The Net Zero Industry Act, transatlantic cleantech investments Sustainable Finance Disclosures, Sustainable Aviation Fuels and more: Our Policy Update

Our monthly Policy Update shares key news from the past month in Brussels, examining the potential impact of recent policy developments on EU cleantech.

This month, we dive into:

  1. A comparative analysis of the European Commission’s proposal and the initial recommendations of the European Parliament on the Net Zero Industry Act
  2. The latest from the EU-US Trade and Technology Council meeting, and data on transatlantic cleantech investments
  3. The finalization of the ReFuelEU Aviation regulation on sustainable aviation fuels
  4. The European Parliament’s recommendations on the Construction Products Regulation
  5. The European Commission’s latest clarifications on the Sustainable Finance Disclosures Regulation
  6. The European Parliament’s initial draft report amending the Carbon Removal Certification Mechanism
  7. The development of a public repository for ESG data
  8. The European Commission’s public consultation on the EU-wide 2040 climate target
  9. The Net-Zero Industry Act, part of the Green Deal Industrial Plan

The Net-Zero Industry Act, part of the Green Deal Industrial Plan

On 16 March, the European Commission unveiled the Net Zero Industry Act proposal, which aims to increase cleantech manufacturing in the EU and provide a simplified regulatory environment for the uptake of cleantech. The Net Zero Industry Act proposal is the European response to the green bonanza offered to clean technologies under the US Inflation Reduction Act. In short, the Net Zero Industry Act:

  • Identifies a closed list of cleantechs that will benefit from streamlined permitting and scale up support;
  • Sets an EU-wide target annual CO2 injection capacity of 50 million tons in storage sites, to be achieved by 2030;
  • Facilitates access to markets through public procurement;
  • Fosters innovation through the introduction of regulatory sandboxes;
  • Enhances green skills through bespoke initiatives

Below, we provide a comparative analysis of key points of the European Commission’s Net Zero Industry Act proposal and the initial amendments to the proposal as put forward by the European Parliament Committee in charge of industrial and energy affairs (ITRE). The proposal will be further amended by the European Parliament and Member States before becoming law and entering into force.

Impact on cleantech

The original scope of the Act proposed by the Commission was the start of a positive response to increased global cleantech competition. By outlining a defined set of strategic sectors, the Commission was sending a market signal that the EU would pursue leadership in these sectors. It provided the basis for a green industrial strategy.
Overall, the Parliament’s report drifts away from the much-needed strategic approach proposed by the European Commission and expands the scope of the act to the whole economy. This lack of prioritisation means no clear market signals comes out from the document.
The permitting provisions of the Parliament go even further than those of the Commission, opening the door for large industrial projects to be approved with few guardrails.
On financing, the idea to use ETS revenues is welcome - but a good idea can have negative impacts if the scope becomes too broad. A wide definition of net-zero technologies, provisions for EU funding for carbon storage and a vague concept of net zero industry valleys could all serve to channel public money meant for decarbonisation towards polluting incumbents and away from green innovators.

EU-US Trade Technology Council

On May 30-31, US and EU officials gathered in Luleå, Sweden for the fourth meeting of the EU-US Trade and Technology Council (TTC). The TTC is a forum where EU and US policymakers convene to tackle new and emerging issues on cleantech, technology standards, supply chains, ICT competitiveness, trade, data, export controls and investment screening.

On cleantech, the EU and US committed to:

— Aligning on standards;

— Publishing a joint catalogue of best practices on green public procurement;

— Launching an initiative to jointly assess supply chains, including risks of disruptions, critical for the green transition, with an initial focus on solar;

— Organizing a comprehensive EU-US stakeholder event on the Green Transatlantic Marketplace at the next TTC meeting.

Impact on cleantech

Ensuring that EU and U.S. approaches to cleantech are generally aligned will facilitate transatlantic cleantech investments and enable broader transatlantic cooperation. Scaling cleantech innovation in both sides of the Atlantic is challenging when standards and regulations differ significantly and constantly change. Better alignment would lead to easier knowledge sharing, a bigger market for cleantech applications, and, most importantly, ensuring that scale-ups can grow quickly on both sides of the Atlantic.

Read more:
Cleantech Group with the support of Breakthrough Energy published a report on how to develop a green transatlantic marketplace. The report stresses the time has come for the EU and US to increase cooperation on cleantech R&D, financial and trade policy to enhance their competitiveness.

