Getting ready for the EU Net Zero Industry Act

The EU Net Zero Industry Act (Regulation (EU) 2024/1735) (NZIA) was officially adopted and entered into force at the end of June 2024. Its primary objective is to speed up net zero industrial transformation by expanding the EU's manufacturing and installation of clean technologies.

The NZIA is designed to implement the EU's commitment to climate neutrality whilst simultaneously boosting competitiveness and reducing dependencies and supply chain disruptions.

The coming months will be decisive for affected entities and operators.

Key takeaways

• The NZIA provides a simplified regulatory framework for the scaling up of production capacity of so-called net zero technologies, such as electricity grids, solar technologies, renewable energy technologies and hydropower technologies.
• By introducing a "one-stop-shop", a sole point of contact for project promoters, and setting maximum periods for the permit-granting procedures, the Act is designed to streamline the administrative processes for the production and installation of net zero technologies.
• In addition to expanding net zero technology manufacturing capacities, the NZIA contains an objective of an annual CO₂ injection capacity of at least 50 million tonnes by 2030 and to develop necessary transit infrastructure.

Context

EU

The NZIA is a key initiative of the EU's Green Deal Industrial Plan (released on February 2023) which is part of the broader policy framework of the European Green Deal, which sets the European energy and climate change targets for reaching net zero by 2050.

The NZIA complements the Critical Raw Materials Act (Regulation (EU) 2024/1252) (CRMA), which entered into force on 23 May 2024 and aims to increase the resilience of the EU supply chain for 34 critical minerals for the green and digital transition in order to reduce the EU's reliance on third countries imports, in particular from China. The CRMA sets clear benchmarks for minimum domestic capacities along the supply chain for extraction, processing and recycling. Companies operating in strategic sectors such as renewable energy, electromobility, digital, space and defence may benefit from reduced administrative burdens, simplified permitting procedures and easier access to both private and public funding for strategic projects in the EU and third countries in the extraction, processing or recycling of strategic raw materials. Together, the NZIA and the CRMA aim to create regulatory support synergies across the entire supply chain of net-zero technology manufacturing in the EU.

The European Commission estimates that the net zero technology global market will be worth around EUR 600 billion per year by 2030. Nevertheless, the European industry market shares are under strong pressure and the manufacturing of a number of net zero technologies is currently dominated by third countries, mainly China, which have prioritised clean tech innovation and manufacturing. The EU depends on imports for many of these technologies (such as solar photovoltaic and batteries). 

International

The NZIA also comes in response to the US's Inflation Reduction Act and other investment plans put forward by other countries, such as the UK. 

The UK adopted its Net Zero Strategy in October 2021, following the Prime Minister's Ten Point Plan for a Green Industrial Revolution. The Plan focuses on encouraging the private sector to invest and develop new green industries. In its Net Zero Strategy, the UK Government sets out its long-term plan for decarbonisation and driving investment in clean technologies, with schemes that will be phased in over the next decade to reach net zero by 2050. In particular, the strategy sets out plans for reducing emissions by sectors, assuring security of supply and mobilising public and private investments to fund new business models, for example in hydrogen and industrial carbon capture, and to support net zero innovation projects. In 2023, the Government adopted the Net Zero Growth Path to bolster its action and drive its investment into key green industries like offshore wind, nuclear and carbon capture, usage and storage.

Overview of the NZIA

The NZIA entered into force on 29 June 2024; fifteen months after the European Commission published a proposal to develop a regulatory environment that allows the EU to scale up the clean energy transition, focusing on those sectors that make a significant contribution to decarbonisation and are crucial to reach net zero by 2050.

The Act lists the final products and specific components which are considered essential for the production of net zero technologies including solar, battery, wind and heat pump technologies, with the exception of critical raw materials, covered under the CRMA. However, this is not an exhaustive list, since project promoters have the option to prove that other components or machinery serve the purpose of the NZIA.

Certain components in the supply chain of net zero technologies are produced through energy-intensive production processes, such as steel, aluminium, non-ferrous metals, basic chemicals, cement, lime, glass, ceramics, fertilisers, pulp and paper. These components are only covered by the NZIA to the extent they are used for relevant energy-intensive industry decarbonisation projects.

The NZIA is also intended to combat security of supply issues and the risks linked to strategic dependencies on third countries in the field of net zero technologies, as the EU is currently a net importer of several net zero technologies and components. The NZIA therefore sets specific internal targets for these technologies:

• manufacturing capacity of at least 40% of the EU's annual deployment needs for the corresponding technologies necessary to achieve the 2030 climate and energy targets; and,
• 15% of world production for each of these technologies by 2040.

The European Commission will monitor progress towards these targets.

The NZIA foresees the creation of specific zones and areas to accelerate net zero industrial activities. It will be up to Member States to create clusters of net zero industrial activity and to further streamline administrative procedures designating these specific areas as "net zero acceleration valleys".

Permit-granting procedures

The NZIA is also intended to facilitate and streamline administrative processes (including obtaining permits) for projects involving net zero technologies. 

Member States should designate, by 30 December 2024, one or more authorities as single points of contact, which will be responsible for facilitating and coordinating the permit-granting process.

