Are regulations across the lifecycle of a low-carbon infrastructure project helping or hindering the transition? What structures helping the route to Net Zero have been introduced so far? In which fields is work still to be done by regulators?

Tackling climate change and achieving the transition to net zero will be the defining challenge of the 21st century. In an increasingly difficult political and economic environment, legislators and regulators will need to play their part by delivering a reliable and effective legal framework across the lifecycle of the products, services and infrastructure required to decarbonise the global economy. These include, among other things, the three phases of project development; (i) planning and permitting, (ii) construction and operation; and (iii) decommissioning.

Planning and permitting

Significant effort is currently being spent to accelerate the planning and permitting phase of low carbon energy projects. Multiple geopolitical crises, including the impact of the Russian invasion of Ukraine, underpin the urgency for change.

As far as planning law is concerned, legislators have developed new instruments to support the development and operation of Net Zero infrastructure. In Germany, for example, a number of federal acts include catalogues listing specific projects that are deemed to be of national interest; qualifying for this designation increases legal certainty, particularly where environmental standards may hinder quick progress, by providing for a binding legislative decision confirming the higher priority of renewable energy projects in situations where there is a conflict with other laws or interests. Further examples can be found at EU level where the Renewable Energy Directive (the third revision of which entered into force in November 2023) introduces concepts such as “renewable acceleration areas” and “areas for grid and storage infrastructure”.

In parallel to these more precise planning instruments, legislators and regulators are also aiming to accelerate permitting procedures. EU regulation establishes a framework stipulating that permitting procedures for renewables projects typically must be concluded within three months, otherwise projects are deemed permitted by default. Simultaneously, judicial review proceedings are being tightened. Again in Germany, court claims against permits for certain infrastructure projects such as LNG terminals have to be submitted immediately to the Federal Administrative Court – meaning legal procedures that usually have three steps are reduced to one.

Construction and operational phase

Besides changes in planning and permitting regulations there are a multitude of other developments that are having a direct and significant impact on the construction and operational phase of net zero projects.

A key driver for many projects is state funding, with the U.S. Inflation Reduction Act one of the most high-profile efforts to accelerate the energy transition (despite some recent setbacks in offshore wind projects). In response the EU has created the IPCEI instrument that supports funding for “Important Projects of Common European Interest” (which include infrastructure projects that are deemed to play an important role in the EU’s transition to Net Zero), while an EU Hydrogen Bank has been established to promote hydrogen-related projects and member state governments are taking on financial risks from gas grid operators who need to invest heavily to convert existing infrastructure for hydrogen. This mirrors the increasing importance of state financing in achieving Net Zero and may become a blueprint for future projects.

Trade restrictions are being tightened, with the European Union’s Foreign Subsidies Regulation – designed to tackle the alleged adverse effects on the EU internal market of subsidies granted by non-EU states – probably the best-known instrument. At the same time, we are seeing intense scrutiny of foreign investments under various FDI screening mechanisms that have been implemented or enhanced around the world in recent years, where there is an increasing focus on energy projects. Further, supply chain legislation is limiting flexibility and innovation – countries such as China now impose export restrictions on critical raw materials, while the EU has implemented its own raw materials regulations and requires businesses to screen their supply chains from an environmental and business and human rights perspective. This has the potential to trigger conflicts as organisations scramble to source and import raw materials, for example for use in batteries.

States are also increasingly willing to take a more active role in sectors that they deem to be of critical importance to Net Zero. In Germany, energy companies Uniper and former Gazprom subsidiaries have been nationalised, while Rosneft subsidiaries have been subjected to operational control by the state. Germany is also pushing to become a shareholder in a number of electricity grid operators whose current stakeholders, at least from the government’s perspective, are not able or willing to invest in the upgrade of the country’s grid infrastructure.

Decommissioning phase

Decommissioning is a critical phase of the project cycle given the challenges of recycling products and components. Wind farms are a good example. Wind projects are key to achieving the Net Zero transition yet the farms themselves have short lifecycle of between 20 and 30 years and technological progress provides incentives to replace existing infrastructure with newer equipment. The increased efficiency of redeveloped sites conflicts to a certain extent with the need to decommission existing structures that are no longer needed, raising complex questions around how to reuse equipment such as rotor blades, which are made from a mix of difficult-to-recycle components. New technologies are needed – and frequently publicly funded – to develop skills and new business models in the recycling industry.

Conclusions

Regulators around the globe have implemented a variety of strategies to accelerate the planning and permitting of Net Zero infrastructure. While the success of many of these measures remains to be seen, on the surface the changes should support the energy transition.

Public funding and state support introduced in the recent past is likely to benefit the construction and operation of net zero infrastructure. However, increasing geopolitical tensions may raise new challenges for infrastructure investors and increase the need for legal support to deal with newly introduced and/or complex regulatory frameworks designed to protect domestic low carbon infrastructure assets.

Regulators still need to address the challenge of how to decommission and recycle Net Zero infrastructure. Although first steps have been taken to find solutions, there is still significant work (including scientific research) to be done in the coming years.