ReFuelEU Aviation

On 25 April, the co-legislators (i.e., the European Parliament and Council) struck an agreement on ReFuelEU Aviation, a proposed regulation aiming to decarbonize the aviation sector, that is part of the EU’s ‘Fit for 55’ package. If fully implemented, the rules could cut EU aircraft CO2 emissions by around two-thirds by 2050.

Aviation fuel suppliers will have to blend SAFs with kerosene, starting with SAF accounting for a minimum share of 2% of fuel supplied at EU airports by 2025, then rising every 5 years, to 6% by 2030, 20% by 2035, 34% by 2040, and finally 70% by 2050. In addition, a sub-target for synthetic fuels (e-kerosine) produced by synthesizing captured CO2 and green hydrogen will be mandated, starting at 1.2% from 2030 and increasing to 5% by 2035, 10% by 2040, 15% by 2045, and 35% by 2050.

Additionally, as of 2025, an EU “eco label” outlining the carbon footprint per passenger of expected flights will help consumers compare different companies and make more informed travel decisions.

Finally, revenues from fines for non-compliance with the new rules by airlines, airports and fuel suppliers will go towards SAF R&D.

Impact on cleantech

The regulation boosts supply of and demand for Sustainable Aviation Fuels (SAFs) in the EU. This regulation’s scope and depth is a game changer for the nascent SAF industry in Europe. The supply and demand for SAFs that this regulation will help move SAFs down the cost-curve, thereby reducing the green premium compared to fossil-based jet fuels. The binding mandates for the uptake of SAFs provide long-term policy certainty and market signals for developers and suppliers of SAFs. The ambitious synthetic fuels blending mandate will require commercial-scale power-to-liquids production much sooner than expected. The synthetic fuels sub-target will require a large amount of additional clean electricity, green hydrogen, and carbon capture.

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Construction Products Regulation

On 23 May, the European Parliament’s internal market committee (IMCO) adopted its position on the European Commission’s proposed revision of the Construction Products Regulation. This is a key step before the draft regulation is voted on by the whole European Parliament in a plenary vote scheduled for July.

Given the regulation’s environmental impact, the Parliament’s environment committee (ENVI) got a say as well, but IMCO’s report largely rejected its inputs. IMCO also eliminated important amendments put forth by the European Commission to encourage the use of greener building materials, such as requiring national governments to give them priority and establishing a more thorough standard for sustainability information.

Being selective about which products we make sustainable may serve vested interests, but it is detrimental to the environment, EU competitiveness, innovation, and consumers.

If adopted in plenary in July, the European Parliament will negotiate the file with the EU Council under Spanish EU Council presidency in the second half of the year.

Impact on cleantech

Being selective about which products we make sustainable is detrimental to the environment, EU competitiveness, innovation, and consumers. IMCO’s report fails to put in place the forward-thinking policy framework that Europe needs to support the deployment of sustainable and innovative construction materials and practices. For example, it does not provide for the measuring, disclosure, and regulation of embodied carbon emissions of buildings and building materials, which could spur investment in building innovations and foster materials creativity across the construction industry. The European Parliament has a chance to raise its ambition in the July vote.

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Sustainable Finance Disclosure Regulation

On 5 April, the European Commission published a set of clarification answers to questions raised by the European Supervisory Authorities (ESAs-watchdogs for securities, banks and insurers) on the interpretation of the Sustainable Finance Disclosure Regulation (SFDR). The SFDR sets out a mandatory disclosure regime on a wide range of environmental, social and governance (ESG) metrics and criteria, applicable to asset managers and other financial market participants.

Key points clarified by the European Commission:

— The obligation to disclose the assessment methodology for sustainable investments: The Commission reiterates that financial market participants must disclose the methodology they have applied to assess sustainable investments, including how: (1) they have determined the contribution of the investments to environmental or social objectives; (2) investments do not cause significant harm to any environmental or social investment objective; and (3) investee companies meet the good governance practices requirement.

— The guidance on carbon emissions reduction strategies for funds under Article 9 SFRD: The Commission clarifies how funds need to track benchmarks, or how to provide that funds with a reduction in carbon emissions as their objective can be both actively managed (i.e. not track the Paris-Aligned Benchmarks (PAB) or Climate Transition Benchmarks (CTB)) or passively managed (by tracking the PAB or CTB). For funds falling within scope of Article 9(3) (i.e. that have a reduction in carbon emissions as their objective) which do not passively track the PAB or CTB, then managers must provide a detailed explanation of how the objective of reducing carbon emissions is ensured.

