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Jean Pisani-Ferry, Simone Tagliapietra and Georg Zachmann are senior fellows at Bruegel.
The European Union turned green into its defining color with the European Green Deal, setting ambitious climate targets and unleashing a wave of legislation to get there.
But as decarbonization costs become more visible and changing political conditions constrain the politics of climate action, ensuring these achievements won’t fall short of commitments will be challenging. To this end, the EU must strengthen its climate and energy governance, and increase the financial resources allocated to supporting its goals.
It must be clear to all that what the EU has embarked on is no less than an industrial revolution. A revolution that — unlike those of the past — is set against a tight deadline. And even if its benefits will by far outweigh its costs, this transformation will still entail significant pain along the way — even in strict economic terms.
Some assets will lose value, some jobs will be destroyed, some regions will suffer. Competitiveness will be challenged, and the macroeconomic implications of the transition to carbon neutrality may well turn out to be temporarily negative.
Thus, this changeover can only succeed if it commands broad enough support, which requires equity considerations be put at the forefront of the policy agenda. No household should be required to undertake an investment it can’t afford. And this concern must be a priority for each and every member country, as well as the EU as a whole.
However, there is a crucial difference between climate and energy. Climate policy was born European, and initiatives taken at the EU level since 2019 — when the objective of reaching carbon neutrality in 2050 was adopted — have considerably strengthened this characteristic. Energy policy, meanwhile, remains fragmented, especially since the choice of energy mix is explicitly recognized as a national prerogative. So, as climate action largely rests on the transformation of energy systems, reaching the set targets requires coordinating policies without infringing on national energy sovereignty.
Thankfully, these problems were identified by the EU quite early on, and the bloc has acted to tackle them accordingly. Governance mechanisms have been strengthened, and financial means have been allocated to boost electricity interconnections, support the green transition in weaker member countries, buttress the transformation of fossil fuel-producing regions, bolster competitiveness and help job reallocation across sectors and occupations.
We are, nevertheless, concerned that these efforts may prove insufficient. Social and economic costs are becoming more apparent; political conditions are changing; and the wide consensus that European decarbonization ambition once commanded is now visibly eroding. Simply put, the green transition is getting divisive — and for the governments of member countries, the temptation to blame Brussels for its adverse implications is only growing.
Ultimately, what is at risk is the credibility of the green transition. And at some point, investors and companies may start wondering if the EU has enough resolve to carry through its ambitious plans.
That would be a disaster.
Thus, to safeguard the European Green Deal, the EU must strengthen its energy and climate governance system. And to do so, we propose five priorities for the upcoming EU institutional cycle:
First, we suggest progressively bringing all emissions under the Emissions Trading System (ETS) and ensuring the effectiveness of EU climate policy. By 2030, ETS1 and ETS2 will cover three-fourths of all territorial emissions, and we suggest the creation of an ETS3 for the sectors not yet covered, as well as a gradual unification of the emission control mechanisms by 2040. This is an ambitious agenda, but it would help overcome the risk of member countries not delivering needed emission reductions in hard-to-abate sectors.
Then, the block should launch preparations for an EU Green Investment Plan, which would ensure that EU green grants remain at least at the current level of €50 billion per year (that’s 0.3 percent of EU GDP) after the Recovery and Resilience Fund is phased out. Making up for the annual shortfall would require new resources to the tune of at least €180 billion between 2024 and 2030, which is why we also propose to introduce provisions to the currently discussed EU economic governance reform, which would make it possible for countries where public debt exceeds 60 percent of GDP but public finances are sustainable to reduce debt at a lower pace — on the condition that additional emission-reducing investments are made.
Moreover, we must establish a European Energy Agency that would provide unbiased reference points for policy evaluation and the preparation of policy processes. The agency wouldn’t be entrusted with decision-making powers, but it would gather data, monitor developments that might require course corrections, maintain open modeling tools and prepare independent assessments of EU and member country policies.
We must also take energy and climate governance to heads of state and to the government level in order to increase policy coordination and political ownership. Energy sovereignty is part of the Treaty and can’t be put in question. However, more institutionalized coordination of national plans and discussions around contentious issues are needed. And for this, special European summits would be organized at least once a year by a group of EU energy and climate sherpas.
Finally, we need to make sure transmission network development and operation is driven by European cost minimization. Along these lines, an independent European network system operator would be able to ensure existing cross-border transmission is optimally used, and that key bottlenecks would be addressed with priority. This would allow all European companies to get access to a geographically and technologically diversified mix of low cost energy.
The EU can’t afford to have a grand climate and energy strategy yet remain in the dark when it comes to its implementation — it would endanger the whole decarbonization process, particularly in a less auspicious political climate. For this reason, developing a new EU climate and energy governance that is fit for its increased climate ambition and the renewed challenges Europe is facing should be a top priority for the upcoming institutional cycle.