The European Commission (EC) published its "Green Deal Industrial Plan for the Net-Zero Age" (the Plan) on February 1, 2023. The Plan may present new opportunities for companies to benefit from State aid and other financial support. It is part of the European Green Deal, which is aiming to make Europe the world's first climate-neutral continent by 2050. It should also be seen as a response to the cleantech-related investment incentives created by the US Inflation Reduction Act (IRA). In a special meeting of the European Council on February 9, 2023, EU Member States generally welcomed the Plan and gave it their support. The European Parliament discussed the Plan as well and, on February 16, 2023, adopted a resolution on an "EU strategy to boost industrial competitiveness, trade and quality jobs" setting out its priorities.

Introduction

EC President Ursula von der Leyen's presentation of the Plan acknowledged the need to increase the EU's manufacturing capacity for net-zero technologies and products. To this end, the Plan has four pillars:

  • Achieving a predictable and simplified regulatory environment, for example, through the adoption of the Net-Zero Industry Act (NZIA), which follows the model of the EU Chips Act (see our briefing here), and a Critical Raw Materials Act (CRMA).
  • Providing faster access to funding through a temporary relaxation of the State aid regime and the adoption of the State aid Temporary Crisis and Transition Framework (TCTF). Alongside funding by the EU Member States, available EU resources will be redirected from existing instruments and through the creation of an EU Sovereignty Fund.
  • Supporting the development of the skills needed for the transition; and
  • Facilitating worldwide trade while dealing with unfair trade practices in clean tech innovation using tools such as the EU Foreign Subsidies Regulation (FSR) (see our briefing here).

We consider the potential opportunities in three of these areas in more detail below.

Key proposals to simplify the regulatory environment

The proposed adoption of a NZIA to support the manufacturing of products that are key to meeting climate neutrality goals (including batteries, windmills, heat pumps, solar and carbon capture) is a key part of the Plan. Investors in these areas will benefit from a shortening of administrative procedures and the introduction of a "one-stop-shop" single point of contact. Strategic projects, including cross-border initiatives, are to be promoted to reach new industrial benchmarks by 2030. Both developed and less developed regions can benefit, addressing some EU Member States' concerns that the EU's largest economies would benefit most and the single market would be weakened.

A CRMA will aim to provide security of supply of raw materials required for the EU net-zero technologies. The EC had already confirmed to adopting this legislation in its Work Programme 2023 and has been regularly updating its list of critical raw materials (available here). The EC has defined raw materials that are most important economically and have a high supply risk as critical. It will present its proposal for a Critical Raw Materials Act on March 14, 2023.

The Plan also stressed the importance of several legislative initiatives relating to security of energy supply and high energy prices. The reform of the electricity market design planned for March 2023 aims to increase the use of long-term contracts to shield companies and consumers from price spikes. The revised EU regulatory framework for batteries will impose sustainability and safety obligations for batteries placed on the EU market, and will be implemented through the Regulation on Batteries and Waste Batteries, which the European Parliament and the Council agreed in December 2022.

Extended access to funding for net-zero industry

Resources can come from a combination of EU Member States, the EU itself and private investment.

a) EU Member States will have more flexibility to grant State aid

The EC is planning to provide further flexibility to the Member States by transforming the State aid Temporary Crisis Framework adopted in March 2022 into the TCTF, which will remain in place until December 31, 2025. The key proposed changes will lead to:

  • simplification of aid for renewable energy, including renewable hydrogen and biofuel storage;
  • simplification of aid for decarbonisation, particularly hydrogen use, energy efficiency and electrification;
  • support for new investments in strategic net-zero sectors, incl. via tax benefits; and
  • enabling EU Member States to match aid offered by a third country to competitors outside the EU.

The EC will also revise the State aid General Block Exemption Regulation (GBER) to raise the State aid notification thresholds. The Plan identifies the following key sectors as likely benefiting from these amendments.

  • Hydrogen;
  • Carbon capture and storage;
  • Zero-emission vehicles;
  • Energy performant buildings; and
  • Recharging and refuelling infrastructure.

In addition, approved Important Projects of Common European Interest (IPCEI) will benefit from €18bn of additional support.

b) EU funds will be repurposed to allow for additional support

The EC will increase EU funding by redirecting financial resources already available under the REPowerEU, the InvestEU Programme for private investments and the Innovation Fund. The EC had already controversially announced creating a European Sovereignty Fund in December 2022. However, the EU Member States merely noted this proposal at their February 2023 meeting.

An additional €25.4bn will be added to the existing €225bn of unused loans available under REPowerEU. The newly published Guidance on Recovery and Resilience Plans encourages Member States to create one-stop-shops for obtaining approvals, tax breaks and workforce reskilling. A large part of the additional support will come from the Recovery and Resilience Facility (RRF) initially established to address the effects of the coronavirus.

The InvestEU Fund provides a budget guarantee for public and private investments in sustainable infrastructure and R&D. €11.37bn in funds is still available for 2024 – 2027, but the EC is assessing how to increase this amount. Measures by Member States matching funding through the InvestEU Fund will benefit from a simplification of the rules in the GBER.

The Innovation Fund subsidises cleantech through competitive bidding procedures. In autumn 2023 the EC will launch a competitive bid to boost production of renewable hydrogen. Terms and conditions will be announced in June 2023 and the indicative budget will be €800m.

Trade and resilient supply chains

As part of its effort to secure the supply of raw materials, the EU will intensify efforts to conclude free trade agreements with Australia, Chile, India, Indonesia, Mexico and New Zealand. It is also negotiating with the US administration over possible changes to the IRA. In October 2022, the US-EU Task Force on the IRA was launched to support the negotiations. Other similar initiatives will include a so-called Critical Raw Materials Club and an EU export-credit facility.

Finally, the EC reiterated that it is willing to use the FSR and EU FDI screening procedure and other instruments to counter unfair competition. The EC will deploy the International Procurement Instrument (IPI) for the first time in 2023 in order to promote reciprocity for access to public procurement markets. The IPI will enable the EC to tackle market protection in public procurement by third countries. It can act on its own initiative or react to a complaint by a Member State or by an interested EU party, such as a potential tenderer.

Next steps

The EU Member States will reassess the EC proposals at their next meeting on March 23-24, 2023. The proposal to relax State aid rules was not welcomed by all Member States at the February meeting. In the Conclusions published after the meeting on February 9, 2023, the Member States asked the EC to regularly report on the impact of the revised State aid rules.

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