With the Net Zero Industry Act due to be voted in the European Parliament on Tuesday (21 November), the EU could exclude Chinese products from public tenders for large renewable energy projects.
Under its Green Deal Industrial Plan, the EU has announced targets to increase its domestic production of technologies needed for the energy transition.
The law introduces simpler and faster permitting procedures for the construction of new factories to manufacture “net-zero technologies” such as solar photovoltaic (PV) modules, wind turbines, and electrolysers for hydrogen production.
It would also exclude Chinese bidders and products from public procurement rules and renewable energy auctions, according to changes included in the law by the European Parliament’s industry committee.
“In the current geopolitical situation, our industry is competing with companies that are directly or indirectly supported by their own governments,” Christian Ehler, lawmaker of centre-right EPP group and chief negotiator for the law, told Euractiv.
“One of the indirect measures taken in other parts of the world is a protectionist approach to public procurement, while the European market is open to awarding public contracts to foreign companies,” he said. The Net-Zero Industry Act is “intended to level the playing field without triggering an escalating protectionist spiral,” he added.
In the industry committee’s version of the law, authorities buying covered products should ensure that “no more than 50%” of such products originate from countries that did not sign the Agreement on Government Procurement (GPA) of the World Trade Organisation (WTO).
So far, 49 countries have signed the agreement (see map below), which obliges them to not discriminate against each other in public procurement. China, which is dominating the production of solar modules and increasingly wind turbines, has not.
Therefore, bidders using more than 50% Chinese products would be excluded from both public procurement and auctions for renewable energy, which are used to award support for large-scale projects, such as ground-mounted solar systems.
Only if no bidder applies for the scheme, authorities could restart the tender without the criterion to exclude non-signatories.
The proposal goes back to an amendment proposed by the centrist Renew Europe group, which is dominated by the French government party Renaissance.
If the proposal goes through, “it will be a real ‘Buy European Act’ for all the green technologies needed to achieve climate neutrality,” French lawmaker Pascal Canfin (Renaissance/Renew Europe) told journalists ahead of the vote.
This would come “at a time when there are so many industrial issues at stake, particularly with China”, he added.
While Renaissance lawmakers called for a “Buy European Act” also in response to the US Inflation Reduction Act (IRA), products made in the US would continue to be eligible for public support, as the US has signed the WTO public procurement agreement.
Higher costs of the green transition
Last week, the China Chamber of Commerce, representing Chinese companies active in Europe, criticised the EU’s increasingly critical stance against Chinese products, arguing that this would create uncertainty and increase costs for the green transition.
Ehler acknowledges that the proposal “could lead to higher costs for the public sector in certain cases, but these are funds that are paid to European companies and go towards the salaries of European citizens, rather than to foreign companies and citizens”.
While the initial proposal by the European Commission had limited the potential price increases by considering everything above 10% higher costs as “disproportionate”, the new prequalification condition proposed by the industry committee would not see any price cap.
Ehler stressed that support programmes for citizens who purchase net-zero technologies such as solar panels for their rooftops would not be affected, as these are not covered by the respective articles 19 and 20.
In such support programmes, buying non-Chinese solar panels could be incentivised by additional payments, which could however not add more than 5% to overall costs, or 15% for people living in energy poverty.
WTO compatibility ensured
While the EU so far promoted free trade and competition mainly based on price, recent months have seen a hardening of the stance, acknowledging that other countries, notably China and the US, are subsidising and favouring their own green industries.
The USA’s inclusion of so-called “local content rules”, which require a certain share of products being made in America, has been criticised by EU politicians as protectionism and against WTO rules.
The proposed rules by the European Parliament’s industry committee, in contrast, would comply with WTO rules, David Kleimann of think-tank Bruegel told Euractiv.
“WTO rules do not restrict EU public procurement policies vis-à-vis countries that are not a member of the WTO government procurement agreement,” Kleimann said.
“An important question is, however, whether these provisions do not restrict procurement from countries other than China that do not pose a risk to the security of supply,” he said. “If that was the case, we would find ourselves far in protectionist territory, potentially rendering clean tech supply unnecessarily costly.”
Apart from China, which accounts for 77.8% of global production of PV modules, the rules would also affect products from other large producers, including Vietnam (6.4% of global market share), Malaysia (2.8%), and India (1.9%).
[Edited by Nathalie Weatherald]
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