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European Union Energy Net-Zero Industry Act

On March 16, 2023, the European Commission proposed the Net-Zero Industry Act (NZIA), working towards achieving the ‘Fit-for-55’ benchmark to reduce EU carbon emissions by 55% by 2030 compared to 1990 levels. The drafted legislation will streamline the regulatory framework surrounding critical net-zero technologies and improve the investment environment for manufacturing in the EU’s clean-technology sector.

The proposal’s overall provision mandates that the EU’s manufacturing capacity of strategic net-zero technologies reach at least 40% of the EU’s annual deployment needs by 2030. NZIA calls for generating 50Mt in annual growth of CO2 storage sites by 2030 with significant contributions made by gas and oil producers.

Strategic net-zero technologies covered by NZIA include solar power, onshore and offshore renewable energy, battery and storage technologies, heat pumps and geothermal energy, electrolysers and fuel cells, sustainable biogas, carbon capture and storage units, and grid technologies. These sectors’ inclusion in the legislation will materially drive future investment.

To incentivize investment in net-zero technology, the draft legislation simplifies the regulatory framework surrounding clean-energy projects to lower administrative burdens and streamline permitting processes. NZIA also supplies increased funding opportunities, broader access to critical information and research, expanded public procurement procedures, and programs to support consumer demand. The legislation will also establish the Net-Zero Europe Platform to administer these initiatives and facilitate the growth of a skilled, adaptable workforce, strategize regulatory sandboxes to support innovation under flexible regulatory conditions, and help Member States coordinate action and share information regarding beneficial industrial partnerships.

NZIA’s proposed policies signal certainty in continued future demand for strategic net-zero technologies, fostering an enticing investment environment that is characterized by long-term security and benefit.

However, many alternative energy sources were initially excluded from NZIA, generating concern from stakeholders. Notably, NZIA’s coverage of nuclear energy and sustainable aviation fuel (SAF) were not covered by the proposal, negatively impacting the aviation industry as pending legislation, ReFuelEU, will require flights originating from EU airports to transition to SAF, a costly undertaking for the aviation industry. By excluding SAF from the list of strategic net-zero technologies, investors and stakeholders in this SAF transition would not benefit from streamlined regulations and funding opportunities. The Council position increases the list of strategic net-zero technologies, by including nuclear and SAF.

Another challenge presented by the proposal is that while emphasizing the importance of supporting innovative net-zero technologies, funding opportunities created directly by NZIA are only available for fully developed technologies. While the Commission’s explanatory memorandum references other funding opportunities, such as the Innovation Fund, this shortcoming may inadvertently dampen innovation. Additionally, new technologies will not benefit from reduced regulatory burdens and streamlined permitting processes, disincentivizing further investment.

Alongside meeting climate neutrality goals, the Commission’s proposal aims to reduce dependencies and secure supply chain resiliency demonstrating the impacts of the ongoing energy crisis caused by Russia’s war in Ukraine. Given the critical nature of clean technologies, the Commission hopes to anchor production within the EU, ensuring Member States’ secure access to affordable clean energy. However, while the proposal emphasizes securing value chains within the EU, it does not explicitly exclude foreign companies’ participation in the market. As such, opportunities within the growing net-zero energy sector remain open for American businesses.

The EU is a step closer to agreeing on a new policy framework for boosting its green manufacturing industries, with the member states and the European Parliament ready to start negotiations.

The Parliament and the Council of member states have settled on their negotiating positions on the new industrial policy, both aiming to expand the list of strategic technologies and streamline permitting procedures for projects.

The first round of negotiations in the trilogue took place on December 13, 2023. Two more are expected in January and February, with a view to securing a deal in time to adopt the legislation before the Parliament disbands ahead of the 2024 EU elections.

Additional Sources:
European Commission’s Overview of NZIA
Net-Zero Industry Act Press Release
Net-Zero Industry Act Factsheet
Commission Releases Net-Zero Industry Act