As we approach the halfway mark of the “decisive decade” on climate, policymakers in the United States and European Union (EU) face a vastly different questions: how to keep from falling backward vs. how to push ahead? Some U.S. policymakers are preparing to defend clean-energy legislation passed during the Biden administration, while EU leaders are building the framework of climate policies that will revolutionize their economy.
The 2019–24 legislative cycle in the EU featured the passage of the European Green Deal and its sweeping Fit for 55 policy package, which aims to reduce emissions by 55% in 2030 versus 1990 levels. Modeling by Energy Innovation and Agora Energiewende finds that core EU-level policies included in the package have paved the way for a 49% reduction in emissions.
In short, they get the bloc a good share of the way to its goals.
A significant share of the package’s impact comes from strengthening and expanding the Emissions Trading System and passing bolder CO2 standards for vehicles. The ETS previously only covered electricity and heat generation, energy-intensive industry, and aviation emissions. Now, it also includes emissions from burning fuel in buildings, road vehicles, and other industries. In parallel, tailpipe standards for vehicles will help ensure fuel costs for drivers stay low by electrifying cars and trucks.
In passing these policies, the EU will boost its economy, creating nearly two million jobs this decade as factories open to manufacture cleaner cars, generate cheaper electricity, and develop new technology to power and heat European homes and businesses. The modeling shows an increase in the EU’s GDP of over 300 billion euro by the end of the decade as new regulations accelerate the economic transition.
To ensure progress, good policy is needed
However, policymakers’ work is not done. A 300-million-ton emissions gap remains to close the book on the EU’s climate goals in 2030. Much of this work falls to the work of member states, who need to build policy to meet targets set by the Commission. Simultaneously, the Council and Parliament have more to do to finish the job. They must craft policies that drive electrification and the buildout of renewables to protect consumers from high carbon pricing and volatile fossil fuel costs while keeping European industry competitive.
Looking forward, the Commission is starting its work towards a new ambitious target, a 90% reduction in emissions by 2040. Through President von der Leyen’s recently announced Clean Industrial Deal, the bloc has the potential to achieve the target, assuming it homes in on the policies that can reduce emissions at the speed and scale needed to win.
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Since newly installed industrial equipment lasts for decades, decarbonizing installations during the current investment cycle is critical to meeting a 2040 target. The Clean Industrial Deal should support the direct electrification of industry in this decade to make that happen. Support for other important technology like clean hydrogen should be focused on the most important end-use sectors like refining and ammonia where alternatives don’t exist or are uncompetitive. Lead markets for clean products are needed to give the financial sector the stability they need to invest in forward-thinking manufacturers. And scaling clean power and transmission is necessary to support growing demand from industry.
An efficient and flexible future
While the EU can follow numerous pathways to reach its climate target, for example incorporating some, all, or none of the above ideas, each pathway will yield different outcomes for the economy and for people. For example, without a focus on efficiency and flexibility, demand for electricity could balloon, leaving consumers paying the price and prolonging reliance on imported fossil resources; without guardrails on priority uses for biomass, policymakers could inadvertently harm critical biodiversity or expand deforestation, undermining environmental goals.
The EU Energy Policy Simulator underpinning the Energy Innovation-Agora 2030 modeling can help policymakers and advocates explore the tradeoffs between different policy instruments for reaching targets. With this tool, anybody can gain insight into the most effective ways for the EU to reach its climate goals.
Just like the U.S, the EU has a chance to solidify their climate progress if they make smart choices today. They need to focus the most effective policies and if they do, the benefits will help consumers, boost the economy, and protect public health.
