First glance

The EU Net Zero Industry Act and the risk of reviving past failures

How the EU might respond to clean tech subsidies, in the form of a leaked draft law entitled the Net Zero Industry Act (NZIA), is deeply worrisome.

Publishing date
09 March 2023

The United States Inflation Reduction Act (IRA), and other clean-tech subsidy schemes around the world, provide a competitiveness challenge to the European Union. A glimpse into how the EU might respond, published in the form of a leaked draft law entitled the Net Zero Industry Act (NZIA), is deeply worrisome, both because of its policy objectives and because of the tools that might be deployed to achieve those objectives.

The policy objectives of the leaked draft are unabashedly protectionist. The aim is import substitution of specific manufacturing products, on a rather massive scale. Although the draft argues correctly that the EU is too reliant on China for some of its imports, the aim is not to reduce concentration on a specific trading partner for security or resilience reasons, but rather to protect and expand the EU’s industrial output in clean tech in general. 

In terms of the tools, the leaked draft represents a return to industrial planning of the 1960s, such as the Plan Calcul, a failed programme, shut down in 1975, that had sought to promote France’s national computer industry amid growing fears of overdependency on the US. The draft NZIA includes a minimum domestic production target for clean technologies, set at 40% percent of EU deployment by 2030.

This would be a major increase from current levels in technologies such as solar panels, where the EU currently produces domestically only around 10% of the panels it deploys. The goal would be achieved through special treatment of ‘net-zero resilience projects’, clean-tech manufacturing projects identified by the European Commission on the basis of a set of criteria outlined in the NZIA. EU countries would be asked to support these projects via i) streamlined permitting procedures within time limits pre-set by the EU; ii) giving them priority status to ensure rapid treatment of all judicial and dispute resolution procedures relating to them; iii) giving them public interest status, giving authorities discretion to override environmental impact concerns; iv) access to finance, including through subsidised off-take agreements and public guarantees.

There are three reasons why this would constitute terrible policy.

First, it will likely set back, rather than accelerate, the EU green transition. Decarbonisation should and does involve renewable energy production targets, which should be reached as quickly and cost-efficiently as possible. International trade in the goods required to produce clean energy helps achieve this. Excess dependence on a specific exporter should be avoided (reliance on Russian gas provides a cautionary tale), justifying industrial policy. But across-the-board import substitution, including from a diversified base of trading partners, makes no sense and will make the EU energy transition more expensive.

Second, efforts to improve EU competitiveness could be hindered. Like the special economic zones sometimes introduced by developing countries with poor business environments, the approach in the draft NZIA distracts from the real challenges. In the EU, these are high energy prices and the lack of a genuine single market, including tepid progress on capital markets union. The draft NZIA would not address these obstacles; it would simply give special treatment to specific projects.

Finally, the approach in the leaked NZIA would send awful signals. To trading partners in the developing world that are seeking to climb the value ladder, it will look just as bad as the US IRA. Like China and the US, the EU would now be making it clear that it is not interested in clean-tech imports, even from partners that might be able to produce at substantially lower cost. EU allies like the US and Japan will not fail to notice that the import substitution aims are as hostile to them as they are to China. From the perspective of EU policymaking, it would send the signal that regulatory even-handedness and market-based outcomes – the pillars of the single market and EU economic strength – could be thrown overboard when an industry is labelled ‘strategic’, even when this is not backed by any assessment of the trade-offs between economic efficiency and geopolitical resilience.

Not all ideas in the leaked draft are bad. Many would be very good if applied broadly. Streamlining regulation is good. Regulatory sandboxes are good. Improving access to finance is good, as is improving skills, especially in clean tech. What is not good is special regimes for clean tech to meet arbitrary production targets.

Europe needs to roll-out renewables faster, and it needs to face up to geoeconomic challenges. This may justify unconventional policies, including subsidies and competition-friendly industrial policy. But it does not justify crude protectionism and dirigisme. We hope that both are at least blunted when the final version of the NZIA appears next week.

About the authors

  • Niclas Poitiers

    Niclas Poitiers, a German citizen, joined Bruegel as a research fellow in September 2019.

    Niclas' research interests include international trade, international macroeconomics and the digital economy.  He is working on topics on e-commerce in trade as well as European trade policy in global trade wars. Furthermore he is interested in topics on income inequality and welfare state policies.

    He holds a Ph.D. in Economics from Universitat de Barcelona, a M.Sc. in economics from the Universität Bonn, and a B.Sc. from Universität Mannheim. During his Ph.D. he was a visiting scholar at Northwestern University.

    Niclas is fluent in English, Spanish, and German.

