Between 2020 and 2026, the European Commission enacted the most concentrated burst of strategic industrial legislation in its history. Three shocks drove the shift: COVID-19’s supply chain exposure, Russia’s weaponisation of energy dependency, and the US IRA’s $370 billion subsidy challenge. Brussels moved from market-liberal orthodoxy to what von der Leyen calls ‘open strategic autonomy.’ The six instruments below are the operational core of that shift.
Sources: European Commission Regulations 2023/956 (CBAM), 2023/1781 (Chips Act), 2024/1252 (CRMA), 2022/2560 (FSR), 2024/1735 (NZIA) | EC Joint Communication on EU Economic Security, Dec 2025 | Bruegel Policy Brief: ‘Strategy to Doctrine’, Jan 2026 | WEF CBAM Analysis, Dec 2025 | European Court of Auditors Report on Chips Act, Apr 2025 | Intereconomics: CRMA Analysis, 2025 | Tandfonline: EU Industrial Policy, 2026 | RESourceEU Action Plan, Dec 2025 | Global Policy Watch, Dec 2025
The Strategic Turn: From Open Market to Economic Security State
EU industrial policy changed course in June 2023 when the Commission published its first explicit Economic Security Strategy, formally acknowledging that economic openness can be weaponised. The Draghi Report (September 2024) quantified the gap: Europe faces an €800 billion annual investment deficit relative to the US and China across digital, clean energy and defence. The response has been a legislative programme repurposing trade, competition and industrial policy toward one objective: reducing strategic dependency while preserving the single market.
Academic analysis calls this ‘securitisation of industrial policy’ — recasting economic decisions in the language of resilience and sovereignty (Tandfonline, 2026). The December 2025 Joint Communication went further: proactive use of the EU ‘toolbox,’ repurposing instruments beyond their original scope, and a new Economic Security Information Hub to centralise supply chain intelligence. Six instruments define the strategy’s operational architecture.
Tool 1: Carbon Border Adjustment Mechanism (CBAM)
📅 Status: Transitional phase ended 31 Dec 2025; definitive regime from 1 January 2026 (EC Regulation 2023/956; CBAM Review Report, Dec 2025)
🏭 Sectors: Cement, steel, aluminium, fertilisers, electricity, hydrogen — >50% of ETS emissions at full scope (European Commission Taxation & Customs)
CBAM is the EU’s most structurally novel trade instrument: a carbon price on imports equivalent to the EU ETS charge domestic producers pay, eliminating the advantage of producing in low-regulation jurisdictions. From 1 January 2026, importers must purchase CBAM certificates at the ETS price (~€65–70/tonne in early 2026); first annual declaration due May 2027. The mechanism phases in to 100% of the ETS price by 2035.
CBAM protects EU steel, aluminium and cement from carbon-cost arbitrage and creates global regulatory pressure: since October 2023, carbon pricing instruments worldwide rose to 80 across 95 jurisdictions, covering 28% of global GHG emissions (EC CBAM Review, December 2025). On 17 December 2025, the Commission proposed extending scope to downstream products and tightening anti-circumvention rules. WTO challenges from the BASIC group and India’s formal dispute proceedings remain the principal legal vulnerability.
Tool 2: EU Chips Act
💰 Investment mobilised: €43 billion in public and private investment; €31.5bn in approved state aid decisions (EU Chips Act press release, Apr 2025)
📊 Market share target: From 10% to 20% of global semiconductor production by 2030 (EC Regulation 2023/1781)
The Chips Act (September 2023) was a direct response to the 2021–22 semiconductor shortage that halted European automotive lines, exposing near-total dependence on Taiwan and the US. Its three pillars — R&D and pilot lines, greenfield fab state aid, and a crisis monitoring mechanism — target doubling Europe’s global semiconductor market share from ~10% to 20% by 2030.
The record is mixed. Chips for Europe has committed 85% of its budget across five pilot lines (€3.7 billion). But the flagship Intel Magdeburg fab — €10 billion in German subsidies — was cancelled in 2024. The European Court of Auditors (April 2025) concluded the Chips Act is ‘very unlikely’ to reach its 20% target by 2030. The March 2025 Semiconductor Coalition of nine member states signals political will for deeper coordination to close the gap.
Tool 3: Critical Raw Materials Act (CRMA)
🗺 Scope: 34 critical raw materials; 17 strategic raw materials including lithium, rare earths, cobalt, manganese (EC Regulation 2024/1252, April 2024)
🎯 2030 benchmarks: 10% extraction; 40% processing; 25% recycling of annual EU consumption from EU sources (CRMA Article 1; EC RESourceEU Dec 2025)
China controls ~60% of rare earth processing, 70% of lithium refining and 80% of silicon production. The CRMA (April 2024) establishes binding benchmarks and fast-track permitting — 27 months for extraction, 15 for processing — to accelerate domestic supply. The Innovation Fund’s 2024 call awarded €376 million to five Strategic Projects, including the Polvolt battery recycling facility in Poland.
The December 2025 RESourceEU Action Plan added a Critical Raw Materials Centre for demand aggregation and stockpiling, joint purchasing mechanisms, and integration of CRMA Strategic Projects into the FDI Regulation by Q2 2026 to screen foreign investment in EU extraction and processing. The principal barrier remains societal: lithium projects in Portugal and France face community opposition that permitting reform alone cannot resolve (Intereconomics, 2025).
