21. 02. 2025
AUTHOR: Neil Makaroff and Tristan Beucler
The Clean Industrial Deal can be Europe’s answer to geopolitical turbulence and rising economic security concerns. The European industry faces significant challenges that need to be addressed. High energy prices, insufficient investment into the transformation of energy-intensive industries, dependencies in strategic sectors, and a slowdown in demand all undermine the business case to manufacture zero-carbon technologies and materials in the EU. Five priorities can turn the Clean Industrial Deal into a holistic industrial strategy for Europe to become a net-zero powerhouse.
Restoring the business case for electrification
High energy prices create a competitiveness gap for the European industry. The Clean Industrial Deal, together with the Action Plan on Affordable Energy, can elaborate a set of measures to address this gap. Encouraging long-term Power Purchase Agreements (PPA) and two-way Contracts for Difference (CfD) with dedicated financial support and de-risking tools can help decouple electricity prices from gas prices. However, only the rapid electrification of the economy can reduce its exposure to international energy markets’ volatility and risks of energy dependency on oil and gas producers. A clear plan to double the electrification of the economy by 2040, while fully decarbonising the power sector, is a more secure and forward-looking energy strategy than financing new liquified natural gas (LNG) export infrastructures abroad. To coordinate these efforts, as the Greek Prime Minister suggested, a Member States-European Commission Task Force on cross-border electricity and price disparities can ensure enough investments support the grid upgrade and development.
Boosting demand for net-zero technologies through lead markets and an EU preference
Demand for net-zero technologies and products such as heat pumps, electric vehicles, and steel is too low to drive sufficient investment and production within Europe. By implementing simple and well-designed criteria for public procurement, consumer incentives, auctions, and private offtake, the Clean Industrial Deal can initiate lead markets that contribute to substantially boosting the demand for strategic net-zero technologies. For example carbon footprint standards for cars, wind turbines, or railways can grow the market for green steel, encouraging investment in the decarbonisation of the sector. Similarly, circularity standards could support the emergence of a new generation of batteries. In addition, those standards can level the playing field with competitors, especially from China, by rewarding European manufacturers on innovation and not only on price, especially early movers who produce zero-carbon technologies. Moreover, introducing European preference criteria to all public support will be required to provide additional economic security in strategic sectors. Otherwise, some international producers may divert their most sustainable products to the EU market while retaining more CO2-intensive products for domestic or other markets.
Building net-zero value chains and zero-carbon industrial clusters
European industrial competitiveness depends on building integrated value chains. Better access to critical materials and components, such as refined lithium for batteries, metal scrap for recycled steel production, or permanent magnets for wind turbines is key. Simplified Important Projects of Common European Interest (IPCEIs) can contribute to building those missing links in value chains by pooling Member States and EU’s resources into joint projects. Similarly, the Industrial Decarbonisation Accelerator Act could turn industrial areas into “zero-carbon industrial clusters” by fast-tracking permitting processes, channeling public-private investments and allowing cross-sectoral synergies. For example, cement or steel plants can capture CO2 emissions for use by adjacent chemical or e-fuel production facilities. This would address major bottlenecks for the EU economy while creating new emerging activities. The Industrial Decarbonisation Accelerator Act could target industrial regions that commit to contribute to a 90% climate target by 2040 and are considered strategic for the EU’s economic security.
Unlocking investment to finance the industrial transformation
Transforming the EU’s industry and scaling up cleantech manufacturing to implement the Net-Zero Industry Act (NZIA) will require at least an additional €50 billion investment per year until 2040. The Clean Industrial Deal can set the framework to mobilise this investment in the next decade, addressing concerns about the potential funding gap between the end of recovery funding in 2026 and the start of the next EU budget cycle. First, the Innovation Fund could play a pivotal role in the short term by launching dedicated “zero-carbon manufacturing calls”, to fund both capital (CAPEX) and operational (OPEX) investments, including a green premium for projects that address identified gaps. Then, establishing the Competitiveness Fund to start in 2027, financed through joint borrowing and repaid with future Emission Trading Scheme (ETS) revenues, especially from the phase-out of free allocations, can provide stability for net-zero investments in the mid-term. Leveraging these investments through guarantee instruments in cooperation with the European Investment Bank and simplifying access to EU funding for strategic projects can unlock private investment to support companies scaling up their industrial production in the EU.
A 90% climate target by 2040 to keep a clear goal
The joint publication of the Clean Industrial Deal and the amendment to integrate the 90% climate target for 2040 into the European Climate Law can send a positive signal that the EU remains an attractive net-zero manufacturing location. This clear target can guide the bloc’s industrial policy for a more competitive and resilient economy and offer much-needed 10 to 15-year visibility to European companies and investors, allowing them to make the investments needed to make the EU’s industry competitive in the long term.
