European climate policy is setting the groundwork for a revolution in energy investment

During economic crises, one of the first things to suffer is investment. Companies worry what the future will hold, and they stop spending. But when we take a break from investing during difficult times, we risk a shortfall in the far-sighted financing necessary to deal with long-term issues. Right now, that means our climate and sustainability goals may go out of the window. It’s vital that we don’t lose sight of these targets.

Under the European Union’s climate law, member states must cut greenhouse gas emissions by at least 55% by 2030. The European Union must be climate neutral by 2050. These two dates will arrive quicker than you realise and the projects that allow us to meet these goals will have to be underway long in advance of that date. We need to ensure that investment towards those goals is a priority right now.

The short-term investment outlook is worrisome. The war in Ukraine shows no signs of ending and the fear of recession hangs in the air. The number of companies that plan to stop investing in growth or innovation is skyrocketing.

Energy investment needs attention

Given the devastating potential consequences of inaction or mistakes on issues such as climate change, the choices policymakers, businesses, and financial institutions make in response to these economic and political troubles will shape our future in irreversible ways. To address these complex challenges, the European Investment Bank Group brought together a large group of experts for the first EIB Group Forum, 27-28 February. Business and policy leaders exchanged views on decarbonisation, climate change, digitalisation, inequality, monetary policy, and how to deal with increasingly assertive authoritarian states. Their debate was informed by the latest in-depth research from the EIB Economics Department’s annual Investment Report.

Energy is the economic sector that needs most of our attention over the next few decades. We have known for too long that Europe is overly dependent on outside suppliers for oil and gas. The energy crisis and sky-high gas prices make it clear that we can’t keep putting off this problem even for another day.

To go green and clean by the middle of this century, we need several hundred billion euros in extra energy investments annually in Europe alone. And then we need to put the money into the hands of the right engineers, researchers, innovators, venture capital investors, and founders of revolutionary start-ups. We need better biofuels for cars, trucks, boats, and planes. We need more green hydrogen, advanced battery storage technologies, and more ways to store carbon dioxide. We need more productive solar panels and more installations of panels atop homes and buildings. We need thousands of new wind farms. We need more efficient electric cars.

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REPowerEU boosts energy investment, climate action

None of this is cheap. That’s why the European Union is providing a financial basis for this revolution.

The European Union has a new plan for a push towards energy independence. It’s called REPowerEU and it has two main goals: end reliance on Russian fuel; and create a new and affordable supply of energy. Russia has been the main exporter of oil, gas and coal to Europe for decades. In the gas sector, Russia provided around 45% of total EU gas imports in 2021. The invasion of Ukraine should surely have convinced everyone that this situation cannot go on.

It is estimated that REPowerEU will require €210 billion in investments between now and 2027, if we are to end Russian fossil fuel imports. The European Investment Bank Group will support REPowerEU with €30 billion in financing over the next five years—on top of our normal, massive energy lending. This is expected to mobilise up to €115 billion of energy investment.

Ending our long-standing reliance on Russia will require a massive electrification of heat and fuel sources in industries, buildings, and the transport sector. We also need a huge increase in energy efficiency for homes and buildings. After all, buildings consume about 30% of global gas and electricity supplies, yet most of them are simply leaking energy.

Energy investment augurs shift to hydrogen

For industries that use a lot of energy, such as steel and cement, green hydrogen offers big benefits. Green hydrogen is made with electricity supplied by hydropower plants or solar power. Around 30% of steel production in Europe is expected to use green hydrogen by 2030. The shift to hydrogen requires hundreds of billions of euros to build the infrastructure to transport it and make it sustainably. Over the coming decades, the European Investment Bank will direct large amounts of financing to this sector.

Energy use is falling in many countries. Europe’s natural gas demand declined by almost 25% in November 2022. Many of these savings come from households cutting back and, to a lesser extent, from industries investing in green methods and technologies that use less gas or electricity.

The energy crisis is a shock for everyone. But it also is a formidable opportunity to chart a new course for a carbon-neutral future. We mustn’t stop moving.