European Net Zero Industry Act: an effective response to the US IRA?
Reading 5 minutes | by Bernard Dahdah, Senior Commodities Analyst, Simon Marielle, Infrastructure & Energy Finance and Jérôme Agassant, Energy Transition & Natural Resources Engineer
On March 16, the European Union released its Net Zero Industry Act (NZIA), a framework of measures for strengthening Europe’s net-zero technology products manufacturing ecosystem, as a partial response to level competition with the US Inflation Reduction Act (IRA) announced in August 2022.
The US Inflation Reduction Act was remarkable not only in terms of its size but also its protectionist aspects. It soon emerged that several renewable energy manufacturing investments initially earmarked to take place in Europe were being redirected to the US in order to benefit from the generous tax credits and promise of reduced red tape.
In a webinar, Natixis CIB's experts Bernard Dahdah, Simon Marielle and Jérôme Agassant assess whether the European NZIA is an effective response to its American counterpart and specifically focus on its implications for the battery sector, which alone accounts for 75% of total estimated investment needs.
Watch the replay of the webinar
Together with the Critical Raw Materials Act (CRMA) released on the same date, the NZIA complements Europe’s Green Deal Industrial Plan and its flagship measures such as Fit for 55 and REPowerEU.
Indeed, more broadly, the NZIA comes at a time when the energy transition is heralding a new industrial era that promises substantial economic opportunities for those driving it. Moreover, following the Covid-19 crisis and the war on Ukraine, Western countries have been particularly keen to accelerate the energy transition in a bid to achieve energy independence.
Around €92 billion in investment needs through six main measures
Aware that one of the main attractions of the IRA is reduced red tape, the NZIA sets out a framework for the rapid development of net-zero technologies. It singles out eight strategic net-zero technologies in which investments need to be particularly targeted, among which batteries, carbon capture, electrolyzers, heat pumps and various renewable energy technologies.
In addition, the Act aims to ease permitting conditions, with one-stop shops to be set up by Member States, and time limits imposed for permit granting, ranging from 9-18 months. Other actions include accelerating CO2 capture, facilitating access to markets, enhancing skills, fostering innovation, and implementing a Net-Zero Europe Platform to support investments.
To reach the NZIA targets, investments needs are estimated at €92 billion between 2023-2030, 17-20% of which is set to stem from public funds, through grants and subsidies.
NZIA from the battery industry’s perspective
The Act has established ambitious targets for local battery demand to be met by local capacity, requesting a more than 700% increase in current battery cell manufacturing capacities.
When compared with the IRA, the NZIA public funding will come from grants as opposed to tax credits. Even if this system of grants and subsidies should encourage new players in the industry, the downside for corporates is that the amount obtained is less predictable and requires negotiation.