Foundations for the future of decarbonisation and competitiveness in Europe? A look at the Clean Industrial Deal

Introduction

On 26 February, the European Commission (EC) published its Clean Industrial Deal (CID), which is expected to be this term’s flagship initiative on sustainability and climate action. A successor to the European Green Deal (EGD), the CID intends to take a more pro-business approach. It is a Communication, i.e. a non-legislative and non-binding document listing which actions the EC will take in this legislative term to align climate and competitiveness policy. Focusing on energy-intensive industries and clean tech, the CID aims to build a business case for decarbonisation. 

The EC identifies six business drivers that will guide its industrial policy during this legislative term, namely (1) affordable energy, (2) lead markets, (3) financing, (4) circularity and access to materials, (5) global markets and (6) skills. In the Communication, the EC sets out policy actions for each of these business drivers. In this post, we are flagging the most relevant actions to be followed by businesses. 

Access to affordable energy to make the case for electrification

Along with the CID, the EC has published an “Action Plan for Affordable Energy” which contains initiatives to reduce energy prices for companies in the short term and to accelerate structural reforms. Lowering energy costs in the short term requires addressing network costs, taxation and energy supply costs. The EC foresees mostly non-legislative actions to tackle these issues with actual measures for price reductions predominantly being in the hands of Member States. This entails, for instance, the recommendation for Member States to lower taxes for electricity to EUR 0.5/MWh. In Q2 2025, the EC will also present design of tariff methodologies for network charges to incentivise flexible use of electricity. This methodology could turn into a binding legislative proposal, if deemed necessary. Another focus is on reducing permitting times and rolling out clean energy. Besides recently adopted legislation like the Renewable Energy Directive (RED), further proposals to accelerate permitting, including targeted updates to environmental assessments, are envisaged as part of the European Grid Package planned for Q1 2026. In addition, the EC is going to assess the need for changes to the Markets in Financial Instruments Directive (MiFID) and the Regulation on Wholesale Energy Market Integrity and Transparency (REMIT) to ensure the proper functioning of gas markets. A Gas Market Task Force has been set up for this purpose which will conclude its work in Q4 2025. 

Lead markets to solidify the business case for decarbonisation

To enhance the business case for decarbonising industrial processes, the EC plans to work on measures to increase demand for clean products. This is one of the most innovative proposals included in the CID and a clear push towards a “Buy European!” principle. In the short-term, an Industrial Decarbonisation Accelerator Act (IDAA) to be proposed in Q4 2025 is set to introduce non-price criteria for the purchase of products from energy-intensive sectors. Such criteria could be applied in public and private procurement as well as in EU funding. In addition, the IDAA will develop a basis for labelling the carbon-intensity of industrial products, eventually creating links to procurement policies. In the medium-term, in order to mainstream the use of non-price criteria and to consolidate provisions relating to public procurement from different pieces of legislation, the EC will propose a revision of the Public Procurement Directives in Q4 2026.

Public and private investments to support transformation projects 

To mobilise capital for industrial transformation, the EC plans to strengthen EU level funding, leverage private investment and improve the effectiveness of State Aid from Member States. The EC wants to provide short-term relief by mobilising EUR 100 billion through an Industrial Decarbonisation Bank to be set up in Q2 2026 and to be placed within the framework of the future Competitiveness Fund. In reality, this will not be “new” money, but rather a repurposing of existing funds, with  some degree of uncertainty(i.e. expecting more contributions from the Member States or more revenues from the EU’s carbon market – the EU ETS – which remains to be revised). It will fund capital expenditure as well as operational expenditure, including through carbon contracts for difference. A new Clean Industrial State Aid Framework (CISAF) is also expected to be presented by June 2025 with the aim of unlocking unique investment opportunities across four key sectors: renewable energy, carbon-intensive industry, manufacturing in clean technology and energy infrastructure. 

More circular economy to increase independence 

Advancing towards a more circular economy is seen as key for enhancing the EU’s resilience and reducing emissions. The EC stresses the key role of the Ecodesign for Sustainable Product Regulation (ESPR) to bring products to the market which are circular by design. To complement this product-level approach, the EC will propose a Circular Economy Act in 2026 to facilitate the free movement of and strengthen demand for circular products and secondary materials. The preparation of the Circular Economy Act shall be supported by a Clean Industrial Dialogue on Circularity in line with the Commission’s new commitment to hold regular policy dialogues with relevant stakeholders. When it comes to ensuring access to critical raw materials, the EC refers to the implementation of the Critical Raw Materials Act with the first list of Strategic Projects to be adopted in March 2025. Additional measures, including export fees, are also considered to increase recycling of critical raw materials within the EU.  

New trade agreements and fair competition 

Complementing Free Trade Agreements (FTAs), the EC intends to conclude Clean Trade and Investment Partnerships (CTIPs) which should support diversifying value chains and ensuring access to raw materials, clean energy and clean tech. The Commission aims to launch the first CTIP this month – potentially at the EU-South Africa summit taking place on 13 March.

Furthermore, the EC will work on ensuring a level-playing field for EU industry by reviewing the Carbon Border Adjustment Mechanism (CBAM) in the second half of 2025 and proposing legislative changes in the first half of 2026. At stake is potentially widening the scope to additional EU ETS sectors and downstream products, considering the inclusion of indirect emissions across all CBAM sectors and supporting exporters. In addition, the EC will propose measures to better align foreign investments with the EU’s industrial objectives. Equally relevant are guidelines on key concepts of the Foreign Subsidies Regulation that the EC plans to adopt by January 2026.[1]

Carbon management 

Although not taken up in a separate chapter, the CID underlines the importance of carbon management and points to the implementation of the Industrial Carbon Management Strategy adopted in 2024. The EC reiterates its plan to build the business case for carbon removals to compensate for residual emissions, including through the revision of the ETS in 2026. It also wants to widen the range of products considered to capture carbon and address the issue of double counting should waste incineration be included in the ETS.

Sectoral focus

The CID makes clear that the EU intends to take a sector-specific approach in this term and will prepare business plans tailored to the special needs of the following industries: automotive, steel and metal, chemicals, transport and bioeconomy. These sectors are expected to be the centre of attention of the EC during this term, given the de facto label of “critical” for the EU competitive industrial future, which is an important recognition. We expect the future sector-specific measures to focus on incentives and enablers in line with the new pro-competitiveness agenda of this term. Some of this sectoral work has already started. 

For the automotive industry, the EC already unveiled its Industrial Action Plan for the European Automotive Sector, which notably gives two more years to manufacturers to meet their 2025 emissions reduction targets while the promised the review of the combustion engine ban, expected to be relaxed to include alternative fuels, will come in Q3 2025 (instead of 2026). For the steel and aluminium sector, a first high-level dialogue already took place in early March 2025 while a dedicated Action Plan will be unveiled on 19 March 2025.

Next steps

While the majority of initiatives will commence in 2025, their nature and subsequent legislative procedures and timeframes differ. Legislative proposals such as the IDAA will undergo the ordinary legislative procedure with the Council and the European Parliament involved on an equal footing, which can lead to significant changes to initial ambitions. Furthermore, many of the initiatives announced in the CID simply build on existing legislation and will depend on its implementation in the Member States. In any case, the foundations for combining decarbonisation and competitiveness are now laid for the years ahead, with the CID representing the EU’s ‘north star’ in this respect. 
 

[1] A public consultation on the draft guidelines runs until 2 April 2025