponisation of economic dependences. The Strategy is structured around the “3Ps”: protecting the economic, industrial and technological base through a policy of supply-chain diversification and instruments such as the EU Investment Screening Mechanism; promoting the EU’s competitiveness and growth through industrial policy and the strengthening of the internal market; and partnering with like-minded countries with similar interests. The Strategy was then expanded to include five specific initiatives: 1) a review of the screening of foreign direct investment; 2) a report on export controls; 3) a report on outbound investments; 4) a report on dual-use technologies; and 5) a proposal for improving research security.

Although space is not specifically covered by the Economic Security Strategy, space is extensively covered in the Action Plan on Synergies between Civil, Defence and Space Industries, the White Paper on Dual-use Technologies and the proposal for enhancing research security. These documents make explicit reference to the EU Space Strategy for Security and Defence, published in March 2023. This Strategy highlights the need to ‘strengthen its technological sovereignty by reducing strategic dependences on third countries and boosting the resilience of critical industrial value-chains’. To this end, the Strategy foresees the establishment of an Information Sharing and Analysis Centre (ISAC) to raise awareness and facilitate the exchange of best practices among commercial and relevant public entities on resilience measures for space capabilities. As opposed to the 2016 EU commercial space strategy, this Strategy has an explicit link to security and defence, highlighting in particular the need to ensure the EU’s long-term autonomous access to space. This Strategy emerged on the back of the idea that space has become a battleground for the competing interests of major powers, as demonstrated by Russia’s 2021 anti-satellite missile test and its cyber-attacks against Viasat’s communications network in 2022.

The importance of the space sector for society, the economy and European security and defence has been highlighted multiple times, but applying an economic security approach – i.e. reconciling supply-chain diversification, investment in economic, technological and industrial sectors considered as strategic and cooperation with like-minded partners – to the space sector is particularly complex for two main reasons. First, it is difficult to define the boundaries of the space sector, given its extremely complex and multi-layered value-chain. The space value-chain encompasses several stages – upstream, midstream and downstream – and activities involved in the design, development, production and use of space-related products. Many actors are present at one or more of these stages, including governments, space agencies, research institutions – both public and private –, state-owned – or partly state-owned – or commercial space companies and end-users. In addition, most space-related infrastructure and components are, by definition, dual-use and can therefore be used for both civil and military applications.

Second, the space sector is undergoing a period of major technological change. In recent years, a major driver of growth in the space sector has been the development of new technologies such as reusable launch vehicles, SmallSats (satellites of small mass and size) and CubeSats – square-shaped miniaturised satellites. These developments have attracted new commercial players into space, as evidenced by the rise of companies such as the aforementioned SpaceX, Blue Origin, OneWeb and Relativity Space. The entry of the commercial players into space has been increasingly disruptive, leading experts to speak of “new space”, to describe an environment characterised by new private initiatives – backed by venture capital and investment banks – that aim to use space for commercial purposes and not just for scientific discovery or for military purposes as in the past. Despite recent data showing that public investment is still dominant, it is undeniable that technological change and the commercialisation of space activities have encouraged private actors to invest massively in the space sector.

Space needs to be placed at the heart of European efforts to ensure economic security. However, this requires a proper and detailed reflection, as the space sector has a very complex value-chain with different stages, infrastructures and civil and military components, involving many public and private actors. In addition, the space sector is at the centre of a major technological change linked to progress in the miniaturisation of satellites and advances in AI and quantum computing. The remainder of this Policy Brief will attempt to apply an economic security approach by focusing on IRIS² and European launch capabilities, two key areas if Europe wants to be serious about strategic autonomy.

Secure satellite communications: the case of IRIS²

Named after the goddess of Greek mythology, the Infrastructure for Resilience Interconnectivity Security by Satellite (IRIS²) is one of Europe’s most ambitious initiatives to ensure European strategic autonomy. Part of the Secure Connectivity Programme for 2023-2027, IRIS² is a mega-constellation of satellites which will be located between Low Earth Orbit (LEO) and Medium Earth Orbit (MEO), from 200 km to 1600 km, to provide ultra-fast – low latency – and highly secure communications services by 2027. IRIS² will enable the EU to send strategic data and information into space and down to earth. It will have a significant economic impact, and will be dual-use by design.

