1. Introduction
Last 22nd November I had the chance to attend the first day of Nohrcon, a conference mainly addressed to public procurement officials and practitioners in the Nordics. On that day, Associate Professor Ignacio Herrera Anchustegui (further: ‘presenter’) held a presentation titled ‘Security of Supply Procurement Trends: Net-Zero Industry Act (NZIA) and Critical Raw Materials Act (CRMA)‘.
In a few words, the (Proposal for a) Net-Zero Industry Act (2023)[1] is deemed to strengthen the market (‘enhance competitiveness’) and the self-sufficiency on net-zero technologies such as photovoltaic solar panels, heat pumps, onshore and offshore wind technologies, biogas, Carbon Capture and Storage (CSS) technologies. Instead, critical raw materials are part of our everyday life, making our society increasingly dependent on them in the future. Lithium is in our smartphones and electric car batteries; plane construction and cruise need magnesium and scandium; borum is used for wind turbines. In the words of the Commission, the (Proposal for a) Critical Raw Materials Act (2023)[2] is justified by this increased demand for raw materials, enhanced even more by the green transition. The market for these raw materials is characterized by disruptions and upsurges in their global demand, fostering geopolitical tensions. The majority of these raw materials are highly concentrated in certain parts of the world, such as China (magnesium), Chile (lithium), Turkey (boron) and Kazakhstan (phosphorus).
The relevance of the presenter’s contribution is due to the recent publication of the report ‘Towards a green and digital future’ by the EU’s Joint Research Center. [3] The latter highlights the importance of the twin transition, i.e., a simultaneous shift towards a more sustainable and technological EU. Ass. Prof. Herrera’s presentation gave an in-depth overview of the content of the two proposed regulations, underlining the most critical aspects of the public procurement sector. After this brief introduction to the two proposals, the blog post presents both Proposals’ main highlights from the presentation and the relevance for the procurement. Finally, in the conclusion, further thoughts by the author are provided.
2. The Net-Zero Industry Act – Relevance for Public Procurement
NZIA’s Article 19 is titled ‘Sustainability and resilience contribution in public procurement procedures’. The latter establishes the rules for the award of contracts for net-zero technologies. The provision obliges contracting authorities to utilize the most-economically-advantageous tender (MEAT), but not based on the sole price or cost so as to include the assessment of the sustainability and resilience contribution of the tender.[4] The overall sustainability and resilience of a tender should be given a weight between 15 and 30%[5] and consist of, cumulatively:
“(a) environmental sustainability going beyond the minimum requirements in applicable legislation;
(b) where an innovative solution needs to be developed, the impact and the quality of the implementation plan, including risk management measures;
(c) where applicable, the tender’s contribution to the energy system integration;
(d) 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 for that specific net-zero technology within the Union originates in the last year for which data is available for when the tender takes place.[6]
The terminology is very vague, and the Proposal provides no further guidance. Although the meaning of environmental sustainability can be inferred in principle, assessing it in practical legal terms is much more difficult.
Recital 27 comes in handy in this regard, as it aims to define what environmental sustainability is by listing parameters such as: ‘the durability and reliability of the solution; the ease of repair and maintenance; the ease of upgrading and refurbishment; the ease and quality of recycling; the use of substances; the consumption of energy, water and other resources in one or more life cycle stages of the product (…) the environmental footprint of the product and its life cycle environmental impacts; the carbon footprint of the product (…)’[7]. However, since the provision refers to requirements (i.e. mandatory rules), the Commission could have added an annexe outlining all applicable environmental sustainability legislation. I suggest the latter solution not because I believe that contracting authorities cannot infer it independently but simply because the clearer the language and references to other legislation, the greater the likelihood of compliance. Indeed, contracting authorities are not yet familiar with the joint application of environmental law obligations in procurement contexts, as this is relatively new.
To further threaten the broad application of Article 19, the obligation is waived if applying the abovementioned rules would result in disproportionate costs (meaning an increase of more than 10%) and different technical characteristics of the equipment. Thus, although Recital 27 outlines the parameters of sustainability and resilience rather broadly, the 10% increase in the cost ceiling is rather unfortunate and too specific concerning the rest of the characteristics. Although the price variable cannot be expected to be disregarded, the extent to which it is considered should at least be realistic and commensurate with the ambition of the rest of the provision.
Indeed, as the presenter pointed out, Austria, Ireland, Denmark, the Netherlands and Poland submitted a joint proposal to review the proposed Regulation, envisaging a diluted version of Article 19. The Proposal excluded the mandatory weighting of the sustainability and resilience section of the award criteria.[8] They suggest the adoption of compulsory technical specifications and contract performance conditions and eliminating the price-cap rule of 10%, as it risks killing the whole purpose of the Regulation.[9] Net-zero technologies are, after all, way more expensive than other solutions or their acquisition prices, at least.
