Can Europe compete in the green tech race?

Europe’s industrial base—once the beating heart of global production—is facing a moment of existential choice. As the green technology race accelerates, driven by climate imperatives and economic competition, Europe must ask: can it lead, or will it lag behind new industrial powers?. The continent’s traditional strengths—precision manufacturing, automotive innovation, and chemical engineering—are no longer sufficient in a world driven by electrification, AI, and clean energy. While the EU has made ambitious policy moves, from the Green Deal to the Net-Zero Industry Act, execution and speed remain Europe’s Achilles’ heel.

Meanwhile, the U.S. has unleashed the Inflation Reduction Act (IRA), a massive industrial policy shock that is drawing investment away from Europe with attractive subsidies and tax breaks. China, too, continues to dominate in battery production, solar panels, and supply chains for critical raw materials.

Europe must now reconcile its green ambitions with industrial pragmatism. This crossroads moment is not just about carbon—it’s about sovereignty, jobs, innovation, and economic identity in the 21st century.

Europe’s industrial strengths and burdens

Europe’s industrial base is deeply rooted in 20th-century paradigms—automobiles in Germany, chemicals in the Netherlands, machinery in Italy, and energy in Eastern Europe. These sectors built Europe’s prosperity but are now vulnerable in the face of digital disruption and green transformation.

Heavy industries are structurally challenged by Europe’s high energy costs, strict regulations, and fragmented markets. While the EU has led in climate policy, it has often failed to protect industrial competitiveness in parallel. The result is a slow bleed of investment and innovation to other continents.

Moreover, legacy infrastructure and employment models often resist change. Retooling factories, retraining workers, and reengineering value chains takes time and political will—resources that are in short supply in Brussels and beyond.

Yet Europe still possesses enviable assets: world-class engineering talent, industrial clusters, and some of the strongest environmental innovation patents globally. The question is whether it can align these assets toward a common green industrial vision before it’s too late.

 

The IRA shockwave: America’s bid for industrial supremacy

The U.S. Inflation Reduction Act (IRA), passed in 2022, is reshaping the global industrial playing field. With nearly $370 billion in subsidies and incentives, it offers an irresistible magnet for green tech investors and manufacturers.

European firms have already begun rerouting investments toward the U.S.—from battery plants to hydrogen projects—citing faster permitting, clearer regulation, and better financial returns. Even European champions like BASF and Volkswagen are reconsidering their domestic strategies.

The EU response, while conceptually ambitious, has lacked the immediacy and scale of the IRA. Brussels has proposed a Net-Zero Industry Act and a Critical Raw Materials Act, but these remain mired in bureaucratic compromise and uneven national support.

Unless Europe can match the U.S. in speed, clarity, and funding, it risks watching its industrial future unfold elsewhere—especially in high-growth sectors like EVs, electrolyzers, and semiconductors.

China’s green tech supremacy and the rare earth dilemma

China is not just a competitor—it’s the dominant player in many green technologies. It controls over 70% of global battery cell production, over 80% of rare earth refining, and leads in solar PV manufacturing and electric bus deployment.

For Europe, this poses both a strategic and industrial threat. Dependence on Chinese components undermines resilience and limits value-added production at home. Efforts to localize critical value chains—like rare earth magnet factories in France or battery gigafactories in Sweden—are only beginning to gain traction.

China’s ability to scale production, align government priorities, and integrate industrial ecosystems gives it a formidable advantage. Europe’s decentralized, consensus-based model makes it difficult to act with similar agility.

Without bold intervention, Europe risks becoming a consumer of Chinese green tech, not a producer. This would compromise its industrial sovereignty and weaken its bargaining power in global climate and trade negotiations.

 

Germany: The industrial giant under pressure

Germany’s industrial engine, long admired for its engineering excellence, is now under stress. The automotive sector is facing an existential pivot to electric vehicles, where German brands lag behind Chinese and American newcomers.

High energy prices—compounded by the loss of cheap Russian gas—have eroded competitiveness in key sectors like chemicals, glass, and metals. BASF, once a symbol of industrial resilience, has downsized domestic operations and is shifting focus to China and North America.

