A first assessment of the EU’s new flagship initiative to boost Europe’s green economy

The Clean Industrial Deal is the European Commission’s new flagship initiative, giving the European Green Deal an “industrial twist”. It is based on the findings of the Draghi report, published in September 2024, which signalled the urgent need for investments in Europe’s flagging economy in the coming years.

The Clean Industrial Deal (CID) thus responds to an urgent need to combine decarbonisation efforts with competitiveness and economic security. However, its broad scope, potential lacking coordination and remaining questions on funding represent risks for its successful implementation.

In addition, while the CID focuses on decarbonisation, it is light on environmental standards and broader sustainability considerations. The additional omnibus simplification packages presented the same day further water down and delay existing sustainability legislation, putting into question the legacy of the European Green Deal.

On 26 February 2025, right before the first 100 days in office, the European Commission published a series of initiatives. First, the Clean Industrial Deal, with which the Commission follows a twofold objective: enhancing European competitiveness by decarbonising traditional industries and boosting clean tech technologies, with a strong emphasis on innovation. It also wants to strengthen the EU’s response to geopolitical changes by bolstering its economic security and reducing dependencies through international partnerships and trade policy. The Clean Industrial Deal is built on six pillars of action: affordable energy, lead markets, financing, circularity and access to materials, global markets and international partnerships, as well as skills. By addressing high energy prices, insufficient investments, and the shortage of skills, the CID effectively translates the findings of the Draghi report into a series of proposed initiatives.

Alongside the publication of the Clean Industrial Deal, the Commission also published  two other initiatives: First, an Affordable Energy Action Plan, outlining a series of measures to address Europe’s high energy prices in the short and medium term. To this end, the Action Plan includes, for instance, longer-term contracts for LNG imports and plans to provide more flexibility in an updated energy grid.

Second, the Commission presented its first “simplification wave” (Omnibus I), proposing changes to three key sustainability proposals: the corporate sustainability due diligence directive (CSDDD), the corporate sustainability reporting directive (CSDR), and the EU’s green taxonomy. In addition, it proposes a reform of the Carbon Boarder Adjustment Mechanism (CBAM). The simplification proposal exempts most companies that currently fall under the scope of these regulations: it plans to move approximately 80% of companies currently covered by CSDR out of the scope, make the taxonomy voluntary for approximately 85% of companies, and to delay the CSDR by two years. To simplify CBAM, the Commission introduces weight thresholds which, according to its estimates, would move 90% of imported goods out of scope, while still covering 99% of emissions targeted by CBAM. It also plans to facilitate compliance with CBAM obligations still under the scope.

A second simplification package on investment (Omnibus II) proposes to simplify reporting requirements in the EU funding programmes InvestEU, EFSI and legacy financial instruments, as well as to increase public guarantees in InvestEU in order to de-risk private capital.

The proposal unveiled includes a series of initiatives, which correctly identify the challenges Europe’s industries face and try to give constructive answers. While it is impossible to comment on all the measures proposed, the following are considered the most relevant and interesting in their approach. 

Unsurprisingly, the CID places a strong emphasis on energy prices and electrification. With Carbon Contracts for Difference (CCfDs) and Power Purchase Agreements (PPA), the Commission wants to create a business case for electrification, which is central to decarbonisation, energy security, and competitiveness, especially as the share of homegrown renewable energy sources in Europe’s electricity mix is growing. To this end, the strategy spells out the ambition to increase electrification rates up to 32% by 2030, which have been stagnating at 23% these past years. Increasing electrification is an important step to reduce fossil fuel dependency and decarbonise the industry, but it still faces high energy prices and infrastructure bottlenecks, which the Commission aims to tackle with the Energy Action Plan and Industrial Decarbonisation Accelerator Act.

Another welcome novelty is the introduction of ‘lead markets’, taking an approach that considers the entire value chain of clean technologies, as well as a demand- rather than a supply-side approach. The Commission plans to combine product labelling with demand-driving measures like targeted public procurement and local content requirements. However, past experiences, such as on food, show that labelling schemes have often been slow to develop and implement. While this initiatives goes into the right direction, the Commission will need to accelerate these processes to generate the predictable demand necessary to stimulate the investments needed for the transition.

