Sources in Chinese renewable firms told China Dialogue that it will be \u201cvery hard\u201d for the EU to build complete manufacturing chains internally, especially if it wants to hit its renewable energy targets. They also said Chinese firms have sped up expanding into other overseas markets to mitigate the impact of possible EU and US restrictions.<\/p>\n\n\n\n
European analysts agreed the act should not substantially impact Chinese firms, but gave different reasons. Some said its purpose is to provide a better policy environment for the EU\u2019s clean tech industry, rather than to come \u201cwith all guns blazing\u201d.<\/p>\n\n\n\n
Others noted that even though the act sets a goal of at least 40% of Europe\u2019s clean tech being locally produced by 2030, the language is \u201cblurry\u201d. One Belgium-based professor said the proposed act \u201cin principle\u201d shouldn\u2019t affect Chinese companies because it does not require clean tech producers to source a certain amount of components from local suppliers.<\/p>\n\n\n\n
Part of a wider green plan<\/h2>\n\n\n\n
The Net Zero Industry Act \u2013 alongside a Critical Raw Materials Act proposed on the same day \u2013 is part of a much broader plan called the Green Deal Industrial Plan.<\/p>\n\n\n\n
The plan is widely considered<\/a> the EU\u2019s answer to the Inflation Reduction Act<\/a>, which aims to boost US manufacturing capacity for clean tech through US$369 billion of subsidies<\/a>. The US act, which was signed into law last August, sparked fears<\/a> that companies would leave Europe to set up shop across the Atlantic.<\/p>\n\n\n\n But the Net Zero Industry Act differs from the subsidies-heavy American approach, in focussing on administrative support, such as cutting red tape for green industries.<\/p>\n\n\n\n This is because Europe is \u201cinherently more complex\u201d, and providing subsidies is not usually a measure EU-level policymakers can take, Domien Vangenechten, senior policy advisor at thinktank E3G, told China Dialogue. Besides, the EU has \u201ca quite limited budget\u201d.<\/p>\n\n\n\n Therefore, the European Commission is trying to \u201cprovide a space\u201d for member states to come up with subsidies and tax incentives themselves, Vangenechten said.<\/p>\n\n\n\n A week before the act was proposed, the commission adopted a policy that loosened some rules<\/a> on how EU member states could provide aid to companies.<\/p>\n\n\n\n According to Vangenechten, the Temporary Crisis and Transition Framework<\/a> gives member states \u201cthe options to provide more support\u201d for green technology manufacturing until the end of 2025.<\/p>\n\n\n\n He explained: \u201cIt introduces the possibility [for member states] to give tax breaks, for example. It also gives them the option to match subsidies\u201d that projects could have been given by countries outside the EU.<\/p>\n\n\n\n But he pointed out that the framework contained \u201cguardrails\u201d. For example, member states have to prove subsidies will only make a project competitive, not \u201clead to windfall profits\u201d.<\/p>\n\n\n\n According to law firm White & Case<\/a>, states also have to demonstrate that foreign subsidies would otherwise cause a given project to leave the EU, and that their aid will not cause companies to relocate from one European country to another.<\/p>\n\n\n\n The relaxation of the state-aid rules amounted to the EU \u201cstepping up its green subsidy race with the US\u201d in the Guardian\u2019s words<\/a>.<\/p>\n\n\n\n The cornerstones of the Net Zero Industry Act are eight net-zero technologies<\/a> identified as \u201cstrategic\u201d. These include solar, wind, batteries and carbon capture and storage; nuclear has not made the cut.<\/p>\n\n\n\n The act sets a headline benchmark for the strategic technologies. By 2030, EU manufacturing capacity for each should approach or reach \u201cat least 40%\u201d of the bloc\u2019s annual deployment needs.<\/p>\n\n\n\n A series of actions are in the pipeline. For example, the act intends to reduce the administrative \u201cburden\u201d and simplify project permitting processes \u2013 issues that have restricted the growth of some industries in Europe, such as wind power.<\/p>\n\n\n\n \u201cA lot of the permitting processes are done locally. They\u2019re not necessarily super digitalised,\u201d Pierre Tardieu, chief policy officer at WindEurope, a trade association, told China Dialogue. \u201cEven though people want more wind, working through that red tape takes too much time.