What's caught in the Net? Insights into the Net Zero Industry Act

May 13, 2024

On April 25, 2024 the European Parliament adopted the Net-Zero Industry Act (the“Act”) in the final plenary session of the 2019-2024 Parliament.[1]

The Act is a significant piece of the European Commission (“Commission”)’s response to the United States’ Inflation Reduction Act (“IRA”) and the energy crisis following the war in Ukraine.[2]  It aims to support the EU’s competitiveness and security of supply in the manufacturing of “net-zeroindustries, all while helping to achieve the EU’s decarbonation objectives—specifically, reducing net greenhouse gas emissions of 55% by 2030 compared to 1990 levels, and achieving climate neutrality (“net-zero” emissions) by 2050.[3]

The Act’s measures broadly seek to create a more predictable regulatory environment for net-zero projects, stimulate demand in carbon capture and storage[4] and buttress quality employment in net-zero sectors.[5]  Its most noteworthy features are: (i) it enshrines a defined list of net-zero technologies and manufacturing targets for those technologies; (ii) it harmonises timescales and simplifies planning permission for net-zero technologies across the EU; (iii) it forces oil and gas producers in the EU to, first, contribute to an annual CO2 carbon storage capacity objective and, second, share geological data on decommissioned production sites; (iv) it amends public procurement law such that the “sustainability and resilience” contribution of net-zero technology products is taken into account.

The scope of the Act – list of net-zero technologies.  The Act sets out a list of net-zero technologies which benefit from its provisions.[6]  First, the list is wider than in the Proposal (previously covered in our blog, here).  It now includes conventional nuclear fission,[7] biotech climate and energy solutions, transformative industrial technologies for decarbonisation,[8] CO2 transport and utilization technologies, and wind or electric propulsion technologies for transportation.  Second, the Act’s scope not only covers projects which manufacture final net-zero products (for instance, a finished lithium battery), but also “specific components (including processed materials), or specific machinery primarily used for the production of the products.”  Note that it specifically excludes from its scope raw materials covered under the Critical Raw Materials Act,[9] such as the mining or recycling of lithium itself.  Third, the Act enshrines two industrial policy targets on net-zero manufacturing into law, which is hoped will improve certainty for investors and focus public authorities’ efforts.[10]  Under Article 3c, the EU aims to house (a) manufacturing capacity of at least 40% of the domestic EU annual deployment needs[11] for each net-zero technologies, and (b) 15% of world production for each net-zero technology by 2040.[12]  The Commission is obliged to monitor progress with respect to these benchmarks, alongside other data.[13] 

Streamlined administrative process.  The Regulation aims to streamline administrative processes for net-zero technologies projects.  First, under the “one-stop shop” principle, project promoters will only have to deal with one single point of contact per country or relevant level of administration,[14] designated by the Member State for the permitting process.  Second, the Regulation sets up detailed timelines for net-zero manufacturing projects.  Authorities will have (i) between 9-18 months to evaluate the construction or the extension of the project,[15] with “strategic[16] projects benefiting from the fastest procedures, and with the clock pausing for certain steps which are the responsibility of promoters;[17]  and (ii) generally 45 days to request information on the permit-granting application.[18]  Third, the Act creates an obligation on Member States to “provide administrative support” to net-zero manufacturing projects on their territory.[19]  Fourth, the Regulation also streamlines the EU environmental impact assessment process, i.e. (i) the promoter will only have to deal with the single point of contact, even where multiple environmental assessments are needed; (ii) the relevant authorities will have to give their conclusions within 90 days after all information is sent and consultations complete.[20]  Fifth, the Act now also enables Member States to designate “net-zero acceleration valleys”, to foster “clusters” of innovation in a defined area.[21] 

