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Floris Siteur 2023The Net-Zero Industry Act versus the Inflation Reduction Act: Europe versus the USA
The European Commission (EC) has presented the Net-Zero Industry Act as part of its Green Deal Industrial Plan to scale up green manufacturing, remain competitive with the US Inflation Reduction Act (IRA) and become less dependent on China. The Net-Zero Industry Act aims to strengthen the resilience and competitiveness of net-zero technology manufacturing in the European Union (EU) and is an answer to the IRA, which was introduced in the USA in 2022.
The US IRA includes US$ 369 billion in climate and energy provisions for companies that establish factories in the USA. These new and expanded tax credits for low-carbon technologies would be available for a decade, providing certainty to clean energy developers who have previously experienced incentive lapses.
With the Net-Zero Industry Act, the EU wants to create better conditions in which to set up net-zero projects in Europe and attract investments, with the aim that the EU’s overall strategic net-zero technology manufacturing capacity approaches or reaches at least 40% of the EU’s deployment needs by 2030.
According to the EC, the Act will improve conditions for investment in net-zero technologies by enhancing information, reducing the administrative burden of setting up projects, and simplifying permit-granting processes. In addition, the Act proposes to give priority to Net-Zero Strategic Projects, which are deemed essential for reinforcing the resilience and competitiveness of EU industry. They will be able to benefit from shorter permitting timelines and streamlined procedures.
To meet the goals of the Green Deal Industrial Plan, Europe needs to build over 30GW of new wind farms every year until 2030. There is already a large wind energy supply chain in Europe, but it is by far not big enough to produce the volumes needed to meet the goals. To be able to manufacture 30GW+ annually, existing factories need to be expanded, and new ones built. This requires substantial investments in the entire wind energy value chain. The Net-Zero Industry Act will help attract investments to Europe, but will it be enough?
How the EU wants to support the necessary financing is less clear. The regulation proposes to bring member states and the EC together with relevant financial institutions to discuss private sources of financing, investment needs, existing financial instruments, and EU funds. Private investment by companies and financial investors will be essential. However, where private financing alone may not be sufficient, the projects may require public support, including in the form of state aid. The EC has recently adapted state aid rules to allow further flexibility for the member states to grant aid to support net-zero projects. Furthermore, several EU funding programmes, such as the Recovery and Resilience Facility, InvestEU, cohesion policy programmes, or the Innovation Fund, are also available to fund investments in net-zero technology manufacturing projects.
Companies will choose the most attractive market for setting up their manufacturing sites. Financial support from governments will be essential in making these kinds of decisions, in particular because all OEMs are currently facing challenging times. The European plan is less clear about how (financial) support will be given. On the other side of the ocean, the IRA in the USA has a clear timeline for the next 10 years and includes lots of money. Also, the European plan first needs to be discussed and agreed upon by the European Parliament and the Council of the European Union before its adoption and entry into force. Will the OEMs wait until the plan comes into force or will they already be looking towards the USA for setting up new factories? Europe should at least speed up things to stay attractive and be part of the game.
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Floris Siteur