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February 7, 2023
2023-5149

European Commission publishes proposal for a “Green Deal Industrial Plan for the Net-Zero Age”

  • The European Commission presented its proposal for a “Green Deal Industrial Plan for the Net-Zero Age” on 1 February 2023.

  • Areas covered by the plan include simplification of the regulatory environment, funding, skills, and trade.

  • Businesses should monitor developments, understand implications and identify potential funding opportunities for net-zero innovation projects.

Executive summary

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.

Detailed discussion

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:

  • Increase manufacturing capacities of key technologies and products including batteries, heat pumps, solar, electrolysers, windmills, carbon capture and storage (list subject to change as scope is further refined)

  • Identify goals for industry capacity by 2030 to manage dependency risk

  • Provide more predictable permitting process with defined timelines and reinforce the Commission’s centralized administrative capacities (‘one-stop-shop’)

  • Facilitate identification, promotion and acceleration of net-zero supply chain projects of interest

  • Allow possibility to request new European standards to promote high quality clean and digital technologies, and incentivizing both public and private investment

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:

  • Simplification of aid for renewable energy deployment

  • Simplification of aid for decarbonizing industrial processes

  • More targeted aid for major new production projects in strategic net-zero value chains

  • Ability for investment support schemes in defined strategic net-zero production sectors, including via tax benefits. Diversion risk must be verified (both outside of the European Economic Area (EEA) and within the EEA) and consequently, amounts must be proportional in terms of intensity and amount

  • Ability to match aid in the case of relocation risk outside of the EEA in said sectors, subject to conditions

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:

  • Additional funding of €20b Recovery and Resilience Facility (RRF) grants for net-zero projects, €5.4b of Brexit Adjustment Reserve grants available to support the transition and €225b on remaining RRF loans will be available

  • Recommendation to EU Member States to:

    • Implement one-stop-permitting shops for renewables and net-zero projects to simplify the process

    • Introduce tax breaks either in the form of a tax credit or accelerated depreciation

    • Invest in upskilling the workforce with industrial transition skills

  • Proposed simplification of existing InvestEU Programme procedures (EU instrument for catalyzing mainly private investment in key research and development and innovation projects, e.g., battery technologies, critical raw materials recycling, hydrogen propulsion technologies)

  • Introduce a first competitive bid for the production of renewable hydrogen as part of the EU Innovation Fund (funded by EU Emission Trading System revenues) resulting in a premium for each kg of renewable hydrogen produced over a 10-year period and considerations of expanding to other net-zero technology areas

  • Proposed European Sovereignty Fund to facilitate businesses access to funding for critical and emerging technologies enabling the twin transition

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.

Enhancing skills

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.

Next steps

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.

Implications

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

 
 

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