INSIGHTS | “The Race Is On”: Europe’s Net-Zero Industry Act Proposal

The European Commission’s announcement to ramp up clean tech industrial capacity and secure a sustainable raw materials value chain is a bold step towards achieving net-zero emissions. Building on the original European Green Deal, the ambitious Green Deal Industrial Plan presented on February 1st, includes two new proposals – the Net-Zero Industry Act (NZIA), and the Critical Raw Materials Act (CRMA).

The NZIA

The NZIA aims to make the European Union (EU) the home for green jobs and clean tech manufacturing. The Act expects to create better conditions for net-zero projects to take shape and attract both foreign and domestic investments. McKinsey & Company reports that first movers on net-zero can capture significant advantages. This may include attracting the necessary talent for green jobs, forming partnerships to drive value from digital and renewable solutions and enjoying the increased interest and support by ESG-minded investors and customers.

The urgency of achieving net-zero cannot be overstated, as the future of the planet is at stake. In this context, the recent remarks by European Commission President Ursula von der Leyen at the European Parliament Plenary on Wednesday carry significant weight. She emphasized the need to lead the charge towards a sustainable future stating; “We must get our act together now if we are to stay front-runners”.

With major government initiatives heating up globally to grab their share in the net-zero transition, it’s clear that the race is on. The introduction of the ‘US Inflation Reduction Act’ by the Biden Administration in August 2022 has accelerated the momentum by foreign governments to introduce competing legislation that aims to achieve emissions reductions, strengthen climate resilience, and capitalize on the net-zero transition.

In January, the UK updated its ‘Net Zero Strategy’ with a focus on increasing ambition and investment in specific technologies that align with those the NZIA seeks to invest in for decarbonization advancement. These key technologies include wind, solar, batteries and storage, heat pumps and geothermal, electrolysers and fuel cells, biogas, carbon capture and storage, and grid technologies including sustainable fuels, hydrogen banks and advanced small modular reactors.

By harnessing the power of cleantech, the EU’s aim of taking the lead in the development and deployment of innovative technologies is a step in the right direction to achieve its goal of net-zero by 2050. Moreover, the opportunity that is the investment in the green transition is set to triple by 2030 from USD1tr last year.

Wind supply chains alone, are one the most integrated and interconnected value chains in Europe and present a significant opportunity for the NZIA’s innovation fund to boost investment in strategic European supply chain projects.

Europe produced nearly all the wind turbines installed on the continent last year in the EU with expected growth forecasts set to see the industry grow by USD2.21bn from 2021 to 2025.

Still, to achieve these forecasts, specific actions will need to be taken. According to WindEurope CEO Giles Dickson, the EU’s Green Industry Plan falls short as it stands, and while national governments have some new flexibility to support green industries, it is unclear how they will use it. Ultimately, the success of the NZIA hinges on the widespread adoption of its practices which will require significant public financial support at the EU and national levels. To achieve this, the innovation fund’s approach will need to fully align with the ambitious goals of the NZIA.

Key actions to drive tech manufacturing investments.

As part of the proposal for the NZIA, there are 6 key pillars to support the development and deployment of net-zero technologies in the EU. These include setting enabling conditions by prioritizing EU industry resilience and competitiveness; accelerating CO2 capture in line with targets; facilitating better access to markets to boost diversification of supply chains; enhancing skills to ensure there is a skilled workforce to meet the technical capacity demands; fostering innovation by allowing member states to test and stimulate innovation; and the establishment of a net-zero Europe platform which will allow for closer cooperation and coordination between member states and the commission to ensure availability of data to monitor progress on meeting net-zero objectives.

The establishment of these six pillars is essential to driving net-zero technology manufacturing investments in the EU. Not only do they create a favorable investment climate, but they also consider the technical capacity needed with the expected demand from the growth in green tech jobs.

The CRMA

As a second proposal to the NZIA, the CRMA seeks to ensure that tech-based sectors have access to the necessary raw materials they need to thrive, which are essential for the sustainable development of new technologies. For example, demand for materials such as Neodymium, a crucial raw material used in the manufacture of wind turbines is expected to exceed production rates by 2030.

Currently, many of these elements are supplied by China. With demand increasing and geopolitical tensions rising the EU must develop more self-dependency, which is what the CRMA seeks to achieve. Drawing on lessons learnt from the Covid-19 pandemic and the energy crisis sparked by the Ukraine-Russia conflict, the CRMA sets out the EU’s path to strengthen its resilience in clean energy supply chains and to secure a sustainable and competitive raw materials value chain. While the EU wishes to do away with its dependence on third countries, the CRMA does set out plans to establish trusted relationships with other international partners like the US, Canada, and the UK, described by the Commission as “The CRM Club”.

Sources:

https://www.mckinsey.com/capabilities/operations/our-insights/accelerating-capital-projects-to-secure-advantages-in-the-net-zero-transition

https://www.euronews.com/my-europe/2023/03/15/the-race-is-on-to-ensure-eu-is-competitive-in-crucial-clean-tech-sector-vdl-tells-meps

https://www.whitehouse.gov/omb/briefing-room/2022/08/23/new-omb-analysis-the-inflation-reduction-act-will-significantly-cut-the-social-costs-of-climate-change/

https://www.gov.uk/government/publications/the-ten-point-plan-for-a-green-industrial-revolution

https://ec.europa.eu/commission/presscorner/detail/en/ip_23_1665

https://www.reuters.com/business/sustainable-business/eu-unveil-plans-leadership-green-industrial-revolution-2023-03-16/

https://ec.europa.eu/commission/presscorner/detail/en/ip_23_510

https://www.prnewswire.com/news-releases/wind-turbine-services-market-in-europe—40-of-growth-to-originate-from-european-union-oem-segment-to-be-significant-for-revenue-generationtechnavio-301545068.html

https://windeurope.org/newsroom/press-releases/eu-green-industry-plan-falls-short-for-now/?ref=mainbanner

https://ec.europa.eu/commission/presscorner/detail/en/ip_23_1665

https://www.europarl.europa.eu/RegData/etudes/ATAG/2022/733586/EPRS_ATA(2022)733586_EN.pdf

https://www.iea.org/data-and-statistics/charts/demand-for-rare-earth-elements-from-wind-in-the-sustainable-development-scenario-2020-2040

https://www.euractiv.com/section/economy-jobs/news/eu-unveils-critical-raw-materials-act-aiming-to-lessen-dependence-on-china/