Europe’s Green Transition Needs an Industrial Strategy
Six years after the Green Deal, the EU should complement climate targets with shorter value chains, European technological pathways and stronger common investment. A commentary by Marco Buti, and David Chiaramonti
European industrial policy has evolved through several distinct phases. In its early years, with the creation of the European Coal and Steel Community, the approach was explicitly sectoral.
Over time, however, the European Union shifted toward a horizontal model: instead of targeting specific industries, policymakers relied on enabling frameworks — competition rules, single-market integration and regulatory standards — while leaving the market to select winners.
The European Green Deal preserved this horizontal approach but introduced a strong “green twist”, intended to accelerate industrial transformation toward climate neutrality.
Six years after its launch, however, it is necessary to recognise that the large-scale deployment of regulatory tools — quantitative targets backed by penalties, and changes in relative prices through instruments such as the Emission Trading System (ETS) and the related Carbon Border Adjustment Mechanism (CBAM) — has not produced the expected results at the scale and speed originally envisioned. In several cases, it has triggered adverse reactions.
The difficulty lies not so much in the objectives themselves as in the timelines and policy instruments chosen. Ambitious targets were established without a sufficiently robust assessment of their impact on industrial sectors and social groups, and without defining a sustainable pathway toward those targets.
What has probably been missing — or has proven insufficient — is a structured dialogue among European institutions, member states, businesses, social partners and academia that could have helped design less disruptive measures.
The automotive sector offers a clear example: the framework has largely relied on imposing technological solutions and financial penalties, some of which have already been postponed. The civil aviation sector risks following the same trajectory.
In today’s markedly different global context, European industrial policy should instead rest on three key principles.
First, shortening value chains. Reindustrialising Europe requires a strategy aimed at strengthening domestic production rather than relying on imports of strategic industrial goods. Security of supply chains and access to markets are becoming increasingly important, alongside the objectives of decarbonisation, in a global environment increasingly shaped by power politics.
Second, defining genuinely European technological pathways. The goal should not simply be to close the gap with the United States or China, but to promote technological solutions that combine efficiency, equity and sustainability. Europe already leads in many areas of green patents.
Abandoning the green transition would therefore be a strategic mistake, particularly because the sectors linked to decarbonisation offer some of the greatest opportunities for innovation.
Third, aligning regulation with the allocation of genuinely European resources. So far the EU has largely harvested the lowest-hanging fruit of the Draghi agenda, launching several omnibus packages aimed at simplifying administrative procedures but without accompanying them with significant investments in European public goods.
The risk is that an earlier imbalance — excessive regulation compensating for limited common resources — is now being replaced by the opposite response: limited funding combined with large-scale deregulation. Such a shift could not only undermine Europe’s leadership in the technologies and processes required for the transition but could also backfire on European industry itself. Firms from third countries, which face fewer regulatory constraints at home, may ultimately benefit the most from deregulation.
A renewed European industrial policy should therefore combine horizontal instruments with targeted sectoral policies, ensure coherence across territorial, national and European levels, and move from rigid quantitative targets toward credible roadmaps.
On 4 March the European Commission presented the Industrial Accelerator Act. The proposal is built on two pillars: European preference and low-carbon production.
The initiative mainly targets energy-intensive sectors and introduces preferential criteria for materials of European origin in order to access incentives and procurement schemes. It foresees mandatory shares of low-emission materials — for instance 25 per cent for aluminium, 5 per cent for cement, and 25 per cent for steel.
However, quotas and emission obligations alone are unlikely to be sufficient to revitalise industry if they are not accompanied by structural measures to support companies in strategic sectors.
This is therefore the right moment to open a broader debate — including, where strategically necessary, the possibility of structural support for selected industrial sectors — with the aim of shortening value chains and encouraging European reshoring.
Such decisions are delicate. Policymakers must define both the “what” — identifying strategic sectors with strong fundamentals that are seriously affected by the transition — and the “how”, in order to avoid creating a cycle in which industries repeatedly demand new subsidies.
If well governed and carefully designed, the transition can become one of the most powerful engines of innovation and competitiveness.
Europe’s new industrial policy must therefore combine regulatory instruments, common resources and vertical coordination across levels of governance. Timelines should be aligned with the scale of the ambition, while intermediate reviews should ensure both progress toward objectives and the credibility of the chosen roadmap.
Above all, the European dimension must remain central. Allowing national political reflexes to dominate would fragment the single market, reduce Europe’s critical mass in global competition and ultimately favour the countries with the largest fiscal capacity.
A previous version of this article was published by Il Sole 24 Ore
IEP@BU does not express opinions of its own. The opinions expressed in this publication are those of the authors. Any errors or omissions are the responsibility of the authors.
