The author is an analyst of NH Investment & Securities. He can be reached at ys.jung@nhqv.com — Ed.
The EU Commission recently announced its Green Deal Industrial Plan, which aims to simplify regulations and strengthen financial support. Details will be announced at a later date, but similar to the US’s IRA, the plan is expected to strengthen subsidies for manufacturing firms within Europe.
EU announces Green Deal Industrial Plan
On Feb 2, the EU Commission announced its Green Deal Industrial Plan. While the plan only contains a broad macro policy direction, specifics are set to be discussed by the EU Council and European Parliament.
The plan is largely composed of four pillars: 1) a simplified regulatory environment; 2) accelerated financial support; 3) technology development; and 4) free trade. Through the plan, the EU aims to develop technology and expand the supply of renewable energy to achieve net zero within 10 years.
In addition, it intends to introduce: 1) the Net Zero Industry Act (which will outline regulations and targets related to production facilities by power generation source and promote the use of new technologies through the establishment of a regulatory sandbox); 2) the Critical Raw Materials Act (to strengthen the supply chain for raw materials; to be announced on Mar 8); and 3) reorganized systems and regulations (including a reduction in renewable energy generation costs). We also expect to see: 1) an expansion of renewable energy investment through financial support (Temporary Crisis and Transition Framework (TCTF)); 2) deregulation of subsidies for domestic industries; 3) the establishment of a European sovereign wealth fund to form investment funds; and 4) a new bidding market for green hydrogen (2H23). In order to strengthen the supply chains, the Commission proposed a plan to conclude an agreement with Australia to strengthen cooperation, including signing an FTA, and secure a key mineral supply chain.
Growing political trade barriers regarding renewable energy
Starting with the US’s IRA and the EU’s Green Deal Industrial Plan, policies that give an advantage to domestic industries are continuously being announced to foster renewable energy industries. This is positive in terms of domestic industry development, but a risk factor that could cause facility oversupply from a global perspective. In fact, in the course of industrial growth, renewable energy has experienced intensified competition and product price declines due to long-term oversupply amid regulatory effects such as the US’s Local Contents policy, which prioritizes supply by companies with domestic facilities.
There are differences of opinion among EU countries regarding the EU’s Green Deal initiatives. However, considering that this plan was initiated to respond to subsidies for eco-friendly industries in other countries such as the US, detailed policies are expected to include subsidies for raw materials and products produced in Europe.
