On the path to net-zero: The EU Green Deal Industrial Plan

On 1 February 2022, the EU Commission published the Green Deal Industrial Plan (the “Plan”), which aims “to enhance the competitiveness of Europe’s net-zero industry and support the fast transition to climate neutrality”. Against the backdrop of the European Green Deal and REPowerEU, the Plan builds on previous initiatives and towards the commitments of 55% reduction of greenhouse emissions by 2030 and carbon neutrality by 2050. The Plan focusses on scaling up the EU’s net-zero manufacturing and improving the competitiveness of the EU market, especially in light of competition brought by the US Inflation Reduction Act. The Plan provides legislative proposals as a reference point for negotiations between Member States in the coming months.

The Plan is based on four pillars:

• a predictable and simplified regulatory environment;
• faster access to sufficient funding;
• skills; and
• open trade for resilient supply chains.

Predictable and simplified regulatory environment

Under the first pillar Commission has outlined a Net-Zero Industry Act “to underpin industrial manufacturing of key technologies in the EU”. This act aims to provide a simplified regulatory framework for manufacturing of key products and technologies including batteries, wind, heat pumps, solar, electrolysers and CCS. The Act would use sector-specific analysis to identify goals in manufacturing capacity by 2030 and the risk in supply chains to avoid bottlenecks and protect strategic dependencies. It is also envisioned to streamline the permitting processes with centralised point of contract during the entire administrative process as a “one-stop-shop”.

A linked key legislative proposal is the Critical Raw Materials Act, which aims to secure EU access to critical raw materials and reduce dependence on highly concentrated supplies from third countries. This will aim to improve the EU’s security of supply though international engagement and facilitating extraction, processing and recycling of critical metals and minerals.

The Commission has also proposed reform of the electricity market design following public consultation. This aims to enable all electricity users to benefit from the more predictable and lower costs of renewable power. The reform also builds on the REPowerEU Plan to accelerate the transition away from reliance on fossil fuels.

Faster access to sufficient funding

The Commission has proposed amendments to facilitate sufficient funding on EU, state, and private levels. On the Member State level, the aim is to simplify and provide flexibility in granting financial aid for renewable deployment, industrial decarbonisation, and major projects in the net-zero supply chain. The proposals also include increased freedom for Member States to invest through tax and support schemes. To fund this, the Plan proposes a streamlined approval process for state aid and EU funding through:

(i) an additional €20 billion Recovery and Resilience Facility (RRF) grants;

(ii) allowing dedicated grants of €5.4 billion of Brexit Adjustment Reserve; and

(iii) freeing up the ability to use €225 billion of Recovery and Resilience Facility loans.

The above funding will be available for Member States to promote the greening of industry, net-zero projects and energy-intensive industries vulnerable to high energy prices.

Further changes are recommended to the existing InvestEU Programme and EU Innovation Fund to simplify processes and introduce new competitive bidding opportunities. These aim to stimulate private investment in EU priority areas and support the development and deployment of technologies toward net-zero.

Skills

The Plan highlights that the “green transition will amplify demands for new skills at all levels, requiring a large-scale up-skilling and re-skilling of the workforce”. Therefore, the Commission has proposed a large onshore renewable and heat pumps skills partnership and net-zero academies backed by financial support for skills development and improved recognition of qualifications. The Plan also proposes targets and monitoring of supply and demand of workers in the green industry sectors.

Open trade for resilient supply chains

Under this final pillar, the Plan focuses on “global cooperation and making trade work for the clean transition”. The Commission proposes to facilitate cooperation through working with the WTO, continued advancement and improvement of free trade agreements, and addressing concerns over unfair competition from sources such as the US Inflation Reduction Act. New initiatives proposed include:

(i) a Critical Raw Materials Club to bring together raw material consumers with resource-rich countries to facilitate cooperation and secure a sustainable and affordable global supply of raw materials;

(ii) Clean Tech/Net-Zero Industrial Partnerships to support the adoption of net-zero technology globally; and

(iii) an exports credit facility to foster coherence with other EU green policies.

Next Steps

Draft legislation on the electricity market reform is expected in March 2023 for negotiation by the European parliament and Member States. The timeline for the Net-Zero Industry Act and Critical Raw Materials Act has not yet been set out but progress is expected over this year.

In autumn 2023, the first competitive bid for renewable hydrogen production will be launched with funding from the EU Innovation Fund. This will fund production through a fixed premium per kg of renewable hydrogen produced by projects over a 10-year span. The terms are expected to be published in June 2023 with an indicative budget of €800 million.