EU’s Net-Zero Industry Act: A chance to scale up net-zero tech or missed opportunity to match US IRA?

As part of the Green Deal Industrial Plan, the European Commission (EC) has proposed new initiatives and a set of actions to scale up the manufacturing of clean technologies in the European Union (EU), including renewable hydrogen, carbon capture, and alternative fuel technologies, among others.

On 16 March, EC’s President Ursula von der Leyen announced the proposal of the Net-Zero Industry Act which aims to strengthen the resilience and competitiveness of net-zero technologies manufacturing in the EU.

It is accompanied with the proposal for the European Critical Raw Materials Act and the reform of the electricity market design to set out a clear European framework to reduce the EU’s reliance on highly concentrated imports. 

The Act is expected to create better conditions to set up net-zero projects in Europe and attract investments, with the aim that the Union’s overall strategic net-zero technologies manufacturing capacity approaches or reaches at least 40% of the Union’s deployment needs by 2030.

von der Leyen highlighted that the Net-Zero Industry Act will create the best conditions for those sectors that are crucial for the EU to reach net zero by 2050, including technologies like wind turbines, heat pumps, solar panels, renewable hydrogen as well as CO2 storage.

The proposed legislation addresses the following technologies: 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 (CCUS), 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 identified strategic net-zero technologies will receive particular support and are subject to the 40% domestic production benchmark, the EC said in a statement.

If adopted by the European Parliament and the Council of the European Union, the proposed Act will reduce the administrative burden to set up projects and simplify permit-granting processes and create better conditions for investment in net-zero technologies.

One of its pillars involves accelerating CO2 capture as the Act sets an EU objective to reach an annual 50Mt injection capacity in strategic CO2 storage sites in the EU by 2030, with proportional contributions from EU oil and gas producers.

As mentioned before, renewable hydrogen is one of the strategic net-zero technologies covered under the Net-Zero Industry Act. In order to further support its uptake within the EU, the EC also presented its ideas on the design and functions of the European Hydrogen Bank.

In her State of the European Union address on 14 September 2022, Commission President von der Leyen announced the establishment of the European Hydrogen Bank. The objective of the Bank is to close the investment gap and connect the future supply of renewable hydrogen with the EU’s demand objective of 20 million tonnes of renewable hydrogen.

The European Hydrogen Bank will facilitate both renewable hydrogen production within the EU and imports, contributing to the RepowerEU objectives and to the transition to climate neutrality.

As announced in the Green Deal Industrial Plan, the first pilot auctions on renewable hydrogen production will be launched under the Innovation Fund in Autumn 2023. Selected projects will be awarded a subsidy in the form of a fixed premium per kg of hydrogen produced for a maximum of 10 years of operation. This will increase the bankability of projects and bring overall capital costs down

The EU auction platform can also offer “auctions-as-a-service” for Member States, which will also facilitate the production of hydrogen in Europe. The Commission is further exploring how to design the international dimension of the European Hydrogen Bank to incentivise renewable hydrogen imports. Before the end of the year, all elements of the Hydrogen Bank should be operational, the EC stated.

The Hydrogen Bank supports the objectives of the Green Deal Industrial Plan and the Net-Zero Industry Act. According to the EC, the scaling up of electrolyser manufacturing for renewable hydrogen production will contribute to the competitiveness and resilience of the European industry, including steel and fertiliser production and the shipping industry.

While the proposed initiatives were welcomed and applauded by some representatives of shipping and electrolyser manufacturing industries, associations from chemical and fertilizer industries pointed out gaps in the Net-Zero Industry Act.

Norwegian hydrogen company NEL ASA welcomed the proposed Act which identifies electrolysers as a strategic net-zero technology for Europe. 

“We look forward to the implementation of the numerous EU initiatives intending to create an attractive investment framework in Europe”, said Nel’s CEO, Håkon Volldal. “There is fierce competition between continents for global leadership in renewable hydrogen technology, and we welcome the EU setting a target for the production of electrolysers made in Europe.”

Danish Shipping, trade and employer organisation, also welcomed the ambitions and expressed its hopes that the upcoming negotiations will “run swift and smoothly”.

“We have already set the course towards climate neutrality in Danish Shipping. But we need vast amounts of renewable energy to produce enough green fuels at affordable prices for our ships, so I am very pleased to see, that the Net-Zero Industry Act aims to streamline the permission processes for renewable energy projects. We cannot waste more time on bureaucracy”, said Anne H. Steffensen.

She further noted that Denmark is moving fast on CCUS technology as the first CO2 was injected into the seabed in the Danish North Sea just last week, adding that the next steps should focus on removing the regulatory obstacles for the supporting services, like maritime transport.

Reacting to the Act, European shipowners association ECSA welcomed the inclusion of offshore renewable technologies and CCUS in the list of strategic net-zero technologies and highlighted that the new Act must properly recognise the strategic role of shipping for Europe’s security.

The new Industry Act aims to accelerate the decarbonisation of the European economy. As shipping is one of the most difficult to decarbonise sectors, the upscaling of affordable low- and zero-carbon fuels and technologies for the sector are key. For this reason, renewable fuels of non-biological origin (RFNBOs) should be included within the Act’s definition of ‘strategic net-zero technologies’, so that dedicated production capacity can be swiftly developed, ESCA said.

On the other hand, Cefic, the European Chemical Industry Council, called upon the Commission and the Member States “to get their act together” and deliver comprehensive industrial policy.

“Today’s proposal for the Net-Zero Industry Act reads more like a Zero Industry Act. It is very unlikely to become a game changer for the EU industry’s competitiveness as it does not look at the problem from the business’s and investor’s perspective. On top of the European gas price being about 5 times the US, it does not match the USA IRA in whatever way”, Cefic’s Director General Marco Mensink said in a statement.

While the Green Deal Industrial Plan for the Net-Zero Age was described as the EU version of the US Inflation Reduction Act (US IRA), Fertilizers Europe, an association comprising 17 fertilizer manufacturers from countries across the EU and eight national fertilizer associations, pointed out that “the Act is a missed opportunity to equalise the US IRA, attract investments and enable green transition financing for industries of strategic importance to Europe, such as fertilizers and ammonia.

“While the H2 bank proposal is a step in the right direction, it is regrettable that no specific support has been allocated to the fertilizer industry, which currently produces a third of Europe’s hydrogen.”