Disjointed Strategic State Capacity: the EU’s Green Industrial Response to the Inflation Reduction Act Beyond Institutional Constraints

Séminaire Axe Europe, avec Jane Arroyo (European University Institute)

Discutant: Tiago Moreira Ramalho (Cevipol-IEE, ULB)

Abstract

The adoption of the US Inflation Reduction Act (IRA) in August 2022 created a critical juncture for the European Union’s (EU) approach to green industrial policy, opening space for alternative policy pathways. Yet despite strong political momentum and active policy entrepreneurship, the EU’s response in the form of the Green Deal Industrial Plan (GDIP) emerged as a relatively weak package, lacking dedicated funding and robust regulatory tools. Drawing on historical institutionalism and the concept of strategic state capacity, this paper investigates why and how the GDIP took this form, situating EU policy choices at the intersection of global interdependence in clean energy transitions, cross-national industry pressures, and domestic institutional legacies. Using process tracing combined with discourse network analysis, the paper reconstructs the policy sequence from problem formulation to negotiation dynamics to identify key causal mechanisms. The analysis shows that entrenched institutional legacies – such as reluctance to build EU-level fiscal capacity – did constrain policy entrepreneurs’ ability to drive transformative change. But beyond these legacies, the paper argues that weak internal and external strategic state capacity further limited the EU’s ability to process and respond to the IRA. This is notably due to low analytical capacity for industrial policy, poorly aligned with clean energy transition planning, and vulnerability to cross-national industry pressures. In doing so, the paper advances debates on how global shocks affect EU green industrial policymaking by reinstating the non-deterministic impact of institutional and political constraints and the role of strategic state capacity in mediating the impact of international political economy dynamics.