In 2019, the European Green Deal was unveiled as the Commission’s flagship effort to guide Europe toward climate neutrality by 2050. It was a bold vision, one that set the stage for sweeping regulatory reforms and ambitious climate objectives. But five years later, the global landscape has changed. Geopolitical tensions, the energy crisis triggered by Russia’s invasion of Ukraine, and economic challenges have placed Europe’s industrial sector under immense strain. Hence, Ursula von der Leyen (VDL) recently put forward the idea to deliver a Clean Industrial Deal in the first 100 days of her mandate to fill the EU competitiveness gap and address its root causes. But is this truly a paradigm shift, or simply a reactionary pivot?
The Clean Industrial Deal represents more than just an update to the Green Deal—it’s a reflection of Europe’s ambition to both decarbonize and maintain its competitive edge in the global market. But what are the key driving forces behind this initiative?
What could the Clean Industrial Deal look like?
Remember the Green Deal? Now replace the word “Green” with “Clean” and add a stronger focus on boosting the competitiveness of the EU industry. While the full details of this ‘new’ Green Deal are not yet available we have a hint of the plan that this strategy is likely to put forward. The ‘Deal’ is expected in the first 100 days of the Commission, but sources say it will come much earlier. With the Commission now taking office in December, the text may come out in early 2025.
One of the driving forces behind the Clean Industrial Deal is the desire for greater industrial sovereignty. The energy crisis revealed Europe’s dangerous reliance on external suppliers. Whether it’s battery components, semiconductors, or solar panels, Europe’s dependence on imports from China and other powers has raised alarm.
Indeed, the Draghi report (“The future of European Competitiveness”, the September 2024 document seen by many as a blueprint for future action) highlights the EU’s significant loss of market share in solar PV production, warning that recovery may be difficult. The wind sector fares better, with the EU meeting 85% of domestic demand for turbines, but it is losing ground to China in component production. In the battery sector, Chinese products are about 20% cheaper, and in 2023, around 30% of electric vehicle batteries sold in the EU were made in China (Source: ECFR). These challenges are intensified by China’s heavy subsidies in green technologies, creating an uneven playing field. Meanwhile, the US is also distorting global competition with its Inflation Reduction Act (Joe Biden’s flagship legislation from 2022, whose future is now uncertain), which boosts domestic clean energy production. The recent election of Donald Trump may further exacerbate these challenges, as his policies could heighten trade tensions and economic protectionism, making Europe’s quest for competitiveness even more urgent. Moreover, EU industries face additional strain from high regulatory burdens and energy costs, with electricity prices up to three times higher than those in the US and China.
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The Commission answered by rebranding its “Green” as “Clean” policies – although without losing its climate ambition. In the successful attempt to gain consensus from the Greens, VDL has in fact maintained its promise to deliver a 90% emission reduction target by 2040 in the new Climate Law 2.0. The main objective is, therefore, to make competitiveness and decarbonisation go hand in hand by (1) addressing high energy prices by shifting to clean sources, (2) reducing regulatory burden by cutting red tapes and speeding up permitting processes, (3) resizing over-reliance on external suppliers by ensuring a level playing field and incentivising demand for EU-made products.
Addressing high energy prices and decarbonizing without losing competitiveness
The Clean Industrial Deal is meant to address one of the root causes of the EU competitiveness gap: high costs of energy. Energy is one of the key inputs in most production processes, meaning that if energy prices are high production costs also increase. Companies have a hard time choosing to establish their production capacity in Europe, they threaten to relocate, and EU goods are not competitive on global markets. In his report, Draghi has in fact suggested an answer to Europe’s dilemma. While gas will remain an essential component of the EU energy mix in the near future, decoupling electricity and fossil prices while investing in renewables is the way forward – and the EU executive seems likely to stick to apply this recipe.
The Clean Industrial Deal is indeed expected to put forward an action plan to bring down energy costs. If the Commission will follow Draghi’s recommendations (largely consistent with the other recent study commissioned by the EU, Enrico Letta’s April 2024 “Much More than a Market” report), this should include efforts to deepen the energy market integration and infrastructure investments, notably with stronger cross border interconnections to allow cheap renewable electricity to flow from renewable-rich countries to other Member States. Other measures could include further incentives to establish long-term contracts for the sale of electricity so as to decouple electricity prices from volatile fossil fuel prices and give operators certainty and visibility. Additionally, the Deal is likely to further incentivize carbon capture and storage (CCS) technologies, which are crucial for decarbonizing energy-intensive industries while maintaining competitiveness. By capturing and storing CO2 emissions, CCS provides a vital pathway for industries to meet emissions targets without compromising on production efficiency, ensuring that European companies remain competitive in the global market as they transition to greener production methods.
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With this approach, decarbonization – through the expansion of renewables and the decarbonization of EU industries – should align with efforts to reduce energy costs, enabling the EU to regain its competitive edge.
Reducing regulatory burden by cutting red tapes and speeding up permitting processes
The buzzword under the Clean Industrial Deal is certainly “simplification’’. The most significant shift in the Clean Industrial Deal would be its move away from a purely regulatory framework to one that fosters innovation and investment through a simpler and more business friendly framework. Where the Green Deal often placed heavy compliance burdens on industries, the new approach seeks to empower them. Simplification would come in different forms.
