A new study published by think tank Agora Energiewende explores the economic implications of Europe’s ambitious green transition, revealing both potential benefits and challenges. The study predicts that green investments could boost Europe’s economy by 2% by 2040, driven by investments in clean technologies, infrastructure, and building renovations. This would create new jobs, strengthen EU manufacturing, and foster economic convergence between Western and Eastern Europe.
However, the study highlights potential fiscal risks for Mediterranean countries like Italy and Spain, characterized by high debt levels. These countries could face heightened austerity measures as they invest in green infrastructure to meet Europe’s ambitious target of reducing greenhouse gas emissions by 90% by 2050.
Despite the overall positive economic projections, the study emphasizes the need for robust EU-level funding to support these investments. The Agora study argues that relying solely on carbon pricing revenues will not be sufficient, as these revenues are expected to decline in the mid-2030s. Therefore, the study calls for sustained EU co-financing of national climate investment programmes, particularly in areas like clean transport and building renovations. This would ensure that countries can pursue both environmental and fiscal sustainability.
Agora estimates that annual investments of at least €462 billion, or 2.7% of EU economic output, will be needed throughout this decade. These investments will further increase to €564 billion, or 3.3% of EU GDP, in the 2030s before tapering off to around 1.1% annually.
The study’s call for increased funding comes amidst scrutiny regarding the use of green funds. The European Court of Auditors (ECA) recently criticized the misuse of these funds, highlighting instances where EU countries overestimated project costs and misreported actual spending. Luke Haywood, policy manager at the European Environmental Bureau (EEB), emphasizes the importance of robust monitoring to ensure that green funds are effectively used to achieve their intended goals. He stresses the need for adequate administrative capacity at the local level to ensure appropriate project oversight.
The study underscores the complexity of balancing economic growth and environmental sustainability. While green financing holds the potential to drive economic prosperity, it also necessitates careful planning and robust funding mechanisms to address potential fiscal challenges, particularly for heavily indebted countries. The study’s findings serve as a critical reminder for EU policymakers to prioritize transparent resource allocation and effective monitoring to ensure a successful and equitable green transition.
