Headline figures from the International Energy Agency’s 2025 World Energy Investment report paint a persuasive picture: Clean energy is the house favorite.
Combined public and private sector inflows to renewable energy, grid infrastructure, alternative fuels, and energy efficiency approached $2.2 trillion. Clean technologies’ share of sector-wide investment continued to rise year-on-year, falling just short of two-thirds of total investment in 2025, and annual flows to fossil fuel infrastructure declined for the first time since the COVID-19 pandemic.
But this winning streak is, in key respects, an illusion.
As previously discussed in Carbon Critical, encouraging investment signals fail to reflect the reality that emissions continue to exceed established greenhouse gas budgets. And institutions remain unprepared to respond to the physical risks associated with climate change. One decade after the signing of the Paris Agreement, the international community is not on track to achieve a single 2030 target assessed in Climate Analytics’ 2025 State of Climate Action report.
The first year of the second Trump administration added fuel to the climate-denying fire while casting a general malaise over climate-conscious institutions in the United States. The administration’s actions—most notably withdrawing from the Paris Agreement and rolling back key provisions of the Inflation Reduction Act—prompted debates regarding Europe’s alignment in the energy transition and geopolitics more broadly. Washington’s retreat left Brussels alone at the table, compelled to accelerate climate action while attempting to kickstart its industrial competitiveness.
The US Disappearing Act
The widening gap between the United States and Europe on industrial policy is glaringly obvious, but while Trump’s flashy rejections of international climate arrangements have attracted the most media attention, deeper divergences can be observed in each government’s treatment of early-stage clean technology demonstrations.
Government funding for technology commercialization accounts for a small share of the investments outlined in the IEA’s WEI reports but carries enormous weight with regards to future emissions reductions, particularly for hard-to-abate industrial sectors like steel, cement, and clean fuels.
While mature technologies like solar, wind, and battery storage have benefited from investment and production incentives like tax credits in the United States (until recently) and contracts for difference in the European Union, technologies moving from pilot stages to first-of-a-kind field demonstrations require support from unique government vehicles. The creation of the Office of Clean Energy Demonstrations (OCED) in the United States in 2021 and the European Union’s Innovation Fund in 2019 demonstrated a commitment to financing the next generation of clean technologies on both sides of the Atlantic.
That is, until the US Department of Energy imposed sweeping cuts to more than 600 programs in October 2025 and erased OCED from the Department’s revised organizational chart in November. The initial announcement on October 2 terminated 321 awards issued under the Biden administration amounting to $8 billion. A leaked second list surfaced five days later, which appeared to expand the cuts to 647 awards, ballooning the revoked funding total to nearly $24 billion. The expanded list also cuts projects managed by the Offices of Manufacturing and Energy Supply Chains, Energy Efficiency and Renewable Energy, Grid Deployment, and Fossil Energy and Carbon Management.
The exact contours of the Trump administration’s cuts to clean technology funding have yet to be defined, but it is clear that the signature regional collaboration platforms laid out in the 2021 Infrastructure Investment and Jobs Act (IIJA) and managed by OCED have been put to rest. The hydrogen and direct air capture hubs—together representing over $11 billion in appropriated funding—were wiped off the map. Critical industrial decarbonization grants awarded to majors like Vale, Cleveland Cliffs, and Eastman Chemical were slashed, setting back first-of-a-kind decarbonization pathways for steel and plastics production and recycling processes. Cuts to low-carbon cement projects hit several ventures managed by European firms, including French cement major Vicat and Germany’s Heidelberg Materials.
Toward the European Clean Industrial Deal
As the US claws back funding for innovative industrial processes, Europe is accelerating its decarbonization agenda. The Innovation Fund launched three funding opportunities at the end of 2025 with up to €5.2 billion available for disbursement. One fifth of the funding is earmarked for projects attempting to decarbonize industrial process heat, responsible for three quarters of European industrial emissions. The platform, managed by the Industrial Decarbonization Bank, is the first European-wide auction focused on emissions associated with high-temperature process heat and creates an “auction-as-a-service” scheme, which aims to support national funding platforms for similar industrial transformations.
