First-ever Net-Zero Industry Act

Speaking at the World Economic Forum, Ursula von der Leyen, President of the European Commission, outlined a Green Deal Industrial Plan to put Europe at the centre of the new industrial revolution – the first-ever Net-Zero Industry Act.

She reiterated the European Union’s continued support for Ukraine, explained how the European Union is approaching the geopolitical upheaval and the energy crisis and how it is scaling up its strategies to meet Net Zero.

The net-zero transformation is already causing huge industrial, economic, and geopolitical shifts – by far the quickest and the most pronounced in our lifetime, Ursula von der Leyen said. It is changing the nature of work and the shape of our industry. But the road to net zero means developing and using a whole range of new clean technologies across the economy: in transport, buildings, manufacturing, energy. The International Energy Agency estimates that the market for mass-manufactured clean energy tech will be worth around USD 650 billion a year by 2030 – more than triple today’s levels.

“To get ahead of the competition, we need to keep investing in strengthening our industrial base and making Europe more investment- and innovation-friendly. This is what investors are looking closely at in the different global markets for clean tech. Here in Europe, we moved first with the European Green Deal to set the path to climate neutrality by 2050. We have cast our net-zero target into law to provide the predictability and transparency business needs. We followed it up with the investment firepower of NextGenerationEU, our EUR 800 billion investment plan, the Just Transition Fund, and other instruments across the economy. This is unprecedented investment in clean technology across all sectors of the green transition. Clean tech is now the fastest-growing investment sector in Europe – doubling its value between 2020 and 2021 alone. And the good news for the planet is that other major economies are now also stepping up. Japan’s green transformation plans aim to help raise up to JPY 20 trillion – around EUR 140 billion – through ‘green transition’ bonds. India has put forward the Production Linked Incentive Scheme to enhance their competitiveness in sectors like solar photovoltaics and batteries. The UK, Canada and many others have also put forward their investment plans in clean tech. And of course, we have seen the Inflation Reduction Act in the United States, their USD 369 billion clean-tech investment plan. That means that together, the EU and US alone are putting forward almost EUR 1 trillion to accelerate the clean energy economy. This has the potential to massively boost the path to climate neutrality,” Ursula von der Leyen noted.

“But it is no secret that certain elements of the design of the Inflation Reduction Act raised a number of concerns in terms of some of the targeted incentives for companies. This is why we have been working with the US to find solutions, for example so that EU companies and EU-made electric cars can also benefit from the IRA. Our aim should be to avoid disruptions in transatlantic trade and investment. We should work towards ensuring that our respective incentive programmes are fair and mutually reinforcing. And we should set out how we can jointly benefit from this massive investment, for example by creating economies of scale across the Atlantic or setting common standards. At the heart of the joint vision is our conviction that competition and trade is the key to speeding up clean tech and climate neutrality. And that means that we Europeans also need to get better at nurturing our own clean-tech industry. We have a small window to invest in clean tech and innovation to gain leadership before the fossil fuel economy becomes obsolete. We have an industry challenged by a pandemic, supply chain issues and price shocks. We see aggressive attempts to attract our industrial capacities away to China or elsewhere. We have a compelling need to make this net-zero transition without creating new dependencies. And we know that future investment decisions will be taken depending on what we do today,” the President of the European Commission added. “We have a plan, a Green Deal Industrial Plan, our plan to make Europe the home of clean tech and industrial innovation on the road to net zero. Our Green Deal Industrial Plan will be covering four key pillars: the regulatory environment, financing, skills. and trade.

 

Four key pillars

• The first pillar is about speed and access. EU needs to create a regulatory environment that allows us to scale up fast and to create conducive conditions for sectors crucial to reaching net zero. This includes wind, heat pumps, solar, clean hydrogen, storage, and others – for which demand is boosted by our NextGenerationEU and REPowerEU plans. To help make this happen, EU will put forward a new Net-Zero Industry Act. This will follow the same model as the Chips Act. The new Net-Zero Industry Act will identify clear goals for European clean tech by 2030. The aim will be to focus investment on strategic projects along the entire supply chain. EU will especially look at how to simplify and fast-track permitting for new clean-tech production sites. In parallel to this Net-Zero Industry Act, EU will reflect on how to make Important Projects of Common European Interest on clean tech faster to process, easier to fund and simpler to access for small businesses and for all Member States. The Net-Zero Industry Act will go hand in hand with the Critical Raw Materials Act. For rare earths, which are vital for manufacturing key technologies – like wind power generation, hydrogen storage or batteries –, Europe is today 98% dependent on one country – China. With just three countries accounting for more than 90% of the lithium production, the entire supply chain has become incredibly tight. This has pushed up prices and is threatening EU’s competitiveness. So, EU needs to improve the refining, processing, and recycling of raw materials in Europe. In parallel, EU will work with its trade partners to cooperate on sourcing, production, and processing to overcome the existing monopoly. This is pillar one – speed and access through the Net-Zero Industry Act.
• The second pillar of the Green Deal Industrial Plan will boost investment and financing of clean-tech production. To keep European industry attractive, there is a need to be competitive with the offers and incentives that are currently available outside the EU. Therefore, EU will propose to temporarily adapt its state aid rules to speed up and simplify. Easier calculations, simpler procedures, accelerated approvals. For example, with simple tax-break models. And with targeted aid for production facilities in strategic clean-tech value chains, to counter relocation risks from foreign subsidies. For the medium term, EU will prepare a European Sovereignty Fund as part of the mid-term review of its budget later this year. This will provide a structural solution to boost the resources available for upstream research, innovation, and strategic industrial projects key to reaching net zero.
• The third pillar of the Green Deal Industrial Plan will be developing the skills needed to make the transition happen. The best technology is only as good as the skilled workers who can install and operate it. And with a huge growth in new technologies, EU will need a huge growth in skills and skilled workers in this sector.
• The fourth pillar will be to facilitate open and fair trade for the benefit of all. For clean tech to deliver net zero globally, there will be a need for strong and resilient supply chains. EU’s economies will rely ever more on international trade as the transition speeds up to open more markets and to access the inputs needed for industry. Because international trade is key to helping EU’s industry cut costs, create jobs, and develop new products.

“But by the same token where trade is not fair, we must respond more robustly. China has made boosting clean-tech innovation and manufacturing a key priority in its five-year plan. It dominates global production in sectors like electric vehicles or solar panels, which are essential for the transition. But competition on net zero must be based on a level playing field. China has been openly encouraging energy-intensive companies in Europe and elsewhere to relocate all or part of their production. They do so with the promise of cheap energy, low labour costs and a more lenient regulatory environment. At the same time, China heavily subsidises its industry and restricts access to its market for EU companies. We will still need to work and trade with China – especially when it comes to this transition. So, we need to focus on de-risking rather than decoupling. This means using all our tools to deal with unfair practices, including the new Foreign Subsidies Regulation. We will not hesitate to open investigations if we consider that our procurement or other markets are being distorted by such subsidies,” Ursula von der Leyen underlined. “I believe if Europe gets it right, the story of the clean-tech economy can be one of creative construction – with the right support and incentives for companies to innovate; with the right focus on skills and people; with the right environment to make the most of our world-leading innovation capacity. Europe already has everything it takes – talent, researcher, industrial capacity. And Europe has a plan for the future. And this is why I believe the story of the clean-tech economy will be written in Europe,” she concluded.