Q&A: EU aims to bolster competitiveness through Clean Industrial Deal
Why is the EU working on a Clean Industrial Deal?
The European Union is under pressure to strengthen its industrial competitiveness and plot a viable pathway to a net-zero economy. While it made progress with its flagship European Green Deal in the last mandate (2019-2024) and later proposed the Green Deal Industrial Plan, there are still big gaps around industrial decarbonisation.
Across the board, Europe’s traditional industries, like steel and chemicals, and clean tech sectors, like heat pumps and wind power, are struggling. One issue for European businesses is that EU energy prices are considerably higher than in competing economies, like the United States and China. Meanwhile, geopolitical tensions are growing. The EU has slapped tariffs on Chinese electric vehicles. Meanwhile, Donald Trump’s re-election in the U.S. will potentially widen the gap between EU and U.S. energy prices and forces the EU to become more self-sufficient.
There are also concerns that Europe is being outpaced in the clean tech race. China dominates clean tech production and much of the critical raw material supply needed for these technologies. The U.S.’ Inflation Reduction Act (IRA) also raised concerns, including that businesses would relocate to take advantage of the incentives offered.
Europe needs to bring down energy prices, boost innovation, reduce dependencies - particularly on China - and decarbonise, according to the landmark Draghi report on Europe’s competitiveness by former Italian prime minister and European Investment Bank chief Mario Draghi. The report also highlighted the need for a “new industrial strategy” and for 800 billion euros a year in investment to boost European growth.
Building on this, Commission president von der Leyen has announced a Competitiveness Compass as her first major initiative and something that will frame the next five years of the Commission’s work. This will be developed based on the three pillars of the Draghi report: closing the innovation gap with the U.S. and China; the need for a joint plan for decarbonisation and competitiveness; and increasing security and reducing dependencies. The Clean Industrial Deal will address the second, von der Leyen said.
How is it different from the European Green Deal?
The European Commission has framed the Clean Industrial Deal as the follow-up to the European Green Deal. It will build on the EU’s work to transition to a sustainable economy and focus on strengthening industry and increasing competitiveness within this context.
While the European Green Deal included broad strokes to transition the whole economy, including boosting renewables and energy efficiency, reducing emissions and driving the shift to circularity, it lacked a broad industrial strategy to steer Europe’s industry towards cleaner processes.
The Clean Industrial Deal will address this and build on existing laws, including those proposed under the Green Deal Industrial Plan like the reform of Europe’s electricity market, the law to boost clean tech and the law to secure the supply of critical raw materials Europe needs for the green and digital transitions.
EU countries must also implement the legislation agreed under the European Green Deal.
Is it going to be a law?
The Clean Industrial Deal will likely be a broad, non-legally binding action programme and summary of the issues at hand, known as a 'communication' and similar to the original European Green Deal proposal in 2019. While not a law in itself, it would set out the EU’s competitiveness and industrial goals and a to-do list of the legislation and accompanying measures that the union plans to propose.
What will the Clean Industrial Deal contain?
There is not a lot of information available about the deal’s contents. Boosting Europe’s competitiveness will require work across the economy, including reducing energy prices, ensuring access to capital and improving skills, but will also need sector-specific measures. There is also a case for a pan-European approach, with both the Draghi report and former Italian prime minister Enrico Letta’s report on the single market emphasising the strength of Europe’s combined economy. Further utilising this could mean avoiding competition between EU countries, increasing interconnections to help lower energy prices and, potentially, joint funds.
In her political priorities published ahead of her approval by the European Parliament, von der Leyen said the Clean Industrial Deal is for “competitive industries and quality jobs,” adding that her full focus will be on supporting companies and “simplifying, investing and ensuring access to cheap, sustainable and secure energy supplies and raw materials.”
Her priorities also mention an Industrial Decarbonisation Accelerator Act “to support industries and companies through the transition.” According to von der Leyen, this will channel investment in infrastructure and industry, particularly energy-intensive sectors. It will also support European lead markets in developing, producing and rolling out clean tech, and speed up planning, tendering and permitting.
Finance and ensuring demand for often more expensive green products are also key. There are calls to improve the use of public procurement and state aid. Draghi also suggested joint debt, similar to how the EU reacted to the COVID pandemic, although fiscally conservative countries could oppose this. Meanwhile, von der Leyen has suggested including a European Competitiveness Fund to support clean tech and other sectors in the EU’s next seven-year budget (the multiannual financial framework).
While not all of this is likely to be in the Clean Industrial Deal itself, these are potential parallel measures that will contribute to Europe’s competitiveness and support clean tech.
When will the EU present it?
Von der Leyen has said that the Clean Industrial Deal will be tabled within the first 100 days of the new Commission taking office. Following the European Parliament's approval of the new Commission on 27 November, it officially started work on 1 December, meaning the de facto deadline to present the Clean Industrial Deal is 11 March 2025. However, the Commission has scheduled it for 26 February 2025.
What do stakeholders want from the Clean Industrial Deal?
The general consensus is that the Clean Industrial Deal should provide support and direction for Europe’s industrial transition while also boosting competitiveness.
Heavy industries want Europe to better utilise its single market and set targets for domestic production, ensure access to secure, affordable, low-carbon energy, and use trade measures to protect businesses. There are also calls to revise the EU’s carbon border levy to shield exports from price differences and prevent circumvention. Meanwhile, clean tech groups emphasise the need for the EU to shift gears and have launched a tool to measure real-time progress, warning that far-off targets are not enough to drive change.
The Electrification Alliance, which brings together environmental organisations and industry associations, highlights the importance of direct electrification, wants tax changes to make electricity cheaper and calls for financial support for decarbonisation measures. Another industry and civil society group, which put together an industrial blueprint, emphasises the need to include zero pollution and circular economy goals in the deal. They also want it to support a transparent, socially just transition.
Think tanks, like Bruegel, have written extensively about the Clean Industrial Deal, including how Donald Trump’s victory should serve as a wake-up call and how the deal needs to stimulate investment.
