Unpack your bags: what the Net-Zero Industry Act means for Europe’s climate sector
Just over a month ago, the European Commission announced the Green Deal Industrial Plan (GDIP), a €270 billion scheme to incentivise climate tech companies into staying in the EU. The GDIP was widely considered the EU’s answer to the US’s Inflation Reduction Act (IRA), and many groups began comparing the two of them. We were no exception to this, and we published an article comparing the advantages of the GDIP and IRA. At the end of that article, we concluded that the IRA appeared stronger on paper, but that the GDIP had more room to grow.
A few days ago, the EU Commission proposed the Net-Zero Industry Act (NZIA), an initiative associated with the GDIP. While one of the GDIP’s largest weaknesses was its lack of specificity, the NZIA appears to correct that, naming eight strategic net-zero technologies which can get support and funding from the Commission through the GDIP. These technologies are vital for the EU and the Act aims to strengthen their manufacturing within the EU, so that the EU can secure the capacity needed to reach 40% of the EU’s deployment targets by 2030.
The 8 strategic technologies, which line up quite well with the six climate tech trends we predicted would become significant in 2023, are:
- solar photovoltaic and solar thermal technologies
- onshore wind and offshore renewable energy
- batteries and storage
- heat pumps and geothermal energy
- electrolysers and fuel cells
- biogas/biomethane
- carbon capture and storage (CCS)
- grid technologies
Obviously, the NZIA is still only a proposal and must be discussed and agreed upon by the European Parliament before coming into force. But if this Act is successfully implemented, is this what the GDIP needs to definitively surpass the IRA?
Or to put it another way: should we all be unpacking our bags?
We think so. Here’s why.
What is in the Net-Zero Industry Act?
Unlike the GDIP, which discussed aims and avenues of potential funding for climate tech industries without giving too many specifics, the NZIA specifically expresses the Commission’s intention to strengthen the EU’s net-zero technology market, making it easier for companies producing net-zero tech to set up projects and obtain permits, facilitating access to markets for new technologies, and fostering innovation under flexible regulatory conditions.
However, under the NZIA, not all net-zero technologies are created equal. Article 3 of the Act starts with defining net-zero technologies as renewable energy technologies. It goes on and specifies the technologies covered as:
“electricity and heat storage technologies; heat pumps; grid technologies; renewable fuels of non- biological origin technologies; sustainable alternative fuels technologies; electrolysers and fuel cells; advanced 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 technologies; and energy-system related energy efficiency technologies. They refer to the final products, specific components and specific machinery primarily used for the production of those products. They shall have reached a technology readiness level of at least 8.”
Take note of the bold section above. The NZIA specifically defines a “net-zero technology” as having a Technology Readiness Level (TRL) of at least 8, meaning that the system has been tested and is ready for deployment in the market. Most of the Act’s major provisions are centred around that type of tech that is basically “ready-to-go”. The time-to-impact really matters.
The NZIA recognises that some strategic technologies are needed for decarbonisation, however, they have not reached a maturity level of TRL 8. They are defined in the act as ‘innovative net-zero technologies’. Those are
“technologies which satisfy the definition of ‘net-zero technologies’, except that they have not reached a technology readiness level of at least 8, and that comprise genuine innovation which are not currently available on the market and are advanced enough to be tested in a controlled environment.”
For innovative net-zero technologies the Act introduces regulatory sandboxes to accelrate their market readiness. The EU, thereby recognises that innovative technologies are essential to achieve the EU’s climate neutrality objective, ensure the security of supply and resilience of the EU’s energy system, and consequently become part of the eight strategic net-zero technologies.
To help streamline the administrative process, the NZIA would give Member States three months to designate a competent authority for facilitating and coordinating the permit-granting processes to net-zero manufacturing projects, a so-called “one-stop shop” for the industry’s administrative needs. While this naturally sounds attractive to anyone who has had the difficult experience of dealing with the EU’s often opaque bureaucratic system, it is not the only thing the NZIA aims to do. The NZIA also aims to shorten the permit-granting process for net-zero technologies, setting maximum time limits for the process between 12–18 months while also simplifying the assessment, authorization, and planning steps.
These processes are further shortened for projects that qualify as net-zero strategic projects, defined as any net-zero technology manufacturing project that meets additional criteria, mostly focused on strengthening the EU’s net-zero industry or, in the case of carbon capture and storage, capturing carbon within EU borders. If the Act is enforced, these strategic projects will have their permit-granting processes shortened to a maximum of 9–12 months, will be given priority status under all relevant authorities, and will be eligible for financial advice.
There are other aspects of the NZIA that are set up to support goals outlined in the GDIP. The Act also aims to support the uptake of renewable hydrogen power in the EU, and projects in this vein will have an opportunity to obtain pilot funding under the Innovation Fund in Autumn 2023. Selected projects will be awarded a subsidy in the form of a fixed premium per kilogram of hydrogen produced for a maximum of 10 years. To further make Europe an appealing location for hydrogen companies, the Commission has also presented ideas for the design and function of the European Hydrogen Bank, an instrument implemented by the EU Commission to support renewable hydrogen within the EU and internationally. The Hydrogen Bank would do this through new financing mechanisms, including the introduction of fixed premium auctions to support domestic hydrogen production, the offering of “auctions-as-a-service” to member states, and the import of 10 million tonnes of hydrogen by 2030. Finally, the NZIA expands the GDIP’s goals of enhancing relevant skills, through the establishment of Net-Zero Innovation Academies.
That’s a lot of information, but ultimately the NZIA is focused on reducing obstacles for technology companies working on net-zero tech in Europe, with the goal of making the EU an attractive destination for start-ups in this industry.
What does this mean for you?
While the NZIA isn’t perfect, the Act does significantly strengthen the GDIP. But is it enough to put the GDIP over the IRA? Well, admittedly, the IRA still offers some clear immediate advantages over the NZIA and GDIP. It’s more established than the GDIP and contains funding opportunities that founders can take advantage of right away. The NZIA is still a proposal that must first be discussed in Parliament, and the possibility remains that it may change prior to coming into force. But we believe that the NZIA is a strong step in the right direction, and provides a framework for climate tech founders to establish their businesses quickly and at scale.
We also note that while we are naturally concerned with policies proposed by the EU Commission, the European Union is not the only governmental authority in Europe. And with many European powers interested in investing in net-zero technologies, it’s worth considering the entire landscape before making any large decisions. For example, Norway is considering implementing subsidies for direct air capture, or DAC. These subsidies would be paid out over 10 years in the form of reverse tax, and amount to 2000 NOK (€177) per metric ton of carbon.
This news is significant and goes the extra mile against the IRA. While the IRA’s subsidies are for sequestration, the Norwegians are offering them for the carbon-capturing step. And Norway isn’t alone. One interesting thing about the NZIA that was missing from the GDIP is its special focus on carbon capture and storage (CCS), a major component of the IRA. Despite barely getting a mention in the original text of the GDIP, CCS, particularly in the form of CO2 injection, takes up an entire chapter of the NZIA (Chapter III), which is structured around the development of carbon dioxide storage sites within the EU borders and the increase of the EU’s carbon injection capacity to 50 million metric tons a year. Oil and gas producers located within the EU will be expected to contribute to the development of this technology.
CCS (or CCSU with utilisation) has received special mention in the UN’s latest climate change report, and this industry is only expected to grow in the future, so the inclusion of CCS into the NZIA and the recent news out of Norway is cause for optimism. Much more work is needed on CCS and other climate technologies, but Europe is on the right track to becoming a climate tech powerhouse.
And that means if you’re still thinking about moving your business to the US, you should probably unpack your bags.
