The EU’s Clean Industrial Deal: Decarbonization, whatever it takes?

Following the path laid out by the Competitiveness Compass, the European Commission released the Clean Industrial Deal (CID) on February 26. The CID is an extensive roadmap of future policy initiatives, using all the tools in the EU’s arsenal: action plans, legislative proposals, strategies, and sectoral plans. As depicted in figure 1, the proposals are organized according to the “business drivers” they aim to influence: affordable energy, lead markets, financing, circularity (access to materials), global markets and international partnerships, and skills.

This roadmap aims to structure EU political action to recover Europe’s lost industrial competitiveness while decarbonizing industry to achieve strategic autonomy. As such, it does not have any immediate effect by itself. Its potential impacts depend on the final drafts of the measures it proposes.

In this article, we provide a condensed analysis of the context and content of the CID and take an initial critical look at its key proposals. We conclude with a brief assessment of the CID in light of Mario Draghi’s vision for the future of the EU and a suggestion for affected stakeholders on how to navigate the road ahead.

Can the proposals in the CID reverse the concerning trends related to the EU’s waning industrial competitiveness? We cannot definitively answer this yet, as the full content of the proposals is not known. However, judging by the CID’s extensive length, it would appear so, especially because, as illustrated in figure 1, the CID is a roadmap focusing on measures for specific sectors. At a first glance, the deal can be quite intimidating, encompassing over 40 political actions for energy-intensive industries and clean tech sectors. Additionally, fostering a more circular economy is a consistent goal throughout the document.

To better understand the implications of the CID, we have assessed its proposed actions based on their potential relevance for the energy transition and their expected regulatory impact. The regulatory impact refers to how straightforward it is for a measure to produce its desired effect. For example, some policies have direct and immediate effects on targeted sectors and markets (e.g., minimum gas storage targets), while others may inherently involve a long delay between a policy’s approval and its intended effects. Such delays can happen due to factors like uneven implementation across EU countries or technical challenges. Since many of the actions are merely outlined in the CID, this assessment is strictly qualitative. By identifying and focusing on the 20 actions we perceive as having the highest potential impact, we aim to help readers better digest the wealth of information included in the deal. We have listed these actions in order of expected impact in the appendix of this article.

One first finding of our analysis is that we couldn’t flag any of the proposals as having a significant immediate or straightforward effect, at least not in their current state. In time, the CID may very well represent a turning point for clean industry in the EU, but we do not expect it to lead to any dramatic changes right away.

Still, the urgency of the current situation is evident in the CID’s schedule, with nearly all actions expected to be proposed or entered in force before the end of 2026 – a significantly faster timeline compared to the Green Deal. In fact, some action plans, such as the Action Plan for Affordable Energy, have already been released, alongside others integrated into the commission’s Competitiveness Compass, like the Omnibus packages. Despite the accelerated timeline, the pace does not seem to match that of the developments currently unfolding in geopolitics.

Figure 2 presents the expected timeline for the 20 proposals we identified as having the highest impact potential.

We identify the Action Plan for Affordable Energy, the Clean Industrial Deal State Aid Framework, and the recommendation to member states to adopt tax incentives to support the CID as the most significant proposals to support the energy transition and/or ensure Europe’s competitiveness.

Action Plan for Affordable Energy

The Action Plan for Affordable Energy is the only action proposed in the CID that has already been released, likely in recognition of the urgency for action. It is an another extensive menu of policy actions with varying potential impacts on lowering energy prices in the EU. These actions range from the subtle rationalization of the EU’s network/grid charges to a Clean Energy Investment Strategy aimed at converting national energy and climate plans (NECPs) into real investment plans. While most proposed actions in the plan are also pending detailed drafting, no area identified in Draghi’s report is left unaddressed. Even the controversial marginal pricing mechanism of wholesale electricity markets is implicitly addressed – a trained reader can find it mentioned in the section on ensuring preparation to avoid future energy crises. A forthcoming proposal for the energy security framework, which “takes into account what we learned during the energy crisis,” is likely to include something more concrete on this topic. This aim becomes clearer when reading this part of the action plan together with the CID’s section on lowering energy bills, which states a willingness to “address extreme price spikes and exceptional price environments and to decouple the translation of high gas prices into electricity prices, based on proven models in emergency situations.” There seems to be a strong intention to modulate the effects of gas-driven electricity marginal pricing through mechanisms inspired by those approved to deal with the exceptional circumstances addressed by the REPowerEU program.