Obligation to contribute to CO2 injection capacity.  Carbon Capture and Storageconsists in the capture of carbon emitted by industrial processes, the transport of captured carbon, and its permanent injection (or ‘storage’) into the ground (i.e., into a suitable geological site). The Act seeks to ameliorate the business case for carbon capture and storage investments in threeways. First, the Act sets an EU-wide target annual CO2 injection capacity of 50 million tons in CO2 storage sites to be achieved by 2030.  Importantly, EU oil and gas producers[22] will have to make contributions towards this target, pro rata to their share in EU crude oil and natural gas production between 2020 and 2023, which will be calculated by the Commission.[23]  They will also have to submit a plan to the Commission within a year detailing how they intend to meet that contribution, and publish yearly reports.  They will be able to meet their target volume of injection capacity by entering into agreements with third parties.  A Member State can now request for oil and gas producers to benefit from a derogation, though conditions appear stringent.[24] The rationale behind this obligation is that while industrial producers have an incentive to capture the carbon they emit given the price signal created by the Emissions Trading System (“ETS”), they will not invest to capture carbon if CO2 storage sites are unavailable or inaccessible.[25]  And EU oil and gas producers “have the assets, resources and skills” tocreate these additional storage sites,[26] which would stimulate producers’ demand in carbon capture.  Second, EU oil and gas producers are obliged to make publicly available, on a non-reliance basis, geological data relating to decommissioned hydrocarbon production sites, and any available cost assessments in injection CO2 in the site.  The rationale is that transparency in geological data will reduce the startup costs associated with identifying suitable sites.  And oil and gas producers will have produced much relevant geological data when prospecting for hydrocarbon production sites.  The data-sharing obligation does not apply where the oil and gas producer intends to use the site for CO2 storage itself, and has accordingly applied for an exploration permit.[27]  Member States are also obligated to make publicly available all areas where CO2 storage sites could be permitted on their territory, and will publish yearly reports, inter alia, mapping progress in CO2 storage and transport.[28] Third, the Act obliges the EU and its Member States to make “all reasonable efforts to develop the necessary CO2 transport infrastructure,” to ensure the transportation of CO2 from capture site to storage site does not become a bottleneck.[29]

Access to markets.  The Act also aims to ameliorate the EU’s security of energy supply by increasing demand for “sustainable and resilient net-zero technologies.”[30]  First,bids’ “sustainability and resilience contribution” will have to be taken into account in public procurement and auctions involving net-zero technologies.[31]  The Commission will define the “minimum mandatory requirements” regarding environmental sustainability and resilience contribution in an implementing act, which authorities will have to apply when considering bids.[32]  Where the Commission has found that a specific share (usually 50%)[33] of the supply within the EU of a net-zero technology or its main specific components originates from a third country, the contracting authorities will require as part of the publicprocurement procedures that no more than 50% of the value of the specific net-zero technologies comes from an individual third country.  Successful bidders which do not comply with these obligations will face a proportionate charge of at least 10% of the value of the net-zero technology covered by the contract.  However, contracting authorities may, on certain exceptional bases, decide not to apply this fine.[34]  In the specific case of auctions to deploy renewable energy sources, the Act provides that each bid’s “sustainability and resilience contributions” will be given a minimum weight of 5% (each) and a combined weight of between 15% and 30% of the award criteria.[35]  Second,the Act allows Member States to update or set up new schemes to incentivize the purchase of net-zero technology final products by households, companies, or consumers.  These monetary benefits must not exceed 5% of the cost of these final product for consumers, except for schemes targeting citizens living in energy poverty for which the limit is 15% and must respect State Aid Rules.[36] 

The Act’s final provisions also provide for initiatives to ensure there are a sufficient number of skilled workers (so called “Net-Zero Industry Academies”) and allow Member States to set up “net-zero regulatory sandboxes[37] as well as a governance structure, both of which have been previously covered in our blog post and have not changed substantially.[38]

Overall, the Act’s wide net captures an impressively large number of provisions on the EU’s clean tech sector.  It covers administrative efficiency in permitting, the weight of ‘non-price’ criteria in public procurement, and the lack of demand in CO2 carbon storage.  The list of net-zero technologies it sets may also become a standard referred to in future pieces of EU legislation and soft law.  It more broadly marks a significant step in the elaboration of an EU-wide industrial policy in the energy transition, and should be seen alongside other initiatives, like the Electricity Market Reform (see blogpost here), Red III Directive (here), or the Temporary Crisis and Transition Framework, which, among other things, loosened state aid rules applicable to investments in certain clean tech sectors until December 2025 (here and here).

[1]       Regulation of the European Parliament and of the Council on establishing a framework of measures for strengthening Europe’s net-zero technology products manufacturing ecosystem (“Net-Zero Industry Act”).  The text is yet to be published in the official journal, and the numbering of its provisions may differ in the official version. 

[2]       Green Deal Industrial Plan, see blogpostSee also Net-Zero Industry Act, Commission Proposal, (“the Proposal”) available here, page 1: “Net-zero energy technologies are at the centre of strong geostrategic interests … The United States’ Inflation Reduction Act will mobilise over USD 360 billion by 2032 … Furthermore, within the past year, many European sectors … have been severely impacted by the energy crisis

[3]       As set out in the European Climate Law (Regulation (EU) 2021/1119), available here.

[4]       Carbon Capture Storage (“CCS”) consists in first, the capture of carbon dioxide from industrial installations, second, its transport, and third the storage or injection into underground geological formation for permanent storage.

