Structural barriers hinder EU green transition, policy intervention needed
An ECB Economic Bulletin article identifies multiple structural barriers obstructing Europe's green transition, from market failures to regulatory fragmentation. It emphasizes the need for enhanced policy intervention to achieve net zero emissions by 2050.
Europe's uphill battle to net zero
Europe faces an urgent imperative to reach net zero carbon emissions, with global temperatures exceeding 1.5°C above pre-industrial levels in 2024. Extreme weather events have caused significant physical damage and impacted inflation, notably food prices.
While EU carbon emissions fell by 37% between 1990 and 2024, current policies project only a 47% reduction by 2030, falling short of the 55% intermediate target and the 2050 net zero commitment.
Achieving the green transition requires substantial additional investments, estimated by the ECB at 2.7% to 3.7% of EU GDP annually until 2030.
Hidden costs and fragmented rules
The green transition is hampered by several market failures and structural barriers.
These include unpriced environmental impacts, knowledge spillovers leading to underinvestment in R&D, and financial frictions from underdeveloped non-bank funding and lack of technical expertise.
Complex and fragmented regulatory frameworks across Member States create uncertainty and add substantial costs, with lengthy permitting processes.
Skills shortages and slow worker reallocation further hinder technology adoption.
Beyond carbon pricing: A holistic imperative
The study highlights that carbon taxation alone cannot overcome all barriers to the green transition.
Addressing these structural weaknesses, which also affect broader innovation, is crucial for enhancing the EU's competitiveness.
A comprehensive approach involving large-scale investment, targeted green R&D subsidies, and structural policies is essential for Europe's energy security, sustainability, and affordability goals.