Clean Industrial Deal State Aid Framework

The launch of the CID’s State Aid Framework proposal is officially scheduled for the second quarter of 2025. However, leaked drafts of the proposal are already circulating online. The framework will aim to “enable necessary and proportionate state aid that crowds in private investment.” While we prefer not to comment on unofficial versions, it is clear that the final document will play a crucial role in the coming years. Strengthening public support is indeed recognized as one of the most critical needs for the decarbonization of EU industry. However, providing such support in a “proportionate” way that balances faster decarbonization with maintaining internal market cohesion – while also accommodating the different fiscal capacities of member states – sounds like a very challenging task. All stakeholders need to stay highly aware of developments in this area. It is difficult to predict how much member states will make use of additional room provided by the framework. If significant, it could alter which technology choices will be most optimal for industries to decarbonize.

Recommendation to member states to adopt tax incentives to support the CID

Last but not least, the proposal for the recommendation to member states to adopt tax incentives to support the CID is also due in Q2 2025. Since it aims to adapt national corporate tax systems to support clean business cases, even mentioning the option of tax credits, it could be seen as the EU’s version of the Inflation Reduction Act seen in the US. These forthcoming measures are hinted to range from shorter depreciation periods for clean technology assets to tax credits for businesses in strategic sectors, adding “actions to scale down and phase out fossil fuel subsidies.” Like the State Aid Framework, the recommendation for tax incentives will likely have similar potential for high impact as well as challenges balancing the needs and capabilities of different member states.

In short: in terms of scope, yes, but in terms of specific proposals and ambitions, no. At least, not yet.

The CID seems to have been built using the table of contents from Draghi’s report as a template. It addresses or mentions all the items in the report. Thus far, however, very few of the proposed actions include the detail we need to determine whether they can achieve their goals.

If we read the CID as the European Commission’s response to the Draghi report, it would say, “We commit to addressing everything you mentioned, but we don’t yet know how.” So, it can be considered a first logical step for almost everything. We say almost everything, because two essential elements requested in Draghi’s report are missing in the CID: a new governance angle for European policies and a holistic approach to the measures. There are strong reasons for this. Some are political, as discussed in our previous article. Others are procedural, since a sectoral plan like the CID is logically not the place for a foundational discussion on the EU’s architecture. Yet, recent geopolitical dynamics will surely lead to a renewed governance debate in the EU.

It remains to be seen if the EC will manage to infuse the proposed measures with the holistic angle needed to ensure effective European action, rather than 27 different “every man for himself” approaches. The current geopolitical climate underscores that the EU cannot afford to continue thinking without doing and acting, as painfully illustrated in Draghi’s call for decisive action. We’ve moved from “whatever it takes” to “do something.”

Ultimately, the CID provides a structured pipeline of potentially deep changes for the EU’s energy-intensive industries and clean tech industries.

Critical strategic decisions on decarbonization and related business models will need to be made on the way to 2030. It is essential for affected companies to familiarize themselves with the proposals, identify those critical to their sectors, and closely follow their development. Otherwise, making the right decarbonization investment decisions will be extremely difficult. The technological and financial complexity of these decisions, combined with the EU policy and geopolitical context, makes the timing of these decisions critical.

In these dire times – amid war, deglobalization, the loss of traditional allies, and a warming climate – one would hope for the European Commission to streamline its cumbersome policy-making process. While this is not evident in the CID, the proposed schedules for actions do demonstrate a sense of urgency. The final outcome of the CID and its measures is likely to resemble the action seen within the REPowerEU program. As with that program, the worse the situation gets, the more likely member states are to make daring, joint, and holistic decisions.