Is decarbonisation compatible with industrial competitiveness? As the European elections approach fast, it will be one of the guiding questions of the upcoming EU institutional cycle.

Julia Poliscanova is Senior Director for Vehicles and Emobility Supply Chains at the green NGO Transport & Environment. Simone Tagliapietra is a senior fellow at the thinktank Bruegel.

This question is also at the core of the reflections on the future of Europe’s economic competitiveness being undertaken by Former Italian Prime Minister and European Central Bank President Mario Draghi, who recently said in his speech at La Hulpe: “We rightly have an ambitious climate agenda in Europe and hard targets for electric vehicles. But in a world where our rivals control many of the resources we need, such an agenda has to be combined with a plan to secure our supply chain – from critical minerals to batteries to charging infrastructure.”

We fully agree with this call for a strong industrial policy in the automotive sector: one in four electric cars sold across the continent this year are expected to be built in China. Without further action this will continue to increase undermining the industrial and social fabric of Europe’s automotive heartlands in Germany and France, as well as Central Europe.

Europe is also scrambling to capture the valuable battery value chain amidst tough global competition. Faced with China’s strong state support and technology supremacy in the East and hefty subsidies from the United States in the West, a lot of Europe’s nascent companies are struggling to scale.

But it does not have to be this way. Europe has significant potential to be a global leader in the manufacturing of several clean technologies, starting with electric cars. European carmakers command well over half of global car sales, giving them the capital and brand recognition to succeed in the EV market. Europe can also be close to self-sufficient in lithium-ion batteries as dozens of gigafactories are being built across the continent.

But for this to happen, we need a smart green industrial policy based on these three aspects.

First, Europe must stick to the targets it has set itself. The EU is the world’s largest single market with over 400 million consumers ready to buy quality goods, making it attractive to invest in. But that investment will only follow if a clear political vision and long-term policy are in place.

That’s why the European Green Deal is the union’s single most important green industrial policy. For electric vehicles in particular, the 2035 goal to phase out combustion engine sales is critical for investment certainty. Around €80 billion has been invested into the EV value chain across Europe since 2021 alone.

But all this investment may be at risk if we spend the next five years questioning the direction, as some want to do. Questioning the EU or UK 2035 decisions to stop the sale of new fossil cars will do little to improve companies’ bottom lines or preserve their market shares.

From India to Chile, the world is fast going electric. Instead, the focus should be on executing this vision. This means doubling down on the charging roll-out, delivering more affordable electric car models and developing domestic clean battery supply chains at the frontier of innovation.

Second, the EU needs to leverage the power of its single market, as the Letta report has recommended. Enforcing stronger sustainability criteria can, for instance, reward local clean manufacturing.

Some European companies are already building batteries with some of the lowest carbon footprint globally. Both the upcoming EU methodology under the new battery law and the new Battery Fund should reward this and put in place strict CO2 benchmarks to foster market creation.

In addition, when it comes to the import of products from third countries, if unfair subsidies are found – following a proper fact-based assessment – higher tariffs on electric vehicles should correspondingly be introduced. Combined with a strategy to boost European supply chains and access to responsibly sourced minerals, this would create a pull to invest locally.

Third, the EU needs to ramp up its funding for innovative clean technologies with a new EU Green Investment Plan. In the coming years, the EU will need to develop a strong “federal” budget to support the deployment and manufacturing of clean technologies such as electric vehicle supply chains.

This can be done, for instance, by part-paying for projects that are critical for resilience or are aimed at scaling pan-European industrial production. Another example is strategic procurement, where EU funds can be used to part-fund national public procurement of innovative technologies and encourage their roll-out at EU scale without creating excessive costs for the government entities undertaking the procurement.

The next five years will be decisive to ensure that decarbonisation becomes an important industrial opportunity for Europe. A strong policy vision beefed up by a European Green Investment Plan and a sharper industrial policy are what it will take for Europe to succeed.