The Net-Zero Industry Act puts EU credibility at risk

The European Commission’s proposed Net-Zero Industry Act (NZIA), published 16 March 2023, aims to scale up clean-tech manufacturing in the European Union, as part of the broader Green Deal Industrial Plan to respond to the US Inflation Reduction Act (IRA). Various problematic aspects of the NZIA have already been pointed out. For instance, the idea of allowing authorities to override regulations to accelerate strategic projects is inefficient. Either these regulations are legitimate and effective, in which case strategic projects should not be exempted, or they are harmful, in which case they should be revised, not only for strategic projects but more generally, or even scrapped.

However, the most fundamental issue with the proposed NZIA is that it is a new example of the problematic method used too often by the European Commission to reach a pseudo consensus on crucial topics on which EU countries fundamentally disagree.

The NZIA has been presented as a strong policy characterised by an ambitious target: that the EU’s strategic net-zero tech manufacturing capacity should reach at least 40% of the Union’s annual deployment needs by 2030. But the actual measures proposed – which are mainly about prioritising strategic projects in terms of permits and in the judicial system – seem to fall short of the ambitions.

This is a pattern that has been repeated many times. In 2010, the Commission’s Europe 2020 strategy set many targets, including for R&D spending to reach 3% of GDP and for poverty to be reduced by 25%, without any substantial tool to reach these targets. In 2014, the Commission under then President Jean-Claude Juncker promised a massive boost in investment of more than €300 billion. However, because a majority of EU countries had no appetite for a massive public investment plan, the Commission had to find a different way to deliver its promise and reshuffled a few billions from the EU budget to engineer a complex magnifying financial mechanism via the European Investment Bank’s balance sheet. It failed to convince.

More recently, in 2022, when the EU faced very high gas prices, some countries urged the Commission to quickly design a price cap, while others feared that it would be damagingly counterproductive. So instead of explicitly taking a side or trying to reconcile both parties, the Commission proposed a price cap that in practice had zero chance of being activated or having any effect at all.

This time, while some countries urge the Commission to respond strongly to the US IRA, others fear the response will put the EU on a protectionist path. Consequently, the Commission has proposed a high-level EU clean-tech production target, but little in the way of meaningful tools to help reach this target.

Announcing seemingly ambitious but ineffective initiatives with great fanfare is a peculiar but apparently politically effective EU method to reconcile countries that are in favour of an initiative and those that are against.

In the case of the NZIA, if the Commission really wanted to achieve a meaningful consensus, it could have explained carefully why it believes the 40% target is the optimal number that solves the difficult trade-off between cost-efficiency and resilience that lies at the heart of the disagreements between EU countries. It could also explain how the proposed measures could realistically help achieve this target, while not slowing down the green transition. But this is not the case.

Ultimately, the initiative the NZIA resembles most is the Juncker Plan, with its ineffectual ‘platform’, its promise to cut red tape and to improve the regulatory environment at light speed, and its absurdly small resources (€11 million over five years this time!). The NZIA has been set up so that it will probably fail to achieve its objective.

Those who oppose the proposal will possibly be relieved when they understand that it will cost nothing and achieve nothing. However, this European Commission tactic – to announce a seemingly ambitious plan to please some member states, while depriving it of any substance in order to please others – could become very dangerous if overused, as it will reduce substantially the EU’s credibility in the eyes of European citizens.