The Net-Zero Industry Act was officially announced on 16 March 2023, but caused intense controversy for weeks leading up to the announcement. What is at stake raises questions about the identity of the EU. Not only about our environment, but also about how the EU functions and how it should continue to function in the future.

These are big questions with innumerous answers. Let's dive into the controversy surrounding the Net-Zero Industry Act, its pros and cons and, more importantly perhaps, what it means for people like us – the average European citizen. 

The Net-Zero Industry Act explained

The EU wants to reach climate neutrality (meaning net-zero greenhouse gas emissions) by 2050. Under the European Green Deal, the goal of the Union is to become “the first climate-neutral continent.”

The Net-Zero Industry Act “aims to scale up the manufacturing of technologies which are key to achieve climate-neutrality,” the European Commission said. The goal is to use new EU regulations as tools to simplify and facilitate the transition to green technologies. According to the European Commission, long bureaucratic hurdles, weeks, months, or even years of waiting for permits and a labyrinth of restrictions will become a thing of the past. 

This is no small policy proposal. The Net-Zero Industry Act is accompanied by a whole set of regulations: The European Critical Raw Materials Act, a proposed European Hydrogen Bank, and a reform of the EU’s Electricity Market Design. The goal of these accompanying regulations is to decrease the EU’s dependence on third countries for the green transition. The Critical Raw Materials Act, for example, defines a limit on the share of raw materials that can be imported from outside the union. Together with easier permit access and funding, the act intends to strengthen local industry.

The first controversy: what counts as a Net-Zero Technology?

The Net-Zero Industry Act is based on eight ‘strategic net zero technologies’. They “support the energy transition by guaranteeing extremely low, zero, or negative greenhouse gas emissions,” the European Commission said. Among the eight technologies, the usual green strategies are deployed: solar technologies, wind energy, as well as carbon capture and storage technologies. 

The first point of controversy is about nuclear technologies. In the weeks leading up to the official announcement of the Act, the inclusion or exclusion of nuclear technologies was ardently contested. In the final proposal, nuclear power is not listed in the holy grail of the eight strategic technologies, despite being part of the group in an earlier draft of the legislature. Advocates of nuclear energy consider this insufficient: “much more could still be achieved by including the nuclear sector as a whole,” the Brussels-based trade union Nuclearscope claimed. 

The phrase ‘as a whole’ refers to the contradictory writing on nuclear technologies in the Net-Zero Industry Act. The legislature does not see nuclear as part of the eight ‘strategic net-zero technologies’, but later on explains that net-zero includes “advanced technologies to produce energy from nuclear processes.” 

Whereas advocates argue that the inclusion does not go far enough, others think that nuclear should not be included in the proposal at all. Several high-ranking figures like climate Commissioner Frans Timmermans and competition Commissioner Margrethe Vestager oppose the view that nuclear energy can be an energy source for the green transition. One diplomat in the opposing team even went as far as saying that “it’s a war from the French side.” France has been the largest advocate for the inclusion of nuclear energy, given its vast network and domestic reliance on nuclear energy.

The final inclusion of nuclear energy in the Net-Zero Industry Act is the compromise of a debate that has been going on for a while, and shows little signs of slowing down. As of now, nuclear energy does have a place in the bus that drives the EU to climate-neutrality, it just won’t be sitting on the driver’s seat. 

The second controversy: A liberal nightmare turned into an identity crisis

The European Commission praised the Net-Zero Industry Act for creating “better conditions to set up net-zero projects in Europe and attract investments.” Yet, some are left wondering where those investments actually come from.

Several industry groups pointed out the lack of clarity on funding. The European Trade Union Confederation (ETUC) called on the EU to not only invest directly into the green transition, but also to ensure that the money improves working conditions. “Investing in green industry and its workers is the right thing to do but there should be no blank cheques for companies which don’t respect workers’ rights,” said ETUC General Secretary Esther Lynch.

