Explanatory Memorandum to COM(2023)161 - Establishing a framework of measures for strengthening Europe’s net-zero technology products manufacturing ecosystem (Net Zero Industry Act) - Main contents

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dossier	COM(2023)161 - Establishing a framework of measures for strengthening Europe’s net-zero technology products manufacturing ecosystem (Net ...
source	COM(2023)161
date	16-03-2023

1. CONTEXT OF THE PROPOSAL

• Reasons for and objectives of the proposal

The transition to a climate neutral, clean economy and the corresponding overhaul of our energy system present significant opportunities in terms of developing the net-zero technology sectors and creating quality jobs and growth. The global market for key mass-manufactured net-zero technologies is set to triple by 2030 with an annual worth of around EUR 600 billion ¹. Our partners and competitors have grasped this opportunity and are deploying ambitious measures to secure significant parts of this new market. These developments are also driven by security of supply considerations. The resilience of future energy systems will be measured notably by a secure access to the technologies that will power those systems - wind turbines, electrolysers, batteries, solar PV, heat pumps and other. In turn, a secure supply of energy will be essential for ensuring sustainable economic growth, and ultimately public order and security.

In that context, the Commission’s communication on the Green Deal Industrial Plan ² of 1 February 2023, presented a comprehensive plan for enhancing the competitiveness of Europe's net-zero industry and supporting the fast transition to climate neutrality. The plan is articulated around the following four pillars: (i) a predictable and simplified regulatory environment; (ii) faster access to funding; (iii) enhancing skills and (iv) open trade for resilient supply chains.

The Net-Zero Industry Act is part of the actions announced in that context, aiming at simplifying the regulatory framework, and improving the investment environment for the Union’s manufacturing capacity of technologies that are key to meet the Union’s climate neutrality goals and ensure that our decarbonised energy system is resilient whilst contributing to reducing pollution, to the benefit of public health and planetary environmental wellbeing.

Global production of electric vehicles will increase 15-fold by 2050, while the deployment of renewables will nearly quadruple. Deployment of heat pumps will increase more than six times by 2050, compared to today and production of hydrogen from electrolysis or natural gas-based hydrogen with carbon capture and storage will reach 450 Mt in 2050. This will translate into global cumulative manufacturing investments of USD 1.2 trillion required to bring enough capacity on track with the global 2030 targets ³. China accounts for 90% of investments in manufacturing facilities.

Europe is currently a net importer of net-zero energy technologies, with about one-quarter of electric cars and batteries, and nearly all solar PV modules and fuel cells imported, mostly from China. For solar photovoltaic technologies and their components, this dependency exceeds 90% of products in certain upstream segments of the value chain, such as ingots and wafers. In other sectors, where the EU industry is still strong, such as wind turbines and heat pumps, our trade balance is deteriorating and EU producers face rising energy and input costs. Furthermore, in the area of carbon capture and storage, the emergence of a CCS value chain in the EU is currently being hampered by a lack of CO₂ storage sites.

At the same time, net-zero energy technologies are at the centre of strong geostrategic interests and at the core of the global technological race. Countries are keen to secure their supply in the most advanced energy production technologies and drive the clean transition. Other world regions are heavily investing and rolling out support measures to innovate and strengthen their production capabilities. The United States’ Inflation Reduction Act will mobilise over USD 360 billion by 2032. Japan's green transformation plans aim to raise up to JPY 20 trillion (approximately EUR 140 billion) – through ‘green transition' bonds. India has put forward the Production Linked Incentive Scheme to enhance competitiveness in sectors like solar photovoltaics and batteries. The United Kingdom, Canada and many others have also put forward their investment plans in net-zero technologies.

Furthermore, within the past year, many European sectors, in particular the energy-intensive industries such as fertilisers, steel, and cement, have been severely impacted by the energy crisis. To remain competitive and circular whilst reaching their decarbonisation and zero pollution goals, these industries need access to net-zero technologies such as batteries, heat pumps, solar panels, electrolysers, fuel cells, wind turbines, and carbon capture and storage. In addition, these technologies also play a key role in the Union’s open strategic autonomy, ensuring that citizens have access to clean, affordable, secure energy. The Union has all the elements to become an industrial leader in the net-zero technologies market of the future: the Union’s Climate Law provides clear long-term objective; the Union has a strong economy combined with a talented workforce and first-of-a-class infrastructure. The goal is not only to reduce dependencies, but also to contribute to providing industry in the EU with the technologies it needs to decarbonise, and to provide citizens with clean, affordable, and secure energy, including for vulnerable low- and lower middle-income households and consumers. The Union’s net-zero ecosystem was worth over EUR 100 billion in 2021, doubling in value since 2020 ⁴.

This explanatory memorandum accompanies the proposal for a Regulation of the European Parliament and of the Council establishing a framework of measures for strengthening Europe’s net-zero energy technologies manufacturing ecosystem (Net-Zero Industry Act).

