Can tax policy be a catalyst for positive change? An EU perspective on green incentives

The European Green Deal is described as a blueprint for achieving the first carbon-neutral continent. At its heart is the ambition that, by 2050, there will be no net emissions of greenhouse gases.

Heralded as a major step forward for climate policy, it’s also regarded as the pathway for Europe’s post-pandemic recovery and includes a substantial focus on promoting social connectivity and inclusion. The promise is that no person and no place will be left behind.

In this new series of Insights, we’re demystifying initiatives from the US, EU and UK. Here, with my colleague Amanda Tickel, we look at the EU Green Deal, how it fits with the overall strategy and what it means for businesses operating and investing in the bloc.

What is the Green Deal Industrial Plan?

The EU’s plan aims to enhance the competitiveness of Europe's net zero industry. It promotes the creation of a more supportive environment for the clean tech manufacturing needed to meet ambitious green targets.

The Green Deal itself offers around €500 billion to support action on climate change over a 10-year period. But with estimates that the global market for clean energy technologies will be worth €650 billion a year by 2030, there are commercial incentives for business too.

And the EU isn’t starting from scratch. The net zero start-up ecosystem was worth €100 billion in 2021, while in 2022 wind and solar renewable energy production exceeded 400 GW. Productivity in the clean energy sector, meanwhile, is about 20% higher, on average, across the economy.

Based around four pillars, the Green Deal Industrial Plan aims to build on these foundations by simplifying, accelerating and aligning incentives to preserve the competitiveness and attractiveness of the EU as an investment location for industry and manufacturing.

It complements other initiatives, including Fit for 55, a package of measures designed to reduce the EU’s greenhouse gas emissions by 55% by 2030, andREPowerEU, the recovery and resilience plan launched in response to the global energy market disruption caused by the conflict in Ukraine.

The four pillars of the Green Deal Industrial Plan

1.     A predictable and simplified regulatory environment

Crucial to the success of the plan is simplifying EU processes around regulation. This means creating a simpler, faster and more predictable framework, securing the volumes needed for raw materials, and ensuring the benefits of low-cost renewables are passed on. The recently introduced Critical Raw Materials Act and Net-Zero Industry Act are two of the initiatives supporting this work.

2.     Open trade for resilient supply chains

This brings together elements like Free Trade Agreements, the founding of a Critical Raw Materials Club for like-minded countries looking to strengthen global supply chains, and exploring clean tech/net zero industrial partnerships to promote the adoption of green technologies globally.

3.     Speeding up access to finance    

Along with more straightforward regulation, the plan's success relies on simplifying the funding application process. That includes initiatives like InvestEU, RePowerEU and the Innovation Fund. 

4.     Enhancing skills

You cannot achieve the other three pillars without the right people and capabilities. The EU has already introduced programmes to develop the green and digital skills necessary for its future vision, including the European Skills Agenda and Partnership for Skills.

Funding potential

There are multiple opportunities available for businesses and individuals with projects that support the plan. Some of the most significant cash grants include:

·  Connecting Europe Facility (CEF)

A key way to deliver funding for the European Green Deal and enable decarbonisation, the CEF supports Europe-wide development in the fields of transport, energy and digital services. Funding is given to projects that make travel easier and more sustainable, with a focus on enhancing Europe’s energy security through a wider use of renewables.

·  Important Projects of Common European Interest (IPCEIs)

IPCEIs enable large-scale, cross-border projects that significantly benefit citizens across the EU. Funding is given to work that fosters innovation and investment in green and digital industries – think batteries, hydrogen, cloud computing, microelectronics and health.

·  European Hydrogen Bank Auction

The EU wants to lower hydrogen prices by subsidising production – but companies will have to bid for those subsidies. The opportunity will come this autumn, when calls for bids will open and companies with the lowest production costs will be awarded part of the €800 million fund. The hope is that the auction will efficiently administer funds to boost Europe’s hydrogen industry and reduce costs.

·  EU Life

This finances the transition of projects from readiness to demonstration. Between 60% and 95% funding is available and there is no need for applicants to be part of a consortium, so this is an option for solo entrepreneurs.

·  Innovation Fund

The Innovation Fund invests in projects that are implementing new green technology, or solutions geared towards reducing greenhouse gas emissions. Open to large and small-scale initiatives, individuals as well as businesses can benefit.

What other opportunities are there?

While there are funding options at EU level to fit all kinds of projects, individual member states and, in some cases, regions, also have their own cash grants. These multi-layers of opportunity bring the onus on businesses to look for the best support for their new green investments.

Although the emphasis has been on simplifying the process, applying for funding under the Green Deal Industrial Plan can still require a fair amount of effort. But that shouldn’t deter businesses, individuals or investors. It is, after all, for the long-term and the amount at stake are substantial.

Provision for infrastructure investment is an integral part of the European strategy, and consideration has been given to future funding. The hope is that via a combination of incentives and levies, such as theEU Emissions Trading System, the Green Deal will effectively become a self-funding mechanism, with levies on track to enable initiatives years down the line.

Conclusion

The EU offers interesting cash incentives to encourage green investments, which are especially helpful given the introduction of the world’s first major carbon border levy within the EU trading block, with mandatory reporting for impacted products, entering into force on 1 October 2023.

It's important to note that, as with many region’s sustainability strategies, the Green Deal Industrial Plan is in a state of constant evolution. As we’ve seen from the reaction within the US to its own Inflation Reduction Act (IRA) programme, even the best laid plans can be changed and challenged so businesses should monitor how this Plan develops.

If you missed our first Insight on the US IRA, you can read it here. Our next Insight will assess the UK’s policy position on green incentives.