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Summary

The report maps out four policy avenues for how the EU could attain climate neutrality. The policy avenues consist of a mix of policy instruments sequenced over time, and the institutional arrangements to deliver them. Each policy avenue embodies a different paradigm, i.e., a different approach to (climate) policymaking. They thus sketch different paths that the EU could follow to align its climate policy with the goal of climate neutrality by 2050.

The policy avenues were developed with expert stakeholders in a policy lab, consisting of several workshops. The experts were given the task to sketch what transformative EU climate policy could look like when following one of the four paradigms. The resulting policy avenues were further developed by the research team and are described in the report.

The four policy avenues summarised

The four policy avenues represent ideal-typical, alternative choices for the future of EU climate policy and are meant to map out the policy space. In reality, policymaking tends towards compromise, reflecting path dependencies as well as different and changing political majorities that have different preferences for choosing policy instruments. As a result, real-life policies will typically not be as internally coherent, and rather combine elements of different policy avenues:

• The Green Economic Liberalism Policy Avenue is based on redirecting market forces and private initiative to drive the transition to climate neutrality. Existing market-based elements in the EU’s climate and energy policy mix – such as emissions trading – are strengthened and expanded, to achieve broader coverage and strong enough economic incentives. These market-based policies are accompanied by supporting policies where market coordination is not feasible, such as for infrastructure planning. The policy avenue builds directly on existing EU climate policy and therefore requires few institutional changes. The greatest barriers are political resistance to higher carbon prices – and refraining from interfering in the market if the carbon price should rise.
• In the Green Industrial Policy Avenue, the state actively builds a green economy to achieve climate neutrality. The policy avenue aims to foster breakthrough innovations in technologies that will be needed to reach climate neutrality and aims to scale existing solutions by accelerating their market diffusion. This will be achieved by substantially increasing public investments in research and development, manufacturing, and infrastructure as well as deploying effective standards that direct technological changeand stimulate investments. Some elements described in this policy avenue already exist in the EU today, but the state-guided intervention in markets in this avenue goes much further than the status quo. To achieve it, the EU needs capable, mission-oriented governance, along with sufficiently endowed institutions – as well as stronger centralisation of power, competencies, and financial resources in EU institutions. Neither of these will be popular with many member states.
• The Directed Transition Policy Avenue aims to foster technological change through active government intervention and the direct phase-out of fossil technologies. This includes the heavy use of EU-level targets, carbon budgets, sectoral pathways, and strict standards. By setting high-level targets and strategies but leaving member states room to experiment, this policy avenue is more decentralized than the previous. Another key element is the extensive use of review and update mechanisms to align climate neutrality strategies with the best available science. While the policy avenue can build on a strong tradition in EU policy of governing through targets and regulating via standards, the policy avenue takes this to a new level, making it the most interventionist of the four. Developing the required institutions, tools, and governance mechanisms to successfully plan and coordinate the transition will therefore be a central challenge, as market coordination is displaced by government coordination.
• The Policy Avenue Sufficiency and Degrowth aims to increase human well-being and address climate change by reducing material and energy use, including via methods that could reduce economic activity. This includes conventional instruments, like environmental pricing but also policies that reduce and redirect economic activity, like a four-day work week, the ban of emission-intensive technologies and activities like coal power or short-haul flights, and comprehensive social welfare reforms. By strengthening inclusive and participatory forms of political deliberation and localised action, this policy avenue would also involve governance innovations, and support decentralisation of power. It is a stark departure from existing EU and member states’ policy because it would explicitly aim to influence social norms and lifestyles, which are currently only indirectly addressed in EU policies. The policy avenue would also go further than other avenues in challenging conventional thinking about growth and prosperity that is internalised across EU (economic) policies and institutions. Consequently, the political and institutional hurdles are the largest, and compared to other policy avenues there is less that this policy avenue could build on.

Example of a policy avenue.

Governance challenges for transformative climate policy:

• All policy avenues rely on substantially increased public investments. This has implications for the EU’s fiscal capacities and its fiscal rules, which currently restrict public investments. To extend fiscal capacities, the EU needs larger own resources and / or a fiscal capacity akin to the Recovery and Resilience Fund that was established in response to the pandemic. For EU Member States to be able to borrow and invest more, the EU’s fiscal rules would need to be reformed.
• The developed policy avenues have implications for the relative powers and competencies of the EU institutions and the application of the principle of subsidiarity. Many of the policy options proposed in the avenues would require a stronger centralisation of decision making at EU level. This relates, for instance, to matters of EU own resources, the unanimity requirement (for matters relating to taxation, energy, and infrastructure planning), and public procurement.
• Finally, the workshops exposed path-dependencies and vested interests as barriers to policy change. Path-dependencies and institutional inertia make deep, transformative change more difficult and bias policy towards incrementalism and compromise. Another facet of this is the risk of regulatory capture that applies to all policy avenues: standards, investment programs, but also carbon pricing instruments are prone to be captured by incumbents. Likewise, phasing out support instruments or standards when they are no longer needed presents a challenge.

The report is available for download.