This initiative was conceived with the explicit aim of reducing reliance on third parties, in particular Starlink, the SpaceX satellite constellation for communications that played such an important role during the war in Ukraine. In this regard, Christophe Grudler – rapporteur for the EU’s secure connectivity programme – explained: ‘[w]ith the war, Ukraine needed satellite telecommunications, but the EU didn’t have something to offer. Ukraine should not have to rely on the whims of Elon Musk to defend their people. With IRIS², the EU will have its own constellation, able to offer secure communications to European governments and allies’. Having eventually to rely on Elon Musk’s unpredictability was certainly a factor in getting the initiative off the ground. Other experts point out that IRIS² will also allow Europe in the future to flow sensitive data independently in space, protected from potential third-party access and therefore not subject to extraterritorial laws. For these reasons, in the aftermath of the Ukrainian war, the EU swiftly adopted the regulation establishing IRIS² with a record time of nine months, an unexpectedly fast procedure for EU legislators.

The IRIS² initiative is particularly interesting for three reasons: first, it will be managed by the European Commission and in particular by Directorate General for Defence Industry and Space (DG DEFIS), which will provide an explicit and systematic link with both the broader European industrial policy and security and defence initiatives. As European Commissioner Thierry Breton said, ‘[r]ecognising space as an element of our collective security was taboo a few years ago […] The war in Ukraine has since shown the importance of satellite constellations for military operations, for example’. Second, IRIS² has a clear ambition to integrate the work of new space start-ups, which will build 30% of the infrastructure. Unlike in the past, as pointed out by one European Commission official, start-ups will be full-service providers and not just subcontractors. Third, the constellation should integrate quantum computing capabilities to provide a state-of-the-art level of encryption for the data that will flow on the new infrastructure, protecting it from potential cyber-attacks. Quantum onboard IRIS² will be integrated into the EuropeQCI (Quantum Communication Infrastructure) initiative, with the stated aim of protecting sensitive data and infrastructures.

There is certainly still progress to be made, as diverging interests among EU member states can complicate the implementation of such a project. Germany has not hidden its doubts about IRIS², arguing against the increase in costs and the disproportionate benefits for the French industrial ecosystem. German Vice-Chancellor Robert Habeck has complained that the IRIS² blueprint is too expensive and that the work is not fairly divided between France and Germany. Long-standing disagreements between major European countries could therefore prevent progress on EU-wide space initiatives. Accordingly, it would not be easy to draw a line between the “hard” security element of the programme and the more “soft” and commercial component. While the former should be carefully preserved in Europe, the latter should be open to contributions from other countries and companies, especially from ESA’s non-EU member states. This could also be a problem for those EU companies with links to companies from the US and United Kingdom (UK). The case of OneWeb – an ally of Eutelsat – is particularly interesting in this respect, given its technological fit but “political” unfitness. As Christophe Grudler pointed out, ‘the EU needs to have full control over its satellites without a risk of hindrance by an outside actor’ and ‘the EU cannot accept a UK veto on a secure connectivity infrastructure’. It is therefore necessary to strike a balance between promoting European industry and creating the conditions for partnerships with like-minded countries – and industries – that can add value to the project.

Making it to space: the case of launcher capabilities

The ambitious target of 2024 for the launch of the first IRIS² satellites, together with the overall objective of achieving a fully operational constellation by 2027, underlines the critical importance of European launch capabilities. As discussed above, the very nature of IRIS² requires an inherent economic security approach, incorporating mature and emerging technologies. However, delving into European launcher policy reveals its complex nature, as it requires a delicate balance between the assertion of independent access to space, as a strategic imperative, and economic considerations, with a particular focus on cost savings and commercial opportunities.

The painful decision to rely on SpaceX was the result of a strategy of decoupling from the Russian Soyuz launcher, and the missed overlap between Ariane 5 and Ariane 6. Although the goal of having European launchers has been a long-standing one, the Europeans are now in what the ESA’s Director General, Josef Aschbacher, has called a launcher crisis.

How did we get here? Ariane 5 was a great success and managed to preserve Europe’s autonomous launch capabilities for a couple of decades, but the new Ariane 6 – built by a consortium of France’s ArianeGroup, Germany’s MT Aerospace and Italy’s Avio – was supposed to be ready for its first launch in 2020, but it has been experiencing delays. ArianeGroup has therefore asked European governments to continue to subsidise the project – an additional 350 million per year for 2027, 2028 and 2029 – in order to keep the new rocket competitive. The small Vega-C launcher also encountered problems and failed to launch in December 2022.

The main problem was that there was no overlap between Ariane 5 and Ariane 6, creating a window in which Europe was not covered. Mega-projects, such as those in space, are structurally subject to delays due to technical or resource allocation issues. As stated by the ESA’s Aschbacher, ‘[w]hat we have learned, of course, is on one side, we need an overlap between Ariane 5 and Ariane 6. And this is something that will not happen in the future. So we will make sure that the new launcher that comes after Ariane 6 will overlap with Ariane 6 itself’. Germany has also complained about the poor management of Ariane 6, which is mainly run by Arianespace, a 50-50 joint venture between Airbus and Safran, and has been willing to open the project to external competition. There have also been structural disagreements between France and Germany, with the latter opting for a mid-life evolution of Ariane 5, modernising elements of the rocket and reducing its cost, and the former preferring an entirely new rocket, which later became the Ariane 6 programme. EU member states’ different preferences do not always coincide with the European Commission’s economic security strategy. While the latter necessarily has to strike a balance between diversifying supply chains, protecting European industry and partnering with like-minded countries, EU member states also have short-term interests, be they strategic or purely economic and related to protecting their own national industries. The two can be in contradiction.

