The new Green Deal Industrial Plan

17/02/23

The European Commission has proposed a new Green Deal Industrial Plan. You may think, “isn’t that old news?” Yes and No. The European Green Deal was indeed approved some time ago – in 2020 to be precise – and aims to make the European Union climate neutral by 2050. The European Green Deal Industrial Plan, published on 1 February 2023, is the most recently proposed initiative to support this objective while, at the same time, seeking to enhance the competitiveness of Europe’s net-zero industry. Most crucially, the Plan foresees more relaxed rules for Member States to use subsidies and tax breaks. Based on Member States’ feedback, the European Commission will develop amended proposals and linked legislative proposals.

As always, the devil is in the details and, as always, not all details are yet known. This article therefore aims to provide a general, brief and non-exhaustive overview of the Plan’s four pillars:

A predictable and simplified regulatory environment
Faster access to sufficient funding
Enhanced skills
Open trade for resilient supply chains

But first, let’s start with some geopolitical and geoeconomic context. Industrial policy is certainly en vogue again. The United States’ Inflation and Reduction Act will mobilise over USD 360bn (CHF 327bn) by 2032, a significant part of which will support the country’s green transition. China announced plans to invest USD 280bn (CHF 254bn) in clean technologies; Japan’s investment in its green transformation is around JPY 20tn (CHF 140bn). Canada, India and the United Kingdom also belong to the group of countries that recently announced similar plans. But what is the deal and what is the plan of the European Green Deal Industrial Plan which is expected to redirect around EUR 275bn (CHF 275bn) to support green industry?

Pillar 1: A predictable and simplified regulatory environment

This pillar centres around three proposals that seek to strengthen industrial competitiveness:

A Net-Zero Industry Act aims to simplify the regulatory environment for EU production of green technologies such as batteries, windmills, heat pumps, solar, electrolysers, carbon capture and storage technologies.
A Critical Raw Materials Act aims to secure the supply of raw materials critical to the manufacturing of green technologies.
A reform of the electricity market design aims to guarantee predictable and reasonably low energy costs.

These proposals, to be put forward by the European Commission this spring, are accompanied by increased development of the necessary infrastructure such as the Trans-European Networks for Energy (TEN-E) and Trans-European Transport Network (TEN-T).

Pillar 2: Faster access to sufficient funding

This pillar centres around funding at the Member State and the European Union level.

At the Member State level, the Plan initiates the Temporary Crisis and Transition Framework, which raises the state aid notification thresholds of the GBER (General Block Exemption Regulation) and expands the scope of the IPCEI regulation (Important Projects of Common European Interests). This effectively increases the options of Member States’ support to the net-zero industry through both subsidies and tax breaks. This relaxation of state aid rules is aimed at:

Simplification of aid for renewable energy deployments
Simplification of aid for decarbonising industrial processes
Enhanced investment support schemes for the production of strategic green technologies
Targeted aid for new production projects in strategic green value chains

At the European Union level, the Plan redirects funding from the following funds:

REPowerEU initiative which aims to reduce energy dependencies through energy savings, the diversification of energy suppliers and the accelerated roll-out of renewable energy
InvestEU programme which aims to catalyse private investment in priority areas
Innovation Fund which aims to support the development and first-of-a-kind deployment of green technologies and solutions

In addition, the Plan advocates for the creation of the new European Sovereignty Fund, to be established in Q3 2023. This fund is to further support strategic supply chains in the transition to a net-zero economy.

These initiatives are accompanied by increased focus on private funding efforts like the Capital Markets Union.

“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. Europe is determined to lead the clean tech revolution.”

Ursula von der Leyen, President of the European Commission

Pillar 3: Enhanced skills

The International Energy Agency estimates that the global market for green energy technologies will be worth an annual USD 650bn (CHF 589bn) by 2030. That is not only three times today’s level but could also entail a doubling of energy manufacturing jobs in the same period. To prepare people, the Plan focuses on the development of green and digital skills through initiatives such as:

A European Year of Skills with an emphasis on science, technology, engineering and mathematics
Net-zero industry academies for up- and re-skilling in strategic industries
A ‘skills-first’ approach to facilitate the validation of skills across Member States and third countries

Pillar 4: Open trade for resilient supply chains

This pillar re-emphasises the importance of cooperation in the World Trade Organisation and through free trade agreements as well as introduces new initiatives such as:

A Critical Raw Materials Club which aims to secure a sustainable supply of raw materials required for the manufacturing of green technologies
Clean tech/net-zero industrial partnerships which aim to facilitate international cooperation in this space
The development of an export credits strategy

How will the European Green Deal Industrial Plan affect business?

For internationally operating businesses, it will become increasingly complex to navigate through the global landscape of industrial policies. This will become even more challenging when other sustainability regulations enter into force: the Carbon Border Adjustment Mechanism (CBAM), the Corporate Sustainability Reporting Directive (CSRD) or the Corporate Sustainability Due Diligence Directive (CSDDD) just to name a few.

Please reach out to us if you’d like to learn more about your regulatory exposure and about the services and products we offer in the space of sustainability.