Net Zero Industry Act: EU must think bigger and bolder to really change the game

The EU is scrambling to retain its strong position in the race to decarbonise as the US Inflation Reduction Act (IRA) sets out the new rules of the game. It may not be quidditch, but held within its Green Deal Industrial Plan and the forthcoming Net Zero Industry Act – the EU’s answer to the IRA subsidy splurge – the bloc may well yet be in possession of the golden snitch: its wider strategy of competitive sustainability.

The Net Zero Industry Act clearly has the potential to enhance the attractiveness of the EU investment environment, with the power to act as a crucial net zero accelerator as competition increases from well-disposed partners like Biden’s America, and strategic rivals such as Xi Jinping’s China.

Ursula von der Leyen launched the Green Deal Industrial Plan hoping it could “make Europe the home of cleantech and industrial innovation on the road to net-zero” and an early draft of the Net Zero Industry Act accordingly sets out new targets of at least 40% of clean energy technologies to be manufactured in the EU by 2030.

The various planned measures within the Net Zero Industry Act – aimed at identifying goals for net zero energy industrial capacity, providing a regulatory framework, ensuring rapid and coherent permitting, and developing standards to support the scale-up of technologies – all make good strategic sense as part of the overall approach to enhance the EU’s supply-side interventions. They make access to increased public funding easier and quicker for innovative companies seeking to scale up net zero products and services in Europe, and the necessary new focus on clear targets and support for domestic net zero energy industrial manufacturing and services is a welcome addition to existing mainly demand-side measures found in the ‘Fit for 55′ package and other climate policies.

The EU’s strategic resilience is well served by the proposed Act, with a smart – if delicate – balance in the legislation’s protection of the integrity of the European Single Market, as well as an emphasis on seeking to work with like-minded partners in a rules-based international trading system. Collaborating to develop a transatlantic marketplace and international ‘clubs’ in key resources and technologies makes excellent sense given the need to bolster alliances amongst Western, liberal democracies who share a commitment to Paris Agreement goals, as well as opposition to Russia’s illegal and unjustified invasion of Ukraine, whose own struggle is now that of all open societies.

There will no doubt be continuing high-profile arguments over whether the right balance is being maintained in the Act, but they should not obscure other important points that also need more debate, including the fact the proposed elements are far from broad enough in their targets – however crucial the enabling net zero energy tech it currently cites will be in the eventual success of the EU’s strategy.  But the key test must continue to be whether the NZIA, as well as the accompanying Critical Raw Materials Act and the wider competitiveness and productivity are fully aligned with the Green Deal strategy itself. And this goes well beyond the current NZIA focus and is where the EU’s approach could really be game-changing if its ambitions are raised further.

The Green Deal was presented at its launch as the EU’s growth strategy, enabled by a digital transition. It quite rightly targets a climate-neutral economy as one that must also address the equally urgent biodiversity and resource consumption crises, as well as ensuring a socially fair transition.  The scale of this economy-wide transformation means that not only energy systems, but mobility, construction, home consumption, health and food systems, and the digitally-enabled, net-zero, circular and nature-positive industries that serve them, all need to be in focus.  And this means the EU’s overall approach to competitiveness needs to be central to its response, not just that focused on energy cleantech sectors.

With a clear, guiding compass provided by its innovative strategy of competitive sustainability, especially if new and improved performance metrics can be developed as suggested by the Competitive Sustainability Index, the potential for EU competitive advantage in the domestic production and service provision for all of these, using the sustainable finance taxonomy as its basis, is both important and clear.

In all of these industries, there are both established companies and entrepreneurial start-ups born in Europe which the Net Zero Industrial Act could support.  With smart targeting in each, this does not need to become a ‘Christmas Tree’ so much as helping green shoots develop in many fields, and all solving climate problems with full value chain innovation in an integrated way that can deliver greater resilience for its economy as well as wider environmental and social sustainability.

Omissions from the current targets list, for example, of energy efficiency solutions, from lighting to building management systems, or zero emissions steel and aluminium, in all of which there are enormous global growth markets, are indicative of a blindspot in the EU’s current thinking that could place it at a competitive disadvantage in key areas it is currently well placed.

It may also mean it fails to exploit the full potential of the economic opportunities beyond the energy system, where its materials science and technology, digital and social innovation ecosystems offer it leadership potential.  And it may also fail to accrue the benefits of a beyond-GDP approach to property and sustainable development that its pioneering strategy of competitive sustainability heralds, if fully followed through.

The Net Zero Industry Strategy is a great opportunity to show how all industries are part of the Green Deal transition and can help accelerate the move to a decarbonised European and global economy.  But to realise its full potential, it needs to be true to the competitive sustainability framework in which it is embedded. That is the golden snitch that will enable it to win, and it is not magical thinking at all.  It may not be quidditch either, but if the EU thinks bigger, and bolder, and is more ambitious, it really can be game-changing.