This proposal delivers on the objective to strengthen Europe’s net-zero energy technologies manufacturing ecosystem outlined in the Commission Communication on the Green Deal Industrial Plan.

1. The Net-Zero Industry Act aims at addressing the following core drivers of net-zero technology manufacturing investments:

- improving investment certainty, policy focus and coordination through the setting of clear objectives and monitoring mechanisms;

- lowering administrative burden for developing net-zero manufacturing projects including by streamlining administrative requirements and facilitating permitting, setting up regulatory sandboxes and ensuring access to information;

- facilitating access to markets by specific measures related to public demand through public procurement procedures and auctions, as well as through schemes to support private demand by consumers;

- facilitating and enabling carbon capture and storage projects, including by enhancing the availability of CO₂ storage sites;

- supporting innovation, including through regulatory sandboxes;

- enhancing skills for quality job creation in net-zero technologies;

- coordinating net-zero industrial partnerships.

• Consistency with existing policy provisions in the policy area

The uptake in clean energy technologies is a powerful enabler for the sustainability transition and can lead to new products and more efficient and effective ways of generating energy that contribute to the European Green Deal ⁵ objectives, contributing to both the 2030 climate and energy targets and to the 2050 objective of climate neutrality. These technologies are also key to decarbonising the Union’s industry and preserving it in Europe.

Supply disruptions and dependencies on other regions for the provision of clean energy technologies can slow down the sustainability transition of the EU and affect all sectors of the economy. To address the disruptions and dependencies, the proposal strengthens Europe’s manufacturing capacity of net-zero energy technologies. Where applicable, facilities should be fully compliant with requirements stemming from Union legislation such as related to environmental impact assessment, emissions to air, water and soil, including the risk and prevention of industrial accidents, and seek to ensure high energy and resource and water efficiency. It is also in line with the Critical Raw Materials Act Regulation, proposed in parallel to this Regulation ⁶.

This proposal is consistent with the Commission’s Communication updating the 2020 new industrial strategy ⁷ in May 2021 that identifies areas of strategic dependencies that could lead to vulnerabilities such as supply shortages. The proposed Regulation is also fully aligned with the proposals in the final outcome report of the Conference on the Future of Europe.

This proposal is provided in light of the opportunities offered by the Innovation Fund, the InvestEU ⁸ programme, the Recovery and Resilience Facility, Horizon Europe and cohesion policy programmes which will provide possibilities for supporting the objectives of this Act.

Lastly, this initiative is also consistent with Regulation (EU) 2020/852 of the European Parliament and of the Council establishment of a framework to facilitate sustainable investment (Taxonomy)⁹.

• Consistency with other Union policies

The proposal contributes to the objectives of parts of the Fit for 55 package that focus on decarbonising EU industry, in particular hard-to-abate sectors, increased electrification and promoting cleaner vehicles and fuels in a technologically neutral way ¹⁰. The revision of the CO₂ emission standards for new cars and vans aims at further reducing the greenhouse gas emissions of these vehicles, providing a clear and realistic pathway towards zero-emission mobility. Consumer demand for zero emission vehicles, such as electrically chargeable vehicles, is increasing already ¹¹ and can also create significant co-benefits for the achievement of the zero pollution ambition ¹².

The proposed measures will also contribute to the EU’s resilience and open strategic autonomy by ensuring the security of supply of key energy-related technologies, which is crucial both for supporting the development of other sectors of the economy and for public order and security.

This proposal is consistent with the EU’s approach to achieve a fair and just green transition ¹³. It is also consistent with actions foreseen under the 2023 European Year of Skills and ongoing initiatives under the EU Pact for Skills and its large-scale skills partnerships as well as other existing skills policies, such as the Blueprints for sectoral cooperation on skills. The assessment, monitoring and forecasting of skills needs will build upon and fully take into account the work of the European Centre for the Development of Vocational Training (Cedefop) and the European Labour Authority (ELA), among others. The European Network of Employment Services (EURES) facilitates job placements and has on average more than 3 million job vacancies available on the portal. Given the variety of job vacancies and employers and its tool for automated skills-based matching, the placements facilitated by the EURES network and EURES portal also provide concrete results as it comes to jobs relevant for the Net-Zero Industry. To stimulate increased investment in training in new Net-Zero technologies and production processes, the Commission in its Green Deal Industrial Plan announced, among others, an increase in the General Block Exemption Regulation ceiling for aid to SMEs for training from EUR 2 million to EUR 3 million, that skills measures will be taken into account in assessing Important Project of Common European Interest (IPCEI), and that the Commission will explore the treatment of training expenditure by companies as an investment rather than an expense or operating cost.