— The consideration of principal adverse impacts (PAIs) of investment decisions on sustainability factors at product level: The Commission underscores that when considering PAIs at the fund-level, managers must not only describe the adverse impacts of their investment decisions, but also disclose the procedures put in place to mitigate such impacts.

Impact on cleantech

The Commission’s answers empower cleantech investors to adapt SFDR to their needs rather than prescribing specific methodologies and requirements. However, the Commission’s questions do not address the burdensome reporting requirements for cleantech investors attached to SFDR. These reporting requirements might become even more prescriptive, based on the recent consultation of the ESAs to amend the technical standards (i.e. detailed disclosures) of the SFDR.

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Carbon removals

On April 28, the European Parliament’s specialised Committee on Environment (ENVI) issued a draft report on the topic of the carbon removals certification framework. This follows on the proposal from the Commission presented in late November 2022, published a report outlining recommendations on the topic. As part of the EU Climate Law, a reduction of 52.2% of emissions by 2030 was coupled with a first-of-a-kind 2.8% target on carbon removals.. However, in order for this target to be met, a certification process outlining how to quantify carbon removals of difference categories, qualities and permanence should be determined.

The European Parliament’s carbon removals certification framework proposal contains rules to monitor, report and verify the authenticity of carbon removals taking place inside the European Economic Area. The proposal would require carbon credit project developers and potential users to conduct their own assessment of the carbon removal in accordance with principles and the methodologies prepared by the Commission and then submit that assessment for independent verification through a certification scheme. The draft report amends the Commission’s proposal and puts forward a set of ideas including:

— Increasing monitoring and liability requirements for short-term carbon storage;

— Obliging operators to demonstrate how they would ensure permanent or long-term carbon storage;

— Enhancing transparency through the establishment of an EU registry of certificates and units;

— Making the case of geological storage outside of the EU.

As for next steps, the European Parliament will be adopting its final recommendations on the proposal soon and then enter into interinstitutional negotiations with the European Commission and Member States on what the final framework should look like.

Impact on cleantech
The adoption of the carbon removals certification framework is crucial to creating confidence in the market and more demand among corporate buyers for carbon removals solutions. At the same time, it will be critical for enhancing corporates’ buyers confidence that project developers' claims that they have removed and stored a tonne of carbon through their project, and for what time period, are reliable and accurate.

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European Single Access Point

On 23 May, the European Parliament, European Commission and EU Member States reached an agreement establishing a European Single Access Point (ESAP). ESAP does not impose any additional information reporting requirements on European companies. ESAP aims to serve as a centralized digital platform for accessing financial and sustainability-related information already reported by European companies under the EU regulations. The ESAP platform is scheduled to be available from mid-2027 and will be phased-in gradually over three stages.

Starting in mid-2027, the platform will include information disclosed according to the Short Selling Regulation, the Prospectus Regulation, and the Transparency Directive. From January 2028, the ESAP will incorporate information related to the SFDR, Credit Rating Agencies Regulation and Benchmarks Regulation. This phase will, among other things, cover information related to the Accounting Directive, UCITS, European Venture Capital Fund Regulation. From January 2030, the ESAP will include relevant information from additional pieces of legislation, including the Capital Requirements Regulation, the European Green Bond Regulation and the AIFMD.

Impact on cleantech

The implementation of ESAP is expected to improve cleantech investors' access to corporate financial and sustainability-related disclosures, encourage more investments in cleantech, and promote the integration of capital markets within the EU.

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2040 Climate target

The European Commission has launched a public consultation for the 2040 climate target of the European Union, to gather input and inform the public debate on what could be the various options for reaching net-zero by 2050.

This target derives from the European Climate Law, which foresees the legislative process for determining this process to be already kicked off in 2024, 3 years since its entry into force. However, in reality this provision has its roots in the Paris Agreement itself, which foresees that parties to the Agreement update their National Determined Contributions within 6 months of the global stocktake which is scheduled for 2023 (and 2028, etc.). Following the consultations and input, the European Commission will present an impact assessment which will serve as the basis for the higher target to be declared and agreed upon in 2025, at COP29.

Impact on Cleantech

Discussing the possibilities of the 2040 target helps create a predictable and stable environment to guide investment, and innovators. The EU has put in place the regulatory framework for reaching our 2030 target, but setting future intermediary targets on the way to climate neutrality by 2050 will provide predictability and help to keep track of our progress as well.

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