Tool 4: Foreign Subsidies Regulation (FSR)
⚖️ In force: January 2023; notification thresholds: M&A with EU turnover €500m+ and subsidy €50m+; tenders €250m+ (EC Regulation 2022/2560)
🔎 Scope: Any company receiving non-EU state subsidies that compete in the EU single market — no nationality exemption (EC FSR Technical Guidance 2023)
Before 2023, EU state aid rules constrained European companies but imposed no equivalent constraint on foreign state-backed entrants. The FSR closes this gap: M&A above the notification thresholds and public tender bids above €250 million are subject to Commission review; the Commission may impose remedies, prohibit transactions or disqualify tenderers.
The first formal FSR investigation targeted a Chinese consortium’s Romanian rail tender bid (2024); proceedings have also been initiated against BYD and other Chinese EV-adjacent suppliers. The December 2025 Communication integrated FSR into the economic security framework to address ‘distortions that create or deepen strategic dependencies.’ For EU investors, the practical consequence is clear: any acquisition involving a state-backed non-market-economy counterpart now carries FSR review risk.
Tool 5: FDI Screening Regulation
🛡 Scope: Critical infrastructure, semiconductors, dual-use tech, media, defence, AI, data, space (EC Regulation 2019/452, enhanced Dec 2025)
🇪🇺 National frameworks: ~20 EU member states now have national FDI screening regimes; EU-level cooperation mechanism operational (EC Dec 2025 Communication)
The FDI framework (operational since October 2020) provides a cooperation mechanism for member states to share information on transactions affecting European security. Unlike the FSR, which targets subsidy distortions, FDI screening targets ownership and control risks: foreign acquisition of strategic assets in semiconductors, critical infrastructure, AI, defence supply chains and data.
The December 2025 Communication added a third economic screening criterion: investments bringing ‘limited technological upgrading, little local value creation or primarily relying on imported labour.’ This new test — flagged by EVP Séjourné before publication — significantly broadens potentially blockable transactions. Integration of CRMA projects by Q2 2026 extends screening to foreign investment in EU extraction and processing assets, directly targeting Chinese positions in European lithium and rare earths.
Tool 6: Net Zero Industry Act (NZIA)
🏭 Strategic technologies: Solar, wind, batteries, heat pumps, electrolysers, biogas, CCS, grid technology — 8 categories (EC Regulation 2024/1735, June 2024)
🎯 Target: 40% of EU annual deployment needs in each technology to be met by EU domestic manufacturing by 2030 (NZIA Article 5)
The NZIA (June 2024) is the EU’s direct answer to the IRA’s $370 billion clean energy subsidy challenge. It sets binding 40% domestic manufacturing targets across eight technologies, caps permitting at 12 months (18 for complex sites), and introduces ‘resilience contribution’ scoring in public tenders that explicitly favours EU-manufactured products over imports from non-diversified supply chains.
Together, the CRMA and NZIA attempt to build vertically integrated clean-tech supply chains: the CRMA secures raw material inputs; the NZIA targets component and assembly manufacturing. The stress test has already arrived: Northvolt’s bankruptcy in early 2025 — a company built on IPCEI subsidies to create a European battery chain independent of Chinese components — demonstrated that policy ambition and commercial execution do not always align (Bruegel, January 2026).
The EU Strategic Industry Protection Toolbox: At a Glance
| Tool | Adopted | Sector Focus | Key Metric / Status |
| CBAM | Oct 2023 (transit.) Jan 2026 (definitive) | Steel, aluminium, cement, fertilisers, electricity, hydrogen | Definitive regime from 1 Jan 2026; >50% of ETS-covered emissions when fully phased in (2035) |
| EU Chips Act | Sept 2023 | Semiconductors | €43bn mobilised; €31.5bn approved; 9 member states Semiconductor Coalition (Mar 2025) |
| Critical Raw Materials Act | April 2024 | 34 critical, 17 strategic raw materials | Benchmarks: 10% extraction, 40% processing, 25% recycling of annual EU consumption by 2030 |
| Foreign Subsidies Regulation | Jan 2023 | All sectors (M&A + public tenders) | Probing power on subsidies ≥ €45m; first formal investigations launched 2024 |
| FDI Screening Regulation | Oct 2020 (updated 2025) | Critical infra, tech, media, defence | EU-wide coordination framework; ~20 member states with national screening regimes |
| Net Zero Industry Act | June 2024 | 8 strategic net-zero technologies | Target: 40% EU domestic manufacturing capacity for each technology by 2030 |
Sources: EC Regulations 2023/956, 2023/1781, 2024/1252, 2022/2560, 2019/452, 2024/1735 | EC Dec 2025 Economic Security Communication | Bruegel Jan 2026 | European Court of Auditors Apr 2025.
Conclusion: A Toolbox With Power — and Limits
The six instruments represent a coherent shift — from an EU that policed state intervention to one that practises it. But Bruegel’s January 2026 assessment identifies the structural tension ahead: securitisation has outpaced formal legal change, and fiscal constraints mean the EU cannot match US or Chinese subsidy scale. The Chips Act flagship fab was cancelled; Northvolt is bankrupt; lithium permitting faces community opposition. Policy design is not execution.
For EU investors and corporate strategists: CBAM raises the cost of carbon-intensive imports from 2026 and advantages EU low-carbon producers; the FSR adds due diligence requirements for any state-backed counterpart; FDI screening now includes economic value creation criteria; the CRMA and NZIA set supply chain targets that will shape procurement and financing access through the 2030s. The EU’s strategic industry agenda is incomplete and not guaranteed to succeed — but it is now structural, legally binding and politically durable in a way no previous EU industrial policy has been.
