The European Commission ("Commission") has published a proposal for a Green Deal Industrial Plan for the Net-Zero Age ("Green Industrial Plan") on 1 February 2023. With this plan, the Commission aims to increase the competitiveness of the EU's climate-neutral industry (also known as net-zero1) and accelerate the transition to climate neutrality.
The Green Industrial Plan should result in expanding the EU's production capacity for climate-neutral technologies and products needed to meet Europe's climate goals. Net-zero/climate-neutral industry refers to an industry in which companies focus on reducing their emissions to net-zero which can be done by offsetting emissions to net-zero (i.e. no CO2 emissions). To bring emissions reduction to zero, companies should be encouraged to innovate.
The Green Industrial Plan is based on four pillars: (I) a predictable, coherent and simplified regulatory framework, (II) faster access to finance, (III) skills upgrading and (IV) open trade for resilient supply chains.
Pillar I: a predictable and simplified regulatory framework
In mid-March, the Commission presented three legislative proposals to implement the first pillar of the Green Industrial Plan: a) Net-Zero Industry Act, b) Critical Raw Material Act and c) Electricity Market Design Revision Act.
a. Net-Zero Industry Act ("NZIA")
To provide a simplified regulatory framework for manufacturing capacity in sectors that are critical to achieving climate goals, the Commission proposed the NZIA on 16 March 2023. The Draft NZIA covers strategic products critical to the energy transition, such as batteries, wind turbines, heat pumps and carbon capture technologies. The NZIA will therefore be important for any company operating in sectors that are critical to achieving climate goals, such as, for a producer of batteries or heat pumps.
The Commission aims to achieve the following objectives with the Draft NZIA:
- Formulating industry-specific production targets;
- Introducing a 'one-stop shop' to speed up and simplify licensing;
- Shortening the duration of authorisation procedures by setting time limits for different parts of the process;
- Strengthening administrative capacity of member states;
- Establishing criteria for strategic projects targeting clean technologies that benefit from simpler regulations (e.g. funding);
- Encouraging public procurement, concessions and incentives for companies and end-users to boost the green industry;
- Promoting European standards to help accelerate the adoption of key technologies.
b. Critical Raw Materials Act ("CRMA")
The Commission has also proposed rules on access to so-called critical raw materials. The Draft CRMA aims to ensure that companies in Europe will have sufficient access to critical raw materials, such as rare earths, magnesium or cobalt, which are important for various sectors, including net-zero, digital, aerospace and defence, as well as for developing technologies to bring greenhouse gas emissions to net-zero.
The CRMA should make it easier to mine critical raw materials in the EU and make deals with other countries for critical raw material imports. This is because the EU wants to reduce its dependency on critical raw material imports from China, among others. For instance, the EU gets 97% of its magnesium from China.
The CRMA-proposal distinguishes between critical raw materials (raw materials that cannot be produced in the EU) and strategic raw materials (raw materials that are essential for technologies needed for net-zero industry and for defence and space applications). The CRMA-proposal requires that by 2030, in the supply chain for critical and strategic raw materials:
- 10% of raw materials should be sourced in the EU;
- 15% must come from recycling; and
- At least 40% of annual raw material consumption must be processed in the EU.
c. Electricity Market Design Revision Act ("EMDRA")
Finally, on 14 March 2023, the Commission proposed to reform the structure of the electricity market, with the ultimate aim of allowing consumers to benefit from the lower cost of renewables. The Draft EMDRA is a response to the recent EU energy crisis. The Draft EMDRA aims to amend several parts of the Electricity Regulation, Electricity Directive and REMIT Regulation. This proposal intends to make the price of electricity for consumers less dependent on fossil fuel prices, by encouraging long-term contracts, among other things. In addition, the Commission also wants to encourage public support for new investments in renewable energy and low-carbon/non-fossil electricity generation through so-called Contracts for Difference. A Contract For Difference is a form of long-term contract where parties agree with each other that if:
- the energy price is in practice lower than what was agreed in the contract, then the energy supplier gets reimbursed for the difference; or
- the energy price is in practice higher than what was agreed in the contract, the energy supplier will transfer the profit. The profit will be distributed to consumers. The proposal also includes measures aimed at accelerating the roll-out of renewable energy and the phase-out of gas.
Pillar II: faster access to finance
In March 2023, the Commission also implemented the second pillar of the Green Industrial Plan to facilitate faster access to finance for green technologies. To this end, it broadened both the general state aid rules and the Temporary crisis and transition framework for state aid measures to support the economy following Russia's aggression against Ukraine (Temporary Crisis and Transition Framework).
The Commission adopted an amendment to General Block Exemption Regulation (GBER) on 9 March 2023 to further facilitate, simplify and accelerate support for the EU's green and digital transition. The provisions of the BER have also been aligned with the new guidelines on regional aid, the State aid guidelines for climate, energy and environment, the risk financing guidelines, the framework for State aid for research, development and innovation and the broadband guidelines. After translation of the amended text of the BER into all EU official languages, it will be published in the Official Journal to enter into force the day after (available in English here). Observably, governments can already anticipate the widened block exemption when granting state aid for green technology, environmental protection and (clean) energy.
Article 2.8 of the Temporary Crisis and Transition Framework provides a basis for supporting accelerated investments in sectors of strategic importance for the transition to a climate-neutral economy. This offers inter alia the following opportunities:
- The possibility for member states to provide further support for measures necessary in the transition to a climate-neutral industry. This is specifically aimed at rapid roll-out of renewable energy and energy storage
- The possibility of granting support to companies for the production of strategic equipment, such as batteries, solar panels, wind turbines, heat pumps, electrolysis plants and for carbon capture and storage. Member states will have several options for this:
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- Aid may be granted that depends on the location of the investment and the size of the beneficiary enterprise. Small and medium-sized enterprises located in disadvantaged areas may thus qualify for higher aid;
- Aid can be granted in the form of tax breaks, loans or guarantees, on the conditions that the investment will not take place outside the European Economic Area (EEA);
- In special cases, a Member State may grant even higher aid if there is a "real risk" of investments being shifted outside the EU. If that risk exists, then Member States may - under conditions - grant as aid either the amount that the beneficiary would receive for the same investment in the location outside the EEA ("matching aid"), or the amount necessary to induce the company to locate the investment in the EEA ("investment gap").
Impact
Both Pillar I (if the proposals for the NZIA, CRMA and EMDRA are adopted) and Pillar II will affect competition law, in particular the state aid rules. Both pillars facilitate the granting of state aid by member states to companies engaged in the production of strategic equipment.
The NZIA, CRMA and EMDRA will also affect trade (relations) between the EU and third countries with the aim of making the EU more independent from certain (critical) trade flows. Through the CRMA, procurement restrictions will be imposed on companies such as not allowing companies to buy more than 65% of critical/strategic raw materials from one third (non-EU) country.
Footnote
1. Climate neutral/net-zero indicates that a process or product does not contribute to climate change over the entire chain by offsetting CO2 emissions or by removing CO2 emissions from the atmosphere through technologies
Originally published Apr 18 2023
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