The proposal is consistent with the Communication ‘harnessing talent in Europe’s regions’ by aiming to reskill and upskill Europe’s workforce, including in regions having fallen or at the risk of falling in talent development traps. It will inter alia take into account the talent booster mechanism developed to support EU regions affected by the accelerated decline of their working age population. The proposal is moreover consistent with actions under the New European Innovation Agenda, which includes a flagship action on fostering, attracting and retaining deep tech talents and targets 1 million deep tech talents over a 3-year period across all Member States.¹⁴

The proposal promotes the development of net-zero manufacturing projects in less developed and transition regions by granting them a simple and automatic access to strategic status. The proposal thus pursues cohesion objectives and contributes to the convergence of these regions by building sustainable and future proof economic assets. By creating a framework for the manufacturing of specific net-zero technologies, the proposal complements any applicable requirements under the Ecodesign Regulation ¹⁵, as well as with its proposed amendment ¹⁶ and their implementing measures.

2. LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY

• Legal basis

This Regulation pursues the general objective of setting up a legal framework which supports the development of the manufacturing of net-zero energy technologies in the Union, in order to support the Union’s 2030 decarbonisation targets and 2050 climate neutrality target and to ensure the security of supply for net-zero technologies needed to safeguard the resilience of the Union’s energy system.

This general objective translates into specific objectives of facilitating investments for net-zero technologies (pillar 1), reducing CO₂ emissions (pillar 2), facilitating access to markets (pillar 3), enhancing skills for quality job creation in net-zero technologies (pillar 4), supporting innovation (pillar 5) and creating a specific structure for implementing these objectives both in terms of governance and of monitoring (pillars 6 and 7).

The appropriate legal basis is therefore Article 114 of the Treaty on the Functioning of the European Union (‘the Treaty’) which allows the Union to take measures that increase harmonisation in order to create a level playing field within the Union in which net-zero technology manufacturing can flourish, which is conducive to innovation and facilitates the green transition.

First, the specific objective of ensuring the proper functioning of the internal market by setting harmonised rules for the increase in manufacturing capacity for net-zero technologies in the Union will allow to address the existing fragmentation of the internal market on essential elements regarding for instance permit granting processes for producers of net-zero technologies. It will also increase legal certainty and simplify administrative burden for producers wishing to build new or expand existing production facilities within the Union, while creating the conditions for facilitating access to funding. The legal basis for this pillar is therefore Article 114 of the Treaty, which provides for the adoption of measures to ensure the establishment and functioning of the internal market.

To help reduce CO₂ emissions in the Union, a Union target for CO₂ injection capacity is defined under the second pillar, along with measures needed to achieve it.

The third specific objective of facilitating access to the single market for net-zero technologies under the third pillar, requires encouraging public and private demand for sustainable products, including by ensuring that public buyers consistently apply criteria to ensure a high level of sustainability and resilience of the net-zero products they procure.

The fourth specific objective aims at creating synergies between Member States and harmonising the promotion of a skilled, trained and adaptable workforce and labour markets responsive to economic change in the clean energy transition.

Supporting innovation under the fifth pillar also requires coordination among Member States for setting up sandboxes in order to ensure a level playing within the Union for experimentation and to allow for similar exemptions from Union law.

Finally, the sixth and seventh pillar create a harmonised governance structure and uniform monitoring requirements to assess the progress made towards the common target of increasing manufacturing of net-zero technologies.

• Subsidiarity (for non-exclusive competence)

The objectives of the proposal cannot be achieved by Member States acting alone, as the problems are of a cross-border nature, and not limited to single Member States or to a subset of Member States. The proposed actions focus on areas where there is a demonstrable value added in acting at Union level due to the scale, speed and scope of the efforts needed.

Providing a comprehensive response to the energy crisis affecting the EU requires a rapid and coordinated joint action from a variety of stakeholders, and in cooperation with Member States. Moreover, given the challenges for accelerating the deployment of net-zero technologies, intervention at the level of the Union helps coordinate responses to address the Union’s needs for additional manufacturing capacities for net-zero technologies and to prevent structural dependencies. In addition, carbon capture and storage require a cross-border, single market approach to be an effective solution for industries in all Member States, including in those Member States with no CO₂ storage capacity, and is therefore best addressed in a coordinated way at EU level.

Action at Union level can clearly drive European actors towards a common vision and implementation strategy. This is key to generate economies of scale and of scope and to generate critical mass necessary for scaling up net-zero technologies manufacturing in the EU, while limiting, fragmentation of efforts and self-harming subsidy races between Member States.

Union action is needed in relation to the areas that this proposal addresses through its several pillars.

- With regard to the first pillar (“Facilitating investments”), the Initiative will support large scale technological capacity building throughout the Union to enable the development and manufacturing net-zero technologies, to foster the set-up of net-zero manufacturing projects, including strategic projects, by streamlining administrative and permit-granting processes. These actions require Union action to ensure a level playing field within the Single market.

- For reaching the target for CO₂ injection capacity in the Union under the second pillar, coordinated action is needed at Union level to support efforts at national level.

