European Commission Unveils Clean Industrial Deal

On 26 February 2025, the European Commission (the Commission) unveiled the Clean Industrial Deal (the Deal), a strategy designed to bolster Europe’s industrial competitiveness while advancing decarbonisation efforts. The Deal seeks to integrate climate action with industrial, economic, and trade policies to position Europe as a leader in innovation and sustainable growth. The strategy is part of the Commission’s response to rising geopolitical tensions, slow economic growth, and technological competition, and emphasises the need for a robust industrial component in a resilient economy.

A Roadmap for Decarbonisation and Competitiveness

The Deal commits to achieving a decarbonised economy by 2050, with an intermediate target of a 90% reduction in emissions by 2040 relative to 1990. The strategy focuses on two closely linked 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 prioritised as a means to maximise the EU’s limited resources, reduce waste, lower production costs, and create a more sustainable industrial model.

Affordable Energy and Infrastructure

Securing affordable energy is a cornerstone of the Deal and is essential for the competitiveness of European industry, particularly energy-intensive sectors. The EU aims to reduce energy costs by accelerating electrification, integrating clean energy sources, and enhancing 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 roll-out of clean energy and ensure well-functioning gas markets. Digitalisation, including AI-driven smart grids, is predicted to play a key role in ensuring energy systems integration and improving demand-side flexibility.

In addition, 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. There will also be a grid investment package worth €1.5 billion, which will again include EIB counter-guarantees.

Lead Markets and Clean Technologies

The Deal emphasises the creation of lead markets for clean technologies and products, driving demand and incentivising industries to transition to 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 foster clean European supply for energy-intensive sectors. Stakeholders hope these criteria will strengthen demand for EU-made clean products, promoting innovation and ensuring a level playing field. The Deal also focuses on promoting the uptake of renewable and low-carbon hydrogen, essential for decarbonising the EU energy system.

Investment for Industry

Significant investment is required for the clean transition; indeed, the EU plans to mobilise more than €100 billion to support clean manufacturing and industrial decarbonisation. The Clean Industrial Deal State Aid Framework will look to simplify rules to encourage private investment, providing Member States with a longer planning horizon and businesses with more 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 promised to set up an Industrial Decarbonisation Bank, similar to the existing Hydrogen Bank. Under this programme, companies submit bids for subsidies as part of an auction process and the most competitive bids, subject to certain conditions, are allocated Opex subsidies for a number of years. 

The Hydrogen Bank receives revenue from the EU Innovation Fund, which, in turn, is funded by money raised through the EU’s carbon market (EU ETS), and the Industrial Decarbonisation Bank also is expected to receive revenue via the Innovation Fund. An initial pilot auction is due to kick off with a budget of €1 billion, though how this initial approach will scale up to the Commission’s claim of €100 billion is not yet clear.

InvestEU is the EU's primary tool for leveraging private funding, having mobilised 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 like clean tech and energy infrastructure. EIB will use 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: A Secure Access to Materials and Resources

The Deal places circularity at the core of its 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 said 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 incentivise 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 industrialisation 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. An explicit aim of the Commission is to simplify the Carbon Border Adjustment Mechanism (CBAM) to reduce administrative burdens and incentivise 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.  See this Latham article for more detail.

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 mobilisation 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

Most of the EU’s effort will focus on directing national funding to the Deal in a number of references to taxation systems. The Commission will push for national governments to cut energy-related taxes for industry, but, notably, this is not an EU competence. The Deal instead states the Commission will simply present a recommendation on this point, not a legislative proposal.

The Commission is anticipated to continue to push for reform to state aid rules, expected by June 2025. This includes improving 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 decarbonisation 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.

Latham & Watkins will continue to monitor developments related to the Clean Industrial Deal and provide updates as necessary.