The potential of decarbonization to reinvent Europe and Spain

With the recent approval of the Net Zero Industry Act (NZIA), the EU aims to produce 40% of the technology needed to generate clean energy within its borders.

Matthew Merelo
Ana Olmedo

The geopolitical reorganization of globalization and global efforts to accelerate the energy transition have brought industrial policy back to the political agenda, along with growing concern about a potential protectionist drift. In response to this scenario, the European approach has been to promote the industrial sector of the Green Deal, which recently culminated with the approval of its main regulation, the Net Zero Industry Act (NZIA)

The last Annual Energy Conference of EsadeGeo, in collaboration with the European Commission's representation in Spain and EIT InnoEnergy, focused on the implications of the NZIA for the European energy and industrial sectors. The event featured the participation of Jordi Hereu, Minister of Industry and Tourism of Spain, and a recorded intervention by Wopke Hoekstra, European Commissioner for Climate Action, as well as an expert panel composed of Loreto Ordóñez, CEO of ENGIE Spain; José Antonio de las Heras, CEO of FertigHy; Alberto Toril, Europe Manager of Breakthrough Energy; and Aitor Arzuaga, General Manager of Alba Emission Free Energy. 

The path taken

During the last legislature, the European Commission has created a legislative framework to address climate change that has become a global benchmark. From the presentation of the European Climate Law in 2020 to the RePowerEU plan to reduce dependency on Russian gas in 2022, all measures have been focused on transforming the demand side of energy. 

In 2023, the Industrial Plan of the Green Deal emerged as a response to the Inflation Reduction Act of the Biden administration, amid concerns about the protectionist effects of this measure. The main regulation of this plan, the NZIA, seeks to stimulate supply by setting a goal to manufacture 40% of decarbonized energy production technology in the EU by 2030. It also supports these objectives by ensuring the availability of critical materials and offering various aids, which aim to reduce administrative timelines for these technologies by streamlining authorization processes. 

The European legislative framework to address climate change has become a global benchmark

Additionally, the NZIA aims to broadly stimulate the production of green technologies: notable are the Net Zero strategic projects and Net Zero academies, which aim to create 100,000 new jobs in the sector through specific training. This factor is extremely important since one of the major obstacles to the development of green energy in Europe is the lack of skilled labor. Ultimately, the NZIA is the fundamental pillar — along with the Carbon Border Adjustment Mechanism (CBAM) and the support office for third countries to help them adopt an Emissions Trading System (ETS) — of the Commission's commitment to creating security for green energy production in the EU over the next decade. 

The realities of the industrial opportunity

During the conference, participants analyzed the main provisions of the NZIA, the opportunities and challenges it presents, as well as the key issues that the next Commission must consider in future climate legislation and instruments: 

  • Decarbonization is an environmental requirement, but also a geopolitical one. The crises caused by the COVID-19 pandemic in 2020 and the Russian invasion of Ukraine in 2022 have exposed the risk of depending directly or indirectly on unreliable partners in strategic sectors. Moreover, beyond energy, this risk also affects other areas encompassed in the advances towards European Strategic Autonomy. An example of the unexpected effects of geopolitics is the increase in food prices. The energy crisis of 2022 significantly raised natural gas prices, a crucial component for the manufacture of fertilizers. Furthermore, the EU imports two-thirds of its fertilizers, which worsened the problem and contributed to food inflation due to less productive harvests. To address this situation, the EU must promote the production of eco-friendly fertilizers and make imported fertilizers, which are highly polluting, more expensive. In this sense, the CBAM and the payment of emissions rights from 2034 are important steps, as they favor the production and consumption of green fertilizers over conventional ones. 
  • The energy transition will be a vector of social change through its drive for reindustrialization. Decarbonizing the industrial sector represents a huge opportunity for Spain. The government proposes an ambitious collective industrial project, which stems from the momentum derived from the ecological transition processes taking place in the country. In this regard, Spain has a unique situation thanks to the low prices and abundance of energy obtained from the large deployment of renewables since 2018. The objectives of the NZIA are assumed as their own by Spain, but specific measures must be transformed into effective policies. This can only be achieved with public-private collaboration. Therefore, the Ministry of Industry and Tourism announced the approval of 19 projects corresponding to the industrial decarbonization PERTE. This return of industrial policy to the center is beneficial in two ways. On the one hand, it leads to a more harmonized society, as it creates higher-quality jobs with wages above the average. Additionally, it guarantees greater socio-economic resilience, as it provides Spain with better preparation for possible crises like those of 2008 or 2020. 
  • Circularity plays a key role. The emergence of the term “circularity,” associated with waste management, is increasingly observed in climate discourse. The reintroduction of waste into production processes has great potential, particularly in energy processes such as oil refining. Ensuring that carbon emissions do not end up in the atmosphere is essential from the sustainability standpoint of decarbonizing the economy. Given the volume of waste generated, and with the right technologies, these can be recovered and reconverted thanks to the useful carbon levels they contain. 
  • Public-private partnership is essential. According to 2023 estimates, the EU's decarbonization targets for 2050 will require an investment of 700 billion euros over the next twenty-five years. These costs are expected to be unaffordable without the mobilization of the private sector, which must play a crucial role in covering the additional cost and “green premium” associated with the energy transition. Thus, private financing must complement public investment in emerging technologies, facilitating the development of projects to the commercialization stage. 
  • Europe needs a Complexity Reduction Act. For industry to effectively work towards achieving the EU's climate goals, there is a need to simplify administrative procedures. The EU's bureaucratic processes have become outdated and heavily hinder the design of the 2050 Europe with current tools. To overcome this problem, it is necessary to reflect on how to implement all the new regulations that have emerged from 2019 to 2024. Just as China chose to be the supplier of green technology and the USA chose to be the innovator in green technology, Europe must work on its geopolitical role in the energy transition. The provisions of the NZIA, in this sense, create an opportunity for Europe through the fight against climate change. 
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