A NEW EU INDUSTRIAL PLAN FOR THE NET-ZERO AGE

On 22 February, the European Commission published the Green Deal Industrial Plan for the Net-Zero Age, a wide-ranging reform of industrial policy aimed at simplifying licensing and the release of funds, focusing on expertise and increased spending on low-carbon and circular tech.

The plan constitutes a nervous and urgent response to US President Joe Biden’s Inflation Reduction Act (IRA), which shook EU industry with its 369 billion dollars for the environment. While Washington has huge problems approving legislative reforms on the environment, climate, and energy, when it comes to spending federal funds to support the world of business the nation is unrivalled.

Thus, Brussels immediately started to take remedial action, fearing a haemorrhage of investments and businesses to the other side of the Atlantic. The EU response to the IRA was announced in early January, during the World Economic Forum. Now, Ursula von der Leyen has decided to accelerate the Green Deal Industrial Plan for the Net-Zero Age and wants the plan to be presented on 23 March to coincide with the meeting of the European Council. The economic world is waiting.

At the moment, Europe is still lagging on various elements of the green transition: the supply and circular economy of critical and non-critical raw materials, the mass production of batteries for energy storage and electric vehicles, the promotion and production of heat pumps, the efficiency of processes and services, dependency on Chinese solar panels and the need to accelerate domestic production, with “solar valleys” like the one being created in Sicily. But, above all, the EU needs a simplification and clear definition of the rules for industrial development, which are currently extremely complex and diversified.

A push toward decarbonisation

“We have a once-in-a-generation opportunity to show the way with speed, ambition and a sense of purpose to secure the EU’s industrial lead in the fast-growing net-zero technology sector,” said Ursula von der Leyen when presenting the GDIP. “Europe is determined to lead the clean-tech revolution. For our companies and people, it means turning skills into quality jobs and innovation into mass production, thanks to a simpler and faster framework. Better access to finance will allow our key clean-tech industries to scale up quickly.” Von der Leyen has less than a year – EU elections are set to take place in 2024 – to cement her political legacy, which is inextricably linked to the Green Deal. This is why she wants to accelerate the process. The opportunities exist. According to Barclays, EU proposals could surpass US resources set aside for decarbonisation by 440 billion dollars in the next ten years, redirecting unused post-pandemic recovery funds (as it becomes ever clearer that the NextGenerationEU funds will not be used in their entirety). Furthermore, thanks to the Carbon Border Adjustment Mechanism, a tax on imports whose emissions exceed those allowed for EU production, manufacturers should be dissuaded from moving production outside the bloc and reimporting goods. Thus, the challenge from the US would be contained, avoiding an exodus of businesses that in recent months have already been feeling the pressure deriving from the opportunities of the Inflation Reduction Act.

How will the GDIP be structured?

The Green Deal Industrial Plan for the Net-Zero Age is founded upon four pillars: a clear and simplified regulatory environment, quicker access to clean tech funding, training for the necessary skills, and new trade rules for resilient supply chains (such as the crucial Critical Raw Materials Act, destined to increase mining in Europe and the recycling of CRMs).

For professionals and citizens, the most important pillar is the one concerning “skills”, given that with the acceleration of the transition more efforts to train the workforce will be required, in particular among younger age groups with higher levels of unemployment. For businesses, the most complex challenge relates to supply chains. For CRMs, the EU is ready to set up new procurement initiatives like a Critical Raw Materials Club. Meanwhile, to accelerate the circular economy and boost industrial symbiosis, Clean Tech/Net-Zero industrial partnerships will be vital, as will an export credits strategy that limits the fossil fuel sector and promotes zero-emission technology, and finally, an aggressive harnessing of trade defence instruments. Instead, simplification should require a large amount of work from EU bureaucrats. The difficulty in obtaining funding through NextGenEU (through the NRRP in Italy) has shown the weaknesses of an overly complex and convoluted reporting system. Simplification is a euro-problem.

READ ALSO: Opportunities in new circular business models

New funding for clean tech

Many countries, in particular France and Italy, are asking for increased EU funding for clean tech. The Green Deal Industrial Plan could bring an influx of 250 billion euros in short-term bridging funds that would then make way for a new EU Sovereignty Fund that the Commission hopes to set up before summer 2023. “The Green Deal Industrial Plan could mark a tipping point in the transition to a climate-neutral economy, not just in Europe but on a global basis,” explained Martin Porter, Executive Chair of the Cambridge Institute for Sustainability Leadership Brussels. “It is a sign that winning the net-zero race to the top with the Green Deal as its compass is the way forward for the EU. There is everything to play for and a clear urgency for the EU to up its game, to avoid complacency or reverting to outdated notions of competitiveness in its actions. The Plan must now deliver on its promise of greater speed, scale and focus on funding and investment for innovation.” Internationally, the proposal is destined to accelerate decarbonisation in the financial sector and give a further push to other regions of the world to keep in step with technological innovation and investments.

The 250-billion-euro bridging fund will primarily be sourced from the redeployment of existing EU funds (InvestEU, RePowerEU, the Innovation Fund, and the Recovery and Resilience Facility). Long-term structural funding will be supported by the European Sovereignty Fund, which will be created in the context of the review of the multi-year financial framework before summer 2023. The fund will support common EU projects that will contribute to levelling the conditions in the European internal market.

An article written by Emanuele Bompan