In Q1 2023, the European Commission (EC) published a legislative initiative for a regulation called the Net Zero Industry Act (the Proposal), to scale and speed up the manufacturing of clean technologies in the EU to further support the energy transition.
If adopted in the current form, oil and gas companies may face substantial costs in respect of investments in carbon capture (Utilisation) and storage (CC(U)S) and EU member states will have to quickly adjust their permitting and procurement procedures.
The Proposal ties into the broader strategy set out in (inter alia) the REPowerEU Plan and the European Green Deal. The Proposal aims to improve investments in manufacturing technologies that are strategically important for reaching the EU’s green goals (Net Zero Technologies) and simplify the regulatory framework for Net Zero Technologies.
Key instruments and actions
- Net Zero Technologies: these entail solar (PV and thermal); biogas; heat pumps and geothermal energy; CCUS; electrolysers and fuel cells; batteries and storage; grid technologies; wind (both on- and offshore); advanced technologies to produce energy from nuclear processes with minimal waste from the fuel cycle, small modular reactors, and related best-in-class fuels.
- Net Zero Strategic Projects: projects for certain Net Zero Technologies as mentioned above, excluding nuclear, that meet certain criteria such as contributing to the technological and industrial resilience of the EU’s energy system by increasing the manufacturing capacity of a component or part in the Net Zero Technology value chain, or has a positive impact on the EU’s Net Zero Technology supply chain (or downstream sectors).
- Cutting red tape: a streamlined, faster permitting procedure for Net Zero Technologies projects, particularly:
3.1) a ‘one stop shop’ competent authority for the permitting process regarding Net Zero Technologies, which will be responsible for coordination with other authorities involved;
3.2) time limits for the permit granting process, i.e. (a) 12 months for the construction of Net Zero Technology manufacturing projects with a yearly manufacturing capacity of less than 1 GW (or 9 months for such Net Zero Strategic Projects); (b) 18 months for such projects over 1 GW (or 12 months for such Net Zero Strategic Projects);
3.3) a time limit for review by the competent authority of any environmental impact assessments of 3 months after receiving all required information; and
3.4) a priority status for Net Zero Strategic Projects, meaning that both permitting and appeal (or other legal redress or dispute) procedures shall be treated as rapid as possible.
- Speeding up CC(U)S: objective of an annual injection of 50 million tonnes of CO2 by 2030, oil and gas companies shall be subject to a pro rata contribution to CC(U)S, based on their share in the EU’s oil and gas productions. Progress on this contribution shall be reported to the EC, which will be public. Furthermore, the EC will be empowered to adopt delegated acts in this respect.
- Improving market access: introduction of resilience and sustainability criteria for public tenders and auctions, and actions for backing private demand.
- Skill enhancement: funding and establishment of ‘EU Net Zero Industry Academies’ for Net Zero Technologies to educate a skilled workforce.
- Innovation: introduction of ‘Net Zero regulatory sandboxes’, allowing member states to test innovative Net Zero Technologies in a controlled environment for a limited amount of time.
- Governance: establishment of a ‘Net Zero Europe Platform’ (chaired by the EC and composed of representatives of the member states) to govern these instruments and actions, including a coordinating role in improving the access to financing of Net Zero Technologies, without prejudice to existing state aid rules.
The European Parliament and the Council will now review, amend and finalise the text of the Draft Regulation to reflect the political agreement amongst the EU institutions. This procedure is expected to take more than one year. Once a final regulation has been adopted, it will, following entry into force, have direct effect, meaning that (in summary) it can be enforced before national courts, without further implementation measures by EU-member states.
The impact of the Proposal is still subject to the review and significant amendments are likely to occur. During the adoption process, nuclear energy will be a particular topic for debate, as the Proposal currently does not include existing nuclear technologies (including certain nuclear reactors that France pursues to develop) and nuclear energy is not included as a Net Zero Strategic Project.
Furthermore, it remains to be seen whether the Proposal will actually empower the EU to effectively compete with other jurisdictions, especially those that (from an EU perspective) benefit from state aid.
The Proposal marks an important step in the EU energy transition. But there is still a long way to go.
For further information on what this means for your company, please contact Jochem Spaans, Jasper Wesselman or any of our A&O Renewable Energy experts.