- Regarding the third pillar (“Access to market”), actions aimed at accelerating investments in net-zero technologies can only be adequately designed and implemented at Union level, given the scale of the investments needed and because such manufacturing facilities can help serve the internal market, strengthen the whole ecosystem, and contribute to guarantee security of supply.

- The fourth pillar (“Enhancing skills for quality job creation in net-zero technologies”) coordinates efforts to ensure the availability of a skilled workforce required for net-zero industry in Europe by supporting the setting up of specialised skills Academies and through the establishment of a net-zero Europe platform.

- Regarding the fifth pillar (“Innovation”), the creation of regulatory sandboxes aims at creating a level playing field for innovation on net-zero technologies in the Union, and to ensure targeted exemptions from Union law, where necessary and without undermining other regulatory objectives.

- Under the sixth pillar (“Governance”) the creation of a unique structure at Union level, the Net-Zero Europe Platform, will allow to the Commission to coordinate the above actions jointly with Member States to ensure a uniform application of the Regulation throughout the Union, as well as knowledge sharing.

- In relation to the seventh pillar (“Monitoring”), enhanced Union cooperation will ensure the necessary and comparable intelligence gathering. This will enable Member States and Commission to anticipate and prevent shortages and put in place the necessary measures to strengthen Europe’s clean energy technologies manufacturing ecosystem in more effective ways than through a patchwork of national measures.

• Proportionality

The proposal is designed to strengthen Europe’s net-zero technologies manufacturing ecosystem via measures to facilitate investments, incentivise demand and up- and re-skill Europe’s labour force.

While a wide range of net-zero technologies will benefit from the proposal, it gives more emphasis on those parts of the net-zero technologies ecosystem that contribute most to climate, and energy objectives for 2030. The focus on solar, batteries/storage, wind, electrolysers and fuel cells, heat pumps, biomethane, grids and carbon capture and storage (CCS) is intended to focus actions to strategic net-zero products and components for ensuring Europe’s green transition.

The Net-zero strategic projects and Net-zero regulatory sandboxes put in place the mechanisms necessary for ensuring longer-term competitiveness and innovation capacity of European industry via manufacturing capabilities, pilot environments for testing and experimentation, provisions on CO₂ storage capacity, de-risking of investments into strategic projects, as well as by start-ups, scale-ups and SMEs. Member States are required to ensure permits for such manufacturing projects are granted through faster and less cumbersome procedures, to both speed up the installation of new manufacturing capacities in response to the Union’s energy crisis and to cut costs and administrative burden for businesses wishing to expand their manufacturing capacities for clean energy technologies in Europe.

Furthermore, sufficient CO₂ injection capacity should be made available by 2030 under pillar 2, as this lack of infrastructure is the single largest bottleneck for CO₂ capture investments to materialise, including by hard-to abate sectors. Oil and gas producers have the assets, resources and skills to enable this capacity. In working together, they are able to find the most cost-effective projects to provide the necessary injection capacity ahead of demand.

The incentives under pillar 3 are designed to ensure a stable demand for net-zero technologies that will make it economically attractive for business to scale-up the production of tailor-made net-zero technologies with a high sustainability performance. They will also ensure that the Regulation incentivises public funds to be directed towards such technologies. It is only by a rapid shift towards sustainable net-zero technologies that the EU will be able to fulfil its climate ambitions for 2030.

The actions on skills for net-zero technologies in pillar 4 will allow the Union to empower its labour force to best contribute to the clean energy transition.

The creation of regulatory sandboxes in pillar 5, is subject to appropriate safeguards to ensure that any exemption from Union and national law is accompanied by appropriate mitigation measures to ensure that other regulatory objectives of equal importance are fulfilled while supporting innovation.

For the measures set out above to perform at their best, a governance structure is set up in pillar 6, bringing together Member States and the Commission in order to coordinate their actions to achieve their common goals for Europe’s energy security and green transition.

Finally, monitoring under pillar 7 is necessary to ensure the fulfilment of the Union-level objective for the manufacturing of net-zero technologies and CO₂ storage objectives, as well as more generally for the application of this Regulation and information exchange by Member States and the Union to prevent possible supply chain disruptions.

• Choice of the instrument

The proposal takes the form of a Regulation of the European Parliament and of the Council. This is the most suitable legal instrument for pillar 1 given the need for a uniform application of the new rules, in particular the definition of the Net Zero Strategic Projects, as well as a uniform procedure for their recognition, and supporting an industrial sector across the internal market, while also enabling the creation of whole value chains of production by matching the needs of market actors from the entire EU. The choice of a Regulation as a legal instrument for pillars 2 and 3 is justified, as only a Regulation, with its directly applicable legal provisions, can provide the necessary degree of uniformity needed for the reduction of CO₂ emissions and the establishment and operation of a Union Initiative to incentivise demand uniformly across the internal market. Pillar 4 is also best addressed through a Regulation which supports the development of skills uniformly throughout the Union. Additionally, a Regulation is the most suitable instrument for pillar 5 to support innovation on the internal market, as well as for pillar 6, which creates a governance structure that allows Member States and Commission to coordinate their actions, and for pillar 7 under which uniform monitoring mechanisms are set out. The mechanism does not require the transposition through national measures and is directly applicable.

