The EU stays the course

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n the run up to the 2024 elections for the European Parliament, there was much speculation about the future of the Green Deal, the European Union (EU)’s overall plan for net-zero emissions by 2050. There were fears it could be dismantled in a scenario case of a far-right electoral surge. But the surge never materialized. The pro-European centre kept its majority, and Europe is not going to reverse course on the green transition.

However, swings to the far-right in several European countries also suggest, among other things, unease among voters about climate policy that must be taken seriously.

 

 

The risks for the EU green deal

The European Green Deal faces two big risks. The first is procrastination within the new European Parliament. With growing pressure from the right, the mainstream centre-right European People’s Party (EPP) may push to delay or dilute some of the Green Deal’s more contentious measures. Early votes at the start of the 2024 legislative session, such as those related to the Deforestation Regulation, reflect this trend. The risk may intensify as key review clauses in Green Deal laws, like the 2026 reassessment of the ban on new internal combustion engine car sales from 2035, come into play.

 

This temptation must be resisted. Reopening agreements reached after years of negotiation would undermine confidence in Europe’s green agenda, disrupt European industry, and delay green investments. It would also increase costs for early adopters of the transition — companies that have already invested in clean technologies, from energy-efficient industrial processes to electric vehicles — leaving them feeling betrayed. In short, a stable and credible climate policy framework is essential to sustain private-sector green investment in the years ahead.

This strategy could include several measures, such as better leveraging the EU budget, enhancing the European Investment Bank’s capacity to finance the green transition, and creating a new EU Green Fund financed through joint EU debt.

 

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he second risk is inaction by national governments. After five years of policy design and lawmaking, the Green Deal is now in its implementation phase — and success will hinge on action at the national level. Over the next five years, decarbonization must accelerate sharply for the EU to meet its climate goals. This requires stronger efforts from member states to decarbonize key sectors like buildings and transport, where climate policy directly affects citizens’ daily lives. While Germany, France, Italy, and other large countries are expected to lead, the question remains: what happens if their governments fall short? The EU has limited tools to compel national action, making this a critical vulnerability in Europe’s green transition.

To mitigate this critical risk, the EU should urgently launch a green investment strategy. This strategy could include several measures, such as better leveraging the EU budget, enhancing the European Investment Bank’s capacity to finance the green transition, and creating a new EU Green Fund financed through joint EU debt. The case for joint debt is strong, as it would support a one-time investment in an extraordinary, temporary transition that delivers lasting benefits for future generations.

 

Just transition and industrial development 

The radical transformation envisioned by the Green Deal raises difficult questions about who will bear the costs. If these costs disproportionately fall on ordinary workers — especially the poorest and most vulnerable communities — the transition risks deepening inequality and becoming socially and politically unsustainable. That outcome must be avoided.

Fortunately, well-designed climate policies can avoid this outcome and even promote greater social equality. The European Green Deal already includes the Just Transition Fund and the new Social Climate Fund, providing a strong foundation for a green social contract. To build on this, the EU should streamline and simplify funding instruments to deliver more effective support for vulnerable communities and the middle class. This support is essential to help households adopt green alternatives, such as electric vehicles and sustainable home-heating systems.

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he EU must also transform decarbonization into a genuine economic and industrial opportunity. This calls for a robust Clean Industrial Deal to drive decarbonization alongside sustainable growth and industrial development. European Commission President Ursula von der Leyen has pledged to advance such a policy package within the first 100 days of her second term. By aligning climate action with economic opportunity, this approach could build public support and make the green transition politically viable.

A European industrial strategy must create favorable conditions for investment. This starts with making renewables more affordable and accelerating their deployment through tax credits, commodity market reforms, and other measures. Reducing bureaucratic red tape is also essential — not by weakening climate policy, but by streamlining permitting processes and improving access to funding and markets. These steps will mobilize the resources needed for clean-tech manufacturers to scale up and for energy-intensive industries to modernize.

 

Equally important is the inclusion of circular-economy and environmental-protection measures, especially as resource management—including water—becomes increasingly critical.

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ortunately, there are several ways to boost green investment. One option is to introduce a public investment rule within the new EU fiscal framework. Increasing funding for the European Investment Bank would also enable it to better de-risk clean-energy investments. The EU could further maximize its common budget by creating a European Competitiveness Fund— a proposal already backed by von der Leyen—to drive innovation. Linking disbursements to the implementation of member states’ national energy and climate plans would ensure accountability. Finally, a savings and investment union could strengthen Europe’s financial markets, supporting long-term green investment.

Such a strategy could leverage public procurement to create a domestic market for innovative clean technologies and products made in Europe. Equally important is the inclusion of circular-economy and environmental-protection measures, especially as resource management—including water—becomes increasingly critical.

It’s also essential to address the interplay between the clean-energy and digital transitions, as well as the trade-offs they create. For instance, while data centers consume significant energy, digital technologies will be crucial for efficiently managing the future power system. Integrating these transitions will require smart planning and targeted innovation.

Lastly, workers must be equipped with the skills needed for future jobs to ease the social impact of the energy transition, particularly in regions reliant on carbon-intensive industries, through training.

 

 

Tools for financing

A Clean Industrial Deal should address sector-specific challenges by subsidizing strategic supply chains in technological areas where the EU holds a comparative advantage. This approach must balance the trade-offs between decarbonization, competitiveness, and security. Achieving this will require “Europeanizing” supply chains to reduce dependency on external actors and strengthen the EU’s industrial base.

Following the recommendations in Mario Draghi’s recent report on European competitiveness, it will be essential to channel public funding toward Important Projects of Common European Interest (IPCEIs) and expand the use of instruments like the Innovation Fund. The Hydrogen Bank’s pioneering initiatives — including “auctions-as-a-service” that allow member states to supplement EU Innovation Fund allocations, and “carbon contracts for difference” to help businesses hedge against future price fluctuations — could serve as a model for broader adoption.

To ensure that scarce resources are directed toward IPCEIs, the European Competitiveness Fund should merge new and existing financial instruments.

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he new EU fiscal framework should also grant preferential treatment to national support for these projects. Funding could be sourced from revenues generated by the EU’s Emissions Trading System and member states’ carbon contracts for difference. Any large-scale industrial decarbonization plan will only be credible if it includes concrete measures to lower the cost of capital and ensure sufficient financial resources.

The Clean Industrial Deal, like the EU’s Carbon Border Adjustment Mechanism and deforestation law, will have global ripple effects. To ease geopolitical tensions and diversify sources of critical raw materials and components, the EU should forge clean trade and investment partnerships with strategic third countries. Collaborating with non-EU governments on green-energy goals would strengthen European competitiveness and enhance security.

Clean trade and investment partnerships can succeed only if two key conditions are met. First, the “Team Europe approach” —where member states coordinate their external actions— must be scaled up to boost the EU’s leverage in third countries. Second, these partnerships must be coordinated at the executive vice-president level to ensure policy coherence and maximize impact.

The political viability of the European Green Deal will hinge on the EU’s ability to implement a policy package that links decarbonization with measures to enhance competitiveness and social cohesion. A strong Clean Industrial Deal—aligned with the recommendations of the Draghi report—should be a top priority for the new European Commission in this effort.