A new report titled “The Hidden Cost of EU Regulation: Why Policy Design Matters for Growth, Competitiveness, and Investment,” published on 14 September, estimates that EU regulations could reduce GDP by €159 billion per year and threaten 419,000 jobs between 2026 and 2030.
Published by the European Policy Innovation Council (EPIC), the report examines the “hidden” costs of European policies. These include not only bureaucratic burdens but also regulatory uncertainty, poorly planned transitions, and overlapping obligations. According to the report, these factors can slow investment, limit innovation, and ultimately undermine the policies’ intended goals.
Europe risks imposing substantial economic costs on itself if a new generation of EU regulation is introduced without greater attention to competitiveness, proportionality and the cumulative burden on businesses, according to a new study from the Brussels-based European Policy Innovation Council (EPIC).
The report, estimates that five major areas of regulation currently facing European policymakers could, under its more restrictive scenarios, be associated with €159 billion in foregone EU GDP each year between 2026 and 2030.
It estimates an accompanying annual investment shortfall of approximately €36 billion, with around 419,000 jobs potentially at risk.
But the report’s central argument is not that regulation itself is economically damaging. Rather, it contends that poorly sequenced, insufficiently differentiated or unpredictable regulation can impose costs which more carefully designed policies could avoid.
EPIC calculates that what it calls a “better regulation” approach could make a difference of approximately €125 billion in GDP each year, while supporting around €28 billion more annual investment and improving the projected employment outcome by some 241,000 jobs.
The analysis comes at a particularly sensitive moment for the EU, where improving competitiveness has moved rapidly up the political agenda following Mario Draghi’s landmark report on the future of European competitiveness.
EPIC examined artificial intelligence regulation, the Packaging and Packaging Waste Regulation, the Carbon Border Adjustment Mechanism, biotechnology and novel food, and the forthcoming revision of the EU’s Tobacco Products Directive (TPD).
TPD emerges as the largest potential shock
The study identifies the TPD revision as potentially the biggest avoidable economic shock, but says smarter regulation could protect growth, investment and public health
EPIC estimates that a highly restrictive approach to the forthcoming TPD revision could be associated with an annual GDP loss of approximately €48 billion, including around €24 billion in lost tax revenues.
The same scenario would put roughly 120,000 jobs at risk and produce an estimated annual investment shortfall of about €11 billion.
By contrast, under EPIC’s alternative scenario — based on a more differentiated regulatory treatment of products according to risk and greater emphasis on maintaining legal-market innovation — the organisation calculates an annual GDP gain of €32 billion.
The difference between the two regulatory approaches is therefore almost €80 billion in GDP each year, according to the modelling, alongside an improvement of more than 182,000 jobs and approximately €18 billion in investment.
These are significant numbers, but they require an important qualification.
They are scenario-based projections rather than forecasts of losses which have already occurred or inevitably will occur. EPIC itself stresses that its prospective figures are estimates based on alternative regulatory assumptions and should not be interpreted as guaranteed outcomes.
In the tobacco case in particular, the restrictive scenario assumes a major relocation of manufacturing outside the EU, with only part of wholesale and retail activity retained and some demand migrating into illicit channels. That is a substantial modelling assumption and is central to the scale of the estimated economic impact.
Nevertheless, the study raises a broader policy question which Brussels may find harder to dismiss: whether the economic consequences of the next TPD are being examined with the same intensity as its health objectives.
From COP11 to the next TPD
EPIC bases part of its TPD scenario on measures discussed in connection with the World Health Organization Framework Convention on Tobacco Control’s COP11, held in 2025.
The report identifies proposals including flavour restrictions across tobacco and nicotine products, tighter sanctions, additional restrictions affecting newer nicotine and heated tobacco products and possible limitations on particular product components, including filters.
That debate exposed significant disagreements among EU member states.
According to the report, countries including Italy, Greece, Poland, Romania, Lithuania, Portugal and Czechia raised concerns about applying broadly similar restrictions to combustible cigarettes and alternative nicotine products despite differences between product categories.
Those disagreements became sufficiently pronounced that the EU was unable to maintain a common position during important parts of COP11, according to the EPIC analysis.
The significance for Brussels is that decisions taken at an FCTC Conference of the Parties do not automatically become EU law.
However, EPIC argues that COP priorities have historically influenced European tobacco policy and could feed into the Commission’s forthcoming revision of the TPD.
The report points in particular to EU-funded tobacco-control initiatives which incorporate FCTC and COP priorities into their work and to a 2025 Council working document which raised a possible cigarette-filter ban.
EPIC therefore warns against what it sees as the potential importation of an international tobacco-control agenda into EU legislation without first undertaking sufficiently detailed economic, enforcement and proportionality assessments.
The illicit-market question
Another significant element in the study is illicit trade.
EPIC argues that restrictions which significantly reduce the availability of products for which consumer demand continues to exist can transfer trade away from regulated businesses rather than eliminate consumption.
The EC and EU agencies are simultaneously attempting to combat illegal tobacco and nicotine markets, yet, according to EPIC, some regulatory measures could make illegal supply comparatively more attractive.
According to the report, younger consumers are not necessarily insulated from such markets merely because products disappear from legal retail channels, pointing to concerns surrounding illicit e-cigarette distribution and sales through social media.
This is an issue with implications beyond the tobacco industry. Lost legal sales can mean lost VAT and excise revenues, while enforcement costs increase and legitimate retailers face competition from operators which pay neither tax nor compliance costs.
Not an argument for deregulation
Importantly, EPIC does not present its report as a case for abandoning European health, environmental or consumer-protection objectives. Instead, it advocates what it describes as “Stability-by-Design”.
The principle is relatively straightforward: policymakers should analyse economic effects, implementation capacity and differences between sectors and technologies before regulatory choices become politically fixed.
It calls for predictable rules, earlier stakeholder involvement, differentiated regulation where risks differ and implementation schedules which take account of infrastructure, supply chains and enforcement capabilities.
It also argues that regulations should increasingly be assessed collectively rather than individually.
Businesses do not experience the TPD, taxation measures, packaging requirements, environmental legislation and other compliance obligations separately. They experience their accumulated cost simultaneously.
For tobacco, this is particularly relevant because the TPD revision is taking place against the backdrop of parallel debates over tobacco excise taxation, packaging and sustainability rules.
The combined economic impact could therefore be greater than examining each initiative separately would suggest.
For the next regulatory wave, it calculates annual GDP impacts of around €48 billion from its restrictive TPD scenario, €24 billion from the AI framework, €42 billion from packaging regulation, €44 billion from CBAM and €1.6 billion from slower biotechnology and novel-food approvals.
The figures will inevitably be debated, particularly because economic models depend heavily on the assumptions placed into them.
But the policy issue raised by the report is harder to reduce to a dispute over individual numbers.
At a time when European leaders are repeatedly warning that the Union must close its productivity and investment gap with the US and China, EPIC is effectively asking whether Brussels subjects the economic consequences of regulation to the same level of scrutiny as the objectives regulation is intended to achieve.
