EU Industrial Policy

The IRA forced Europe's hand. Within months of the IRA's passage, the EU announced the Net Zero Industry Act (NZIA, 2023), the Critical Raw Materials Act, and the Green Deal Industrial Plan. Europe shifted from climate-policy-as-regulation to climate-policy-as-industrial-strategy, explicitly because American subsidies were pulling investment across the Atlantic.

The NZIA targets. By 2030, the EU aims to manufacture domestically at least 40% of its annual deployment of clean energy technologies (solar panels, batteries, heat pumps, electrolyzers). Current domestic manufacturing share: roughly 10% for solar, 25% for batteries. The gap between target and reality requires roughly EUR 170 billion in new manufacturing investment.

The EU's structural disadvantage. The US can offer unified federal subsidies. The EU must coordinate 27 member states, each with different fiscal capacity and industrial priorities. Germany can match US subsidies; Bulgaria cannot. State aid relaxation (allowing national subsidies that would normally violate EU competition rules) risks fragmenting the single market: rich countries subsidize their industries while poor countries lose investment.

Can the EU match the IRA without undermining its own single market?

Not easily. The IRA is a single federal program with uniform credits. The EU's response is a patchwork of national programs, EU-level frameworks, and relaxed competition rules. This fragmentation means European clean energy manufacturers face different subsidy levels depending on which country they are in, potentially driving investment to Germany and France while leaving Southern and Eastern Europe behind.

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