The European Union has been at the forefront of tackling climate change and supporting investments in the green sector, thereby offering new market opportunities for businesses in the EU. The Net-Zero Industry Act published on 16 March 2023 is the EU’s latest addition to accelerating the pace of investments in the green sector. The initiative sets new ambitions for the EU and provides funding and investment opportunities within sectors that are deemed to boost domestic EU manufacturing of clean-tech components.
The Net-Zero Industry Act comes as part of the European Green Deal Industrial Plan that aims to support the EU clean-tech industrial base, to upskill the workforce and to ensure the production of clean-tech solutions in the EU. This is the EU’s response to the recently announced United States $369 billion green subsidy package known as the Inflation Reduction Act (IRA).
In line with the Net-Zero Industry Act, the European Commission announced on 9 March 2023 that it will simplify state aid rules for renewable energy deployments and for decarbonizing industrial processes under a new Temporary Crisis and Transition Framework.
The simplified rules will allow Member States to further support the rollout of renewable energy sources by loosening aid rules. The EU will also allow for higher levels of state aid to be pumped into the production of strategically key technologies for the green transition – many of these industries are also targeted by the Net-Zero Industry Act.
With this blog post, Dr2 Consultants provides an overview of the Net-Zero Industry Act’s targets for industry as well as implications and opportunities for European businesses with the focus on:
- The objectives and targets for industry of the Net-Zero Industry Act.
- The opportunity for funding and investment for business.
- The implication on supply chains and for users of net-zero products.
Boosting the EU’s capacity for producing technologies necessary to become climate neutral
The main goal of the Net-Zero Industry Act is to set EU production targets for technologies deemed necessary to decarbonize the EU’s economy, without deepening its reliance on countries outside of the EU. The Act establishes a framework to strengthen the EU’s net-zero technology manufacturing base and thereby accelerate the pace of the green and digital transition and thereby strengthening the strategic sovereignty of the EU.
Overall, the act aims to achieve by 2030:
A 40% minimum target for the EU manufacturing capacity for certain industries, deemed to have the necessary technologies to decarbonize the EU. The technologies are as follows:
- Solar photovoltaic and solar thermal technologies
- Onshore wind and offshore renewable technologies
- Battery/storage technologies
- Heat pumps and geothermal energy technologies
- Electrolysers and fuel cells
- Sustainable biogas/biomethane technologies
- Carbon Capture and storage (CCS) technologies
- Grid technologies
To facilitate the upscaling in manufacturing capacity in these industries, the regulation will provide a framework to boost the development and support for fast-tracking permitting procedures and access to public and private investments. The so-called “Net-Zero Strategic Project” will present investment opportunities for companies that can contribute to reaching the goals of the Net-Zero Industry Act. The previously mentioned strategic technologies will therefore benefit from a priority status at national level, meaning fast-track permit-granting and administrative processes.
Moreover, the Act will develop regulatory sandboxes that are controlled environments for innovative net-zero technologies to be developed under supervision and may exempt developers from certain regulations. This will provide business with a safe environment to develop and test new net-zero innovation technologies and products.
Lastly, the Act also proposes an annual CO2 injection capacity target of at least 50 million tonnes of CO2 that shall be achieved by 2030 in storage sites located across the EU. This will be a big step towards establishing a Union single market CO2 storage services and is also an endorsement from the EU towards CO2 storage in the EU. This will present big business opportunities for large-scale CO2 emitters that can now rely on decarbonising their operations within the EU.
What does Net-Zero Industry Act mean for your business?
The transition to climate neutrality presents a number of opportunities for European businesses as well as challenges. On the one hand, the decarbonization of the economy provides significant opportunities in terms of developing net-zero technologies and ensuring economic growth. On the other hand, European businesses needs to face strong competition at global level for resources, investments and supply of commodities needed for the green transition. In the past years, China has been dominating the clean-tech supply chains thanks to generous subsidies policies and government support. Moreover, the U.S. subsidy packaged under the IRA provides incentives for companies to move away from the EU to the U.S.
Dr2 Consultants has identified a number of opportunities as well as possible challenges that the Net-Zero Industry Act presents for your business and organization.
The Act will impact and present significant opportunities for business within the clean tech industry, as the proposal sets new manufacturing capacity targets for net-zero technologies, which Member States must ensure businesses meet. This will provide businesses with the chance to expand and scale up their operations in the EU with the support of several funding mechanisms. At EU and national level, the new rules streamline access to public and private funding, deemed essential for growing investments in the net-zero supply chain.
The main recipients of the new rules are the sectors identified as strategic for the green transition, namely solar, wind, batteries, heat pumps and geothermal, electrolysers, sustainable biogas/biomethane, CCS and grid technologies. These sectors will benefit the most from the new rules. The production of these net-zero technologies will be prioritized by Member States on multiple levels. Manufacturing companies in these sectors will profit from streamlined, faster and coordinated permit-granting processes for the development of net-zero technologies. They will also get faster administrative and legal treatment, State aid and financial support and access to regulatory sandboxes.
Other net-zero technologies, such as nuclear and sustainable alternative fuels, will also benefit from financial support and access to regulatory sandboxes. This will allow for increasing flexibility as well as simplifying State aid’s approval. However, since they are not counted as strategic technologies, the support will be limited.
The investment into the clean-tech industry by the EU could have a spill-over effect on value-chains. As net-zero industry will ramp up production, businesses that rely on production of net-zero industry products inside Europe could experience lower prices and general economic advantages.
For companies that either produce net-zero products or rely on these in their value chain, it is important to sufficiently anticipate and prepare their businesses to ensure they are prepared for the changes that the Net-Zero industry Act will create.
The Net-Zero industry Act gives a strong incentive for companies that manufacture net-zero technologies to review their product portfolio and increase production. Therefore, it is important for companies to understand how increases in EU production of net-zero industry products will change their supply chain. Additionally, companies must understand how the competitive advantages of the net-zero industry in the EU will change the supply and demand as well as price of net-zero products.
The European Parliament and the Council of the EU will now start discussing the proposal separately. The Net-Zero Industry Act will also be discussed during the European Council meeting on 23 and 24 March 2023 as part of the strategy to make the EU economy more competitive.
A possible contentious point in the political negotiations of the Net-Zero Industry Act is the risk that the new rules would significantly increase the cost of renewable energy production. The solar industry has indeed argued that the Act could force solar developers to use more expensive products, which would risk undermining Europe’s energy and climate goals and increasing prices for consumers. Therefore, they have called for revised subsidy rules to support the diversification of the solar supply chain. Therefore, they have already called for revised subsidy rules and the support for the diversification of the solar supply chain.
Another controversial point has been raised by several NGOs and civil society groups, who expressed concerns over the effect that the Act will have on the environment. Under the new proposal, energy infrastructure can be given priority over other laws such as nature conservation and water protection rules, by being designated as overriding interest. The fear is that the new rules could damage Europe’s natural environment and negatively impact local communities.
Dr2 Consultants will follow the legislative developments closely and is ready to assist your company in identifying the impact of and leveraging the opportunities offered by the Net-Zero Industrial Act.
Would you like to know more about how your organization can make the most out of this regulation? Subscribe to Dr2 Consultants’ Energy & Climate Policy Update and get in touch with our Managing Partner Viktoria Vajnai.