The Net Zero Industry Act

All industry, no net-zero

The European Commission’s proposal for a Net-Zero Industry Act (NZIA) as part of the Green Deal Industrial Plan purports to boost the European green transition whilst decreasing dependence on third countries. But does what sounds like a win-win for industry and the planet actually hold up to scrutiny? A brief explainer. 

What is the Net-Zero Industry Act?

According to the Commission, the NZIA will single out strategic net-zero technologies that will be subject to a 40% domestic production benchmark and will be allowed to receive ‘priority support’ from Member States. These include: solar photovoltaic and solar thermal, onshore wind and offshore renewable energy, batteries and storage, heat pumps and geothermal energy, electrolysers and fuel cells, biogas/biomethane, carbon capture, utilisation and storage, and 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. 

The NZIA also aims to improve conditions for investment in net-zero technologies, especially projects that are ‘deemed essential for reinforcing the resilience and competitiveness of the EU industry’ and require public authorities to consider sustainability and resilience criteria for net-zero technologies in public procurement or auctions.  

What is the problem? 

Whilst the NZIA includes some good ideas, it also has major flaws. For one, it is overly focused on securing supply chains whilst neglecting to account for the demand side (why the net-zero technologies backed by the NZIA would actually be deployed). Demand-side incentives are essential to ensure that boosting the manufacturing of cleantech does indeed result in the domestic decarbonisation of industry. However, so far, the EU’s ‘Fit-for-55’ package has carefully avoided to create incentives for industry to reduce its emissions. The bloc’s Emissions Trading System awards free permits to the most polluting plants, securing them with a competitive advantage over lower-carbon processes. Free allocation is planned to decrease for a handful of sectors as the Carbon Border Adjustment Mechanism is phased in, but the phase down will be so slow that its effects will not be felt until well into the 2030s. 

Support schemes to increase the use of “green” technologies exist, but they mostly involve the deployment of hydrogen use with so little concern about its carbon impact that they will most probably increase emissions instead of decreasing them. As for the Innovation Fund, its reckless and inefficient approach is unlikely to yield any significant emission abatement.  

In its bid to boost industry, the Net-Zero Industry Act fails to make good on its ‘net-zero’ pledge. Staggeringly, the only provision for deploying any emission reduction measure consists of subsidising carbon capture and storage (CCS). The NZIA sets out the objective of storing 50 million tonnes of CO2 by 2030. This technology has many drawbacks and betting on it as a primary tool to reach climate targets is therefore not without risks. For example, the CCS process requires significant energy and water use and can result in leaking greenhouse gas emissions.  Most of all, subsidising CCS may lock in the use of fossil fuels by increasing their competitiveness at the expense of other solutions.   

Among the multitude of support schemes for low-carbon technologies, one pillar of decarbonisation is glaringly absent: circularity. The NZIA does list “circular manufacturing practices” as one of the selection criteria for net-zero strategic projects, which is encouraging. However, circularity is one of four criteria (the others being: 1. Manufacturing capacity, 2. Sustainability and performance, 3. Green jobs), only three of which need to be met. This will likely lead to ignoring circularity.  

One last problem with the NZIA is about competitive distortion. The NZIA adds to an already long list of announced support programmes including the Innovation Fund, Important Projects of Common European Interest (IPCEI) and the European Hydrogen Bank which focus on a small selection of technologies. The cumulation of aid is even encouraged, as priority permitting might be secured by projects that already benefit from one or several of those programmes. This creates competitive distortions to the benefit of these technologies at the expense of others. 

Sandbag’s Executive Director, Adrien Assous, said: ‘This is throwing more of taxpayers’ money at technologies which are already receiving free emission permits and other subsidies, while activities such as circularity remain unprofitable.’  

The NZIA was conceived to protect supply chains and boost homegrown net-zero technology. However, because it 

  1. fails to secure any significant emission reductions despite its name, 
  2. mandates the deployment of CCS, which will increase our dependence on fossil fuels and 
  3. increases the unfair competitive advantages already benefiting a small selection of resource-intensive technologies over less intensive ones such as circularity

the Commission’s proposed Net Zero Industry Act may well fail to actually get us any closer to net zero. 

What happens now? 

As a next step, the European Parliament’s Industry Committee will now assign a rapporteur to the proposal who will develop a report on the NZIA file along with proposed changes. The European Council will meanwhile examine the proposal and develop a General Approach, before the two institutions will meet with the European Commission for a trilogue.