Net Zero Industry Act

In this blog we briefly explain the aims and focus of the EU’s new draft Net Zero Industry Act.

Summary

The EU have drafted a proposal for a new regulation, the Net Zero Industry Act, which will form part of the EU’s overall Green Deal package of measures.  It aims to simplify the EU’s regulatory framework applicable to, and improve the investment environment for, the EU’s net zero technologies manufacturing capacity.  It will do so by introducing a scheme of measures, similar to those contained in the proposed Critical Raw Materials Act with which it works in parallel.  Its core objective is to strengthen the EU’s net zero energy technologies manufacturing ecosystem. 

Aims

In outline, the objective of the Act is to establish a framework of measures to innovate and scale up the manufacturing capacity of net-zero technologies in the EU.  The measures will be implemented to support the EU’s target of reducing net greenhouse gas emissions by at least 55% in relation to 1990 levels; to support efforts to reach the EU’s 2050 climate neutrality target and to ensure the EU’s access to a secure and sustainable supply of net-zero technologies needed to safeguard job creation.  The Commission considers it urgent to take action in this area for multiple reasons including being an importer of net zero technologies and lack of CO2 storage sites limiting the emergence of a carbon capture and storage value chain.  For example, no impact assessment has been published.  Usually, this is an associated document published alongside proposed revised regulations.  However, due to the time this exercise would have taken it would have delayed the adoption of the Act, and so, unusually, it was abandoned.

The measures within the Act seek to ensure:

1. By 2030, manufacturing capacity in the EU of strategic net-zero technologies approaches or reaches a benchmark of at least 40% of the EU’s annual deployment needs for the technologies necessary to achieve the EU’s 2030 climate and energy targets.
2. The free movement of net zero technologies placed on the EU market.

The framework proposed to be created by the Act is based on seven pillars which it is intended together will strengthen the EU’s net zero technology manufacturing system.  The pillars each contain measures to achieve their goals:

1. Promotion and administrative support for Net Zero Strategic Projects
2. Increase carbon dioxide injection capacity
3. Incentivise demand for net-zero technologies
4. Ensure a skilled labour force for this sector
5. Foster innovation
6. Create a governance structure
7. Establish a framework for monitoring the implementation of these measures.

A platform, the Net Zero Europe Platform, will be established by the Act.  It will be the instrumental body the EU uses to enact the draft net zero industry measures.

A separate target is set for CO2 injection capacity of at least 50 million tonnes by 2030, to be located within the EU’s territory, its economic zones, or the continental self-defined by the United Nations Convention on the Law of the Sea.  To facilitate this, transparency of data on storage sites, is required.  MS will be required to report on carbon capture and storage projects in progress every six months following the implementation of the Act, as well as any national measures that support these projects. 

Focus: Net Zero Technologies

‘Net zero technologies’ include renewable energy technologies, electricity and heat storage technologies, heat pumps, grid technologies, renewable fuels of non-biological origin technologies, sustainable alternative fuels technologies, electrolysers and fuel cells, technologies to produce energy from nuclear processes with minimal waste from the fuel cycle, small modular reactors and related best-in-class fuels, carbon capture, utilisation and storage, and energy-system related energy efficient technologies.  The Act addresses final products, specific components and specific machinery primarily used for production of those products.  The Proposal seeks to ensure that in-scope technologies is at technology readiness level 8 as a minimum (this refers to NASA’s scale of measurement of the maturity of a technology throughout its progression through research, development and deployment).  The Act also focuses on ‘net zero strategic projects’ which are projects focussed on manufacturing net zero technologies linked to one of the following:

1. Solar photovoltaic and solar thermal technologies
2. Onshore wind and offshore renewable technologies
3. Battery/storage technologies
4. Heat pumps and geothermal energy technologies
5. Electrolysers and fuel cells
6. Sustainable biogas/biomethane technologies
7. Carbon Capture and storage (CCS) technologies
8. Grid technologies

In addition, they must meet various criteria:

1. Contribute to the technological and industrial resilience of the EU’s energy system by increasing the manufacturing capacity of a component or part in the net zero technology value chain for which the EU heavily depends on imports coming from a single third country; and
2. The net zero technology manufacturing project has positive impact on the EU’s net zero industry supply chain or downstream sectors, beyond the project promoter and the MS concerned, contributing to the competitive and quality job creation of the EU’s net zero industry supply chain according to at least three of the following:
   1. It adds significant manufacturing capacity in the EU for net zero technologies
   2. It manufactures technologies with improved sustainability and performance
   3. It puts into place measures to attract, upskill or reskill a workforce required for net zero technologies including through apprenticeships, in close cooperation with social partners
   4. It adopts comprehensive low carbon and circular manufacturing practices including waste heat recovery.

CO2 storage projects may also be recognised as NZSP if they meet the specific criteria: stored in an EU territory, contributes to oil and gas producer’s Green Deal objectives and have applied for safe and permanent geological storage of CO2.  There are some exemptions for projects that have been recognised by another scheme or are based in ‘less developed and transition regions’.

NZSPs will only be recognised as such following an application.  Applications should be dealt with within a month.  Once the project has been recognised as such, it will receive priority status in the relevant MS.  As a result, any permits required will be prioritised by the MS and will take a maximum of 18 months to be processed, dependent on the project’s manufacturing capacity measured in gigawatts.  In addition, both the Commission and MS will undertake to accelerate private investment in NZSP.  This may include help to ensure compliance with reporting obligations and work to increase public acceptance of the NZSPs.

Next Steps

Targets are set in the Act for outcomes to be achieved by 2030.  The targets are also aligned with the EU’s 2050 climate neutrality aim.  These timelines indicate that the Act will be published as a Regulation in force within the next one to two years at most in order to give Member States time to act and achieve the goals set by the Act and as noted above it is clear that the Commission regards the Proposal as urgent suggesting it is more likely move forward on an accelerated timetable.  The text of the Act will need to be negotiated and agreed by the European Parliament and Council before it can be formally adopted and published but given the professed urgency this could potentially be completed this year or early in 2024.  However, it will likely enter into force immediately.