European Chips Act

 

What is the European Chips Act?

The European Chips Act is the European Union’s strategic initiative to rebuild and strengthen the semiconductor value chain on the continent: research, prototyping, pilot lines and industrial scale-up.

Launched in 2023 and translated into operational measures since 2024, the Commission’s quantified objective is to double Europe’s market share in semiconductor production: rising from around 10% to 20% of the global market by 2030, supported by more than €43 billion in public and private investment.

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Why has Europe lost ground in microelectronics?

Europe’s declining competitiveness results from several factors:

• Massive and sustained investment in Asia (China, Korea, Japan, Singapore, Taiwan)
• Rising costs of advanced technologies (multi-billion-euro fabs)
• European specialisation (fabless, foundries, integrated models)
• Industrial fragmentation and a lack of advanced production capacity
• Dependence on non-European players for critical technologies
• A global subsidy race, reducing Europe’s relative attractiveness

The European Chips Act aims to correct these imbalances and secure the entire value chain.

What are the five objectives of the European Chips Act?

1. Strengthening Europe’s technological sovereignty in the semiconductor field.
2. Supporting innovation, in particular R&D, prototyping and the development of new technologies.
3. Attracting first-of-a-kind investment in Europe, to boost industrial production and critical infrastructure.
4. Ensuring supply resilience, securing the value chain against global disruptions.
5. Establishing crisis monitoring and response capabilities, to anticipate and manage shortages or emergencies in the sector.

What are the three pillars of the EU Chips Act?

Pillar 1 – Chips for Europe Initiative

• Support for research and innovation in semiconductors across Europe
• Funding for prototyping infrastructure and large-scale pilot lines
• Support for collaborative projects and high-potential start-ups/SMEs, reducing the financial risk associated with prototyping and scale-up
• Funding for covering equipment, infrastructure and financial instruments through the Chips Fund, fostering design platforms, competence centres and positive innovation spillovers, paving the way for the industrial scale-up addressed by the following pillars

Pillar 2 – Security of supply and resilience

• Aims to develop European industrial production capacity
• Supports first-of-a-kind projects in Europe, such as vertically integrated production facilities (“Integrated Production Facilities” or IPF) and “Open EU Foundries” (or OEF)
• Aid offsets the competitive advantage created by heavy foreign subsidies (Asia, United States) and covers industrial investment and operating costs linked to capacity ramp-up
• Objectives: to attract strategic investment, strengthen supply chain resilience and increase Europe’s market share

Pillar 3 – Monitoring & crisis response

• Strengthens monitoring and resilience across Europe’s industry
• Centralises the collection and analysis of data on production capacity, supply chains and potential risks
• Coordinates responses to shortages or crises through the European Semiconductor Board and rapid-response mechanisms
• Ensures continuity of critical supplies and investment planning to secure the European ecosystem

Funding a Pillar 2 EU Chips Act project

A model based on the funding gap

The central public support mechanism under the EU Chips Act – Pillar 2 relies on the funding gap calculation. This measures the profitability gap between:

• a project located in Europe,
• its counterfactual scenario outside the EU.

The aim is to achieve NPV neutrality, meaning the European investment is made viable without generating excess public profit.

“First-of-a-kind” eligibility criteria

To qualify as “first-of-a-kind”, a facility must demonstrate:

• the absence of equivalent capacity already existing or under construction in the EU;
• a contribution to security of supply superior to that of the alternatives.

The assessment focuses in particular on:

• the segment of the value chain (front-end / back-end),
• the technology node (in nm),
• the substrate (Si, SiC, GaN),
• energy performance,
• product/process differentiation.

Eligible cost categories

• CapEx: production lines, cleanrooms, specific equipment;
• OpEx: operating costs linked to ramp-up and pilot lines;
• De-risking measures for the critical supply chain.

Practice shows that aid intensities can be high in certain cases (jointly funded by the Member State and the European Commission), but arrangements vary considerably from one Member State to another. National authorities design the package and notify the Commission, which then rules on its compatibility with the internal market.

The EU Chips Act application process (Pillar 2)

Key elements of the application

• Detailed technological description (node, substrate, innovations, capacity).
• Business plan and financial modelling, including the counterfactual scenario.
• Funding gap calculation and justification of the underlying economic assumptions (wages, energy, taxation, supplier structure).
• Industrial roadmap and TRL levels.
• Risk analysis and mitigation plan (specialty gases, equipment, materials).
• Ecosystem impact (jobs, R&D, skills, regional effects).
• Project governance and alignment with Pillar 2.

Administrative process

1. Submission to the Member State.
2. National selection.
3. Notification to the European Commission.
4. State aid decision and determination of the amount.
5. Implementation, monitoring and reporting.

 

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The ambitions of Chips Act 2.0

Since 2024-2025, a political and industrial consensus has been forming around a strengthening of the framework, including:

• a substantial increase in the European budget;
• the creation of new instruments (tax incentives, centralised budget);
• a sharper focus on chips for AI, HPC and breakthrough technologies.

A key milestone is expected at the end of May 2026: the European Commission is due to unveil the Chips Act 2.0 on 27 May, as part of the Tech Sovereignty Package. At this stage, the text has not yet been published, but the identified orientations already focus on several priorities: closing Europe’s capacity gap in advanced production nodes, supporting segments in which Europe enjoys competitive advantages, in particular power electronics, microcontrollers, photonics and sensors, strengthening supply chain monitoring, and simplifying the regulatory framework, in particular for “first-of-a-kind” projects falling under Pillar 2.

Industry organisations (including SEMI) are recommending that European funding be quadrupled. Several institutional reports warn of the risk of falling short of the “20% by 2030” target without accelerated deployment.
Chips Act 2.0 would therefore aim to address the financial and institutional frictions that have been identified.

How does european economics support EU Chips Act applications?

Our support covers:

• strategic framing,
• building the counterfactual scenario,
• funding gap modelling (NPV neutrality),
• financial structuring (CapEx/OpEx),
• liaison with national authorities and notification to the Commission,
• post-decision reporting.

Since 2023, we have contributed to securing more than €9.5 billion in funding through the EU Chips Act.

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