3. RESULTS OF EX-POST EVALUATIONS, STAKEHOLDER CONSULTATIONS AND IMPACT ASSESSMENTS

• Ex-post evaluations/fitness checks of existing legislation

This proposal brings additional harmonization and constitutes the first coherent legal framework at EU level for clean energy technologies. It is therefore not supported by ex-post evaluations.

• Stakeholder consultations

The Net Zero Industry Act was announced by Commission President Ursula von der Leyen on 17 January 2023 at the World Economic Forum in Davos ¹⁷. The first pillar is about speed. We need to create a regulatory environment that allows us to scale up fast and to create conducive conditions for sectors crucial to reaching net zero. This includes wind, heat pumps, solar, clean hydrogen, storage and others – for which demand is boosted by our NextGenerationEU and REPowerEU plans. To help make this happen, we will put forward a new Net-Zero Industry Act. This will follow the same model as our Chips Act. The new Net-Zero Industry Act will identify clear goals for European clean tech by 2030. The aim will be to focus investment on strategic projects along the entire supply chain. We will especially look at how to simplify and fast-track permitting for new clean-tech production sites.” Given the urgent need to act, no impact assessment was carried out and no online public consultation was foreseen. The analysis and all supporting evidence will be set out in a staff working document published at the latest within three months of the proposal’s publication.

A high-level discussion and first round of consultation of Member States and net-zero industry stakeholders took place at the first Clean Tech Europe Platform meeting, organised by the Commission on 30 November 2022. The meeting brought together high-level representatives from 23 Member States, along with representatives from the wind, batteries, electricity grid, heat pumps and solar PV industries and value chain. During the meeting, participants underlined the urgent need to ramp up manufacturing capacity of net zero technologies in response to Russia’s war of aggression against Ukraine and to global regulatory competition in the sector, such as the United States Inflation Reduction Act. The industry representatives pointed to several bottlenecks in the Union, highlighting lengthy permitting procedures for the construction or expansion of net zero manufacturing capacity that would also hamper the mobilisation of private investments as well as shortages of qualified staff.

In addition to long standing regular exchanges with relevant stakeholders, a targeted additional survey with a short deadline was carried out in February 2023 with a selection of industrial stakeholder organisations from the wind, solar, battery, heat pump and hydrogen/electrolyser industries to provide additional insights. The stakeholders reported challenges with regard to:

1. long lead times and lengthy permitting for projects and ramping up production capabilities;

1. lack of level playing field with international competitors;

2. disruption and shortages in materials;

3. a patchwork, unclear or constraining legislative frameworks at Union and/or national level;

4. difficulties to find suitable production and deployment sites;

5. barriers related to public tenders;

6. shortage of a skilled workforce;

7. insufficient own production and dependency on manufacturing capacities of key components;

8. high production costs.

Furthermore, additional input relevant for the proposal’s policy options was considered from meetings with industry representatives and public authorities in the framework of the work carried out in the industrial alliances launched by the European Commission, most notably the European Batteries Alliance, the European Clean Hydrogen Alliance (including its Electrolyser Partnership), the Raw Materials Alliance and the European Solar PV Industry Alliance. Moreover, the European Clean Energy Industrial Forum, organised in regular meetings throughout 2021 and 2022 provided a large platform for discussion on industrial needs. As regards carbon capture and storage, at the 2022 EU CCUS Forum, stakeholders have estimated a demand for annual storage services in the European Economic Area (EEA) to grow from a very low base to 80 million tonnes of CO₂ in 2030 and to reach at least 300 million tonnes of CO₂ in 2040.

Moreover, long-standing and regular contacts with industry stakeholders, Member States and trade associations enabled the collection of relevant information and feedback.

• Collection and use of expertise

Long-standing and regular contacts with industry stakeholders, Member States, trade associations and user associations enabled the collection of a fair amount of information and feedback relevant to the proposal.

Many studies and reports have been published in the last years on the net-zero technology manufacturing sector describing trends and providing facts and figures, and served to inform the proposal, including:

European Commission. Progress on competitiveness of clean energy technologies. COM/2022/643 final

European Commission. Annual JRC report of the European Climate Neutral Industry Competitiveness Scoreboard (CIndECS). 2021

Clean Energy Technology Observatory (CETO). Reports 2022.

IEA- Energy Technology Perspectives. 2023

• Impact assessment

This proposal is not accompanied by a formal impact assessment. Considering the urgency to act for the reasons explained above, an impact assessment could not have been delivered in the timeframe available prior to the adoption of the proposal. The analysis and all supporting evidence will be set out in a staff working document published at the latest within three months of the proposal’s publication.