Besides the objectives of accelerating decarbonisation and boosting competitiveness, the Clean Industrial Deal also outlines actions to enhance economic security. To this end, the Commission introduces new ‘Clean Trade and Investment Partnerships’ (CTIPs) to make supply chains more resilient and secure long-term access to critical raw materials (CRM), linking it to the EU’s Global Gateway initiative. These partnerships are a critical tool to better align the EU’s external action with it’s climate and industrial policy objectives. While the language in the CID Communication implies that CTIPs will be complementary to the EU’s Free Trade Agreements (FTA), transforming CTIPs into legally binding targeted ‘mini trade deals’ with a targeted scope would increase their impact and address a critical gap in the EU’s trade toolkit. This external dimension is complemented by a domestic one, putting circularity at the centre of the Deal. The Commission wants to recycle and reuse imported CRMs within Europe, which would help to reduce reliance on primary materials and improve resource resilience against global disruptions.

Finally, the Clean Industrial Deal also includes labour market measures, correctly identifying skills as an important pillar to strengthen Europe’s economy. In this field, the Commission seems to have broadened its approach, going beyond the traditional financial compensation schemes. The idea is to bring everyone on board of the transition, for instance by introducing ‘social leasing schemes’ for clean technologies, such as electric vehicles and heat pumps. Such schemes could offer affordable renting options to low-income individuals or households, enabling them access to clean technologies with high upfront costs. France pioneered in this field last year with an EV leasing scheme, which ended up being a victim of its own success, as too many people signed up too quickly. Lastly, there still is a lack of data regarding the social impacts of the transition, the establishment of a ‘Fair Transition Observatory’ is also a welcome new initiative, as the success of the green transition will ultimately depend on societal and political acceptance.

While the CID correctly identifies Europe’s economic woes and proposes concrete solutions, several caveats remain to ensure the initiative’s success.

First, the scope of the proposal is very broad, including initiatives on energy, financing, circular economy and skills. While a comprehensive package makes sense in view of the gargantuan task at hand, the broad scope of the initiative could potentially lead to a lack of coherence among the different legislative proposals. Indeed, the Commission will have to balance the interests of various actors, from businesses, associations, and civil society, and navigate political negotiations with its institutional partners, especially the European Parliament and the Council. Most importantly, the different member states will have varying sectoral preferences and views, shaped by their national industries, energy mixes, and demographics.

Second, the CID lacks a critical assessment of which industries have the biggest comparative advantage in Europe. It foresees action plans for the bioeconomy, transport, chemicals and steel and metals, which may provide more targeted support for these industrial sectors, and proposes initiatives on clean techs, in particular batteries and hydrogen. However, it lacks an overall strategic assessment on which industries Europe wants to protect and keep, as not everyone will be able to survive the economic challenges. Of course, developing such a Europe-wide strategic plan might not please everyone, as many member states want to protect their national industries, even if these are not competitive enough, and certain stakeholders will heavily lobby for their industry-specific interests. The EU will have to keep in mind the big picture and take painful decisions if it wants the Clean Industrial Deal to be successful.

Third, the Clean Industrial Deal – like any European initiative of this scale – risks fragmentation between European countries, which could undermine its success. The Draghi report clearly spelled out that for Europe to stay competitive, coordinated action between member states is essential – similarly, the Letta report emphasised the need to deepen the Single Market through harmonisation of national rules, especially in the fields of telecommunications, energy and defence. While the European Commission has announced a “competitiveness coordination tool” with the Competitiveness Compass, aligning priorities amongst member states will undoubtedly be challenging. If member states refuse to make the necessary concessions – such as completing the investment and savings union – the Clean Industrial Deal will not have the desired effects.

Fourth, and most importantly, the Clean Industrial Deal will require massive investments, both from the public and private sector. According to the communication, the EU estimates the investment needs to 480 bn € in energy, industry and transport compared to previous decade. The Draghi reports spells out that a minimum annual additional investment of 750 to 800 bn € is needed, corresponding to 4.4-4.7% of EU GDP in 2023. However, where the money should come from is not clear yet. Several financial instruments will be required: the MFF, for which the Commission will present a proposal in early summer, and which will include a Competitiveness Fund; EU own resources or common debt; a reformed state aid framework; and a functioning investment and savings union. The Clean Industrial Deal also proposes an ‘Industrial Decarbonisation Bank’ aimed at redirecting revenues from carbon pricing more effectively in industrial decarbonisation – but details remain vague. Where the EU will take the money from is the biggest question mark, as is the question of how the EU plans to leverage this funding rapidly and in a coordinated manner.

