How to build and fund a better EU green industrial policy

This new study shows that Europe’s clean tech industry is a bright spot for a continent fretting about its declining competitiveness. The report proposes a strategy for the EU to revamp its industrial policies, ensuring the EU does not cede clean tech leadership to China as Trump’s America backtracks from decarbonisation goals.

The study highlights that the EU leads in highly specialised technologies for electrification, and it is rapidly expanding its presence in global exports of hybrid and electric vehicles. Europe already boasts many clean tech production facilities. But the Trump administration’s looming tariffs and the rollback of Biden’s green subsidies will hit key European exports, from electric vehicles to wind turbines. Meanwhile, China continues to expand clean tech exports while cutting its imports, siphoning demand away from EU producers both at home and globally. EU-based businesses also face higher energy prices than their Chinese and American counterparts. 

The EU’s existing measures need to evolve to meet these challenges. The EU’s funding programmes are generic as opposed to sector-specific, and while R&D is generally well supported, manufacturing of innovative clean tech is less so. The study outlines how the EU can revamp its green industrial policy while managing unavoidable trade-offs. Public subsidies and import tariffs should be limited solely to sectors whose competitiveness can be realistically defended or restored. The EU should also avoid firm-specific handouts by deploying sector-wide interventions like consumer subsidies and infrastructure funding. Creating larger firms to capture economies of scale may be needed in industries where global oligopolies may arise. 

Europe should not let China’s subsidised competition exploit its demand incentives. The EU’s recent Competitiveness Compass rightly proposes that public procurement should follow a buy-European approach. This approach can boost local production and ensure coherence across the single market. A common EU-level fund for strategic investments is needed to alleviate the risk of distortive subsidy races between EU Member States.

For more information, please contact Anton Möller.