[5]       Net-Zero Industry Act, Article 1 and Recital 1.

[6]       The full list is (i) solar (inc. solar photovoltaic and solar thermal electric); (ii) onshore wind and offshore renewable; (iii) battery and energy storage; (iv) renewable energy technologies not covered by the above; (v) heat pumps and geothermal energy; (vi) hydrogen (inc. electrolysers and fuel cells); (vii) sustainable biogas; (viii) carbon capture and storage technologies; (ix) electricity grid (inc. electric charging and technologies to digitalise the grid); (x) nuclear fission energy (inc. nuclear fuel cycle); (xi) sustainable alternative fuels technologies (“SAFs”); (xii) hydropower technologies; (xiii) energy system-related energy efficiency technologies (inc. heat grid technologies); (xiv) renewable fuels of non-biological origin technologies; (xv) biotech climate and energy solutions; (xvi) transformative industrial technologies for decarbonisation not covered by the above; (xvii) CO2 transport and utilization technologies; (xvii) wind propulsion and electric propulsion technologies for transportation; (xviii) nuclear technologies not covered under previous categories (Article 3a).  It appears the legislator included technologies which it considered important in reducing the EU’s greenhouse gas emissions. 

[7]       The Proposal previously only included small modular reactors and “advanced technologies able to produce energy from nuclear processes with minimal waste from the fuel cycle,” such as molten salt reactors and nuclear fusion.  Note that the Act explicitly safeguards each Member States’ right to determine its energy supply, guaranteed under Article 194(2) TFEU (according to the Court of Justice, under Article 194(2) “the choice of nuclear energy is … a matter for the Member States,” Case C‑594/18 P, Austria v. Commission,para. 49).

[8]       Defined as “technologies … used to significantly and permanently reduce emission rates … of a commercial facility of an energy-intensive business … in the steel, aluminium, non-ferrous metals, chemicals, cement, lime, glass, ceramics, fertilisers, as well as pulp and paper … to the extent which is technically feasible”. Article 3(1)(bd).

[9]       Regulation not yet published.  See the Commission’s proposal, available here.

[10]      Proposal, page 1.

[11]      These are the deployment needs necessary to achieve the EU’s 2030 climate and energy targets, that is, a 55% reduction of greenhouse gas emissions compared to 1990- levels.

[12]      Except where the increased capacity would be significantly higher than the EU’s deployment needs to achieve the 2040 climate and energy targets.

[13]      These data include the impact of the Act and the value / volume of exports / imports of net-zero technologies in and outside the EU.  It is up to national authorities designated by Member States to collect and provide a number of data points and report them to the Commission every three years, Article 31(2).

[14]      If there are multiple points of contact within a Member State, it should be clear which one will be responsible from an online web page that the Member State will have to set up, Articles 4 and 5.

[15]      This depends on the whether (i) the manufacturing capacity of the project adds under or over 1 GW per year of manufacturing capacity to the EU, Article 6(1)-(2); and (ii) whether the project is designed as “strategic.” (see footnote 16 on which projects can be designated as “strategic”). An up-to 3-month extension can be granted once, “in exceptional cases” given the nature, complexity, location or size of the project; and an up-to 6-month extension where the project raises “exceptional risks” to the health and safety of workers or the general population, and time is necessary to establish that measures to address these risks are identified, Article 6(4).

[16]      Project promoters can apply for their projects to be recognized as “net-zero strategic projects” by the relevant Member State, if they meet certain criteria.  CO2 storage projects in the EU will generally be deemed “strategic.”  For other net-zero projects, the conditions focus on whether, either (i) the project reduces the dependence of the EU on a single third country (including where it adds “significant manufacturing capacity”); (ii) the project provides a significant amount of value (in terms of bringing “first-of-a-kind” or “best-available” technology to the EU, creating a skilled-workforce, contributing to the competitiveness of SMEs, improving sustainability and performance, and being low-carbon); or (iii) the project is located in a less developed part of the EU.  The Commission is to draw up specific guidance on these conditions, Article 10. 

[17]      Specifically, the clock does not run (i) while the -project promoter takes the first steps in elaborating an environmental impact assessment; and (ii) while the promoter prepares to submit additional information required for the impact assessment, Article 13(3a), Recital 11n.

[18]      Within 45 days, the single point of contact must either acknowledge the permit-granting application is complete, or request to submit a complete application without undue delay, detailing which information is missing.  If the application is deemed incomplete a second time, the contact point may make a second request within 30 days.  It cannot ask for information in areas not covered in the first request, but only request further evidence to complete the missing information, Article 6(6).

