The EU faces two inescapable truths: it’s falling behind on growth and angering the European public and farmers with some of its climate policies. It’s time for the EU to realise the transition to net-zero won’t happen without a strong pro-growth approach. That begins with a major revision of the EU Green Deal.
The populist surge in this year’s European election was a telling sign that voters are increasingly discontent with the course Europe has taken. Weak economic growth and strong foreign competition are weighing on European politics. An ascendant radical right threatens the European project, prompting officials to reconsider their approach to climate politics. The next step is to realise pro-growth policies are good for the climate.
The energy transition can be an expensive affair. In electricity production, cost-effective technologies like hydro, wind, solar, and nuclear power can decarbonize the grid while lowering costs. Other technologies like heat pumps are promising, but still expensive in the short term when implemented on a scale large enough to make an impact.
Solutions like carbon capture and storage (CCS) still await key breakthroughs in order to become cost-effective. Good climate policy recognizes this complex landscape and creates leeway for innovation to prosper while accelerating the implementation of mature or near mature technologies.
However, the Green Deal strategy is fixated on micromanaging the transition in all areas, with highly detailed sectoral programmes, from agriculture to the circular economy. This creates regulatory complexity and contradicts the principles of the Emissions Trading System (ETS), one of Europe’s most successful climate initiatives.
The ETS sets carbon dioxide emission thresholds for companies in energy, heavy industry, and aviation, allowing them to trade emission reductions. The threshold lowers gradually, leading companies to incorporate its cost in prices, rewarding good behaviour and signalling to investors it is time to invest in clean technologies. As of 2024, since its implementation in 2005, economic activities under ETS requirements have reduced their emissions by 47 percent.
The Fit for 55 component of the Green Deal expands the ETS to include buildings and transportation. The EU is right to do it, although it should carefully time these expansions, as they directly affect prices. Elsewhere, it should focus on lifting sectoral regulations which constitute a hindrance towards economic growth and innovation.
Burdening industries with both carbon pricing and strict regulations stifles growth without significantly reducing emissions. Forced consumption reduction only impoverishes citizens and fuels voter discontent. Not opening up further to more trade deals hinders the much needed technological transfers to third countries, while making goods more expensive for Europeans. Enforcing unscientific targets such as requiring 25 percent of agricultural land to be under organic production until 2030 discourages agricultural innovation and compromises land use goals. Establishing arbitrary dates for the end of combustion engines – or any other technology – will only introduce further uncertainty in the market.
Some argue the climate can’t wait for new technologies to become commercially viable. But history proves otherwise. European countries have consistently reduced emissions since 2005, before any Green Deal, through improvements in energy and industrial efficiency, long before solar panels or electric cars were widely accessible.
Then, entities like the International Energy Agency greatly underestimated the adoption rate of these technologies, not noticing the potential for rapid progress. Now, the same agency predicts demand for fossil fuels plateauing before 2030, thanks to these same technologies.
Technological neutrality is crucial. Whether hydrogen, synthetic fuel, or electric cars dominate – or a mix of all three emerges – shouldn’t be predetermined by policy. The most important signal companies and investors need is already being enforced: carbon will only get more expensive over time. The EU should step back from specific technologies and focus on growth.
By integrating energy, capital, and banking markets, it can accelerate European companies’ development and investment in clean technologies, especially in ETS-covered areas. Clean electricity is competitive and clean solutions for heating are in demand. There’s a revolution in biotechnology underway which can benefit both European farmers and the environment. Batteries are getting better every year, and they’re now reaching the much (unfairly) reviled shipping industry.
The list of opportunities will only grow. The key message for Europe is that climate doomerism, the belief we must sacrifice living standards for the environment, is both politically harmful and fundamentally wrong. The world after the energy transition can be a world where we live better lives. Understanding this, Europe can prove economic vitality and environmental stewardship are not opposing forces, but powerful allies in shaping a more prosperous future.
