Can the EU’s Clean Industrial Deal cut carbon and restore competitiveness?
The European Commission has introduced the EU Clean Industrial Deal (CID) to align climate ambitions with industrial competitiveness. Building on previous EU energy policies like the REPowerEU Plan, CID focuses on ensuring affordable energy to consumers through streamlining market integration, harmonizing financial and regulatory frameworks, providing clean energy investment incentives, digitalizing the grid, and reducing permitting bottlenecks, and alleviating regulatory burdens on natural gas markets. By integrating industrial, economic, and trade policies, the deal aims to provide a predictable framework for innovation and investment in clean technologies.
However, as geopolitical pressures mount and Europe faces growing competition in global markets, questions remain over whether these measures will be implemented swiftly enough to prevent further industrial decline. Below, Atlantic Council experts share their analysis on the EU’s new industrial policy, its implications for European energy security, and how key partners may respond to the bloc’s evolving regulatory landscape.
Click to jump to an expert analysis:
Andrea Clabough: Europe goes all in on industrial policy—with or without the US
Elena Benaim: The Clean Industrial Deal Needs a Clear Strategy on Clean Energy Supply Chains
Carol Schaeffer: The CID is more industrial than it is clean. But Europe needs to be both.
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The EU’s decarbonization goals are technically achievable—but are Europeans able to pay for them?
Listed first among the critical elements for a “thriving new European industrial ecosystem of growth and prosperity” is affordable energy, as Europe’s energy prices are significantly higher than those of its main trading competitors. For this reason, the Clean Industrial Deal strategy issued by the European Commission is accompanied by an additional, even lengthier document—the Action Plan for Affordable Energy—aimed at finding energy policy solutions to restore economic competitiveness while keeping the EU on track to meet its decarbonization goals.
To achieve this, the Clean Industrial Deal sets a target of a 32 percent electrification rate by 2030, representing a more than 50 percent increase compared to today (21.3 percent). While flexibility is seen as a major contributor to both increasing electrification and reducing system costs, achieving such a rapid electrification rate would require massive investments in power grids—otherwise a critical foundation for the energy transition process—within less than five years. Given that Europe has some of the highest lead times globally for deploying new distribution and transmission lines, fast-tracking permitting is cited as a necessary solution. Although these ambitious targets are technically achievable, ensuring affordability at the same time—as repeatedly emphasized in the Commission’s proposal—is simply aspirational.
While acknowledging that Europe has the most integrated grid globally, the Action Plan for Affordable Energy also recognizes the need for further progress. It proposes making electricity bills more affordable, including by reducing network charges. However, while these costs may be removed from final energy bills, they will still be indirectly paid by end users through domestic or EU budgets, exacerbating existing budget deficits or inflation-related issues, especially in the short run.
Although ambitious targets may foster short-term social and political cohesion, failing to meet them will have political repercussions in the next EU elections in 2029—just months before the 2030 milestone.
Still, the goal of reducing net greenhouse gas emissions by 90 percent by 2040 is still attainable through other energy policy measures listed in the document, most of which have already been talked about in previous years. These include more long-term contracts, faster permitting for clean power projects, creating a Gas Market Task Force to ensure fair competition, fully integrating energy markets, and providing more funding for energy efficiency solutions.
In summary, the EU requires more than €570 billion per year between 2021 and 2030, as well as €690 billion per year between 2031 and 2040, to stay on track to meet its climate neutrality mission, according to the Action Plan for Affordable Energy. These figures include solar, wind and biomass, energy efficiency and grid capacity, but do not cover investments in nuclear energy (including fusion), enhanced geothermal, solid-state batteries, or capacity refurbishment, which the Commission will assess and foster. It is a bold—if old—plan, with the same unresolved question of how the EU will pay for it.
Andrei Covatatiu is a nonresident fellow with the Atlantic Council Global Energy Center
Europe goes all in on industrial policy—with or without the US
The Clean Industrial Deal hardly emerged in a vacuum, and it is perhaps impossible to analyze apart from the sea change the last month has brought to US-EU relations. The CID reveals determination in Europe to build its own future and (re)emerge as a global industrial competitor—looking not just at China, but also the United States. Some of the announcements will be appreciated in Washington, such as delayed implementation of the EU’s Carbon Border Adjustment Mechanism (CBAM), narrowing its application to a smaller group of importers, and more tailored environment, sustainability, and governance requirements in corporate sustainability and due diligence reporting.
