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 provisional agreement was adopted by the European Parliament Industry Committee on 22 February. The Parliament plenary will vote on 25 April. The EU Ministers will need to formally adopt it and it will become EU law once it is published in the Official Journal of the EU.  

To provide dedicated funding support to scale up clean technologies, the Commission was set to propose a European Sovereignty Fund by Summer 2023 within the context of the multi-annual financial framework (MFF). On 20 June, the Commission proposed, instead, to establish a ‘Strategic Technologies for Europe Platform’ (STEP), to provide an immediately available tool to member states. A provisional agreement on the STEP was reached on 7 February.

By the end of 2028, the Commission must assess the balance between CO2 capture, transport and storage capacity. Member states may be able to ask for adjustments in their contributions in case of an imbalance. The Commission must also propose a potential CO2 injection capacity by 31 December 2028.

A market assessment for captured CO2 will be conducted after three years of entry into force, potentially leading to legislative proposals to address shortcomings, especially for hard-to-abate emissions.

Four years after the entry into force, the Commission also needs to assess the possibility of including other technologies in the list of net-zero technologies, opening a window of opportunity for CDR. The evaluation will take into account: (1) updates to the National Energy and Climate Plans, (2) the Strategic Energy Technology (SET) Plan and (3) the State of the Energy Union Report.

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. It ensures 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 United States’ 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 Technology Readiness Level (TRL)  8. CDR is not explicitly listed as a strategic net zero technology, and the TRL 8 requirement would exclude most CDR methods. However, 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. This flaw of the proposal could be addressed by co-legislators by adding carbon removal in the definition of net zero technologies and in the related annex.

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 rightly 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 is needed to ensure that limited CO2 storage capacity is used effectively to reach the EU’s climate neutrality targets. The target will need to be continuously reassessed to meet the storage needs in the EU, especially beyond 2030. Furthermore, separate provisions to ensure adequate transport infrastructure should be foreseen. The European Commission estimates that about 550 million tonnes of CO2 may need to be captured annually by 2050 to meet the net zero objective.

Oil and gas producers’ responsibility to develop the EU  CO2 injection capacity has the potential to be a world-leading initiative

The NZIA Article 18 introduces an innovative obligation on oil and gas producers to take responsibility for building EU CO2 storage infrastructure subject to the EU’s injection capacity target. This obligation could introduce an element of producer responsibility for fossil fuel producers in a similar way as producers of packaging, car tires, and other products are required by law to take responsibility for the environmental footprint of end-of-life disposal. If confirmed, this provision would also allow the development of open carbon storage sources by mapping and hosting transparent, open data on carbon storage resources, much of which is held today by private companies. Critical details of this obligation, such as how different sources of CO2 for storage are prioritised or barred, which entities, beyond oil and gas producers, are required to build the CO2 infrastructure, and the procedures to determine their location remain open and need further attention.

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 such as Innovation Fund, InvestEU, Horizon Europe, 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 that can support the variety of CDR methods at different TRL stages.

Timeline

1 February 2023
16 March 2023
26 May 2023
13 June 2023
19 June 2023
27 June 2023
20 September 2023
25 October 2023
21 November 2023
7 December 2023
13 December 2023
22 January 2024
6 February 2024
22 February 2024
25 April 2024
31 December 2028
1 February 2023

The Green Deal Industrial Plan Communication

16 March 2023
26 May 2023

Publication of Draft Report by MEP Christian Ehler

13 June 2023

Deadline for submission of amendments – ENVI Committee

19 June 2023

Deadline for submission of amendments – ITRE Committee

27 June 2023

Deadline to provide feedback to the Commission on the NZIA proposal

20 September 2023

ENVI Committee adopts draft opinion

25 October 2023

ITRE Committee vote

21 November 2023

EU Parliament plenary adopted the parliament’s report

7 December 2023

The Council adopted its general approach

13 December 2023

First trilogue on the file

22 January 2024

Second trilogue on the file

6 February 2024

Third trilogue on the file. The EU Parliament and the Council reached a provisional agreement.

22 February 2024

ITRE Committee adopted the provisional agreement

25 April 2024

Plenary vote on the provisional agreement

31 December 2028

Deadline for the Commission to potentially propose a CO2 injection capacity target for 2040

Unofficial Title

NZIA

Year

2023

Official Document

Last Updated

24/04/2023