In a Nutshell
The Net Zero Industry Act (NZIA) is a legislative proposal from the European Commission from March 2023 that aims to provide a stable and simplified regulatory environment to support the scale-up of net zero technologies. The NZIA aims to reach a goal of at least 40% manufacturing capacity of strategic net zero technologies in the EU according to annual deployment needs.
The Act sets out enabling conditions, streamlined permitting processes, and one-stop shops for net zero technology manufacturing projects. It differentiates between ‘net zero technologies’ (at least TRL 8) and ‘innovative net zero technologies’ (lower TRL, and can benefit from regulatory sandboxes to foster innovation). It proposes a list of eight strategic net zero technologies that would benefit from even faster permitting process within what are defined as “net zero strategic projects”:
- Solar photovoltaic and solar thermal technologies,
- Onshore wind and offshore renewables,
- Battery/storage,
- Heat pumps and geothermal energy,
- Electrolysers and fuel cells,
- Sustainable biogas/biomethane technologies,
- Carbon capture and storage (CCS),
- Grid technologies.
The Act establishes an annual EU CO2 injection capacity goal of 50 million tonnes. This goal will be adjusted when the regulation is incorporated into the EEA Agreement to account for additional capacity in Norway and Iceland and is expected to grow post-2030; according to the Commission’s estimates, the EU could need to capture up to 550 million tonnes of CO2 annually by 2050 to meet the net zero objective, including for carbon removals.
In one of the world’s firsts, oil and gas producers are subject to an individual contribution to this target, making them directly responsible for building and operating the newly mandated CO2 injection capacity. The contributions will be calculated based on a “pro-rata” basis, accounting for their share of oil and gas production within the EU during 2020-2023.
The Act also aims to facilitate access to markets through public procurement, auctions, and support for private demand. It focuses on ensuring the availability of skilled workforce and foresees net zero industrial partnerships with third countries.
What's on the Horizon?
The NZIA proposal by the European Commission will now enter ordinary legislative procedure with the goal of reaching a formal adoption by the European Parliament and the Council.
2023: The Commission is set to propose a European Sovereignty Fund before Summer 2023 within the context of the multi-annual financial framework (MFF). This Fund is meant to address the financing needs to scale up the technologies for the mid-term.
Tbd: The Commission is evaluating how to increase the funding for InvestEU, the EU flagship programme to boost investment in the green and digital sectors, especially for the period 2024-2027.
Deep Dive
As one pillar of a larger Green Deal Industrial Plan, the NZIA is meant to strengthen and support the EU’s capacity to reach its climate goals and ensure Europe seizes the potential to be a world leader in the global net zero industry, in the context of strong support for net zero technologies coming from different parts of the world, such as the US IRA.
(Strategic) net zero technologies
The NZIA proposes key developments for net zero technologies. Two main aspects of the definition are particularly relevant: (1) the definition is not technology-neutral, it identifies key areas to be addressed, and further lists a family of eight strategic net zero technologies, which benefit from even faster permitting, priority status, and in some circumstance of overriding public interest; and (2) net zero technologies must be at least TRL 8. CDR is not explicitly listed as a (strategic) net zero technology, and the TRL 8 requirement would exclude most CDR methods (although if based on TRL only, some could fall under the definition of ‘innovative net zero technologies’, e.g., some forms of direct air capture are considered TRL 7).
CO2 injection capacity target to incentivise CO2 storage infrastructure
The NZIA proposes a 50 million tonnes per year of CO2 injection capacity in the EU by 2030. The Act identifies the lack of storage capacity as one of the largest bottlenecks for CO2 capture investments. One of the key aspects of the Act is the transparency of CO2 storage capacity, including the obligation for Member States to make publicly-available data on sites that can be permitted on their territory, as well as reporting on CO2 capture projects in progress, and their needs for injection and storage capacity. The NZIA clarifies that CO2 injection capacity will also be available to accommodate CDR, but provisions are not proposed to ensure the shared CO2 infrastructure can efficiently be used to accommodate both CCS and CDR methods. A comprehensive and coordinated approach to carbon management that considers both CCS and CDR would be needed to ensure that limited CO2 storage capacity is used effectively to reach the EU’s climate neutrality targets.
