The European Union is seeking to scale up the manufacturing of clean technologies with a Net-Zero Industry Act. To accelerate access to markets for net-zero technologies, the proposed legislation deploys the EU’s sizeable public procurement (around EUR 2 trillion per year). It will require EU contracting authorities to take account of sustainability and resilience in their procurement of renewable energy sources. This post examines the proposal and its exclusion of procurement covered under the WTO Government Procurement Agreement (GPA) or free trade agreements (FTAs).
On March 16, 2023, the European Commission proposed adoption of the Net-Zero Industry Act. The Act is designed to help public authorities create and maintain a stable public demand for net-zero technologies that will make it economically attractive for business to scale-up the production of tailor-made products for the European market. These clean technologies include solar photovoltaic and solar thermal; onshore wind and offshore renewable energy; batteries and storage; heat pumps and geothermal energy; electrolysers and fuel cells; biogas/biomethane; carbon capture, utilisation and storage; and grid technologies.
The proposed regulation would require contracting entities in awarding contracts for net-zero technologies to assess a tender’s contribution to sustainability and resilience. The contracting entities would be required to base their contract awards on the most economically advantageous tender (rather than price or cost), in accordance with four criteria, which must be objective, transparent, and non-discriminatory. The criteria are:
- environmental sustainability going beyond the minimum requirements in applicable legislation;
- where an innovative solution needs to be developed, the impact and the quality of the implementation plan, including risk management measures;
- where applicable, the tender’s contribution to the energy system integration; and
- the tender’s contribution to resilience, taking into account the proportion of the products originating from a single source of supply, from which more than 65% of the supply of that specific net-zero technology within the EU originated in the last year for which data is available.
In addition, the contracting authorities would have to assign a weight of between 15% and 30% of the award criteria to the tender’s sustainability and resilience contribution.
Currently, the GPA and EU procurement directives permit contracting authorities in awarding contracts to consider (in addition to price or cost), criteria such as environmental characteristics, in identifying the most economically advantageous tender. (The consideration of environment factors was added in the 2012 revision of the GPA. It clarified that procuring entities may use technical specifications to protect the environment and allowed evaluation criteria to include environmental characteristics.)
The proposed sustainability and resilience requirements may go beyond the considerations currently available under the GPA. Perhaps for that reason, the EU plans to exclude application of the new requirements to suppliers of GPA or FTA parties. It also excludes procurement not covered by the GPA, namely procurement by governmental agencies of products purchased with a view to commercial resale or with a view to use in the production of goods for commercial sale, subject to Article III:8(a) of the General Agreement on Tariffs and Trade of 1994.
The Commission proposal encourages contracting entities to provide advance notice to the market of their estimated procurement needs for net-zero technology products to enable industry to adjust its production to meet the new requirements.
The contribution of net-zero technologies to sustainability and resilience would not have to be considered where their application would require the entity to acquire equipment at disproportionate costs (more than 10%) or with technical characteristics different from those of existing equipment, which would result in incompatibility or operational difficulties.
Before the Net-Zero Industry Act could enter into force, it will need to be approved by the European Parliament and the Council of the European Union.
Jean Heilman Grier
March 21, 2023