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Abstract

Strengthen EU governance for better delivery on climate and competitiveness goals

As the European Union designs its post-2030 architecture, it needs a governance framework that preserves the credibility of the climate-neutrality pathway while supporting competitiveness, simplification, and investor certainty. The 2040 target provides an important anchor for this framework, but its growing complexity and the introduction of new flexibilities require careful design to safeguard environmental integrity and maintain a clear direction for public and private investment. Simplification should therefore focus on improving clarity, implementation, and administrative efficiency without weakening the steering function of climate and energy law or turning simplification into deregulation. At the same time, stronger integration of climate, competitiveness, and social-policy planning and monitoring is needed to reduce fragmentation, improve coordination, and create a more coherent and durable governance system for the transition.

Climate policies should carefully balance the financing of short- and long-term measures

The energy transition requires substantial upfront investment, while households tend to profit from realized benefits only in the longer term, which may lead to challenges in public acceptance. This dynamic implies a need for targeted compensation, particularly for lower-income households, while not further widening the existing financing gap. An alternative approach to enhancing acceptance without increasing fiscal pressure is to strengthen locally governed organizations, allowing governments to concentrate public resources on high-risk technologies such as hydrogen.

Embed EU’s industry transition into the realities of industrial policy and geopolitics

Achieving a competitive and climate-neutral European industry requires a coherent policy architecture that builds on carbon pricing but goes beyond the EU ETS only. Such an architecture carefully balances public risk-taking, directs funding toward the most climate-effective technologies, anticipates the geopolitical realities of industrial relocation, and embeds raw material resilience into clean-tech innovation strategy.

Designing an EU ETS for long-term credibility

The EU ETS is an effective and evolving climate policy instrument that drives clean innovation and cross-sector spillovers, but its long-term integrity depends on careful governance across several dimensions. Financial market activity must be monitored to preserve liquidity and price stability; the system’s key parameters – including the Market Stability Reserve (MSR), Linear Reduction Factor (LRF), and potential integration of international credits – require calibrated design, as they interact in ways that can amplify or undercut each other’s impact. Any legislative amendments must be legally scrutinised to respect fiscal sovereignty constraints. Meanwhile, the complementary Carbon Border Adjustment Mechanism (CBAM), though a significant step forward, needs refinement to address competitiveness gaps for exporters and close existing loopholes – ideally through coordinated international engagement. Together, these findings point to the need for a coherent, evidence-based approach to strengthen the EU’s carbon market architecture in the years ahead.

Developing a flexible, resilient, and sustainable energy infrastructure for 2030 and
beyond

The German implementation of the Renewable Energy Directive III in planning and permitting remains fragmented, causing legal uncertainty. Legislative clarifications, especially in regional planning law and the Federal Building Code, are needed to establish land multifunctionality as a guiding principle. Once consolidated, Renewable Acceleration Areas and infrastructure plans for PV and storage should be systematically expanded. The 15 % interconnection target by 2030 signals strong political commitment. Scenario analysis with the energy system model TIMES PanEU shows that a single interconnection target cannot address diverse Member State conditions and priorities although it is introduced alongside the electricity market. A flexible, resilient, and sustainable European energy infrastructure requires better harmonization of national and EU plans, efficient financing, and faster project execution. Otherwise, there is a risk that investments in electricity and hydrogen infrastructure will be inefficient.