The document addresses EU industrial policy in the context of the transition to a climate-neutral economy. It highlights that EU industrial policy should support the transformation of the European economy towards a fair and prosperous society with a modern, efficient and competitive economy with no net greenhouse gas emissions by 2050.

The document identifies two key aspects of industrial climate policy:

• Transformation of existing energy-intensive industries
• Development of clean technology value chains.

The authors argue that these two areas should be discussed together and that policies should unlock synergies between them. For example, traditional industries rely on key clean technologies to decarbonize (for example, to ensure sufficient green electricity), while cleantech players hope to find domestic early adopters to accelerate the deployment of innovative technologies.

The document further analyses the current state of transformation and competitiveness in EU industry in these two areas. It notes that EU industry has its strengths in both areas. For example, in the area of wind energy, the EU has more than 80 % of domestic production out of the total wind energy capacity deployed in the EU. In the case of solar energy, the paper suggests that instead of seeking market power in lower value-added subsectors, the EU should focused on building a leading position in the provision of engineering solutions, software and financial products.

The document identifies Several obstacles to successful industrial transformation, including uncertainty about public support, regulatory barriers and lack of access to capital.

The document further explores the EU industrial policy toolbox and identifies several shortcomings.

• Financial volumes are insufficient, especially compared to investment needs.
• Existing EU funds are not sufficiently accessible and are managed by risk-averse public institutions.
• The EU performs relatively well in R&D spending, but there is a large gap in supporting scale-up and deployment.
• The EU relies heavily on subsidies at the level of Member States, leading to efficiency losses and risks of political and economic fragmentation.

Based on these findings, the paper proposes a set of principles for EU industrial policy that should be aimed at addressing specific market failures. These principles include:

• Focusing on areas where industrial policy brings added value.
• Developing policies that address value chains and market integration.
• Designing and implementing support measures at EU level.
• Allocation of support through competitive mechanisms.
• Equipping policies with clear terms and sunset clauses.
• Integrating EU industrial policy into the strategy for outreach and diplomacy, bilateral cooperation and trade.

Finally, the document discusses the trade-offs that exist in achieving different industrial policy objectives, such as decarbonisation, competitiveness or security. The authors emphasise that The EU should focus on innovation, intelligently reduce risks and support job creation in clean technology value chains.

The document ends several recommendations for policymakers, such as the need for clearer priorities, better coordination at EU level and sufficient and reliable funding. Download the full document here.  Spring