• Regulatory fitness and simplification

This proposal lays down measures aimed at reinforcing the net-zero technologies ecosystem. For companies manufacturing clean energy technology in Europe, it will increase legal certainty, facilitate the set-up of new manufacturing facilities through simplified and quicker permitting procedures, as well as facilitate access to finance by de-risking projects and provide for a trained labour force in the Union. For providers of net-zero technology solutions, it will secure a stable source of demand of highly sustainable clean energy equipment, products and components. For national public administrations, it will increase the uptake of net-zero technologies in the Union and strengthen coordination (by introducing a Net-Zero Europe Platform). Moreover, the framework will envisage specific measures supporting innovation, including regulatory sandboxes and dedicated support for small-scale users and providers of high-quality sustainable net-zero technologies to find output markets in Europe and to match their needs with other market actors in order to create entire value chains within the EU.

The proposal also specifically aims to strengthen Europe’s competitiveness and industrial base in net-zero technologies. Full consistency is ensured with existing sectoral Union legislation applicable to net-zero technologies (e.g., on energy savings, energy labelling, and deployment) that will bring further clarity and simplify the enforcement of the new rules, as well as and with proposed legislation on critical raw materials.

• Fundamental rights

Article 16 of the Charter of Fundamental Rights of the European Union (‘the Charter’) provides for the freedom to conduct a business. The measures under this proposal create innovation capacity and foster demand for clean energy technologies, which can reinforce the freedom to conduct a business in accordance with Union law and national laws and practices. Nevertheless, some measures under pillar 2 needed to address serious disruptions of the net-zero technologies supply in the Union may temporarily limit the freedom to conduct a business and the freedom of contract, protected by Article 16 and the right to property, protected by Article 17 of the Charter. Any limitation of those rights in this proposal will, in accordance with Article 52(1) of the Charter, be provided for by law, respect the essence of those rights and freedoms, and comply with the principle of proportionality.

The obligation to disclose specific information to the Commission, provided that certain conditions are met, respects the essence of and will not disproportionately affect the freedom to conduct a business (Article 16 of the Charter). Any information request serves the objective of general interest of the Union to enable the identification of potential mitigation measures to an energy supply crisis. These information requests are appropriate and effective to attain the objective by providing information necessary to assess the crisis at hand. The Commission in principle only requests the desired information from representative organisations and may issue requests to individual undertakings only if it is necessary in addition. Since information on the supply situation is not available otherwise, there is not any equally effective measure to attain the information necessary to enable European decision-makers to take mitigation action. In light of the serious economic and societal consequences of energy supply shortages and the respective importance of mitigation measures, information requests are proportionate to the desired aim.

4. BUDGETARY IMPLICATIONS

The proposal establishes a Net-Zero Europe Platform. Heading 7 of the EU budget will support the organisation of the Net-Zero Europe Platform with a total of EUR 5.130 million for six officials. This translates into an annual expenditure of EUR 1.026 million. The staff will be responsible to carry out the tasks in relation to the Net-Zero Europe Platform as well as the Net-Zero Industry Academies as set out in this Regulation. Furthermore, the proposal estimates additional costs for committees with a budget of EUR 125.000.

The funding of the associated operational costs of this initiative will be supported by the budget for the ‘Operation and development of the internal market of goods and services’ under the current Multiannual Financial Framework until 2027.

In order to conduct research and data analysis for monitoring the initiative and market developments as well as to obtain up-to-date data on net-zero technology supply chains to tackle issues related to this Regulation a budget of EUR 720.000 is allocated.

This proposal will support Net-Zero Industry Academies with seed funding in form of EUR 3 million from the budget for the Clean Hydrogen Joint Undertaking and EUR 2.5 million from the budget of the Single Market Programme, SME pillar.

Further details are provided in the legislative financial statement annexed to this proposal.

5. OTHER ELEMENTS

• Implementation plans and monitoring, evaluation and reporting arrangements

The Commission will evaluate the output, results and impact of this proposal three years after the date on which it becomes applicable and every four years thereafter. The main findings of the evaluation will be presented in a report to the European Parliament and the Council, which will be made public.

• Detailed explanation of the specific provisions of the proposal

1.1 Chapter I – Subject matter, scope and definitions

Chapter I sets out the objectives of this Regulation and its subject matter. The objectives of the Regulation are translated into a quantified overall headline benchmark aimed at ensuring that by 2030, the manufacturing capacity in the Union of the strategic net-zero technologies listed in the Annex approaches or reaches at least 40% of the Union’s annual deployment needs. This benchmark represents an overall political ambition of achieving high resilience across strategic net-zero technologies and the overall energy system, while taking into account the need to pursue that ambition in a flexible and diversified way. The level of this benchmark takes into account the indicative technology-specific objectives outlined in Recital 16 of the proposal. It does not equal to the average of the latter, given that:

(i) The scope of the Annex is broader than the five technologies for which indicative technology-specific objectives have been identified in Recital 16;

(ii) For some strategic net-zero technologies, such as solar PV, 40% represents a realistic but ambitious scale-up effort of the corresponding manufacturing capacity;

(iii) The overall headline benchmark takes into account the need for scaling up manufacturing capacity not only for end-products but also for specific components . For some of these, such as ( wafers, ingots or solar cells in the case of solar PV or anodes and cathodes for batteries, reaching the 40% headline benchmark represents a realistic but highly ambitious objective).