There are also exogenous problems that make the situation of the European space industry difficult, not least inflation, which increases the cost of components and reduces profitability. As one Airbus Defence and Space official has remarked, ‘[l]ow institutional demand, coupled with low profitability exacerbated by inflation, is putting pressure on space actors and especially on the supply chain’. Added to this is the rising cost of raw materials, first due to the Covid-19 crisis and now due to the delicate geopolitical situation in Russia and in the Red Sea.

But the situation is not entirely dire. The SpaceX contract expires in 2027, when Ariane 6 should be fully operational. Furthermore, if we look beyond the big European primes, there is a vibrant field of start-up launch companies involved in micro-satellite launches. These include German companies such as HyImpulse, Rocket Factory Augsburg and Isar Aerospace; and Spain’s PLD Space, which recently launched its first suborbital test vehicle. France has also a vibrant start-up scene, backed by government investments.

Moving forward, moving up? 

This Policy Brief has highlighted the importance of applying an economic security approach to the space sector. Europe has to make difficult choices to try to reduce its dependence on unreliable external actors, to re-launch its space industry and to build partnerships with reliable suppliers. Europe’s next steps, as we have seen in the cases of IRIS² and launchers, must take into account the European Economic Security Strategy and, in line with the “3Ps” around which the strategy is structured, understand when to protect, when to promote and when to partner with third countries. In both the IRIS² and launchers cases, the Economic Security Strategy is not always in line with the preferences of the EU member states, which still suffer from clear strategic and industrial divergences. As pointed out by ASD-Eurospace, the trade association of the European space industry: ‘[t]he development of the space sector in Europe has been hindered considerably by two decades of endless power struggles that have mobilised a considerable amount of time of the political decision-makers’. These power struggles complicate the pressing need for supply-chain diversification, protection of European industry and like-minded partners, the three cornerstones of Europe’s economic security strategy.

This Policy Brief has also highlighted the importance of linking European space policy to the broader issue of technological change and innovation. It is essential that Europe invests seriously in its ability to engage start-ups at the forefront in new technologies, such as those related to AI and quantum computing. There are two ways to do this: the first is to create institutional mechanisms to better involve start-ups and SMEs. The Commission’s decision to ensure that 30% of IRIS² is developed by start-ups is a first step in this direction. The Competitive Space Start-ups for Innovation (CASSINI) initiative, which provides €1 billion of venture capital to space start-ups, is another good example. Additionally, the commitment of the European Investment Bank to provide €8 billion for the scaling-up of security and defence start-ups offers a positive outlook. The second way is to encourage the big players in the European space industry to integrate technological innovation produced by start-ups and SMEs through the supply chain, and to do so at a European level. Introducing more flexibility into the geo-return principle underlying the work of the ESA and explicitly linking it to the diversification and sustainability of the supply chain could be a good starting point, although admittedly politically sensitive. In any case, it is essential to encourage big space companies to partner with small ones at the European level in order to maintain capabilities in all segments of the value-chain and to reduce dependences on third parties. The adoption of a future EU Space Law holds the potential to bolster the internal market, catalysing cooperation and ultimately realising a true ‘single market for space’, essential to protect and revitalise the European space industry.

Finally, precisely because space is fundamental to Europe’s economic security and is at the centre of a period of major technological change, it needs to be governed by a holistic approach that goes beyond the space sector itself. Many efforts have been made, notably by the European Commission, to systematically link space with security and defence. Further efforts are now needed to link it to the broader European industrial policy, for example by creating synergies with the EU Chips Act, the Critical Raw Materials Act and the various Important Projects of Common European Interest (IPCEI) dealing with microelectronics and cloud computing. The EU space ecosystem needs access to cutting-edge chips, raw materials and key technologies to ensure competitiveness and resilience. If Europe is serious about maintaining its competitiveness in the space sector, it needs an holistic strategy that focuses on the protection against external vulnerabilities, but also on extreme openness to technological change and innovation. An economic security approach can help to guide the way.

__________

Professor Antonio Calcara acknowledges the funding from the European Research Council (ERC) under the European Union’s Horizon Europe research and innovation programme (CODE project – Grant Agreement No. 10116328).