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Net-Zero Industry Act - is this how Europe is preparing for the energy transition?

With the presentation of the Net-Zero Industry Act, the EU is setting the framework to strengthen and accelerate the industrial climate transformation. The EU Commission sees the regulation both as a reaction to the immense challenges posed by the energy transition as well as a response to the US government's Inflation Reduction Act.

Europe is facing major challenges: The transformation of our economy towards climate neutrality requires rapid and immense investments and will challenge companies to the utmost. At the same time, multiple crises and fierce global competition are complicating this transition. The Commission has responded to these challenges and initiatives such as the US government's Inflation Reduction Act. As part of the Green Deal Industrial Plan (GDIP) of February, it presented the Net-Zero Industry Act (NZIA) in mid-March 2023.

Strengthening production of European Net Zero technologies

With the legislative proposal, the Commission wants to "strengthen the resilience and competitiveness of the production of zero-emission technologies in the EU and make our energy system more secure and sustainable". As stated by the Commission, the aim of the regulation is to improve the conditions for Net Zero projects in Europe and to facilitate investment. For eight technologies, including photovoltaics, wind energy, batteries, heat pumps or grid technologies, Europe is to secure or regain its technological leadership at the same time.

But does the NZIA do justice to these very ambitious demands and wishes?

A step in the right direction, but ...

The Commission's initiative is, in principle, to be welcomed, as it flanks the EU's Green Deal, which has so far focused on climate and environmental policy, with an urgently needed industrial policy perspective. With the definition of the eight net-zero technologies, the Commission rightly addresses the need to ensure sufficient industrial capacities to produce these technologies so that the energy and climate transition can succeed. How this is to be done in concrete terms, however, remains vague.

It is welcomed that the EU Commission has expanded the scope of the Net Zero Industry Act to include RFNBOs (Renewable fuels of non-biological origin) and Sustainable Alternative Fuels. In particular, the reference in the footnote to ReFuelEU Aviation and FuelEU Maritime is positive. In order to achieve equal treatment of all fuels, the BDI recommends that the Renewable Energy Directive (RED) be quoted in the reference as well.

Speeding up authorisation procedures

The Commission's proposal provides for measures that should facilitate investments:

  • Reduction of the administrative burden for specific projects
  • Simplification of authorisation procedures
  • Prioritising strategic climate-neutral projects. 

The latter refers to projects that are considered essential for the resilience and competitiveness of European industry. For these projects, the EU Commission would like to see even shorter approval periods and streamlined procedures. GDIP/NZIA/TCTF (Temporary Crisis and Transition Framework) would probably also allow for tax incentives, but to which extent remains unclear. Business models are therefore difficult to calculate. This lack of clarity does not encourage high-risk investment decisions.

Furthermore, the Commission wants the Member States to mandatorily designate CO2 storage sites and promote their use. By 2030, a total annual storage capacity of 50 million tonnes of CO2 per year is to be achieved. It is hoped that this will leverage acceptance for capture and storage of CO2 to be seen as an economically viable solution.

Additionally, the Net-Zero Industry Act foresees, on the one hand, the improvement of workforce skills to ensure the production of net-zero technologies in the EU, and on the other hand, Member States are given the opportunity to stimulate innovation through special flexible regulatory frameworks ("regulatory sandboxes"). In such regulatory sandboxes, states can accelerate the testing of innovative technologies, which can thus reach marketability more quickly.

Approval procedures as an obstacle to climate transformation

The most important pillar of the NZIA is the streamlining and acceleration of approval procedures. Up to now, planning and approval procedures quite often delay the transformation of industrial companies on their path to climate neutrality. The main causes are long procedures, time-consuming preparations for permit applications or a lack of staff in the authorities or in companies.

Not only structural problems cause delay, like e. g. complex procedural law as we have it in Germany, Community law sometimes also stands in the way of faster procedures. European legislation that controls water use, nature conservation and environmental performance standards contains increasingly complex environmental etc. protection requirements and imposes more and more extensive reporting obligations on companies.

Many points still need to be set right

The German and European economies, especially the manufacturing sector, are facing very big challenges in global competition. Energy costs for companies are significantly higher than in North America or China, and the tax burden on earnings is high. The ageing of society will reduce growth potential earlier and more significantly in some EU countries than in the US. Technology competition is always fiercely competitive, involving much higher levels of subsidies and protection than in the past.

Increased military and economic security (in defence, raw material procurement, renewable energy development, resilience in health care and many other fields) requires companies and the public sector to significantly invest more resources. As a result, the EU as a business location has come under considerable pressure in many fields. In these times, it would therefore be crucial to pursue clever, balanced political strategies to ultimately increase the competitiveness of companies in Europe. In all fields, ranging from taxes and regulation to climate protection and business success through innovation and digitalisation, Europe is facing enormous challenges that can only be overcome through high levels of private and public investment. In order for these to become reality, the Commission must speedily set its political course.

The next steps

The rapporteur in the lead EU industry committee ITRE, Christian Ehler (EPP), presented his draft report at the end of May. He called for far-reaching changes in the proposed legislation. Although the proposal was meant as a response to the US Inflation Reduction Act (IRA), it could not be considered as such. In the legislative process, the Council and the European Parliament must now decide how the Net-Zero Industry Act can be improved so that it creates the urgently needed regulatory certainty. Companies quickly need perspectives to be able to make the necessary investment decisions accordingly. The plan is to adopt the NZIA in autumn, and at the latest before the end of the year.