Energy: Assessment of the European transition between targets and competitiveness

ENEA in-depth analysis for the annual European Public Investment Outlook (EPIO) report ^[1], which dedicated its 2025 edition to the energy transition, shows how the European energy system is losing competitiveness, having moved further and further away from the 2030 decarbonization targets over the last 10 years.

According to a report by ENEA economists Daniela Palma and Francesco Gracceva ^[2], in order to meet the 2030 targets, an annual reduction in energy consumption of more than 3% and in CO2 emissions of 7% would be required (compared to -1% and -2% respectively required in 2015 ^[3]), as well as an annual increase in the share of renewables in final consumption of 3 percentage points (compared to 1.5 p.p. ten years ago).

“The chapter we edited for the EPIO 2025 springs from a quantitative analysis based on many indicators identified by the European Commission for monitoring the Energy Union, the strategic framework launched 10 years ago to address the synergies and trade-offs among environmental sustainability, energy security and economic competitiveness,” Palma and Gracceva pointed out.

The assessment conducted in the report shows that, despite the measures taken, prices for European households and businesses remain high compared to the pre-2022 period. In addition, the trade balance in low-carbon technologies has deteriorated significantly since 2015, while energy-intensive industries are experiencing a profound crisis: production in sectors like steel and basic chemicals has fallen to its lowest level in 30 years.

“European government spending in the sector has focused more on measures to contain and support energy affordability than on investments in the low-carbon technologies needed for a structural change in industrial production systems, as has been the case in China and the United States,” said the two ENEA economists. “In a geopolitical context of growing tensions,” they concluded “our contribution to the EPIO 2025 has highlighted a global interdependence that is more geared towards conflict than cooperation, the latter being essential for achieving the global energy transition.”

In addition to data analysis, the ENEA report contains an assessment of policy implications, evaluating whether the EU recent shift towards autonomy in clean energy technologies and materials can support European economic development. “It would be desirable to have a strategy no longer based on the mere development of a European-branded ‘green’ industry, but on a new production model combining industrial policies focused on innovation and international cooperation, without protectionism, with the aim of accelerating the global development of green technologies, reducing inequalities and making the climate transition more effective,” concluded Palma and Gracceva.

In this context, “the role of public intervention becomes particularly important and requires a change in European governance to make possible the use of state budget resources, currently bound by the rules of the Stability Pact, in order to support the development of sectors that are strategic for the energy transition,” pointed out the editors of the entire edition of EPIO Floriana Cerniglia (Università Cattolica del Sacro Cuore - CRANEC, Milan) and Francesco Saraceno (French Economic Observatory - Ofce, Paris).