The EU Energy Transition: Doing More with More
By Floriana Cerniglia and Francesco Saraceno
In a context marked by economic and geopolitical tensions, the European Union is called upon to make energy a pillar of its strategic autonomy. Accelerating on the adoption of renewables is essential not only to meet environmental commitments, but also to address the productivity gap with the United States and reduce dependence on fossil fuels, which exposes the EU to supply shocks and geopolitical blackmailing. Lower reliance on fossil fuel means lower energy costs and less import dependency, with positive effects not only on the environment but also on productivity and economic security: the transition is not just an environmental choice, but a lever for economic sovereignty and strategic autonomy.
According to this perspective, energy policy cannot be separated from the new industrial policy invoked by the Draghi Report. Leaving the structural transformation of the EU economy to markets alone is not enough: it is necessary to facilitate it by reshaping and shortening supply chains, eliminating bottlenecks in strategic sectors, shifting resources toward high-value-added activities, and developing active labor market policies.
These themes are the focus of the sixth Outlook on Public Investment in Europe (More with More: Investing in the Energy Transition. 2025 European Public Investment Outlook). The Outlook highlights, on the one hand, how the EU continues to move in a scattered way; on the other hand, more fundamentally, both public and private investment is insufficient. EU Member states have different sources of energy and often have divergent interests, stemming from specific industrial histories and unequal resource endowments. Consequently – as noted in the first part of the Outlook – the decarbonization is certainly progressing in France, Germany, Italy, and Spain, but with strong differences in industrial policies, regulatory frameworks, and incentives. The difficulty of building a truly common and adequately financed energy policy emerges, for example, in the chapter written by our colleagues from the EIB.
In the few years since the introduction of the Green Deal in 2019, the context has become significantly more complicated. The Green Deal's main objective was reducing emissions, with an eye on the consequences for distribution and welfare. Today, the EU must juggle several, at times competing, objectives: decarbonizing; reviving an industry that has moved late and is now under pressure from the green transition and from competition from the United States and China; ensuring supply- and value-chain security in an unstable geopolitical environment; and mitigating the distributional impact of industrial restructuring. The second part of the Outlook links the energy transition to horizontal themes such as mission-orientedpolicies for industrial competitiveness, research and innovation, and vertical policies on green hydrogen, grid infrastructure, and access to critical raw materials. In a situation of tighter budget constraints and new spending priorities (particularly defence), and without proactive policies for fair distribution of costs and benefits, public consensus for the transition risks weakening; to avoid this, focus on local energy communities and equitable use of carbon resources are of paramount importance.
The Outlook's chapters are written by authors from different backgrounds and institutions, but the thread that links them is clear: without strong European coordination and stable public investment, the energy transition risks slowing down and weighing on the economy precisely when it should instead accelerate and act as a driver for sustained and sustainable growth.
European institutions do not seem equipped to support a genuine common energy and industrial policy. Following the short COVID-19-related parenthesis of Next Generation EU, the return to "frugal" positions by several EU actors and the limited ambition of the new Multiannual Financial Framework make an EU-wide push for industrial and energy policy unlikely. The necessary investments will therefore have to be carried out by Member States, which, however, are constrained by the Stability and Growth Pact.
For this reason, in our introduction, we propose an Augmented Golden Rule that would exclude investment, both tangible and intangible, from the 3% deficit limit of the Stability Pact. The logic would not be very different from the recent decision to exempt defence spending from the Pact's limits, in the framework of the SAFE initiative. However, unlike that measure, it would be institutionalized, to become the outcome of a democratic process regarding the EU’s investment priorities: the Council and Parliament would periodically (for example when approving the EU budget) reach an agreement on priority sectors in which there is the need to increase the stock of (tangible and/or intangible) capital; national governments could then finance these priorities through debt, in exemption from the Pact.
To prevent market pressure on individual countries, the Augmented Golden Rule should be accompanied by a European Debt Agency that would issue Eurobonds and lend to national countries to finance the commonly agreed investment priorities. The modulation of interest rates on these loans would ensure fiscal discipline, while protecting governments from undue market pressure.
Without a rethinking of the EU economic governance, a strategy that integrates the energy transition, competitiveness, and security will inevitably remain incomplete.
