The first quarter of 2023 has been a particularly busy time for the European Commission as in March it released three major legislative proposals aimed at addressing climate change and accelerating the green transition while ensuring independency from third countries. These are the Net Zero Industry Act (NZIA)1, preceded by an adjustment of State aid rules2, the Reform of the EU’s electricity market design (EMD)3, and the Critical Raw Materials Act (CRMA)4. These initiatives are to be welcomed. However, some doubts and remarks about their effectiveness are in order.
NET ZERO INDUSTRY ACT (NZIA) AND ADAPTATION OF STATE AID RULES
The NZIA proposes a framework for investment, innovation, and support, setting a goal for the EU to domestically produce at least 40% of the technology it needs to achieve its climate and energy neutrality targets by 2030. These measures aim to speed up permitting and increase access to clean tech finance.
Very good. However, the support of the scope is meant for a numerus clasus of technologies: solar, wind, batteries and storage, heat pumps and geothermal energy, electrolysers and fuel cells, biogas/biomethane, carbon capture, utilisation and storage, and grid technologies.
This immediately poses the question of how we want to ensure Europe’s net-zero transformation when one of the major EU green industrial laws only supports such a limited number of technologies. We need to understand that the decarbonisation of Europe is a matter of priority for the whole economy, industries, and businesses and that therefore a much broader strategy including all sectors in the value chain is required. In other words, it is necessary to pay attention to the general goal of environmental footprint reduction than only to the used technologies.
A second fundamental element of this initiative is the attempt to speed up the expansion of manufacturing projects for net-zero technologies in Europe. This is highly welcomed. Simpler and faster permit-granting processes are a basis to attract more investments in Europe in key technologies for successful decarbonisation and it is no secret that Europe is often too slow and too bureaucratic at all levels of industrial project permission granting compared to our main international competitors. This is why, in addition to permitting, EU policymaking should focus on creating a general business environment with less regulatory burden, and simpler and faster procedures for the whole industry. Let our businesses breathe, if we want them to stay and be competitive.
Moreover, with specific regards to access to financing, not only is simplification and acceleration needed, but also predictability and certainty. When businesses decide to take significant investments, they must know whether they will get the needed access to finance. EU and national rules of this kind should instil confidence in their companies for them to invest.
When talking about needed investment, necessary is the link to the revision of State aid rules. Although one should not plead for a global subsidy race, it is known that EU industries, especially energy-intensive ones, are at a serious disadvantage compared to their international competitors in terms of competitiveness. One need only think of the package of protectionist and incentive measures for the climate endorsed in the US package « Inflation Reduction Act » and the recent Chinese announcements and actions. Therefore, quick and targeted State aid is needed to support energy-intensive companies in their challenging transition, help to build the necessary infrastructure, support innovation and scale up new technology. In parallel, let’s not stop cooperating with our international partners to find common solutions and also let’s not forget about the importance of preserving the level playing field in the EU Single Market.
In light of these premises, we welcome the relaxation of State aid rules, but we still regret that this adaptation does not provide the vigorous response required to deal with the subsidies planned by our international partners since some of the thresholds foreseen by the newly adopted Temporary Crisis and Transition Framework might not be sufficient for the extremely costly tasks of decarbonisation of European industries.
REFORM OF THE ELECTRICITY MARKET DESIGN (EMD)
The electricity market, in its current design, has proven efficient for many years. However, the current crisis, with its high and unstable electricity prices mostly caused by high gas prices showed that the EMD does have significant shortcomings.
Unfortunately, the structure of the EMD, as proposed by the Commission, does not provide any tangible solutions in the short term, which means that electricity will remain too expensive to replace fossil energy in the first time. It is expected that the positive effects of price reduction will be seen only after a significant increase in renewable energy’s availability. It is, therefore, necessary to find solutions that guarantee, here and now, a reduction in prices to give immediate relief to our industries. Once again, here, too, my thoughts turn immediately to the urgent need for sufficient State aid measures.
CRITICAL RAW MATERIALS ACT (CRMA)
The CRMA is an ambitious package aimed at securing the supply of much-needed raw materials, as they are one of the backbones of European industry. The CRMA also includes speeding up permitting procedures and boosting strategic autonomy by meeting 25% of the EU’s demand for strategic raw materials. However, it is yet to be seen how these ambitions will be practically achieved given the lack of instruments for successful implementation; in the geopolitical race for critical strategic raw materials, Europe has to keep up and speed up. This proposal is essential to counter the current situation of over-reliance on single suppliers for many raw materials.
However, considering the limited critical and strategic raw materials’ reserves of our continent and the growing demand for clean energy technology, more ambition is needed concerning measures to accelerate approval processes for the deployment of projects within the EU, to diversify external supplies and to increase our own extraction capacities treatment and recycling. Thus, besides speediness of administrative procedures, it is critical not to overburden companies and to keep the new information and disclosure requirements by companies (the so-called « reporting ») to an absolute minimum. Workability is essential for businesses in this time of unprecedented crisis, and a balance has to be struck between promoting sustainable supply chains, existing business models and company competitiveness.
In conclusion, while these initiatives offer opportunities for innovation and growth, they also pose significant challenges for businesses. This is why businesses’ efforts must be accompanied by a European ambitious long-term competitiveness strategy, underpinned by immediate actions to reduce the cost of compliance with EU regulations and address the underlying causes of energy costs differential between the European Union and its main trading partners.
EU policymakers have a crucial role to play in delivering this strategy by engaging with stakeholders from across all businesses and by adopting an ambitious and collaborative approach with the relevant industry sectors in developing and implementing economic policies. It is only by working together and adopting a holistic approach to competitiveness that we can ensure a green, sustainable and prosperous future for the EU, its businesses and its citizens. By prioritizing the reduction of compliance costs and energy costs and by promoting innovation and investments, the EU can remain a global leader with competitive businesses and a sustainable economy.