With the recent funding announcement, the Innovation Fund is on its way to surpassing the funding for clean energy demonstrations in the United States before the Trump administration’s cuts. Since its first call for projects in 2020, the Innovation Fund has disbursed €13 billion ($15.25 billion) across 225 projects and over 500 participating entities. The Fund is capitalized with allowances from the EU Emissions Trading System, which could amount to €40 billion ($46.91 billion) by 2030, nearly double the value of the Trump administration’s recent cuts to clean technology demonstrations.
Europe’s funding flows are backed up by an expanding policy framework designed to incentivize investment in carbon-free technologies as drivers of reindustrialization and economic growth. The Clean Industrial Deal (CID), launched last February, establishes a bloc-wide approach to developing, financing, and deploying the energy and industrial infrastructure required for deep decarbonization.
The CID connects an ecosystem of funding platforms, from early-stage research funding out of Horizon Europe to the Innovation Fund’s catalytic commercialization assistance and InvestEU’s financial guarantee mechanisms. Across all platforms bundled under the CID, the EU aims to mobilize €100-150 billion ($117-176 billion) for industrial decarbonization and energy sector development. CID funding is further supplemented by billions in member-state contributions to the Important Project of Common European Interest (IPCEI) for clean hydrogen market creation, similar to the US hydrogen hub approach.
Crucially, demand-side signals are also under development at the European Commission and member state levels. Starting this year, the commission will begin a review of its public procurement policies to ensure alignment with industrial sustainability and resilience, likely strengthening “European preference criteria.” The European Climate Law and Fit for 55 package provides the legislative and regulatory backdrop for the implementation of CID policies and funding.
These policies should sound familiar to American readers given the overlap with the clean energy and industrial provisions included in the US IIJA and Inflation Reduction Act. The key difference, of course, being that the EU’s policies and funding opportunities remain in place and backstopped by (theoretically) binding emissions reduction goals.
Facing a withdrawn and increasingly oppositional partner in the United States and accelerating Chinese industrial innovation, European policymakers are leveraging the EU’s technocratic strength to take up the mantle of Western clean industrial policy. Whether the funding and policies are sufficient to drag Europe out of its Draghi-defined industrial competitiveness crisis is a subject for debate, but the persistent and seemingly well-crafted support from the European Commission is certainly a positive development for the bloc’s industrial decarbonization ambitions.
Up for Grabs
The US rollback of Inflation Reduction Act tax credits and withdrawal from the Paris Agreement were defining stories of 2025, at least within clean energy circles. But the expected impacts of tax credit repeals are less dire than they once seemed and Trump’s withdrawal from Paris is, after all, a rerun of his first administration’s greatest hits. The administration’s pullback of obligated grant funding for early-stage, potentially transformative industrial technologies may be of greater consequence in the decades to come.
European leaders appear convinced that this will erode long-term US competitiveness and are betting significant political and financial capital against the Trump administration’s approach. After all, solar panels, wind turbines, and battery storage were commercialized over the last decade. Technological solutions for hard-to-abate industrial applications must be commercialized in the decade to come. Ownership of these nascent technologies is currently up for grabs and will require concerted, stable government support. It goes without saying that Beijing is a top contender and remains focused on dominating the clean industrial technologies of the future.
The first half of this decade has made it clear that policymakers in Washington and Brussels are uncomfortable with the concentration of manufacturing for mature clean technologies in China. The desire to avoid a similar concentration of nascent clean energy and industrial technologies is what makes the current reinforcement of the European industrial decarbonization agenda so vital—and the Trump administration’s abandonment of early-stage clean technology so reckless.
On clean industrial policy in 2025, the Trump administration folded, and the EU doubled down. The next four years and the decades that follow will determine who played their cards right and who bet the house on a losing hand.
Emily Hardy co-writes IPQ’s Carbon Critical column and is an environmental, social, and governance consultant at Aqua Blue Investments.
Dan Helmeci co-writes IPQ’s Carbon Critical column and is a master’s student at Columbia University.
