Europe’s new industrial hope: Don’t just pick losers, create winners

The cloud of pessimism hanging over European industry is proving difficult to dispel. That gloom was evident Wednesday when even a slew of EU business-boosting proposals prompted variations of “great, but what else?”

But there was one item that gave industrialists, economists and even green groups cause for cautious excitement: A €2 trillion idea whose time may finally have arrived.

Governments, the EU executive said, should buy greener stuff.

The theory is elegantly simple. Companies compete for public contracts on the basis of being the cleanest as well as the cheapest. Winning a multi-year government bid allows a manufacturer to invest in scaling up that clean product, making it cheaper, possibly as cheap as the dirty alternative. Then the wider market takes over.

The bonus: When combined with “Made in Europe” provisions, the process creates home-grown green champions who can then export their goods to the world. Hand, meet glove. 

This marks a break from past policies, which squeezed polluting companies by making them pay. The EU soon could, in theory, create winners while also picking losers.

“We need to stimulate demand,” said the Commission’s industrial strategy tsar, Stéphane Séjourné, before heading to Antwerp to meet 400 corporate chiefs on Wednesday. He had travelled Europe, Séjourné said, speaking to businesses and employees, and had been told repeatedly: “They’ve made efforts to decarbonize their industry, but there’s not enough demand for clean steel, or clean cement.”

The potential is enormous. Around 15 percent of the EU’s economic output is spent each year on public procurement. Moving a fraction of that money into cleaner products would release hundreds of billions of euros to nurture what former European Central Bank chief Mario Draghi called “infant industries.” That’s exactly what Draghi said Europe lacked in a landmark 2024 report that has shaped the Commission’s thinking.

While the theory is simple, homegrown greener products will add to government spending. Experts also doubt that the Commission can get government buyers to consider sustainability as well as price, or that it can design useful policies for city or local government officials who make thousands of contracting decisions every year.

But in a Europe short of ideas, the Commission is betting big on this one. 

“When it comes to demand, this is certainly one of the most important ammunitions we have,” said Simone Tagliapietra, a professor of economics who works at the Brussels-based Bruegel think tank.

Buses, rails, tanks

The idea that the government could be the first buyer of a new product and direct innovation toward strategic goals is not new. It’s how the U.S. military’s DARPA research agency encouraged companies to develop mRNA vaccines. Similar programs also helped develop and commercialize GPS, semiconductors, personal computers, the internet and passenger planes.

Targeting public contracts toward more sustainable outcomes is also nothing new in the EU, which has striking examples of success.

In January, France’s SNCF national railway signed a billion-euro, six-year deal with German steelmaker Saarstahl to produce lower-carbon rails. Supporting factories that can supply greener steel was a major part of the SNCF’s long-term plan to decarbonize, the railway company said.

Saarstahl President Nadine Artelt said in a statement that the deal ”enables us to make new investments in [Saarstahl’s factories in] Saint-Saulve and Hayange, allowing us to strengthen both companies and ensure they are future-ready.”

There are dozens of other examples. In 2019 the EU set national targets for authorities to purchase a percentage of clean public transport vehicles. Since then, one of Europe’s biggest bus makers, Daimler, has signed contracts to build electric buses for Hamburg, The Hague, Osnabrück, Milan and Brussels. Demand for their Mercedes-Benz eCitaro “has risen steadily in recent years and remains strong,” said Kai Wolfer, a Daimler spokesman.

But these examples, while impressive, remain miniscule in the scheme of Europe’s multi-trillion euro annual spending on public goods, services and works.

On Wednesday, the Commission’s Clean Industrial Deal took a step toward changing that. The EU executive wants to create made-in-EU and sustainability criteria to give public buyers more than just a price point to make their final decisions. The Commission promised to make existing criteria simpler and more universal so “all levels of administration, from national to local, should be able to use them.” It also mentioned “targeted mandates,” such as those that have spurred the e-bus industry.

The policy pivot also arrives as European governments are digging deep to buy more military hardware, preparing for a world where they can longer rely on the U.S. and in which Russia is menacing EU borders. That means more public contracts and more chances to combine industrial and climate goals with national security, said Tagliapietra, the Bruegel economics professor. 

For instance, the EU could add green criteria to the steel used to build weapons, vessels and tanks. “While we increase our defense capabilities, we also create a new market for these green products,” Tagliapietra said. 

The steel industry is understandably supportive of this idea. “It would clearly be sort of absurd to buy any special steels from China or Indonesia to build, let's say, a new EU tank model,” said Lucia Sali, spokesperson for the European Steel Association. But at this stage there is no certainty that governments will be mindful of the climate while buying weapons.

Why isn’t everyone already doing it?

Excitement over the Commission’s proposal is being tempered by the current state of green public procurement — as it’s known — which is a mess.

Even though most EU countries have policies favoring greener products, the strategy is haphazardly applied. What counts as sustainable is poorly defined, meaning tracking examples is difficult. In some countries, public buyers must sort through multiple, sometimes overlapping criteria to understand which products they should prefer. In other countries there is little guidance at all. 

Furthermore, much of the spending happens at the local level, where officials may lack the resources or training to make informed decisions — even if they want to.

It’s no different at the EU level. Guidance on public procurement has been included in various Brussels policy directives, such as one on clean vehicles. But there is no overall EU policy. 

The incoherence at every level sends a discouraging signal to companies and officials alike. Unless companies trust that one green tender will beget many more, they may hesitate to bet on the shift to a cleaner process. This is a situation the Commission has explicitly promised to remedy.

It's also unclear, said Adeline Rochet, program manager at Corporate Leaders Group Europe, whether the Commission wants to make these requirements legally binding. Without that, she said, there is “no guarantee that it will really deliver.”

But even if these barriers can be overcome, the bigger issue is money. Government budgets everywhere are strained, and climate-friendly products typically carry what Bill Gates has called the “green premium.”

“Certainly in the short term, this implies higher costs for the public administration,” said Tagliapietra. “But over time, these products get to the economies of scale that make them commercially viable, basically slashing the green premium to zero.”

In the longer term, green procurement will help keep Europe in the global green-tech arms race, he argued: “By doing this, governments will create new industries in Europe of these decarbonized products that otherwise might simply be built elsewhere in the world.”