Oil and gas producers contribution has the potential to be a world-leading initiative
The NZIA obliges oil and gas producers to take responsibility for storing CO2 subject to the EU’s injection capacity target. This obligation is a form of “Extended Producer Responsibility”, holding hydrocarbon producers responsible for storing the carbon back in its original source. This stipulation also presents opportunities to develop open carbon storage sources by mapping and hosting transparent, open data on carbon storage resources, much of which is held today by private companies. The obligation, however, does not cover the suppliers of fossil fuels; without covering the entirety of the fossil fuel supply, such an obligation may inadvertently incentivise imports over domestic production – without having a real impact on fossil fuel use overall.
Fresh funding is needed
The Proposal establishes new initiatives, such as the “Net Zero Europe Platform”, that will discuss the financial needs of the net zero strategic projects and could be key in advising how the financing of these projects can be achieved. Beyond this, the NZIA is anchored in already existing funding mechanisms (e.g. the Innovation Fund, InvestEU, Horizon Europe, and Important projects of Common European Interest (IPCEI), the Recovery and Resilience Facility, and Cohesion Policy programmes). Clarity on new and additional funding will be key, as bigger goals will require bigger means. The announced European Sovereignty Fund (Summer 2023) is mentioned to address the mid-term funding needs, but the strength of this Fund will depend on the capacity to ensure each net zero technology is entitled to sufficient resources.
Timeline
The Green Deal Industrial Plan Communication
European Commission legislative proposal on the Net Zero Industry Act (NZIA)
Deadline to provide feedback to the Commission on the NZIA proposal
Proposal expected on a European Sovereignty Fund, which is meant to address the financing needs of net-zero industries for the mid-term
Further reading
Key Institutional Stakeholders
European Commission
DG Internal Market, Industry, Entrepreneurship and SMEs (GROW)
European Parliament
Committee responsible: ITRE
Rapporteur: Christian Ehler (EPP, DE)
Shadow rapporteur: Tsvetelina Penkova (S&D, BG)
Shadow rapporteur: Christophe Grudler (Renew, FR)
Shadow rapporteur: Damien Carême (Greens/EFA, FR)
Shadow rapporteur: Marc Botenga (GUE/NGL, BE)
Shadow rapporteur: Paolo Borchia (Identity& Democracy Group, IT)
Shadow rapporteur: Evžen Tošenovský (European Conservatives and Reformists Group, CZ)
Council of the European Union
Council configuration: COMPET
Links to other relevant policies
- Green Deal Industrial Plan Communication sets out a roadmap to support EU’s industrial capacity for net zero technologies. It focuses on four pillars: simplified regulatory environment, access to funding, skills and open trade for resilient supply chains. The NZIA is a key piece of this plan.
- Directive 94/22/EC establishes the conditions for granting and authorising the prospection, exploration, and production of hydrocarbons. The NZIA proposes to hold all entities authorised by this Directive subject to an individual contribution for the CO2 injection capacity target (oil and gas producers’ contribution).
- CCS Directive establishes a regulatory framework for the development and operation of geological CO2 storage in the EU. Storage sites must be permitted under the CCS Directive to qualify for the strategic status and accompanying enabling rules under the NZIA.
- ETS Directive is the world’s first major compliance carbon market. Recital 51 of the NZIA proposal mentions that Member States may use a share of their ETS revenues to direct towards net zero technologies as national resources.
- Transitory Crisis and Transition Framework, another piece of the Green Deal Industrial Plan, reforms EU state aid rules to allow for more flexibility on a temporary basis (until 2025) to support key net zero sectors. It simplifies procedures and establishes provisions to attract investment, including “matching aid” that allows Member States to provide the funding necessary to prevent the diversion of the investment to other jurisdictions or to attract the investment to the EU.