A European sovereign fund for the climate transition

Read the report “A European sovereign fund for the climate transition”

The goals for mitigating climate change and decarbonising economies are driving a new industrial revolution based on clean energy, which has set in motion a profound transformation in production systems and a trend towards a reconfiguration of global competition. In the new international geopolitical context, the relative deterioration of Europe’s competitive position could rapidly worsen. In the long term, the erosion of capacity for growth potential and of standards of living could threaten social sustainability and compromise the political stability of numerous countries. In Italy, these deficits are particularly marked.

In this general context, the European Green Deal is an indispensable strategic platform for competitiveness and for the relaunching of the European project and thus also a unique opportunity for transformation and growth for the Italian economy. However, despite its importance, the current political debate in Europe and Italy appears not to be focused on the themes of its implementation, its possible expansion and above all its refinancing.

For the European Union, the estimated investment needed to implement the Green Deal would require a total annual investment in the 2021-2030 period of approximately 1,285 billion per year, equal to 8% of GDP of the EU in 2022. With regards to Italy, according to the NECP, the investment required for energy and climate transition amounts to approximately 118 billion per year (6% of GDP for 2022). Even more financial resources will be needed in later decades in order to achieve climate neutrality by 2050. The European Commission estimates an average annual amount of EUR 1.5-1.6 trillion between 2031 and 2050, which would require public funding on a European level of approximately 975-1,040 billion per year at 2023 prices (i.e., around 5% of EU GDP as of 2050).

The magnitude of the financial commitment obviously requires an enormous amount of private resources. However, ecological transition needs the significant contribution of public investments and incentives, above all in order to adapt the Member Country’s infrastructure, intervene in areas of lesser market interest and correctly channel private investments. According to estimates by the European Commission, the contribution of public funding represents an average of 64% of overall investment required. An annual public finance commitment of 4-5% of GDP (3.5%-4% net of indirect effects), focused above all on energy and ecological transition, appears essential in order to achieve the Union’s climate goals and to defend the standing of the European and Italian economy within the changing context of global competition.

However, for many European countries (and certainly for Italy), the entity of the funds required is clearly inconsistent with the need to stabilise public debt and is in contrast with the commitments recently undersigned in the context of the revision of the Stability and Growth Pact. The reform of the Pact, which was approved in April 2024, appears to be incompatible with the entity of the investments necessary to implement the Green Deal. The new obligations set by the new Pact, in fact, require almost all EU countries to adopt restrictive budget policies for the next 4-7 years. With the funds from the NGEU due to run out by 2026, of which only a part is dedicated to climate transition, compliance with the new European budget contraints means that it will be impossible for many EU countries (and certainly for Italy) to achieve the goals set by the Green Deal.

In order to tackle the problem of the limited financial capacity of the most indebted Member States, the setting up of a European Energy and Climate Sovereign Fund could draw inspiration from the technical and legal solutions already adopted and validated by the NGEU, the main innovation of which is the possibility to issue debt on the capital market in order to provide Member States not only with loans, but also – and above all – grants. The legal architecture of the NGEU does not require regulatory reform or a revision of the founding treaties of the Union and can therefore also provide a useful foundation for the new fund. With resources rolled-over every five years, the fund could systematically cover approximately one fifth the overall estimated investments required for the 2031-2050 period, and projections for potential relative direct revenue from the EU budget would be sufficient to guarantee interest payments and the repayment of the debt by the deadline.

The setting up of a European energy and climate fund is therefore legally and technically feasible, and should be a decisive theme of political debate, particularly in light of the upcoming European Parliamentary elections and the renewal of the Commission. The defunding of the Green Deal, which would be the result of a decision not to continue with the fruitful experience of the NGEU, would not only undermine the possibility to mitigate the climate threat, but would also compromise Europe’s competitive global position (and even more so that of Italy), structurally weakening the potential for long-term growth.

Read the report “A European sovereign fund for the climate transition”


Photo by Martin Vorel

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