EU – The European Commission’s Clean Industrial Deal: Reconciling Competitiveness And Decarbonization.

What You Need to Know

• Key takeaway #1A new Clean Industry State Aid Framework (CISAF) will replace the Temporary Crisis and Transitional Framework (TCTF) and provide a permanent framework for State aid specifically for renewable energy and industrial decarbonization.
• Key takeaway #2A revision of the EU public procurement framework will generalize non-price criteria related to sustainability and resilience in public procurement.
• Key takeaway #3Trade defense instruments, such as anti-dumping and anti-subsidy investigations, will be made more effective by shortening investigation timelines and making greater use of ex officio investigations.

On February 26, the European Commission presented its Clean Industrial Deal (CID). As a follow-up to the European Green Deal, the CID aims to strengthen the competitiveness of European industry while at the same time accelerating the decarbonization of the economy. 

Building on the Draghi Report on European competitiveness published last September, the CID articulates a comprehensive strategy around six “business drivers”: 

• Ensuring access to affordable energy; 

• Boosting demand for decarbonized products; 

• Stimulating public and private investment in the clean transition; 

• Securing access to critical raw materials and promoting circularity; 

• Ensuring a level playing field with non-EU competition while fostering international partnerships; and 

• Reskilling the workforce. 

The CID also sets out several key performance indicators (KPI) related to these business drivers, such as increasing the economy-wide electrification rate from 21% today to 32% in 2030, and reaching 40% of domestically produced key components of clean tech products on the EU market. 

In this alert, we focus on the impact of the CID on three key areas: (1) State aid; (2) public procurement and (3) international trade and investment relations. 

1. State aid: simpler rules to support investment in green energy and decarbonizationTo reduce energy bills and boost investment in clean technologies, the Commission proposes simplifying the State aid rules.The CID is accompanied by a draft Commission Communication on a framework for State aid measures to support the Clean Industrial Deal (Clean Industrial Deal State aid Framework, CISAF). The main objective of the CISAF is to support investment in green energy and the decarbonization of the economy by enabling necessary and proportionate State aid to overcome barriers to investment in sustainable projects, while “crowding in” private investment.The draft CISAF, which is still subject to change, contains provisions for the following types of aid measures: 

1. Measures accelerating the roll-out of renewable energy; 

2. Measures facilitating industrial decarbonization; 

3. Measures ensuring sufficient manufacturing capacity in clean technologies; and 

4. Measures to de-risk private investments in renewable energy, industrial decarbonization, clean tech manufacturing and energy infrastructure. 

The CISAF will provide Member States and businesses with more predictability for investments contributing to the objectives of the CID. It will allow quick approval of State aid measures for decarbonization and clean tech projects, by making it easier to demonstrate compatibility, and by allowing a wider use of simplified methods (in the place of complex individual assessments) to set aid amounts. Certain standard requirements, such as using a bidding process (i.e., tenders) to allocate aid, will be eased, among others to support less mature technologies such as green hydrogen.According to the Commission, the simplified compatibility conditions compared to other existing State aid guidelines, notably the 2022 Guidelines on State aid for climate, environmental protection and energy (CEEAG), are necessary to enable and accelerate investment in certain specific activities. The compatibility conditions outlined in the draft CISAF Communication are based on the Commission’s case practice and experience, including in relation to the application of the Temporary Crisis and Transition Framework (TCTF), which was put in place after the start of the full-scale war in Ukraine, and which will be phased out by the end of 2025.In order to avoid a subsidy race between countries, the draft CISAF provides that aid cannot be conditional on the relocation of an activity of the beneficiary from one country within the EEA to the country granting the aid.Although the CISAF does not cover nuclear aid, the draft provides that the Commission will conduct a timely assessment of State aid for nuclear supply chains and technologies, including for small modular reactors.Interested parties can submit comments on the draft CISAF Communication until April 25, 2025. Adoption is planned for June 2025, and, once adopted, the CISAF will replace the TCTF and should remain in force until 31 December 2030.Besides implementing the new State aid framework, the Commission also plans to simplify existing State aid rules: 

5. The upcoming review of the General Block Exemption Regulation (GBER) should significantly reduce the administrative burden on both businesses and Member States; 

6. The Commission is also evaluating the Guarantee Notice, to assess if it is still a sufficiently clear and predictable framework for granting state guarantees. 

The Commission will also work with the Member States to speed up the design of new important projects of common European interest (IPCEI), and assess targeted changes to the IPCEI definition to strengthen the efficiency of the tool to support industrial decarbonization and the scale up of clean tech manufacturing in the EU.Beyond the reform of the State aid rules, the Commission also stresses that it stands ready to provide guidance to companies on the compatibility with antitrust rules of cooperation projects that contribute to the achievement of EU priorities (particularly those related to innovation, decarbonization and economic security in the EU).In addition, the Commission plans to revise its merger guidelines to ensure that the impact of mergers on the affordability of sustainable products and on clean innovation, and their potential to create efficiencies with sustainable benefits, are better integrated in the competition analysis.Finally, the Commission will encourage Member States to ensure that their tax systems do not give fossil fuels an advantage over clean energy, but support a clean business case, for example, through shorter depreciation periods for clean technology assets and the use of tax credits for businesses in strategic sectors for the clean transition. To the extent such measures involve State aid, the new State aid framework will integrate such instruments in its compatibility rules. The Commission will also recommend further action to phase out fossil fuel subsidies. 
 

