A Blueprint for Decarbonization and Competitiveness
The Deal outlines a commitment to achieving a decarbonized economy by 2050, targeting a 90% reduction in emissions by 2040 compared to 1990 levels. The strategy focuses on two interconnected sectors: energy-intensive industries (such as steel, chemicals, and minerals) and the clean-tech sector. It aims to establish the EU as a global leader in the circular economy by 2030, enhancing resource efficiency, reducing dependencies, and fostering innovation. Circularity is prioritized as a means to maximize the EU's limited resources, reduce waste, lower production costs, and create a more sustainable industrial model.
Affordable Energy and Infrastructure
Ensuring affordable energy is a fundamental aspect of the Deal and is essential for the competitiveness of European industry, especially energy-intensive sectors. The EU plans to reduce energy costs by accelerating electrification, integrating clean energy sources, and improving grid infrastructure. The Action Plan for Affordable Energy focuses on supporting energy-intensive industries and outlines measures to lower energy bills and promote energy efficiency, including initiatives to accelerate the deployment of clean energy and ensure well-functioning gas markets. Digitalization, including AI-driven smart grids, is expected to play a significant role in ensuring energy systems integration and improving demand-side flexibility.
Additionally, the European Investment Bank (EIB) has proposed to provide counter-guarantees for Power Purchase Agreements entered into by SMEs, with an initial value of €500 million. A grid investment package worth €1.5 billion will also be available, including EIB counter-guarantees.
Leading Markets and Clean Technologies
The Deal emphasizes the creation of leading markets for clean technologies and products, stimulating demand and encouraging industries to adopt sustainable practices. Public procurement policies will incorporate non-price criteria to support sustainable and resilient industrial ecosystems. The Industrial Decarbonisation Accelerator Act will introduce resilience and sustainability criteria to promote clean European supply for energy-intensive sectors. Stakeholders anticipate that these criteria will strengthen demand for EU-made clean products, fostering innovation and ensuring a level playing field. The Deal also focuses on promoting the adoption of renewable and low-carbon hydrogen, which is essential for decarbonizing the EU energy system.
Investment for Industry
Substantial investment is required for the clean transition; the EU plans to mobilize over €100 billion to support clean manufacturing and industrial decarbonization. The Clean Industrial Deal State Aid Framework will seek to simplify rules to encourage private investment, providing Member States with a longer planning horizon and businesses with greater investment predictability. The framework will introduce "off-the-shelf" options for Member States to easily demonstrate compatibility and facilitate support for clean-tech projects.
The EU has announced plans to establish an Industrial Decarbonisation Bank, similar to the existing Hydrogen Bank. Under this program, companies will submit bids for subsidies as part of an auction process, and the most competitive bids, subject to certain conditions, will be allocated Opex subsidies for a specified period.
The Hydrogen Bank receives revenue from the EU Innovation Fund, which is funded by revenue generated through the EU's carbon market (EU ETS). The Industrial Decarbonisation Bank is also expected to receive revenue via the Innovation Fund. An initial pilot auction is scheduled to begin with a budget of €1 billion, although the scalability of this initial approach to the Commission's stated goal of €100 billion remains to be seen.
InvestEU, the EU's primary tool for leveraging private funding, has mobilized over EUR 280 billion in previous years. The Commission proposes amending the InvestEU Regulation to enhance its risk-bearing capacity, allowing for the reuse of surpluses and reflows from legacy instruments, facilitating equity support, and mobilizing an additional EUR 50 billion for key EU priorities such as clean tech and energy infrastructure. The EIB will utilize existing guarantees, including a Clean Tech Guarantee Facility, and collaborate with Member States to increase funding for the Clean Industrial Deal. The Commission and EIB will also launch a TechEU investment program to support innovation in AI and clean tech.
Powering the Circular Economy: Secure Access to Materials and Resources
Circularity is central to the Deal's strategy, aiming to enhance resource security and reduce dependencies. The Critical Raw Materials Act will seek to secure access to essential materials, while the Circular Economy Act is intended to promote the free movement of circular products and secondary raw materials. The EU aims to increase the circular material use rate from 11.8% to 24% by 2030. The Deal also includes measures to incentivize recycling and reduce landfill, ensuring that materials are reused, remanufactured, and recycled, contributing to more sustainable industrial production.
Global Partnerships and Trade
The EU's clean industrialization objectives are closely linked to international partnerships. Clean Trade and Investment Partnerships (CTIPs) will complement existing trade agreements, focusing on securing raw materials, clean energy, and clean technologies. These partnerships are intended to align the EU's external action with its industrial policy objectives, managing strategic dependencies and securing the EU's position in crucial global value chains. A specific goal of the Commission is to simplify the Carbon Border Adjustment Mechanism (CBAM) to reduce administrative burdens and incentivize global carbon pricing, ensuring that the EU's industry emissions abatement efforts are not undermined by carbon-intensive imports. The proposed simplification of CBAM is part of the Commission's broader "Omnibus" initiative to simplify certain sustainability regulatory frameworks, for which a first set of proposals was introduced on the same day as the announcement of the Deal.
Implementing the Clean Industrial Deal Across Sectors
The Deal will serve as a framework for engaging industries to develop sectoral transition pathways. These pathways will enable informed investment decisions and will facilitate the mobilization of more capital towards the transition, ultimately accelerating progress towards a cleaner and more competitive industrial future. Specific plans for the automotive, steel and metals, chemicals, and sustainable transport sectors will be developed to address their unique needs and accelerate the transition. The Deal also includes a Bioeconomy Strategy in an effort to improve resource efficiency and tap the growth potential of bio-based materials.
Coordination of Member States
Much of the EU’s effort will focus on directing national funding to the Deal through various references to taxation systems. The Commission will encourage national governments to reduce energy-related taxes for industry; however, this falls outside of EU competence. Instead, the Commission will issue a recommendation on this matter, rather than a legislative proposal.
The Commission is expected to continue advocating for reform to state aid rules, anticipated by June 2025. This includes enhancing support for nuclear technology, designing and combining Contracts for Difference and Power Purchase Agreements, supporting industry during extreme price spikes, and accelerating state aid approval for strategic clean tech projects.
Next Steps
The Deal aims to deliver a comprehensive strategy to align Europe’s industrial sector with decarbonization goals, ensuring a sustainable future for manufacturing in Europe. By integrating climate action and competitiveness into a unified growth strategy, the EU aims to reinforce its leadership in global clean technology and circular economy practices.
Hill & Barlow will continue to monitor developments related to the Clean Industrial Deal and provide updates as necessary.
Disclaimer: This analysis is for informational purposes only and does not constitute legal advice. Consult with a qualified legal professional for specific guidance.