There are several obstacles in the way: First, the EU’s relatively strict fiscal rules remain in place; as is the German debt brake, which for now remains in place and restricts Germany’s ability to take on debt. The current EU’s state aid framework, which had temporarily been changed in light of recent crises, will be more permanently reformed with a proposal announced for spring 2025. However, as the implementation of state aid will remain in the hands of member states, there is a risk of fragmentation of the Single Market, as bigger and wealthier member states will be able to invest more than smaller ones. Lastly, the negotiations on the next EU budget will be difficult: besides the traditional differences (friends of cohesion, frugals, etc.), the next Multiannual Financial Framework will need to include the reimbursement of the NextGenerationEU loans. The EU also faces more inward-looking national leaders, less willing to spend money on the EU.

While the CID remains firmly embedded in Europe’s climate framework, the shift from “green” to “clean” goes beyond mere rhetoric. The proposed package falls short of addressing sustainability concerns beyond decarbonisation and lacks broader environmental considerations. For instance, by its proposals for lead markets to introduce low-carbon labelling, the Commission shows that it narrowly focuses on decarbonisation. However, product requirements should incorporate broader environmental factors, such as resource use and (industrial) pollution, and consider social factors. Moreover, both energy and resource efficiency are crucial drivers for decarbonisation and economic security, but only plays a secondary role in the proposed initiative.

While the Clean Industrial Deal references the 2040 climate target, the Commission decided to withhold the communication on the 2040 climate target, which has already been prepared by DG CLIMA last year, rather than unveil it alongside the Clean Industrial Deal. The Commission President also chose to present the Clean Industrial Deal in Antwerp, in front of an audience of businesses. They had advocated for such a plan a year ago with the ‘Antwerp Declaration’. This choice of presentation signals that the Commission is responsive to industry’s competitiveness concerns.

Lastly, the  first “simplification wave” is rather sobering for those advocating for stronger sustainability standards. Under the guise of cutting red tape, the Commission decided to narrow the scope and delay key green legislative proposals and, with the changed scope of CBAM, potentially increases the risk of watering down carbon pricing mechanisms, which are the backbone of the EU’s Green Deal. By doing so, the Commission risks undermining the very goals it initially set out to achieve in the European Green Deal. Additionally, the consultation process for these simplification proposals drew criticism from civil society, as they lacked transparency and excluded key stakeholders from the process. While the proposal for simplification of sustainability reporting entails clear backtracking on climate and environmental ambition, the proposal for CBAM could be an added value to the initial legislative text, as the simplification would exempt 90% of imported goods currently covered by the legislation from its scope, but still cover 99% of emissions. However, it remains to be seen how the simplified CBAM will be implemented, and risks remain in view of the lack of transparency of the simplification procedure.  

The Clean Industrial Deal is an urgently needed initiative – the Covid-19 crisis, the Russian aggression war in Ukraine and its effect on energy prices, as well as the volatile geopolitical environment have badly impacted Europe’s competitiveness. Therefore,  quick and decisive action is needed to implement the Commission’s proposals.

While the Affordable Energy Action Plan proposes more short-term relief to the high energy costs affecting Europe’s industries, the question is whether the measures in the Clean Industrial Deal will be able to be rapidly deployed; and whether the European Commission will be able to implement the new initiatives and reforms, such as on state aid, before European industries – traditional players and newer clean technology ones – lose their competitive advantage for good and Europe loses its first-mover advantage in the global race for clean technologies for good. Safeguarding Europe’s economic future is a race against time, and the EU already started with a delay. However, should the Clean Industrial Deal be successful, it could revamp Europe’s economy for the coming decades – and ensure sustainable prosperity in Europe despite a particularly volatile geopolitical context.

It will be up to Commission President von der Leyen, the European Parliament and the Council – with the support of key heads of states and government – to push for a speedy implementation of the package, and most importantly come up with an ambitious investment plan to turn the Clean Industrial Deal into reality. With Friedrich Merz as the likely new German Chancellor, there could be more leadership in Europe going forward to work on this plan. The next milestone is already around the corner: In July, the European Commission will present the next MFF proposal, with the plan of a “Competitiveness Fund”. The next few months will tell whether the EU will be able to deliver on its promise.