EU Finalizes Carbon Neutral Industry Act in Response to US IRA

Direct Subsidy Support Excluded

The European Union (EU) on the 27th (local time) gave final approval to the Net Zero Industry Act (NZIA), established in response to the U.S. Inflation Reduction Act (IRA).

The Council, representing the 27 EU member states, announced that all legislative procedures related to the NZIA have been completed on this day. The act will come into effect 20 days after its publication in the official journal.

The European Commission stated regarding the Council's final approval, "By promoting the domestic production of clean technologies, the risk of dependence on external sources during the transition from fossil fuels to (clean energy technologies) will be reduced."

The NZIA is one of the key legislative acts within the EU's 'Green Deal' package aimed at enhancing the competitiveness of the domestic clean industry. The main goal is to manufacture 40% of the EU's annual demand for carbon-neutral technologies domestically by 2030 and to increase the market share of EU-related companies to 15% in the global market.

Under this law, 19 technologies including solar power, batteries, nuclear power, and carbon capture and storage technologies are separately designated as 'carbon-neutral technologies,' simplifying the related business permit procedures. Previously, obtaining permits took several years, but now it is explicitly stated that the decision on business permits should be made within 12 to 18 months depending on the scale of the new project.

Furthermore, if designated as a ‘strategic project,’ the permit processing period is further shortened to between 9 and a maximum of 12 months.

For domestic public procurement projects, a separate implementing regulation will be established to set minimum requirements regarding 'environmental sustainability' to prevent excessive dependence on external sources.

However, direct financial support is not included. During the legislative process, the creation of a 'European Sovereignty Fund' to provide subsidies for strategic projects was proposed but failed to reach an agreement. Instead, the act encourages member states to use revenues from the Emissions Trading System (ETS) and other sources to support strategic projects financially.

Member states may also provide benefits such as simplified administrative procedures and relaxed investment requirements within 'carbon-neutral industrial valleys' established according to national plans.

The EU expects the NZIA to have the effect of attracting companies that had previously relocated facilities outside Europe or hesitated to invest domestically due to various regulations. However, some analyses suggest that, compared to the U.S. IRA or China's aggressive subsidy policies, the absence of direct financial support may limit the act's effectiveness.