February 7, 2023
European Commission publishes proposal for a "Green Deal Industrial Plan for the Net-Zero Age"
The European Green Deal and European Climate Law commits Europe to meeting climate-neutrality goals by 2050 and reducing greenhouse gas emissions by 55% from 1990 levels by 2030. More recently REPowerEU was introduced to reduce reliance on Russian fossil fuel, provide clean and affordable energy for all and further accelerate the green transition.
On 1 February 2023, the European Commission (the Commission) presented "A Green Deal Industrial Plan for the Net-Zero Age" (the Plan) designed to support the scaling up of the European Union's (EU) net-zero manufacturing capacities and products helping to meet Europe's climate neutrality goals while also maintaining EU competitiveness, especially in light of the adoption of the United States (US) Inflation Reduction Act in the US. The Plan consists of four main pillars: simplified regulatory environment, funding, skills and trade. The Plan will deliver potential opportunities in the near-term as well as serve to shape strategic investment decision-making for businesses in the EU and beyond.
The plan provides the basis for discussions between the EU Member States. A high-level agreement between government leaders will be sought during a special meeting of the Heads of State on 9-10 February 2023. A number of legislative proposals are tabled for negotiation and discussion in March.
In the Plan, the Commission stresses the need to facilitate access to private funding and to "massively increase the technological development, manufacturing production and installation of net-zero products and energy supply in the next decade." The Commission also wants to ensure that the EU remains an attractive place to invest. The Plan covers four pillars outlined below.
Predictable and simplified regulatory environment
The Commission proposes a Net-Zero Industry Act to:
The Critical Raw Materials Act will serve to provide security of EU supply of critical raw materials ensuring a resilient supply chain. This will be achieved through stronger international engagement, facilitating extraction, recycling and reusing as needed, and continuing to invest in research and innovation. In addition, EU targets are likely.
As part of the REPowerEU Plan, the Commission will present a reform of the electricity market design. Legislative proposals for the Net-Zero Industry Act, Critical Raw Materials Act and electricity market reform are tabled for publication on 8 March 2023.
Faster access to sufficient funding
As part of the Plan, the Commission is proposing a series of amendments to facilitate funding on a national, EU, and private level. At a national funding level, State Aid rules shall be adapted, mostly via the Temporary Crisis and Transition Framework (TCTF) including:
To reduce the risk of internal EU market competition, EU Member States can align their national fiscal incentives along a common scheme to be supported by the Commission, enhancing transparency and predictability across the market.
The Commission also plans to significantly increase notification thresholds for state aid in these field. Approvals will be simplified and streamlined for new Important Projects of Common European Interest (IPCEI) projects in addition to faster implementation of smaller IPCEI projects.
At an EU funding level, the Commission proposes the following changes:
On a private funding level, the Commission calls for a fully developed and integrated Capital Markets Union (CMU) to improve financing and investing opportunities (vis-a-vis the implementation of the 2020 CMU Action Plan) in addition to the Renewed Sustainable Finance Strategy.
According to the Plan, the success of the twin transition depends on people, their green and digital skills, and the inclusion of women and youth. Plans under this pillar include a large-scale skills partnership for onshore renewable energy, a Heat Pumps skills partnership, Net-Zero Industry Academies, the facilitation of qualification recognition, and financial support for skills development.
Open trade for resilient supply chains
This pillar is dedicated to making trade work for the clean transition and enhancing cooperation. Besides a number of ongoing cooperation activities such as working with the World Trade Organization, continued advancement of new Free Trade Agreements (FTAs) and improving existing FTAs, continued collaboration with the US including continuing to address competitive concerns resulting from the Inflation Reduction Act.
A number of new initiatives are also introduced to foster global cooperation and address trade including a Critical Raw Materials Club, Clean Tech/Net-Zero Industrial Partnership and export credits facility.
Further discussions on the Plan are scheduled at the upcoming Special European Council Meeting with the Heads of State in Brussels on 9-10 February 2023 where high-level agreement will be sought. Assuming agreement is reached, the Commission will present draft legislation (likely in March 2023) for negotiation by the European Parliament and EU Member States, with adoption to follow thereafter.
The Plan reflects the Commission's ambition and commitment to the net-zero and clean energy transition, while also maintaining the EU's competitiveness in this space.
The proposals will result in a range of implications ranging from the near-term to long-term, especially influencing investment decisions for the twin — green and digital — transition. As a first step, it is recommended that businesses monitor developments closely and understand how the pillars align with business objectives and plans. To incentivize investment and maintain competitiveness, there is a significant focus on increasing funding at the national, EU and private level. Tax teams are advised to consider research and development activities (past, current and planned) and determine a way to systematically monitor potential funding opportunities and assess eligibility.
For additional information with respect to this alert, please contact:
Climate Finance and Funding
EU Tax Policy
EMEIA Sustainability Tax and Law Services