The new European Commission is taking shape. EU member states have named their commissioners-designate, and portfolios have been assigned. Now, parliamentary confirmations will be held to establish who will shape key EU policy files for the next five years.
This political jockeying has important consequences for two interdependent portfolios in particular, whose prominence has grown dramatically since the last election cycle in 2019: energy and climate. Europe has gotten through the worst of the energy crisis following Russia’s full-scale invasion of Ukraine. But now the energy transition faces growing political headwinds, evidenced by a backlash to green policies expressed in recent European, national, and subnational elections.
To answer these challenges, Mario Draghi, former prime minister of Italy and former president of the European Central Bank, has written a report postulating that the Clean Industrial Deal should be adopted by the new European Commission within the first one hundred days. As the energy focus shifts from “clean” to “green”—suggesting more emphasis on industry and competitiveness as compared with environment and climate—it remains to be seen what this evolution means in practice. It needs to be viewed in the light of increased geopolitical tensions and rising concerns over European energy security.
Europe stands at a critical juncture in its mission to meet energy demand and fuel economic growth in a changed world. It’s a tall order. To do this requires the new Commission to overcome three key obstacles: lack of funding, import reliance, and declining economic competitiveness.
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Out of the energy crisis comes a climate opportunity
Europe’s energy crisis created tension between energy security and its climate ambitions, which lie at the heart of its global diplomacy. As Russia turned up the dials on its energy war against Europe, the continent rapidly embraced liquefied natural gas (LNG). Some countries—notably Germany—even restarted previously closed coal plants.
This kept the lights on but damaged Europe’s green credibility. As the crisis becomes less acute, Europe has the space to prove to the world that it is possible to build a secure, competitive, and resilient energy system—but to accomplish that task, it must first address three major obstacles.
1. Without adequate funding, Europe’s climate agenda is toothless
The problem is that Europe’s current climate toolbox is not up to this task. The European Union finally put adequate resources behind its Green Deal by using money left over from the Recovery and Resilience Facility (RRF), a pandemic-era policy innovation that utilized collective borrowing for the first—and so far, only—time.
Brussels mandated that at least 37 percent of member states’ shares of the €750 billion program go toward climate-related projects, and then repurposed €300 billion of the facility’s scantly used funds for the May 2022 REPowerEU plan, which aims to wean the bloc off Russian energy in part through decarbonization.
But that money has been spent. The EU reports that nearly all of REPowerEU’s funds have been mobilized, in addition to €275 billion of the RRF toward emissions-reducing projects. The EU’s climate account has run dry, but not its legislative ambitions—final approval was given to a new Net Zero Industry Act last May, and a Critical Raw Materials Act (CRMA) in March. Now, Commission President Ursula von der Leyen intends to introduce a Clean Industrial Deal within the first one hundred days of the new mandate.
But without new money to back up these initiatives, Europe’s climate plans have no teeth. Over the next decade, the US government could invest $569 billion under the Inflation Reduction Act (IRA) and Infrastructure Investment and Jobs Act, alongside a well-capitalized and risk-tolerant US financial sector. And China invested a staggering $890 billion in low-carbon sectors in 2023 alone, with little indication it will soon pull back.
Europe faces an internal battle to match such funding. Former Italian prime minister Mario Draghi’s long-awaited report calls for new common borrowing to reinvigorate European industry. But the Commission’s previous proposal for a European Sovereignty Fund faced widespread opposition among northern member states, who oppose further collective borrowing. If such opposition continues, clean industry may well seek greener pastures elsewhere.
2. Europe’s reliance on foreign energy, materials, and finance creates economic risks
Europe is dependent on energy imports. The reality that 45 percent of EU gas consumption came from a hostile power was made clear in February 2022. While Europe survived a dire end to its reliance on Russian fossil fuels, it now depends on imported LNG for 37 percent of its gas.
Likewise, Europe’s clean industry relies on Chinese finance and products. Last year, Europe imported a staggering $57 billion-worth of China’s marquis clean energy products: solar photovoltaics, lithium-ion batteries, and electric vehicles.
Where Europe tries to substitute those imports with domestic products, Chinese money and technologies are critical for backing such ventures. Chinese investments in the EU electric vehicle supply chain reached €4.7 billion in 2023. Chinese firms are in various stages of development for battery, auto, and material plants in Germany, France, Sweden, Finland, the United Kingdom, Spain, and Hungary.
These external dependencies leave Europe vulnerable to market instability and geopolitical pressure. The effects are already being felt.
Exposure to a more liquid and globalized market for energy has inflicted massive volatility on European gas prices, which were nine times higher than US prices in August 2022 before leveling off to a modest five-fold spread by May 2024. Partly as a result, Europe’s electricity prices are also two-to-three times higher than in the United States, with profound implications for Europe’s manufacturing competitiveness and investors’ willingness to plow more money into European industry.