(iv) The headline benchmark combined with the monitoring modalities laid out in Article 31 will help identify, early on, existing or potential vulnerabilities or challenges linked to the resilience of strategic net-zero technologies and take action, as appropriate.

Chapter I also clarifies definitions used throughout the instrument, including the concept of net-zero technologies. The Regulation establishes a framework, consisting of seven “pillars”, for strengthening the competitiveness of Europe’s net-zero technology manufacturing ecosystem. In particular, the Regulation sets the conditions necessary to promote net zero technology manufacturing projects, streamlining administrative and permit-granting processes and defining Net-Zero Strategic Projects (pillar 1). The Regulation sets the conditions to increase CO₂ injection capacity (pillar 2) as well as to incentivise demand for net-zero technologies (pillar 3). It also creates a framework for ensuring a skilled labour force in the sector (pillar 4), foster innovation (pillar 5), creates a governance structure (pillar 6) and establishes the framework for monitoring the implementation of these measures (pillar 7).

1.2. Chapter II – Enabling conditions for net-zero technology manufacturing

Section 1 sets up streamlined permitting processes for net-zero technology manufacturing projects. All net-zero technology manufacturing projects will benefit from Member States designating a national competent authority acting as a single point of contact, in charge of coordination and facilitation of permitting, guiding economic operators, ensuring that information is publicly accessible and that all documents can be digitally submitted. The Regulation sets detailed timelines for permitting procedures according to the nature of the project developed. The proposal is consistent with Union legislation on permitting such as the Renewable Energy Directive (EU) 2018/2001 ¹⁸, the TEN-E Regulation ¹⁹, the Gas Directive ²⁰ and the Council Regulation on permitting for renewable energy deployment ²¹, as well as with the proposals on the REPowerEU amendment to the Renewable Energy Directive ²², the Chips Act Regulation proposal ²³ and the Critical Raw Materials Act Regulation proposal. Faster permitting procedures are without prejudice to environmental assessments and authorisations as detailed in EU law.

Section 2 sets up rules pertaining to the selection and implementation of net-zero strategic projects. The criteria to select strategic projects will cover the contribution made by the project to the technological and industrial resilience of the Union’s energy system and/or the project’s contribution to the competitiveness of the EU’s net-zero industry supply chain. The Regulation defines the procedures for projects to apply and be recognised as net-zero strategic project by Member States. Net-zero strategic projects will be granted priority status to ensure the fastest permitting processes in line with national and EU laws and will benefit from predictable permitting timelines. They may also be considered of overriding public interest for permitting purposes provided the conditions set in EU law are fulfilled. Without prejudice to State aid rules, Member States will undertake activities to accelerate and crowd-in private investments in net-zero strategic projects to accelerate their implementation. Promoters of net-zero strategic projects will also be able to benefit from financing advice stemming from the Net-Zero Europe Platform established in Chapter VII.

1.3. Chapter III – CO₂ injection capacity

Chapter III sets a Union-level objective to be achieved by 2030 for an annual injection capacity in CO₂ storage of 50Mt CO₂ and includes measures to implement it. These measures aim at bringing together key relevant assets to establish a Union single market for CO₂ storage services that large-scale CO₂ emitters, including hard-to-abate industrial sectors, can rely on to decarbonise their operations. This includes better information on geological data relating to oil and gas production sites, CO₂ capture projects in progress or envisaged in the following 5 years, estimation of the corresponding needs for injection and storage capacities. Net-zero strategic projects for CO₂ storage, that are located in the territory of the Union, aim to provide operationally available CO₂ injection capacity by 2030 or earlier and have applied for a permit for the safe and permanent geological storage of CO₂ in accordance with Directive 2009/31/EU ²⁴, will be supported by Member States authorities. Contributions from oil and gas producers holding an authorisation under Directive 94/22/EC ²⁵ are foreseen to achieve the Union-level 2030 objective.

1.4. Chapter IV – Access to markets

Chapter IV contains actions aimed at accelerating access to markets for net-zero technologies. This is first achieved through measures designed to help public authorities create and maintain a stable public demand for net-zero technologies that will make it economically attractive for business to scale-up the production of tailor-made products for the European market designed with high sustainability and resilience criteria in mind. Such measures relate first to public procurement procedures and auctions to deploy renewable energy sources for which public authorities must take into account criteria related to sustainability and resilience when awarding the contracts or ranking the bids. Secondly, the chapter includes measures to ensure that other forms of public support to private demand contribute to the same aim.