[19]      This includes helping promoters to comply with applicable regulations, navigate the permit granting process, and inform the public to increase public acceptance of the project, Article 5a.

[20]      Article 7(3). Exceptionally, this can be extended by a maximum of 20 days, though the authority must provide the reasons for this extension in writing, Article 7(4).

[21]      Designation of an area as a “valley”, will be accompanied with a plan setting out concrete measures to increase its attractiveness, such as support schemes to support private investment.  Public investments in these valleys may benefit from the maximum co-financing rates allowed by the European Regional Development Fund, the Cohesion Fund, the Just Transition Fund, and the European Social Fund Plus, under Regulations 2021/1058, 2021/1056 and 2021/1057.

[22]      Specifically, holders of authorisation granting an exclusive right to prospect, explore for and/or produce hydrocarbons in a given area under Article 1, point 3, of Directive 94/22/EC.

[23]      The Commission will calculate these contributions after having received reports from Member States (detailing, inter alia, national targets, and CO2 capture, storage, transport projects in its territory), which they are obliged to produce 6 months from the entry into force of the Act.  It is obliged to consult Member States and interested parties before specifying the contribution.

[24]      Member states can request the Commission exempts an obliged entity from its individual contribution in relation to the production activities the entity has carried out in the Member States territory from 2020 to 2023.  This is provided that, (i) the annual injection capacity of all storage sites operated by the entity having received a storage permit and reached a final investment decision located within that Member States exceeds the sum of the individual contributions of the entities (as defined by the Commission); (ii) that application is submitted before the end of 2027, Article 18(6a). 

[25]      Recitals 12a-14.  For more information on the ETS, see here.

[26]      Proposal, page 7.  Indeed, oil and natural gas reservoirs are identified by the US Dept. of Energy as a type of potentially suitable carbon storage site, see here.  The world’s first commercial CCS site, active since 1996, is in the Sleipner gas field in Norwegian waters, see here.

[27]      As defined under Directive 2009/31 on the geological storage of carbon dioxide, Article 17(1)(b).

[28]      Article 17(1)(a).

[29]      Article 17a.  Member States must also take necessary measures to enable access for potential customers to CO2 transport networks as far as it is economic to do so, or when the potential customer is willing to pay, and coordinate with other Member States where CO2 is captured from on Member States, and transported and stored in another.

[30]      Recital 24.

[31]      The compromise text, which is not final, appears to limit these obligations to the following technologies: (i) solar (inc. solar photovoltaic and solar thermal electric); (ii) onshore wind and offshore renewable; (iii) battery and energy storage; (iv) renewable energy technologies not covered by the above; (v) heat pumps and geothermal energy; (vi) hydrogen (inc. electrolysers and fuel cells); (vii) sustainable biogas; (viii) carbon capture and storage technologies; (ix) electricity grid (inc. electric charging and technologies to digitalise the grid); (x) nuclear fission energy (inc. nuclear fuel cycle), and potentially (xi) sustainable alternative fuel technologies, Article 19(1).  This will have to be confirmed with the official text.

[32]      Article 19(1) and (3).  In drafting its implementing act, the Commission will have to take into account the market situation for each relevant net-zero technology, provisions of EU legislation on environmental sustainability and the EU’s international commitments. 

[33]      Either (i) more than 50% of the EU’s supply comes from a third party; or (ii) more than 40% and the share has increased by 10% on average for two consecutive years, Article 19(4a).

[34]      This is the case where (i) the net-zero technology can only be supplied by a specific operator and no reasonable alternative or substitutes exist; (ii) no suitable tenders have been received in response to a similar public procurement procedure launched in the last two years before the commencement of the panned new procurement procedure; and where (iii) applying the obligations would oblige the contracting authority to acquire equipment having disproportionate costs (i.e., “estimated cost differences above 20%, based on objective and transparent data”) or that would be technically incompatible in operation and maintenance, Article 19(6) and (6a).  

[35]      Article 20(2)

[36]      Article 21. 

[37]      Article 26(1) empowers Member States to establish net-zero regulatory sandboxes for the development, testing, and validation of “innovative net-zero technologies” and “other innovative technologies” in a controlled real-world environment prior to placement on the market.  

[38]      The Act’s new governance provisions establish a Strategic Energy Technology (“SET”) Plan Steering Group, which is composed of the Commission and the Member States, to coordinate clean energy research (Articles 27a, 27b, and 27c), and the Net-Zero Regulatory Burden Scientific Advisory Group, with the task of providing advisory reports on the regulatory impact and EU law on net-zero industrial activities.