Transition to a net-zero economy strongly depends on the EU’s ability to develop and manufacture clean technologies, products and services. The EU raised concerns that the US’ Inflation Reduction Act (“IRA”), a $369 billion subsidy package for the green industry, together with high energy prices, might lure away the EU’s cleantech industry. To address this, the European Commission on 1 February 2023 proposed a Green Deal Industrial Plan (“Plan”) (see Communication from the Commission). The Plan is based on four pillars: (i) simplifying the regulatory framework for quick deployment of net-zero manufacturing capacities; (ii) accelerating access to funding for green investments; (iii) ensuring that the European workforce is skilled in the technologies required for the green transition; and (iv) cooperation with EU partners to ensure resilient supply chains. The Communication was accompanied by a press release, Q&A and Factsheet.
The key proposals aimed at improving the regulatory framework include the following:
- a Net-Zero Industry Act that will provide for fast-track permitting, developing European standards and other measures for a rapid scale-up of green technologies across the EU. The Commission also stressed that eco-design requirements for net-zero technologies would be a priority;
- a Critical Raw Materials Act that will aim to secure the EU’s supply of raw materials critical for the energy transition (see our previous blog post);
- a Directive to reform the Electricity Market Design which should allow consumers to benefit from the lower costs of renewables.
The Commission is expected to submit proposals for a Net-Zero Industry Act, Critical Raw Materials Act and electricity market reform on 14 March 2023. However, it is quite likely that the electricity market reform will be delayed as a number of Member States in their joint letter are pushing the Commission to concentrate on protecting the energy market from short-term crises now and delay the full reform until after the EU elections.
We also understand that the Commission is planning an initiative on carbon capture, utilisation and storage (“CCUS”) in Q4 of this year. The initiative will likely take the form of a Communication, setting out the Commission’s strategy to deploy these technologies to further the objectives of the Plan. CCUS is a set of technologies that can be used to capture, transport and (permanently) store CO2, which can be applied to industrial installations (e.g. steel furnaces) and power plants, as well as being used to produce low-carbon (blue) hydrogen. The Commission previously remained neutral on whether specific EU action is needed to stimulate the use of CCUS, likely due to the fossil-fuel origin of these technologies.
The Commission wants to achieve the extension and acceleration of the access to funding for the net-zero industry through a number of measures which include, in particular:
- A proposal to transform the state aid Temporary Crisis Framework, adopted on 23 March 2022, into a Temporary Crisis and Transition Framework. The amendments aim at providing temporary flexibility to the application of state aid rules, including by simplifying the rules for aid to renewable energy deployment and the decarbonisation of industrial processes. It seeks to do so through higher aid ceilings and simplified aid calculations (as an example, aid would be determined as a share of the investment cost). The Commission also proposes to enhance investment support for the production of strategic equipment necessary for the net-zero transition (such as batteries, solar panels, wind turbines, heat pumps, electrolysers and CCUS, as well as the related critical raw materials necessary for the production of such equipment), including through tax benefits. According to the Commission, for projects that take place in disadvantaged regions of the EU (i.e. where the GDP per capita is below 75% of the EU average) or which involve an investment in several Member States, and where support for similar projects in a third country is available, the Member States would be able to offer further proportionate aid to match the level of support offered in those third countries. These provisions raise concerns as the mechanism for such matching support remains unclear at the moment.
These new state aid provisions would remain in place until 31 December 2025. The Commission launched a Consultation with the Member States and intends to adopt the Temporary Crisis and Transition Framework in the coming weeks.
- A revision of the General Block Exemption Regulation (“GBER”) by increasing notification thresholds for support to green investments (such as hydrogen, CCUS, zero-emission vehicles and energy performance of buildings). The GBER enables the Member States to directly implement aid measures, without having to notify them to the Commission in advance for approval. The Commission plans to adopt the revised GBER in the coming weeks. The revision of the GBER will also help roll out the Important Projects of Common European Interest (“IPCEI”), especially in relation to smaller innovative and pilot projects.
- The Commission will facilitate the use of existing EU funds (such as REPowerEU, InvestEU and the Innovation Fund) to provide fast and targeted support to cleantech innovation, manufacturing and deployment. The Regulation, which would allow Member States to integrate dedicated REPowerEU chapters in their existing recovery and resilience plans, was adopted by the European Parliament on 14 February and by the Council on 21 February 2023, and will enter into force the day after its publication in the Official Journal of the EU. The Commission has also adopted new guidance on how to draft the REPowerEU chapters and encouraged Member States to provide support to eligible companies through one-stop-shop permitting, tax incentives and investments in upskilling the workforce. The Commission also noted that overall an amount close to EUR 270 billion in REPowerEU recovery and resilience funds will be made available to Member States, including EUR 20 billion in new grants to finance measures included in their REPowerEU chapters.
- The Commission also intends to propose a European Sovereignty Fund before the summer of 2023. The Commission noted that it will work with Member States on the design of the Sovereignty Fund. Details of the fund are unknown at the moment.
The funding aspects of the Plan face major criticism, including from some Member States. One of the reasons is that it is dependent, at least in the short term, on existing funding and does not raise new money. Another argument is that the relaxation of state aid rules will disproportionally benefit the biggest EU economies (i.e. Germany and France) as they accounted for the vast majority of state aid approved under the emergency subsidy framework. A number of Member States in their joint letter urged the Commission to exercise great caution when changing the established state aid rules: “State aid for the mass production and commercial activities can lead to significant negative effects including the fragmentation of the internal market, harmful subsidy races and the weakening of regional development, and may put the integrity of the single European market at risk”. There are also voices claiming that the suggested measures are not enough to compete with the extensive IRA subsidy programme.
During the European Council summit on 9 February 2023 the EU leaders called to urgently take forward the work on state aid policy, increasing the flexibility of EU funds and other elements of the Plan. On 16 February 2023, the European Parliament voted to adopt a non-binding resolution endorsing the Plan but warned that any changes to the state aid rules should be “targeted, temporary, proportionate and consistent with EU policy objectives”. The Commission aims to adopt the legislative proposals related to the Plan before the next the European Council summit on 23-24 March 2023. Given the strong concerns about new funding initiatives and relaxation of the state aid measures, it remains to be seen which of the Commission’s initial proposals will make their way into the final Plan.