  • André Sapir

    André Sapir, a Belgian citizen, is a Senior fellow at Bruegel. He is also University Professor at the Université libre de Bruxelles (ULB) and Research fellow of the London-based Centre for Economic Policy Research.

    Between 1990 and 2004, he worked for the European Commission, first as Economic Advisor to the Director-General for Economic and Financial Affairs, and then as Principal Economic Advisor to President Prodi, also heading his Economic Advisory Group. In 2004, he published 'An Agenda for a Growing Europe', a report to the president of the Commission by a group of independent experts that is known as the Sapir report. After leaving the Commission, he first served as External Member of President Barroso’s Economic Advisory Group and then as Member of the General Board (and Chair of the Advisory Scientific Committee) of the European Systemic Risk Board based at the European Central Bank in Frankfurt.

    André has written extensively on European integration, international trade and globalisation. He holds a PhD in economics from the Johns Hopkins University in Baltimore, where he worked under the supervision of Béla Balassa. He was elected Member of the Academia Europaea and of the Royal Academy of Belgium for Science and the Arts.

  • Simone Tagliapietra

    Simone Tagliapietra is a Senior fellow at Bruegel. He is also a Professor of EU Energy and Climate Policy at The Johns Hopkins University - School of Advanced International Studies (SAIS) Europe.

    His research focuses on the EU climate and energy policy and on the political economy of global decarbonisation. With a record of numerous policy and scientific publications, also in leading journals such as Nature and Science, he is the author of Global Energy Fundamentals (Cambridge University Press, 2020) and co-author of The Macroeconomics of Decarbonisation (Cambridge University Press, 2024).

    His columns and policy work are widely published and cited in leading international media such as the BBC, CNN, Financial Times, The New York Times, The Economist, The Guardian, The Wall Street Journal, Süddeutsche Zeitung, Frankfurter Allgemeine Zeitung, Corriere della Sera, Le Monde, El Pais, and several others.

    Simone also is a Member of the Board of Directors of the Clean Air Task Force (CATF). He holds a PhD in Institutions and Policies from Università Cattolica del Sacro Cuore. Born in the Dolomites in 1988, he speaks Italian, English and French.

  • Reinhilde Veugelers

    Prof Dr. Reinhilde Veugelers is a full professor at KULeuven (BE) at the Department of Management, Strategy and Innovation.  She has been a Senior fellow at Bruegel since 2009.  She is also a CEPR Research Fellow, a member of the Royal Flemish Academy of Belgium for Sciences and of the Academia Europeana. From 2004-2008, she was on academic leave, as advisor at the European Commission (BEPA Bureau of European Policy Analysis).  She served on the ERC Scientific Council from 2012-2018 and on the RISE Expert Group advising the commissioner for Research.  She is a member of VARIO, the expert group advising the Flemish minister for Innovation. She is currently a member of the Board of Reviewing Editors of the journal Science and a co-PI on the Science of Science Funding Initiative at NBER.

    With her research concentrated in the fields of industrial organisation, international economics and strategy, innovation and science, she has authored numerous well cited publications in leading international journals.  Specific recent topics include novelty in technology development,  international technology transfers through MNEs, global innovation value chains, young innovative companies, innovation for climate change,  industry science links and their impact on firm’s innovative productivity, evaluation of research & innovation policy,  explaining scientific productivity,  researchers’ international mobility,  novel scientific research.


  • Jeromin Zettelmeyer

    Jeromin Zettelmeyer has been Director of Bruegel since September 2022. Born in Madrid in 1964, Jeromin was previously a Deputy Director of the Strategy and Policy Review Department of the International Monetary Fund (IMF). Prior to that, he was Dennis Weatherstone Senior Fellow (2019) and Senior Fellow (2016-19) at the Peterson Institute for International Economics, Director-General for Economic Policy at the German Federal Ministry for Economic Affairs and Energy (2014-16); Director of Research and Deputy Chief Economist at the European Bank for Reconstruction and Development (2008-2014), and an IMF staff member, where he worked in the Research, Western Hemisphere, and European II Departments (1994-2008).

    Jeromin holds a Ph.D. in economics from MIT (1995) and an economics degree from the University of Bonn (1990). He is a Research Fellow in the International Macroeconomics Programme of the Centre for Economic Policy Research (CEPR), and a member of the CEPR’s Research and Policy Network on European economic architecture, which he helped found. He is also a member of CESIfo. He has published widely on topics including financial crises, sovereign debt, economic growth, transition to market, and Europe’s monetary union. His recent research interests include EMU economic architecture, sovereign debt, debt and climate, and the return of economic nationalism in advanced and emerging market countries.    

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