First, a simplification of the overall regulatory framework affecting companies. Some Member States and industry stakeholders have recently flagged the need for an Omnibus legislation aimed at cutting red tape by revising and simplifying several key pieces of EU legislation. To address these concerns, the new Commission has also already introduced a dedicated Commissioner for Implementation and Simplification, the Latvian Valdis Dombrovskis. His primary responsibility will be to “stress-test the EU acquis”, with the goal of eliminating overlaps and contradictions within EU regulations. This move is seen as a crucial step in ensuring that the regulatory framework supports, rather than hinders, European businesses in their green transition.
Second, simplification of the administrative processes for the deployment of renewable energy. Significant steps forward have already been made with the Net-Zero Industry Act (NZIA), a landmark piece of legislation (approved in May 2024) aimed at boosting the EU’s productive capacity in key strategic net-zero technologies. The NZIA includes specific time limits for the permitting of ‘strategic manufacturing projects’ and introduces measures to accelerate the overall administrative process. Similarly, the Renewable Energy Directive, adopted in 2023, incorporates provisions to streamline the permitting process for renewable energy projects, ensuring faster deployment of wind, solar, and other clean energy sources. But EU permitting times remains too long compared to global competitors like the US with around 81% of European renewable wind capacity still stuck in various permitting stages (source: Energy Monitor).
Third, an extension of the simplification measures to energy intensive industries. These are the industries that have been most penalized by high energy prices, and they include steel, cement, aluminium, as well as the chemicals sector. Measures to further simplify permitting process to deploy technologies for their decarbonisation are expected as part of a ‘Decarbonisation Accelerator Act’, similar to the NZIA but applicable to the heavy industry. Details remain unknown at the moment.
Resizing over-reliance on external suppliers by ensuring a level playing field and incentivising demand for EU-made products.
One of the key pillars of the Clean Industrial Deal is to incentivize EU-made products, addressing long-standing dependencies in strategic sectors. While the EU has pursued ‘strategic autonomy’ for years as very broad objective, its reliance on external suppliers remains a vulnerability, particularly in sectors like solar panels, where countries like China dominate the market by over-subsidizing their industries and overproducing goods. Recent steps, such as the adoption of the Net-Zero Industry Act, aim to prioritize EU-made net-zero technologies in public procurement, but this is clearly not enough.
The Clean Industrial Deal is expected to further favour the uptake of EU products in public procurement. A revision of the Public Procurement Directive is possible, to include “Made in the EU’’ clauses and specific requirements favouring goods produced on the Union’s soil. Further measures could include non-tariffs barriers, such as stricter sustainability requirements for key goods to create European lead markets.
The Deal could therefore mix demand-side measures – to boost the demand for sustainably produced EU-made products – and tools to protect the EU market from being flooded by cheap goods coming from third countries, notably China. Further aligning trade policies with industrial policies should be one of the objectives for the next European Commission.
European Parliament and Member States: the supporters and the sceptics
The 2024 European Parliament reflects both consensus and division. While there is broad agreement on the need to boost Europe’s competitiveness in an increasingly challenging global market, the path to achieving it is less clear. The centre-right European People’s Party (EPP) remains the largest bloc and pushes for deregulation and market-driven solutions. Meanwhile, the centre-left Socialists & Democrats (S&D) emphasize social equity and green investment, and the far-right, now holding over 25% of seats, often opposes climate policies and calls for reduced EU oversight. This fragmented landscape ensures that while competitiveness remains a shared priority, the means to achieve it will spark ongoing political battles.
This political tension raises a critical question: Will the Clean Industrial Deal be able to secure the support needed to succeed in the European Council?
This question takes on even greater significance when we consider the traditional tensions among EU Member States, particularly when it comes to funding and energy sources. Frugal Member States have already signalled their desire to keep funding issues off the table, while Germany has reacted negatively to Mario Draghi’s proposal for joint borrowing to meet the enormous investment needs – estimated at around €800 billion annually – required to rejuvenate Europe’s industrial and innovation sectors. The European Commission will face a delicate balancing act, with the debate likely focusing on how to maximize revenues from the EU Emission Trading System (ETS), tap into private savings, and potentially structure a new Competitiveness Fund.
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However, the debate is not just about how to raise the money, but also where to allocate it. Any investment plan tied to the Clean Industrial Deal is expected to focus heavily on electrification and decarbonization technologies. But the thorny issue of nuclear energy looms large. While some, like France, strongly back nuclear as a key to decarbonizing the EU economy, others, led by Germany, remain opposed. It is almost inevitable that the nuclear issue in the Clean Industrial Deal will become a point of heated contention.
Looking ahead: key questions for the new mandate
The Clean Industrial Deal presents a bold and necessary vision for Europe’s future, but it also raises critical questions about whether the EU is ready to meet the immense challenges ahead. As Europe seeks to decarbonize while reviving its competitive edge, can the Clean Industrial Deal deliver meaningful change in time to counter global competitors like China and the US? With the Inflation Reduction Act altering the landscape and China’s dominance in key sectors like solar panels and batteries, is Europe playing catch-up in a race where it has already fallen behind?
The Deal’s ambition to simplify regulations and cut red tape offers hope, but will these efforts truly alleviate the heavy compliance burdens that industries face, or will they simply add another layer of complexity?
Furthermore, the financial question looms large. With Germany opposing joint borrowing and frugal Member States pushing back on new funding initiatives, how will the EU find the investment needed to revive its industrial ecosystems? And can Europe strike a balance between clean energy sources, especially with nuclear power remaining a divisive issue?
Hard to answer these questions at this point, but they should be kept in mind as the debate on the new EU industrial policy framework takes shape in the coming months and years. In any case, it is debate set to dominate the second mandate of the von der Leyen Commission.