3. The Critical Raw Materials Act – Relevance for Public Procurement
The connection between the CRMA and public procurement is more subtle than that of NZIA. In addressing the critical role of procurement, the act proposes establishing a joint purchasing mechanism, outlined in Chapter IV. This mechanism, modelled on the Joint Purchasing of Gas Platform (PRISMA), seeks to aggregate and coordinate demand, fostering security of supply, cost reduction through buyer power, and alleviating coordination challenges among Member States.
Article 24 of the Proposal outlines the joint purchasing process, involving the Commission in defining strategic materials, setting minimum demand criteria, and facilitating joint negotiations for materials. However, the provision includes competition law considerations and restrictions on suppliers, particularly those subject to Union actions. While the operational details remain somewhat undeveloped, the act signifies a strategic move towards ensuring a stable and coordinated supply of critical raw materials within the European Union.
As Professor Caranta has already pointed out here, it is in Article 25 that a tentative reference to procurement is most evident. It is required that “the Member States shall by [OP please insert: 3 years after the date of entry into force of this Regulation] adopt and implement national programs containing measures designed to […] (c) increase the use of secondary critical raw materials in manufacturing, including, where appropriate, by taking recycled content into account in award criteria related to public procurement.”
Perhaps, in this case, the provision’s wording is even vaguer. Indeed, although an obligation exists on member states (‘shall’), the requirements refer to ‘national programs’ (and not legal acts), taking into account, where appropriate (where is right?), recycled materials in award criteria. First, I am not sure that this is universally understood to be an obligation in all respects; second, in procurement, we know well that limiting a sustainability requirement to only constituting an award criterion, although already a step toward sustainability, merely bears an additional and optional character in the tender documents
4. Further reflections and conclusions
Recital 28 of the NZIA focuses on a crucial aspect of the market for net-zero technologies. It is – still – relatively small, and preventing market domination by a few undertakings is necessary. In summary, the Proposal stresses the importance of supplier diversification. According to the recital, the supply of a product is deemed insufficiently diversified, where a single source covers 65% of the demand. As the presenter notices, what is a single source? A single country? A single undertaking or group of undertakings under the same multinational?
Using similar logic, Recital 38 invites contracting authorities or entities to inform their future demands for net-zero technologies with due advance to ensure market preparedness.
Recital 31 of the Proposal for NZIA reads that Directive 2014/24 applies on top of that Regulation, but in EU law, Regulations create specific and directly applicable legal standards, unlike Directives. Therefore, the clarification provided in the recital is misleading. De facto, whether an act will be a Regulation or a Directive is a strategic choice of the legislator. The Regulation is directly applicable when it enters into force, without the timetable for transposition typical of Directives. Moreover, how the Directives are implemented is subjected to a certain degree of discretion by Member States.
Regarding the Critical Raw Materials Act, the latter embodies a sort of reversed Brussels Effect. The Brussels Effect is the regulatory echo of EU policies and laws in other non-EU countries.[10] In essence, it is the detectable tendency of EU policies and laws to influence those of other countries. In this case, the effect is bouncing back. The EU regulates as an effect of the trade power of different countries and does so by sending a clear message: global market efficiency strategies, now more than at any other time, will take a step backwards to finally facilitate faster achievement of environmental and climate objectives and a degree of self-sufficiency for some socially and environmentally unsustainable products.[11]
[1] Proposal for a Regulation establishing a framework of measures for strengthening Europe’s net-zero technology products manufacturing ecosystem, COM(2023)161 final (Net-Zero Industry Act)
[2] Proposal for a Regulation establishing a framework for ensuring a secure and sustainable supply of critical raw materials, COM(2023) 160 final (Critical Raw Materials Act)
[3] Muench, S., Stoermer, E., Jensen, K., Asikainen, T., Salvi, M. and Scapolo, F., Towards a green and digital future, EUR 31075 EN, Publications Office of the European Union, Luxembourg, 2022, ISBN 978-92-76-52451-9, doi:10.2760/977331, JRC129319.
[4] NZIA, Article 19(1)
[5] NZIA, Article 19(3). The COMMISSION STAFF WORKING DOCUMENT for a Regulation of the European Parliament and of the Council on establishing a framework of measures for strengthening Europe’s net-zero technology products manufacturing ecosystem (Net Zero Industry Act) allows a bigger share as well.
[6] Emphasis added. Specific comments are provided in the last paragraph.
[7] Recital 27
[10] ‘Introduction: The Brussels Effect’, The Brussels Effect: How the European Union Rules the World (New York, 2020; online edn, Oxford Academic, 19 Dec. 2019)
[11] See also Regulation (EU) 2023/1115 of the European Parliament and of the Council of 31 May 2023 on the making available on the Union market and the export from the Union of certain commodities and products associated with deforestation and forest degradation and repealing Regulation (EU) No 995/2010, OJ L 150, 9.6.2023 (EU Deforestation Regulation)
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