Speed is a relative factor in European politics. Taken on its own, if you only look at the borders of Europe, the EU’s climate-industry law is moving at an astonishing pace. Only presented in March and clearly written together in a hurry, this law passed the European Parliament in Strasbourg on Wednesday. Many other projects take much longer to make their way from the Commission through the MPs’ offices and parliamentary committees and be voted on in plenary session.
Given the importance of this law, Europe is once again moving slowly. The Net Zero Industry Act (German “Net Zero Industrial Act”), as the regulation is officially called, is intended to be Europe’s central response to the USA’s Inflation Reduction Act (IRA). US President Joe Biden signed this law on August 16, 2022. It is intended to release more than 350 billion dollars in subsidies and tax breaks in order to promote climate-friendly products and companies – if they come from the USA. The core of the IRA includes establishing domestic battery production for electric cars and creating a hydrogen infrastructure.
As soon as the government in Washington introduced this law, the EU started pondering: What does this mean for the competitiveness of the European economy, which finds itself between the subsidy plans of China and the USA and whose brand essence always includes the greatest possible openness and fair competition and a limit for state aid? How should we react to the danger that European companies will be lured away to the USA with tax breaks? Should we risk a subsidy race that we can hardly win?
The officials in Brussels ended up writing two draft laws that follow the same pattern: the Critical Raw Materials Act, which promotes the mining and processing of important raw materials within Europe – and the Climate Industry Act, which provides large-scale subsidies for future projects should enable an emissions-free European economy. Both are based on fixed quotas that should be achieved by 2030. The French signature of this industrial policy with its planning specifications cannot be overlooked.
The member states should be allowed to distribute state aid more quickly
The industrial law is aimed at the domestic construction of wind turbines and solar modules, batteries for electric cars or heat pumps for efficient heating systems. Along with faster approval procedures and investment incentives, the law prescribes production targets for the listed green technologies: By 2030, Europe should be able to produce 40 percent of them itself. The member states should also be able to distribute state aid more quickly for relevant projects, including with funds from existing EU funding pots.
The EU MPs have reformulated the law in key areas, led by the German CDU parliamentarian Christian Ehler. Instead of a list of eight “strategic net-zero technologies” as in the Commission’s draft, Parliament’s version now lists 16 “net-zero technologies”. They are very broad and cover the entire value chain. This also includes all materials, components and machines that are needed to produce one of the technologies. The list should be updated regularly based on the needs of the Member States.
It’s not just this point in the list that will be fought over in the negotiations with the member states: “nuclear fission and nuclear fusion technologies” and the recycling of nuclear waste would also be eligible for funding according to Parliament’s wishes. Proponents argue that nuclear energy is climate-friendly and point to the reality of nuclear power supplies in Europe, 70 percent of whose operation depends on imports from China and Russia. Criticism comes primarily from the Greens. CDU man Ehler “built a self-service store for the nuclear and fossil fuel companies,” says Green MEP Michael Bloss. “The step into the past softens the Green Deal.”
Ehler, on the other hand, said that for the first time there was a “business case” for the decarbonization of European industry. “If you look at what we need for this,” said Ehler, “the commission’s list was a little outlandish and arbitrary.” And too short. Parliament has now carefully drawn up a complete list of the technologies that are needed on the way to an industry that can work in a CO₂-neutral manner.
Parliament has also tightened the rules in other areas. A significant part of the law relates, for example, to approval procedures. For strategic projects, these should only last nine to twelve months, instead of twelve to 18 as proposed by the Commission. If the authorities did not meet this deadline, a project would be considered provisionally approved. Also new is the concept of “Net Zero Valleys”, within which member states can declare any project as “of overriding public interest”. It will be months before the regulations can come into force – first Parliament, member states and the Commission must agree on a version.
Will that be enough if funding for wind turbine factories flows in 2025, almost three years after Biden’s IRA? Of course, says Ehler, this is not an equivalent idea that cannot exist simply because of the high local energy prices. The EU cannot operate with tax relief like the USA. But Europe is sending an important signal with this law. “The Net Zero Industry Act can only be the beginning,” said Ehler. “It must be the blueprint for the next Commission’s industrial strategy.”