EU launches net zero plan to rival US greentech incentives

THE EU has outlined its plans for scaling-up the manufacturing of crucial clean technologies as it seeks to bolster the bloc’s competitiveness in the face of US incentives, reduce its reliance on imports from China, and create jobs.

At the centre of the proposed Net Zero Industry Act is a goal to have 40% of net zero technologies deployed in the bloc made within the EU by 2030.

Ursula von der Leyen, president of the European Commission, said: “We need a regulatory environment that allows us to scale up the clean energy transition quickly. The Net-Zero Industry Act will do just that. It will create the best conditions for those sectors that are crucial for us to reach net-zero by 2050: technologies like wind turbines, heat pumps, solar panels, renewable hydrogen as well as CO2 storage. Demand is growing in Europe and globally, and we are acting now to make sure we can meet more of this demand with European supply."

The act seeks to reduce the administrative burden of setting up projects and simplifying permit-granting processes.

It has also set a target of reaching 50m t/y of CO2 injection capacity at EU sites by 2030, and will introduce requirements for oil and gas producers to help establish the sites. It says this will overcome a major barrier to the development of CO2 capture and storage as an economically viable climate solution for hard to abate energy-intensive sectors.

The technologies that the EU wants its legislation to support are solar photovoltaic and solar thermal; onshore wind and offshore renewable energy; batteries and storage; heat pumps and geothermal energy; electrolysers and fuel cells; biogas and biomethane; carbon capture, utilisation and storage; grid technologies; sustainable alternative fuels technologies; advanced technologies to produce energy from nuclear processes with minimal waste from the fuel cycle; small modular reactors; and related best-in-class fuels.

Concerns about the IRA

The legislation follows the introduction last year of the US Inflation Reduction Act (IRA) which will inject more than US$370bn into green technologies and infrastructure. While the flood of subsidies and incentives was initially lauded as a landmark moment for green transformation, especially after the Trump administration’s retreat from global climate action, concerns have been raised about the IRA sponging up private investment from overseas and disrupting supply chains.

In December, von der Leyen said the EU must “take action to rebalance the playing field where the IRA or other measures create distortions.”

Last month, the UK’s trade secretary Kemi Badenoch described the IRA as protectionist.

"It is onshoring in a way that could actually create problems with the supply chain for everybody else," she said.

European manufacturers have announced or are considering investments in North America that will allow them to take advantage of IRA incentives, some of which cover products coming out Canada and Mexico that have free trade agreements with the US. Earlier this week, Volkswagen committed to building a battery plant in Canada for its electric vehicles and may build fewer plants in Europe, the FT reported.

Hydrogen bank and critical minerals

The EU has also outlined plans for its so-called Hydrogen Bank which will help increase the production and use of hydrogen across the bloc. Under its REPowerEU energy plan announced last year to help reduce its reliance on gas from Russia, the EU targeted the production of 10m t/y of green hydrogen by 2030. The bank will have €800m (US$853m) to subsidise the more expensive production of green hydrogen and will provide advice on what infrastructure is needed.

Frans Timmermans, executive vice president for the European Green Deal, said: “Net zero technologies and renewable energy are crucial to reaching climate neutrality. Clean tech is a booming market, and the more we enhance our competitive advantage, the more quality jobs can be created in Europe. The Hydrogen Bank will aim to close the current investment gap on the development of renewable hydrogen and ensure the EU maintains its global lead in this critical technology. In the global race to net zero, we want to put EU industry in the best possible position to compete. Today’s proposals do just that.”

The bloc also proposed regulations to improve the security of its supplies of critical minerals for clean technologies, such as lithium for batteries and rare earths for wind turbines and electric cars. It says it wants to set out in law a list of critical materials and then set targets for domestic extraction, processing and recycling.

The International Energy Agency estimates that the mineral demand needed for clean energy technologies will increase fourfold by 2040 compared to 2020. China currently dominates production of many elements crucial for green technologies including 90% of the world’s gallium, 78% of rare earths, and 79% of silicon.

Net zero act reactions

The trade association Plastics Europe has welcomed the EU’s proposal, with managing director Virginia Janssens saying: “The act could turbocharge European industries’ net-zero transition. It is a very important step forward…It has the potential to help European industry regain its lost competitiveness and lead on green technology.”

Whereas Cefic, the European chemicals industry association, criticised the proposals. It warned that the measures do not match the IRA,it ignores the incentives required to reduce industry’s high operating costs including electricity prices, and if the measures do lure back capital investment from the US it predicts it will do little to help upstream suppliers because producers will buy cheaper feedstocks from abroad.

Marco Mensink, director general of Cefic, said the EU’s plan “largely ignores the energy intensive industry decarbonisation and the circularity dimension. We can’t reach the 2050 climate goals without building a competitive circular economy: using waste, captured carbon or renewable resources as feedstock are all viable ways to reduce emissions across all industries and cut the EU dependence on raw materials imports.” 

Among its counterproposals, Cefic called for the EU to recognise the interdependencies between value chains and the role played by chemicals, raw materials and processes in the transition to a net-zero and circular economy.

The trade association NuclearEurope was also cool to the proposals, saying the mentions of nuclear technology did not go far enough. Yves Desbazeille, director general of the association, said the US recognised the importance of supporting the entire nuclear sector in its IRA while the EU had missed the opportunity to place its own industry on an equal footing. The association noted that nuclear currently provides around 50% of the low-carbon electricity in Europe and could provide large volumes of heat, steam and hydrogen needed to meet EU climate goals.