'Clean Industrial Deal' does not mark the urgently needed change of course: climate neutrality only works as a business model with a maximally competitive location

The European Commission today presented the 'Clean Industrial Deal' (CID). The aim: Europe must continue to drive forward its decarbonization while ensuring its competitiveness.

This applies in particular to competitive energy costs, raw materials, the circular economy, financing the transformation and the conclusion of free trade agreements. "It is good and important that the European Commission has finally recognized the need for action - and is addressing this accordingly with the CID," VDA President Hildegard Müller said. "The suggested approach of considering climate and competitiveness together is also fundamentally correct. Unfortunately, however, important points are dealt with too vaguely, or not at all - or they point in the wrong direction. The 'Clean Industrial Deal' rather shows that the Commission is sticking to regulatory instruments instead of giving the economy urgently needed freedoms."

Correct tendencies, but lack of concreteness

The Commission is explicitly addressing high energy prices, including with a newly launched Affordable Energy Action Plan. The power purchase agreements contained therein and the pressure on member states to further reduce state price components are steps in the right direction. However, the CID remains too vague on the financing and implementation of cross-border grid expansion projects. The Grid Package planned for 2026 must therefore contain binding measures for the financing and implementation of cross-border grid expansion projects. The same applies to the hydrogen economy: apart from the announcement that criteria for low-CO₂ hydrogen will be adopted, the communication unfortunately also lacks sufficient proposals that could give new impetus to the recently stalled ramp-up. This includes finally applying pragmatic requirements to green hydrogen from renewable electricity. The current regulations do not mobilize investment across sectors and should therefore be revised as soon as possible. In addition, the 'European Hydrogen Bank' must be strengthened to ensure reliable financing and prospects for the hydrogen ramp-up. Last but not least, the Commission must make significantly greater efforts to further diversify energy imports and develop new energy partnerships. Otherwise, Europe risks falling further behind in terms of energy prices.

It is encouraging that the CID is planning for a rapid implementation of the Critical Raw Material Act (CRMA). The new measures mentioned correspond to the Joint Purchasing Mechanism from the CRMA and therefore do not represent a new industrial policy measure. But this is precisely what is needed to achieve the benchmarks. In this respect, the CID is disappointing.

The CID is also falling short of requirements when it comes to the circular economy. The Commission's current legislative proposals on the circular economy do not promote the competitiveness of the automotive industry - quite the opposite. High recycled material usage quotas that cannot currently be covered by the market and mandatory dismantling requirements for components for which there is no demand are cost drivers and tie up capital that is actually needed for the transformation.

Improvements to subsidies necessary

The transformation towards climate neutrality requires greater investment from industry than ever before. It is therefore welcome that a follow-up regulation is being created for the current state subsidy framework ('Temporary Crisis and Transition Framework', TCTF), which expires at the end of 2025. According to current plans, however, the CID state subsidy framework will largely be a continuation of the TCTF. Although this takes into account "batteries", it does not take into account "hydrogen technologies, including fuel cells" or "electric drive technologies and electric charging technologies for transport", as addressed in the Net Zero Industry Act, which was intended at the time as a supplement to the TCTF. The Commission urgently needs to improve this.

Europe must be an advocate of free trade – protectionism is not the right instrument

When it comes to the issue of 'global markets', the Commission is committed to open and rule-based trade and is explicitly striving for further free trade agreements. At the same time, however, it is bringing new instruments into play with tariff increases for 'unfair trade practices' and 'local content' requirements, with which it appears to be recalibrating its foreign trade strategy a little further away from open markets and towards protective instruments. The announced expansion of the CO₂ border adjustment mechanism to other product groups is a fatal signal in this regard.

"Such instruments can affect the globally active automotive industry. Trade protection measures must therefore not be abused for protectionism, but only taken in consultation with the industry concerned in the event of genuine market distortions," Müller explained. "Other instruments are more suitable for responding to the current challenges."

The comments on green lead markets are particularly critical: the demand from automobile manufacturers and suppliers for 'green' or CO₂-reduced steel is already very high. Nevertheless, quotas and purchase commitments seem to be the method of choice in the Commission. This strategy fails completely, as the reason for the underuse of 'green' steel is not the automobile industry as its consumer, but the insufficient supply. For this reason, regulatory instruments such as purchase quotas or material-specific usage quotas do not solve the problem. Instead, the costs of transforming individual industries would be passed on to downstream companies - and that would mean an enormous additional burden and ultimately make the products more expensive for consumers. Instead of quotas, green lead markets should therefore be incentivized by supply-oriented instruments such as 'carbon contracts for difference'.

"The EU Commission still needs to improve its program in many areas, as otherwise the current economic crisis could even worsen in some areas. This also applies to the planned approach for calculating 'product carbon footprints'. In the current proposal, the European Commission is depriving companies of any scope for action to decouple themselves from the CO₂ intensity of the national energy mix by purchasing green electricity, which leads to serious location disadvantages for existing production sites," Müller summarized.