The Act then governs the process, setting maximum time limits for the entire permit-granting procedure with a view to providing legal certainty for project promoters in the net zero technology field:

• 12 months for the construction or expansion of projects with a yearly manufacturing capacity of less than 1 GW; and
• 18 months for projects with a yearly capacity equal or greater than 1 GW, or for any other projects for which the yearly manufacturing capacity is not measured in GW.

These time limits may be extended in the presence of exceptional circumstances and do not prevent Member States setting shorter timeframes. 

Member States will also have to provide administrative support to projects located on their territory to facilitate their timely and effective implementation.

Net zero strategic projects

The Act identifies certain projects as "net zero strategic projects". Following a request by the project promoter, Member States will give these projects priority status at national level to ensure an even faster administrative process, in addition to expedited judicial and dispute resolution procedures.

Given their contribution to the security of supply of net zero technologies in the EU, these projects will be considered to be in the public interest.

In order to qualify as net zero strategic projects, manufacturing projects, CO₂ capture projects, CO₂ storage projects or CO₂ transport infrastructure projects must fulfil at least one of the criteria listed in the regulation:

• contributing to the technological and industrial resilience of the EU's net zero technologies by increasing the manufacturing capacity of a component or a segment of the technology supply chain;
• having a clear positive impact on the EU's net zero industry supply chain or downstream sectors;
• contributing to reaching EU's climate and energy objectives by manufacturing net zero technologies through practices that implement sustainability or circularity features.

The European Commission must set guidelines by 1 March 2025 to ensure the criteria and conditions set out in the NZIA are implemented in a uniform manner across the EU. 

CO₂ capture

In addition to expanding net zero manufacturing capacity, the Act contains a EU-level objective to reach an annual injection capacity of at least 50 million tonnes of CO₂ in storage sites by 2030.

To reach this target, oil and gas producers must contribute to CO₂ injection capacity, proportionally to their EU share of crude oil and natural gas production, by providing storage sites permitted in accordance with Directive 2009/31/EC and available to the market by 2030. 

By 30 September 2024, Member States shall identify and communicate to the European Commission the entities holding an authorisation to prospect / explore for or produce hydrocarbons, together with their volumes in crude oil and natural gas production between 1 January 2020 and 31 December 2023. The European Commission will then consult Member States and interested parties as part of the process to determine the individual contributions.

Entities with crude oil and natural gas production below a certain threshold, to be established by an upcoming European Commission delegated act, will not be subject to targets for an individual contribution.

The identified entities must then submit a plan to the European Commission by 30 June 2025, setting out how they intend to meet their contributions. The entities will also be required to publish yearly reports on their progress.

In order to meet their targets, entities can either provide sites themselves, or cooperate with other entities or third parties.

Member States will also have to publish yearly reports on the progress of CO₂ capture projects, CO₂ storage and transport on their territories or in cooperation with other Member States.

Entities which fail to meet their individual contribution risk incurring fines; Member States must lay down the applicable penalties no later than 30 June 2026.

Member States and when needed, the relevant entities, are required to develop the necessary CO₂ transport infrastructure, including cross-border infrastructure.

Access to markets

Another pillar of the Act is the security of energy supply.

For public procurements and auctions involving net zero technologies, contracting entities are required to apply minimum mandatory requirements regarding environmental sustainability and resilience contribution. These requirements will be established by the European Commission in an upcoming implementing act, which must be adopted by 30 March 2025. 

Public procurement procedures must include a condition that no more than 50% of the value of the specific net zero technologies or main components may come from an individual third country where:

• a specific net zero technology or its main components originating in a third country accounts for more than 50% of the supply of that specific technology or its main components within the EU; or
• the proportion of supply within the EU of a specific net zero technology or its main components originating in a third country has increased by at least 10% on average for two consecutive years and accounts for at least 40% of the supply within the EU.

Failure to comply with these conditions will result in bidders having to pay a proportionate charge of at least 10% of the value of the specific net zero technology covered by the contract.

These conditions do not apply with reference to certain countries that are signatories of the Agreement on Government Procurement or other relevant international agreements.

Regulatory sandboxes

To further promote innovation in the field of net zero technologies, the NZIA paves the way for the creation of regulatory sandboxes, which can be established by Member States at their own initiative and in collaboration with interested parties (industry, research institutes, civil society).

Implementation and financing of the NZIA

The regulation establishes the Net-Zero Europe Platform (Platform), which will be composed of representatives of Member States and the European Commission. The Platform will be in charge of the tasks set out in the NZIA, with a special focus on ensuring uniform implementation of the provisions across the EU.

The Platform may set up technical sub-groups and a Net-Zero Industry Group tasked with giving recommendations with a view to contributing to achieving the objectives of the regulation.

Conclusions

The NZIA paves the way for a new EU industrial policy designed to achieve the EU's climate goals, increase competitiveness in the EU and reinforce strategic autonomy, which is a cornerstone of the Green Deal Industrial Plan.

The NZIA complements the current trend of assertiveness in the EU's industrial and trade policy, particularly in sectors that are key for achieving the EU's net zero goals.

Producers or project promoters / developers of net zero technologies and components should now consider whether, and to what extent, they are affected by the NZIA. In particular, companies should consider whether they can benefit from the rules, for example, because of shorter permit-granting periods and increased planning certainty. Moreover, oil and gas producers, who will be obliged to provide CO₂ storage sites, should pay attention to whether they are identified by authorities in their Member State and included in reports to the European Commission which are due by 30 September 2024.