Yet Germany still leads in machine tools, robotics, and industrial automation. If harnessed properly, these capabilities can power a new era of green production—provided that policy, investment, and talent align quickly.

Berlin’s recent €200 billion energy subsidy plan is a step in the right direction, but more structural reforms are needed to accelerate permitting, streamline innovation funding, and rebuild confidence among industrial leaders.

France and southern Europe: betting on nNuclear and resilience

France offers a different model, centered around nuclear energy and state-led industrial policy. President Macron has positioned France as a green tech hub, with major announcements in EVs, batteries, and hydrogen.

The French approach—more centralized and interventionist—has allowed faster mobilization of public-private partnerships. Southern Europe, meanwhile, is leveraging EU Recovery Funds to modernize infrastructure and attract green investment in energy and logistics.

Spain and Italy are seeing a resurgence in solar deployment, green hydrogen trials, and battery assembly facilities. However, structural challenges—bureaucracy, skill gaps, and political volatility—still hamper scalability and long-term planning.

If these countries can consolidate early gains and connect them to pan-European value chains, they could emerge as anchors of the continent’s green industrial future.

Eastern Europe: the next industrial frontier?

Eastern Europe, long seen as Europe’s industrial periphery, is emerging as a key player in the green transition. Countries like Poland, Hungary, and Slovakia are attracting EV supply chain investments due to lower costs, EU membership, and growing technical capacity.

Major automakers are establishing battery and assembly plants, while wind and solar installations are expanding rapidly. However, energy dependence on fossil fuels, political polarization, and regulatory unpredictability remain barriers to sustainable growth.

Bridging the East-West industrial gap will require targeted EU support, better regional infrastructure, and enhanced labor mobility. The opportunity is real: a green-tech reindustrialization of Eastern Europe could rebalance the EU’s economic geography and reduce external dependencies.

Strategic Autonomy: from buzzword to industrial doctrine

The war in Ukraine, energy insecurity, and global supply chain shocks have propelled “strategic autonomy” to the forefront of EU thinking. But for autonomy to be more than rhetoric, it must be rooted in industrial muscle.

Rebuilding this muscle means reshoring production, diversifying suppliers, investing in dual-use technologies, and controlling intellectual property in critical domains. From semiconductors to electrolyzers, Europe must own more of its industrial future.

The EU Chips Act, battery alliances, and defense procurement reforms signal intent—but fragmentation and underfunding persist. Without deeper integration, Europe risks lagging behind more coordinated rivals.

A strong industrial base is not just an economic asset—it is a foundation for geopolitical relevance in an increasingly polarized world.

Innovation, talent, and the green skills gap

Innovation is the lifeblood of green industrial competitiveness. Europe has strong R&D institutions and growing clean tech startups—but struggles to scale them into global champions.

Venture capital, talent mobility, and cross-border funding mechanisms lag behind those in the U.S. and China. Moreover, the green transition is creating a massive demand for new skills—battery engineers, hydrogen technicians, and smart grid specialists—that Europe has yet to meet.

Investing in training, apprenticeships, and lifelong learning—especially for industrial workers—will be crucial. So too will be attracting global talent and preventing brain drain from aging regions.

If Europe can lead in green innovation and talent development, it can define the terms of industrial competition, not merely react to them.

 

A Green Marshall plan for Europe’s industry?

Europe’s industrial future is on the line. To compete in a green tech world, the continent must move beyond fragmented policies and embrace a bold, unified industrial vision.

This may require a “Green Marshall Plan”—massive, coordinated investment across sectors and regions, supported by flexible regulation and ambitious public-private alliances. Strategic sectors like hydrogen, batteries, AI, and rare earths must be prioritized not just in rhetoric, but in resources.

Industrial leadership in the 21st century will not be decided by nostalgia or tradition—it will be won by those who act quickly, scale boldly, and lead with purpose. Europe still has the tools to succeed. The question is whether it has the urgency and unity to use them.