What can we make of the Clean Industrial Deal?

Amidst the geopolitical shockwaves unleashed by President Trump, the European Commission has reaffirmed its commitment to climate action. It has reasserted its intention to enshrine an ambitious 90 percent emissions reduction target for 2040 in law and launched the long-awaited Clean Industrial Deal. This is good news for EU, as decarbonisation represents the only real means for the bloc to reduce its energy costs and increase its energy security in an increasingly volatile international context.

Those who read the Draghi report and the recent Competitiveness Compass carefully will not be surprised by the main features of the Clean Industrial Deal (CID). The documents align in their assessment of the problems faced by the EU and the main solutions to those problems.

The CID aims to create a convincing business case for clean industrial transformation. This means complementing the EU’s ‘horizontal’ industrial policy agenda – spanning from cutting red tape to advancing the single market – with a focus on six intervention areas. These cover industrial decarbonisation and clean tech manufacturing: affordable energy, lead markets, financing, circularity and access to materials, global markets and partnerships and skills. 

Three areas stand out as the pillars of the strategy: electrification, lead markets, and investments. The CID makes a strong attempt to use all tools at its disposal – from regulation to taxation to public investments – but the effectiveness of the proposed measures will ultimately be defined by their final shape and delivery in the coming months.

Three important issues are left open in the CID, and solving these issues will be key to ensuring the deal’s effectiveness: state aid, the deal’s global dimension and its governance.

First, the CID anticipates that a new Clean Industry State Aid Framework will be adopted by the summer, with the aim of simplifying rules and shortening procedures for industrial decarbonisation and clean tech manufacturing projects, particularly if they have undergone an EU selection process. Making state aid faster, more conducive to decarbonisation and more European would arguably give a significant boost to Europe’s clean industrialisation process.

Second, the CID reaffirms the key role of the Clean Trade and Investment Partnerships, which have yet to be launched, in forging global alliances to build more resilient clean industrial supply chains. However, little detail is provided on how they will be structured, and in particular on how the EU intends to deal with difficult issues such as the outsourcing of intermediate energy intensive products manufacturing. The current EU approach remains fragmented, so it is key to ensure a more coordinated and impactful approach.

Third, the issue of governance is not sufficiently addressed in the CID. The deal does not even mention the competitiveness coordination tool proposed in the Competitiveness Compass, whilst Energy Union governance and state aid for clean industry are not properly tackled. Coordination – both at EU level and between the EU and member states – is the key challenge in delivering an effective EU industrial policy, making the absence of a reference to the tool surprising. This issue must be addressed, in order to avoid jeopardising the effective implementation of the strategy in the months and years ahead.

The Why Axis is a weekly newsletter distributed by Bruegel, bringing you the latest research on European economic policy. 

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