1.5 Chapter V – Enhancing skills for quality job creation in net-zero technologies

Chapter V proposes measures to ensure the availability of a skilled workforce needed for net-zero technology industries in the Union. Current skills shortages, and their projected rise, and skills mismatches endanger the rise of European net-zero technology industries. The proposal aims to create mechanisms to design and deploy necessary skills in a manner that effectively targets the needs of net-zero industries at both European and local levels. It does so by providing for the Commission to support the setting up of specialised European skills Academies, each focussing on a net-zero technology and working together with Member States, industry, social partners, and education and training providers to design and deploy education and training courses to reskill and upskill workers required for net-zero technology industries. The Net-Zero Europe Platform would assist the availability and deployment of people with skills needed in net-zero technologies through a series of tasks set out in this Regulation, including with respect to the activation of more women and young people, who are not in education, employment or training (NEETs). The Act thereby seeks to complement a number of Commission actions aimed at meeting the skills needs stemming from the EU's green transition, such as the EU Pact for Skills, the EU Skills Agenda, the industrial transition pathways, and the 2023 European Year of Skills.

1.6 Chapter VI – Innovation

Chapter VI sets up Net-zero regulatory sandboxes to promote innovation in the field of net zero technologies. The proposal introduces regulatory sandboxes to test innovative net-zero technologies in a controlled environment for a limited amount of time. The innovative technologies falling under the sandboxes could eventually be considered essential to achieve the Union’s climate neutrality objective, ensure the security of supply and resilience of the Union's energy system, and consequently enter the scope of strategic net-zero technologies under this regulation.

1.7 Chapter VII – Governance

Chapter VII sets up a structure, the Net-Zero Europe Platform, allowing the Commission to coordinate the above actions jointly with Member States. The Platform is a reference body, in which the Commission and Member States can discuss, exchange information, share best practices on issues related to this Regulation, and in which the Commission may get input from third parties such as experts and representatives e.g., from the net-zero industry. The work may be organised in different standing or temporary sub-groups. Activities for the platform are outlined in the different Articles of this Regulation, and comprise notably the streamlining administrative procedures and permit granting processes, including one-stop shops [Article 4], net-zero strategic projects [Article 11], coordination of financing [Article 15], access to markets [Article 19, 20 and 21], skills [Article 25] innovative net-zero regulatory sandboxes [Article 26] and providing advice on the preparation of the annual reports on competitiveness of clean energy technologies, under the State of the Energy Union Report ²⁶. In addition, the Commission and Member states may discuss on Net-Zero Industrial Partnerships within the Platform [Article 28]. Furthermore, the Commission and Member States may get active under the Platform to foster cross-country contacts between undertakings active in net-zero sectors within the European Union, in particular by making use of the work of industrial alliances.

1.8 Chapter VIII – Monitoring

Chapter VIII contains uniform provisions allowing to monitor supply chains to track the progress with respect to the objectives referred to in Article 1, as well as progress towards reaching the CO₂ storage target. It also contains monitoring provisions in general for the application of this Regulation.

1.9 Chapter IX – Final Provisions

Chapter IX contains provisions on delegation of power, amendments to other acts, including Regulation (EU) 2018/1724 of the European Parliament and of the Council²⁷ and Directive (EU) 2013/34/EU ²⁸, an obligation for the Commission to prepare regular reports to the European Parliament and to the Council for the evaluation of this Regulation, and entry into force and application.

1.10 Annex – Strategic net-zero technologies

The technologies listed in the Annex draw on three main criteria: 1) technology readiness level; 2) contribution to decarbonisation and competitiveness; and 3) security of supply risks. These were selected based on the overall Net-Zero Industry Act objectives of scaling up the manufacturing capacity of net-zero technologies in the EU, particularly those that are commercially available and have a good potential for rapid scale up.

The first criterion of technology readiness level (TRL) refers to a method of estimating the maturity of technologies and draws on the classification used by the International Energy Agency (IEA). The scope of this Regulation generally refers to those net-zero technologies that fall under TRL 8 (first-of-a-kind commercial – commercial demonstration, full-scale deployment in final form) or above.

The second criterion of decarbonisation and competitiveness identifies those net-zero technologies that are projected to deliver a significant contribution to the 2030 Fit-for-55 target of reducing net greenhouse gas emissions by at least 55% relative to 1990 levels.

Finally, the third criterion relates to security of supply ensuring the technological and industrial resilience of the Union’s energy system by increasing the manufacturing capacity of a component or part in the net-zero technology value chain for which the Union heavily or growingly depends on imports, particularly those coming from a single third country.

Based on these criteria, 8 groups of net-zero technologies were selected. In addition, the respective net-zero technology groups refer not only to the final technological product or assemblies, but also to the main upstream components that are a central part of the respective technologies (e.g., ingots, wafers, and solar cells for solar modules; nacelles, towers, and blades for wind turbines, etc).