\u201d<\/p>\n\n\n\n The act also requires public authorities to consider \u201csustainability and resilience\u201d criteria \u2013 not just cost \u2013 while awarding contracts and ranking bids.<\/p>\n\n\n\n It will now go on to be discussed between the European Commission, the EU Parliament \u2013 the bloc\u2019s law-making body \u00ad\u2013 and the European Council, which comprises government ministers of each EU country.<\/p>\n\n\n\n In 2021, China was the EU\u2019s largest import partner<\/a> for wind turbines and solar panels. The bloc is especially dependant on Chinese solar panels. Statistics from the EU show that it imported nearly \u20ac10 billion worth<\/a> of solar panels in 2021, of which 89% came from China.<\/p>\n\n\n\n \u201cOur dependency on Russian gas has taught us a number of lessons. Let\u2019s not replace that dependency with a reliance on others to produce solar panels and other technologies we rely on,\u201d Thierry Breton, European commissioner for internal market, said<\/a> of the act.<\/p>\n\n\n\n But industry players in China see a Herculean task for the EU to grow home-based manufacturing chains, particularly given the pressure on the bloc to hit its climate and energy goals.<\/p>\n\n\n\n The EU aims to have \u201cat least 32%<\/a>\u201d of its overall energy consumption supplied by renewables by 2030 and is looking to increase the portion to \u201cat least 40%<\/a>\u201d. Overall, it plans to cut its greenhouse gas emissions by \u201cat least 55%<\/a>\u201d by 2030, compared to 1990 levels.<\/p>\n\n\n\n A senior director at a Chinese solar panel firm told China Dialogue that they do not think the act will affect Chinese solar manufacturers \u201cthat much\u201d.<\/p>\n\n\n\n One of the reasons is that renewable firms are motoring to secure markets in the rest of the world, such as the Middle East, Central Asia and Eastern Europe, in preparation for potential trade measures taken by the EU or the US.<\/p>\n\n\n\n China holds a market share of more than 80% in all key manufacturing stages of solar panels globally, according to the International Energy Agency<\/a>.<\/p>\n\n\n\n The source, who agreed to speak on condition of anonymity, said it will be \u201cvery hard\u201d for the EU to build a domestic manufacturing chain for solar panels from head to toe because of its current high reliance on Chinese firms and the high cost of production. \u201cEven if they manage to build it, the final products will be really expensive,\u201d they added.<\/p>\n\n\n\n Another reason is that the act was proposed to \u201cprevent the European clean energy industry from moving to the US\u201d, not to block Chinese companies, the source said.<\/p>\n\n\n\n Besides, the bloc \u201cmight not be able to hit its 2030 clean energy installation targets\u201d if it wants to rely on domestic production at all stages.<\/p>\n\n\n\n The EU aims to bring online almost 600 gigawatts<\/a> (GW) of solar photovoltaic power by 2030, more or less tripling its capacity compared to the end of 2022.<\/p>\n\n\n\n The source explained further that European companies might be able to localise some of the mid-to-downstream production for solar panels, such as cells and modules, but it would be difficult for them to develop upstream production.<\/p>\n\n\n\n They said, for example, the production of polysilicon, an upstream stage, requires a large amount of electricity, \u201cbut electricity in Europe is expensive\u201d.<\/p>\n\n\n\n The wind industry presents a different picture: 85%<\/a> of EU demand is currently met by EU production, according to the European Commission.<\/p>\n\n\n\n But the figure could include some wind turbines produced in China for European firms.<\/p>\n\n\n\n Data from China\u2019s Wind Energy Association show that more than two-thirds of the world\u2019s wind turbines are manufactured in China, including those made for foreign brands. For example, more than half of the global orders by Vestas \u2013 the Danish wind turbine manufacturer owning the largest global market share<\/a> in 2021 \u2013 are delivered by the company\u2019s manufacturing bases in China, according to the Chinese association.<\/p>\n\n\n\n The EU will need 440 GW of wind energy by 2030, doubling the current capacity, to meet its emission reduction goal, according to Tardieu of WindEurope<\/a>.<\/p>\n\n\n\nHow will the act work?<\/h2>\n\n\n\n
Is European production realistic?<\/h2>\n\n\n\n
![\"\nWorkers](\"https:\/\/dialogue.earth\/content\/uploads\/2023\/04\/Workers-at-a-photovoltaic-company-in-Jiangsu-Province-China_Cynthia-Lee_Alamy_2KABF3W.jpg\")
<\/div>\u2018Further actions\u2019 needed<\/h2>\n\n\n\n