But other components point to a “Made in Europe” industrial policy that retains characteristic focus on decarbonization. New Clean Trade and Investment Partnerships and additional free trade agreements are intended to “better manage strategic dependencies” but are almost certainly a response to the protectionist mindset and tariff threats coming from Washington. Likewise, a critical raw materials demand aggregation and matchmaking mechanism will facilitate joint purchases within hotly competitive markets for minerals and other commodities—a focus of the Trump administration’s recent diplomacy to secure such access for the United States. A revision in the Public Procurement Framework next year will “make European preference criteria a structural feature of EU public procurement in strategic sectors.” The Affordable Energy Action Plan, meanwhile, emphasizes further diversification of liquefied natural gas (LNG) suppliers from existing and future LNG projects, likely to include but perhaps look beyond reliance on US LNG.
Through the CID, the EU Commission is arguing that the costs of energy transition can be mitigated while the social and economic opportunities are fully maximized—a marked contrast to the attitude in Washington. These and other elements suggest the EU wants its own rules of the road to be proactive (rather than continually react) to whatever pathways the United States and China pursue. With serious questions surrounding the transatlantic alliance and the reliability of the United States as an economic and geostrategic partner, this gear shift in the European approach comes not a moment too soon.
Andrea Clabough is a nonresident fellow with the Atlantic Council Global Energy Center.
The Clean Industrial Deal Needs a Clear Strategy on Clean Energy Supply Chains
The European Commission’s Clean Industrial Deal outlines a welcome and necessary framework, as it positions climate action as the driver for creating a compelling business case for industrial decarbonization.
While the framework includes a series of forthcoming initiatives that could—at least in principle—strengthen the competitiveness and decarbonization nexus, there is a lack of clarity when it comes to the role of international trade.
Under the “Global Markets and International Partnership” pillar, the Commission rightly points out that “the EU cannot realise its clean industrialisation objectives without partnerships on the global stage.” Clean Trade and Investment Partnerships (CTIPs) are introduced as a tool that will complement free trade agreements to offer a “more targeted approach, tailored to the concrete business interests of the EU.”
For the EU to successfully achieve its clean industrial objectives, a well-defined strategy for clean technology supply chains is essential. This requires, on one hand, a comprehensive analysis of the EU’s current manufacturing capacity in clean technology supply chain segments necessary to reach net zero, and on the other, a thorough assessment of existing trade agreements with global partners to identify where external supply chains can complement gaps in the EU ‘s capacity.
Without such an analysis, there is a risk that CTIPs may fall short of delivering, ultimately undermining the EU’s goals. At a time of geopolitical turmoil and a reassessment of strategic partnerships, fully integrating this evaluation into a joint roadmap for decarbonization and competitiveness is of fundamental importance.
Elena Benaim is a nonresident fellow with the Atlantic Council Global Energy Center.
The CID is more industrial than it is clean. But Europe needs to be both.
With the introduction of the Clean Industrial Deal, the European Commission correctly acknowledges that competitiveness and climate policy are intertwined. But as Carbon Market Watch put it, although the deal is “certainly industrial, it is far from clean.” While the CID is an important step to solidify the green transition as part of a strategy for economic competitiveness, it falls short in bringing Europe closer to meeting the goals of the Paris Agreement.
One example is the CID’s heavy reliance on carbon capture, utilization and storage (CCUS), which is its main strategy to address emissions from key sectors of European economy, such as steel, cement, and chemicals. But CCUS can only count as carbon removal if that removal is permanent. While a revision of the Emissions Trading System (ETS) aims to incentivize permanent storage—which has enormous long-term logistical challenges—relying on carbon capture to manage emissions after they are produced is a more precarious way to decarbonize than reducing the emissions in the first place.
It is important to remember that cutting emissions is itself a competitiveness measure—the long-term damage to supply chains and infrastructure from increasingly severe climate impacts is as great a threat to Europe’s economy as any tariff. But despite the shortcomings of the CID, the good news is that it clearly signals Europe’s commitment to doubling down on the green transition amid profound economic challenges.
The CID may be more industrial than it is clean—but that may be in service of the climate fight in the long run. Europe cannot be a leader in the green transition if it collapses under competitive pressures from the United States, Russia, and China. But if the CID is about Europe fighting for its survival in a rapidly shifting geopolitical landscape, then it should not forget that the climate crisis remains the continent’s greatest long-term threat.
Carol Schaeffer is a nonresident senior fellow with the Atlantic Council Europe Center.
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Image: European Union, Brussels ( Guillaume Périgois, Unsplash)