The development of clean industries still leaves Europe beholden to external actors, where it depends mostly on imports for key cleantech raw materials like lithium, cobalt, rare earth elements, magnesium, and graphite.
3. Energy dependence and industrial policy imbalances are harming Europe’s competitiveness
European industry is still reeling from elevated fuel prices. Germany’s manufacturing sector—which in 2018 accounted for two-thirds of the EU-28’s trade surplus—has been hit by higher fuel prices, which Markus Krebber, the chief executive officer of Germany’s largest utility, warned may never fully recover. The automotive industry, the crown jewel of German manufacturing, responsible for one-sixth of German exports, is no longer performing—exports in 2023 were down 11 percent from 2019 levels.
Attempts to use industrial subsidies to stem Europe’s competitive decline are not only insufficient to keep pace with China and the United States—they also exacerbate intra-European disparities. Lacking consensus to establish common funding mechanisms at the EU level, the Commission in March 2022 relaxed state aid rules that normally prevent member states from subsidizing domestic industry. Perhaps unsurprisingly, Germany, France, and Italy accounted for 85 percent of industrial support under the crisis framework, undermining European solidarity and widening the competitive gap between the bloc’s three largest economies and the other twenty-four member states.
This every-country-for-itself subsidy strategy risks centralizing clean industry around Europe’s big three economies, given the prevailing economics of localization when dealing with ultra-heavy machinery like batteries and wind turbines. While Poland and Hungary currently account for most EU battery manufacturing capacity, Warsaw and Budapest can’t compete with aid packages from Berlin, Paris, and Rome.
Europe’s path forward requires cooperation—and competition
The European Union began as a peace project but now must reconcile itself to a world that it is more dangerous, more competitive, and more uncertain. Europe cannot resign itself to be a peripheral player in an era centered on US-China strategic competition. The continent needs to be clearer on its role within the international system and its geopolitical stance toward Washington and Beijing. And it must remember that Europe’s core strength has always been its ability to forge unity out of diversity, whether internally or with external partners.
On funding, Europe needs to work collectively
Collective European action is required to build competitive clean industries at home. The Draghi report calls for an EU-funded Marshall Plan for European industry, which low-carbon sectors would naturally be at the heart of. A common EU funding mechanism would also help to crowd in private sector investment, much like the IRA does in the United States. Further common borrowing is needed to make that a reality.
Fully leveraging private European capital also means providing clear and simple rules to the private investors. That requires a technologically neutral approach to moving towards net zero, much as the United States has done with its landmark climate laws.
The EU green taxonomy should include nuclear fusion and fission, geothermal, and other low-emission technologies that advance energy security and emissions-reductions in tandem. Europe cannot achieve its moonshot mission of climate neutrality by 2050 with one hand behind its back. No solutions can be taken off the table—the United States and China certainly are not doing so.
Europe needs trusted partnerships to de-risk external dependencies
Collective European efforts must go beyond funding. Reducing external dependencies does not only mean replacing foreign energy imports with domestically produced clean energy. It also requires acting in concert to secure greater bargaining power, as well as diversifying sources of imports and pivoting towards trustworthy suppliers.
Europe must enhance its demand aggregation measures under the EU Energy Platform to achieve greater security and affordability in energy sources where it will always be a net-importer, such as LNG and hydrogen. It must also consider such measures for critical raw materials.
While the CRMA is justified in its objectives of locating more extraction and processing within Europe, there are limits to that approach. Europe’s raw materials cannot only be Made in Europe—they must also be Made with Europe, alongside a complex array of trade partnerships with nations in Africa, Latin America, and—of course—the United States and Canada.
Indeed, Europe must also deepen its collaboration in energy and climate among external partners who share its vision of an open, free, and climate-secure world. This means intensifying transatlantic cooperation on innovating and deploying technologies like batteries, electric vehicles, and nuclear energy.
A competitiveness agenda means re-tooling the EU for an era of great power competition
Achieving Europe’s energy security and climate goals requires a radical approach that gives the European Union the tools to meet the challenge of a more competitive world. This means transforming the European Union so that it can survive in an era defined by hot war, industrial policy, and strategic economic competition. Europe must adapt, or as Draghi says in his new report, succumb to a “slow agony.” The new Commission has not a second to lose.
Michał Kurtyka is a distinguished fellow with the Atlantic Council Global Energy Center and the former Polish minister of climate and environment.
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Image: EU flags at the European Commission Berlaymont building in Brussels. (Guillaume Périgois, Unsplash) https://unsplash.com/photos/blue-and-white-flags-on-pole-0NRkVddA2fw