The Political Economy of the EU's New Green Industrial Policy: A Framework for Analysis

Abstract The European Union (EU) has recently embraced a green industrial policy to stimulate the domestic production of strategic net‐zero technologies such as solar panels, wind turbines and batteries. Whilst existing research has explored the drivers behind this shift, much less attention has been paid to instrument choice to boost domestic clean tech manufacturing and address the EU's cost disadvantage vis‐à‐vis foreign production, particularly China. To address this gap, this article presents a novel typology of green industrial policy instruments – state aid, European funding, public procurement and trade defence measures – all aimed at improving the cost competitiveness of EU‐produced net‐zero technologies. It also introduces a political‐economic framework to explain why certain instruments are prioritised over others, centred on four determinants: institutional constraints, industry preferences, fiscal policy stance and sequencing. Our framework explains why the EU is currently implementing its green industrial policy mainly through national state aid and trade restrictions. Our empirical analysis tracing the EU's green industrial policy instrument choices between mid‐2022 and mid‐2025 shows the explanatory value of the proposed framework and highlights the limitations of the EU's current policy mix to achieve its domestic manufacturing objectives. The article contributes to the literature on the political economy of EU industrial policy and to debates on the trade‐offs between pursuing strategic autonomy, the green transition and the integrity of the single market.