2. Public procurement: mainstreaming non-price criteria and introducing European preference requirementsThe CID aims to position the EU as a global leader in the clean transition by stimulating demand for clean technologies and products. Public procurement policies can contribute to this by mainstreaming non-price criteria for sustainability and resilience and EU content requirements, thereby aligning public spending by the Member States with the EU’s broader decarbonization and competitiveness agenda.An Industrial Decarbonization Accelerator Act (IDAA), likely to be proposed in Q4 of 2025, should increase demand for EU-made clean products by introducing sustainability, resilience and “made in Europe” criteria in both public and private procurements. The act will build on the experience of the Net Zero Industry Act (NZIA), which already provides for mandatory non-price criteria in public procurement procedures for clean technologies and renewable energy auctions (like solar or wind farms).The IDAA will also provide for a voluntary label on the carbon intensity of industrial products, starting with steel in 2025. A label for cement will be created under the Construction Products Regulation.The Commission also plans to propose a revision of the EU public procurement framework by Q4 of 2026, which would generally allow for sustainability, resilience and European preference criteria in EU public procurement for strategic sectors. The current framework still places most emphasis on price criteria, while “made in Europe” requirements have not typically been a feature of public procurement in the EU.In addition, the Commission hopes to extend the use of sustainability and resilience criteria to private procurement, with incentives such as life-cycle based CO₂ emission performance standards. The Commission will also assess how to include such non-price criteria in relevant product legislation, as well as building codes. According to the Commission, product labelling for industrial products can be a powerful tool to speed up the transition to decarbonized manufacturing and ensure that manufacturers can reap the “green premium”. Linking the label to public procurement will encourage manufacturers to use it. 
    

3. International trade and investment: reducing dependence on non-EU suppliers, diversifying supply chains, cutting red tape and ensuring a level playing fieldThe Commission recognizes that Europe needs to enhance its strategic autonomy by reducing its exposure to unreliable (third-country) suppliers and preventing supply chain disruptions. It proposes a strategy including measures to: 

1. Secure access to critical raw materials that are essential for the green transition and for which the EU is heavily dependent on a limited number of third-country suppliers; 

2. Remove obstacles to a circular economy; 

3. Ensure diversified and resilient supply chains by entering into international partnerships. 

To achieve the first objective, the Commission will prioritize the implementation of the Critical Raw Materials Act (CRMA) introduced in April 2024. In particular, it will unveil in Q1 of 2025 the first list of “strategic projects”, after the receipt of 170 applications. These strategic projects are supposed to make a meaningful contribution to the security of the EU’s supply of strategic raw materials in a sustainable manner, and they will benefit from a priority status allowing them a shorter permit-granting process.In addition, the Commission will build on an idea from the Draghi report and set up a dedicated EU Critical Raw Material Centre to jointly purchase raw materials on behalf of interested companies and in cooperation with the Member States. This project should see the light of day in late 2026.The Commission also plans to adopt a Circular Economy Act in 2026 to accelerate the circular transition and ensure that scarce materials are used and reused efficiently.Nevertheless, many of the critical raw materials that are essential for the green transition will still need to be sourced from outside the EU. The Commission therefore seeks to continue to conclude free trade agreements (FTAs) with third countries to make supply chains more diversified, resilient and secure. Currently, the Commission is negotiating with India, Indonesia, and the Philippines. It also intends to fully implement FTAs that are currently only provisional, such as the CETA with Canada. Clean Trade and Investment Partnerships (CTIP) will complement these FTAs, allowing for a faster, more flexible, and more targeted approach to forging mutually beneficial partnerships.In addition, the Commission proposes substantially simplifying the Carbon Border Adjustment Mechanism (CBAM) to reduce the administrative burden on industries and their supply chains. Data collected to date indicates that a limited number of importers account for more than 99% of greenhouse gas emissions embedded in imported goods. The Commission therefore proposes to introduce a de minimis threshold, as a first step to make the CBAM more effective. A comprehensive review of the CBAM in the second half of 2025 will be followed by a legislative proposal in the first half of 2026. Please refer to our client alert on the CBAM reform for more details.The Commission will propose measures to ensure that foreign investments in the EU, especially in strategic sectors, contribute to economic growth, innovation and jobs without compromising Europe’s economic security. This may involve imposing conditions such as ownership of the equipment, EU-sourced inputs, EU-based staff recruitment, entering into joint ventures with EU companies, or intellectual property transfers. The ongoing review of the Foreign Direct Investment (FDI) Screening Regulation (see our previous alert) provides an opportunity to strengthen the EU’s FDI screening framework by reducing differences between national regimes and minimizing the risk of “forum shopping”.By January 2026, the Commission will also adopt guidelines on the key concepts underpinning the Foreign Subsidies Regulation (FSR), such as the determination of a distortion caused by a foreign subsidy or the application of the balancing test. The guidelines will also clarify in which circumstances the Commission may decide to review mergers under the FSR that do not meet the thresholds but nonetheless pose a risk to the level playing field in the internal market. Interested parties can give feedback to the Commission on the objectives, scope, etc. of the upcoming guidelines until 2 April 2025. The Commission intends to continue to make use of ex officio investigations under the FSR, as it has already done in relation to Chinese wind turbine suppliers and a Chinese security scanner company.To protect EU industries from unfair foreign competition and ensure that the EU market does not serve as a destination for state-subsidized overcapacity, the Commission will continue to make fast and efficient use of trade defense instruments (TDIs), such as anti-dumping and anti-subsidy investigations (as have already frequently been used in relation to Chinese imports). The Commission plans to sharpen existing TDIs, including through the shortening of investigation timelines or by making greater use of ex officio investigations (following the recent ex officio anti-subsidy investigation into battery electric vehicles from China). Although there is no mention of the anti-coercion instrument (ACI) or safeguard investigations, this does not mean that operators should not prepare for their use in the near future, in particular given the recent trade disputes launched by the U.S. 

For further information, please contact:

Karel Bourgeois, Partner, Crowell & Moring

kbourgeois@crowell.com