As we head into the last quarter of 2025, Europe faces more challenges than ever. Amid turbulent geopolitics marked by resurgent US-China tensions, leading to export controls on critical raw materials and disrupted semiconductor supply chains related to events around chipmaker Nexperia, trade and defence are becoming increasingly pivotal politically. At the same time, the combination of extreme uncertainty, higher interest rates than a few years ago and a low appetite for risk are putting headwinds on the European cleantech sector. Charting a clear and strategic path for clean industrial leadership has never been so timely.
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Investments in the EU cleantech sector face a downwards trend in Q3 2025. With a decline both in equity investment and deal volumes, the figures from the last quarter are well below previous years. Also the reliance on debt remains modest. While in the US cleantech investments are concentrated in a few megadeals, with overall deal activity hitting a decade low, in Europe cleantech deals are more distributed across different sectors and companies.
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On the one hand, the wide distribution of EU investments positively shows that Europe’s clean industrial transition is more advanced and profiting from a steadier regulatory environment in comparison to the US. On the other hand, substantial scale-up financing gaps and demand uncertainty are hindering manufacturing projects in Europe.
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To tackle these significant barriers to scaling cleantech across the continent, the creation of strong demand signals through lead markets in the upcoming Industrial Accelerator Act (IAA) is a key measure. This requires introducing resilience, sustainability, and EU preference ‘Made in Europe’ criteria in public procurement. In addition to public procurement, these criteria should also be deployed across EU funding instruments, national support schemes and strategic private procurement where appropriate.
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Additionally, the upcoming Grids Package and Electrification Action Plan will be crucial to expand grid capacity, drive a boom in clean electricity, and restore the investment case for renewables and storage and flexibility technologies. Electrification is a no regrets solution able to reduce fossil fuel exposures, especially in the industrial sector operating with low and medium temperature heat, which represents over 70% of industrial energy consumption – provided there are clear incentives to electrify.

Beyond demand creation, public financing tools capable of leveraging private capital are of utmost importance to drive Europe’s clean industrial transition. The European Investment Bank (EIB) is championing many useful financing instruments in this area, such as the cleantech manufacturing guarantee pilot facility of €250 million, PPA guarantees for SMEs and counter-guarantees for grid technology and wind. Building on these instruments and expanding them further, for example with part of the recent additional €2.9 billion EU budgetary guarantee under the Invest EU Omnibus, must be a priority for 2026.
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In line with keeping the speed on successful instruments for cleantech financing, a positive sign is the publication of the Terms and Conditions of the Innovation Fund IF25 Heat Auction. This €1 billion pilot programme designed to accelerate the decarbonisation of industrial process heat shows that bankable, market-based instruments work, and they should keep shaping the way forward.
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Given the current geopolitical tensions, trade and defence policy tools have become the elephant in the room when it comes to scaling cleantech production and deployment in Europe. As showcased by other European industries facing fierce competition from China and elsewhere, such as the steel industry, European policymakers need to step up and use all the available instruments in the policy toolbox to safeguard European industries from unfair competition and enable the business case for manufacturing in Europe. These measures need to be integrated with strong demand signals, regulatory stability on the carbon price and a more assertive and flexible industrial strategy around critical supply chain segments.
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Moving forward, Europe needs to shift from innovation leadership to industrial leadership. For that to happen, we need to strengthen European manufacturing of cleantech through strong and predictable demand signals, coherent public and private financing, faster permitting and joined-up trade and competition rules. Only a comprehensive cleantech strategy can take us to clean industrial leadership and unlock the economic and security benefits that come with it.