This is one side of the coin: support for the Net-Zero Industry Act under the condition that the EU intervenes more by increasing funding. A dream scenario for some, but a nightmare scenario for others. Many liberal politicians, think tanks, and policy advisors think that the Net-Zero Industry Act kills a part of the EU’s DNA: its free trade ideals. In an interview with POLITICO Europe, former European Commissioner for Budget and Human Resources Günther Oettinger called the Act a move towards a centralised and planned economy – something that the EU does not stand for, right?

The European Single Market (which just turned 30) ensures the free movement of goods, people, services, and capital throughout the EU. The likes of Oettinger and others believe that this is our shared venue for economic progress. Private investments and market forces, free of intervention, move the EU forward economically and technologically. The think tank Bruegel called the proposal “terrible” and said that it “sends awful signals” to international investors. It claims that the EU’s green transition will actually be damaged by the Net-Zero Industry Act, because the proposal limits competitiveness, investments, and efficient market-solutions.

Just as the trade unions dream of a perfectly active EU that intervenes more and ensures workers rights, liberals dream of a perfectly passive EU that lets the Single Market take over in dealing with the climate crisis. “Europe was always about the single market,” said a heartbroken Oettinger. What started as an industry proposal ends with rather big questions: What is, and what should the EU be? How does the EU, as a unique supranational organisation, best deal with the climate crisis? How can it ensure not only an environmentally but also economically viable continent in the future?

We can try answering these questions all day, but that would ignore the most important factor that led to the Net-Zero Industry Act: the EU had no choice but to go in this direction.

The third controversy: Russia, China, the United States, and a lack of choice

European Commission President Ursula von der Leyen met with US President Joe Biden last week. Many see the Net-Zero Industry Act as a response to the United States’ very own proposal to initiate the green transition: the Inflation Reduction Act (IRA). The IRA provides 430 billion dollars of investments into green industries and manufacturing. It also includes a critical condition: that these industries must produce “on American soil."

The IRA combines the green transition with protectionism (that is, policies that favour domestic industries and limit international trade). In an attempt to grow more independent from Chinese imports, the U.S. chose protectionism. Worldwide, China produces 69 percent of all cobalt, 75 percent of solar cells, 59 percent of the lithium-supply used in electric car batteries… The list goes on.

How did the EU respond? By copying Washington’s homework and interfering with the market. The designation of technologies worthy of investment means that the Net-Zero Industry Act breaks with ‘technological neutrality’ (that is, seeing all technologies as equally viable solutions). Industries that want the benefits of the Act must be greener.

The EU’s Critical Raw Materials Act, which accompanies the Net-Zero Industry Act, is another response to decrease reliance on Chinese imports. Under the agreement, the EU would source 10 percent of its demand in raw materials from European land, rather than importing it. “It’s because others have started behaving differently that the EU has started behaving differently,” Pascal Lamy, former Director-General of the World Trade Organization, told POLITICO Europe. To compete with superpowers means to play by their rules, and the rules of the game suggest more interference with the market than before. This is why some claim that the EU had to follow the protectionist line. As Lamy explains in the same interview: “the market system does not provide the necessary speed and force for [decarbonization].”

Despite the choice making sense in the larger context of global politics, it still causes debate and fragmentation in the EU. Germany’s recent backtracking on the sales ban of internal combustion engine vehicles shows that it is not easy for the EU to have a singular way forward to tackle the climate crisis. 

No more controversy: what does the Net-Zero Industry Act mean for us?

The questions raised by the Net-Zero Industry Act are substantial. They determine how we think about the EU, an organisation that stretches across an entire continent. The Net-Zero Industry Act must first pass the European Parliament and the Council of the European Union before it can be enforced. Yet there are some elements that are clear already. The increased funding and conditions will allow for more jobs in the sectors of net-zero technologies. Ideally, this will also enable greater availability of EU-made net-zero technologies and products for consumers, such as electric vehicles.

However, as seen with the criticism of the trade unions, the EU is rather vague in a lot of aspects of the proposal. The reality is that this, far more than anything else, is a geopolitical move. What exact impact it will have on individual EU citizens is yet to be seen. With a Franco-German conflict over combustion engines brewing, trade unions praising the Net-Zero Industry Act proposal while liberal think tanks complain about it, and an ever-changing international political landscape, one thing remains certain: the pan-European identity crisis over tackling global heating  will continue.