Geopolitical tensions, volatile energy markets and the focus on strategic autonomy have pushed industrial competitiveness to the top of the political agenda. European climate policy therefore requires close coordination between emissions reduction, investment security and competitiveness. In a background paper, Ariadne researchers summarise how governance, financing, industrial transformation, the EU Emissions Trading Scheme and energy infrastructure need to simultaneously ensure decarbonisation, economic resilience and public support.

The authors – from organisations including the Ecologic Institute, the Potsdam Institute for Climate Impact Research and the University of Stuttgart – identify the climate and energy policy governance framework as a critical aspect of the energy transition. They argue that the growing regulatory jungle needs to be thinned out and the transition should be managed more efficiently, without weakening the steering function of climate law. Because private households only realise the benefits of upfront investments after a time lag, governments need to provide them with targeted relief while maintaining sufficient financial scope for investment in high-risk key technologies.

The authors also note the need for a geopolitically well-considered industrial policy that builds on the carbon price but also goes beyond it. This could include carefully balanced risk-sharing among EU states to ensure a resilient supply of raw materials for the clean-tech strategy. The European Union’s Emissions Trading Scheme remains the core instrument, but the interactions between its key elements need to be carefully considered. These include the market stability reserve, the linear reduction factor and the potential integration of international credits, as well as refinements to the carbon border adjustment mechanism to close loopholes and address competitive disadvantages for exporters.

Furthermore, the rapid development of an integrated European energy infrastructure is essential for achieving climate neutrality. Fragmented national planning and authorisation procedures currently hamper the implementation of EU requirements, leading to legal uncertainty. Without legal clarity and closer coordination between national and EU planning, there is a risk that inefficient investment could put Europe at a disadvantage in global competition.