COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS Securing our future Europe's 2040 climate target and path to climate neutrality by 2050 building a sustainable, just and prosperous society
Date: 2024-02-06
Institutions: Directorate-General for Climate Action, European Commission
Subjects: EU energy policy, EU industrial policy, adaptation to climate change, carbon neutrality, clean technology, emission trading, energy efficiency, green economy, greenhouse gas, sustainable development

EN 

  EN 

   EUROPEAN COMMISSION  Strasbourg, 6.2.2024  COM(2024) 63 final  COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS Securing our future        Europe's 2040 climate target and path to climate neutrality by 2050 building a sustainable, just and prosperous society {SEC(2024) 64 final} - {SWD(2024) 63 final} - {SWD(2024) 64 final}  
 
 
1  Contents 

1  Contents .............................................................................................................................. 1 

1  A Vision beyond 2030 ........................................................................................................ 2 

2  Ambitious global climate action ......................................................................................... 4 

3  The 2040 target and a pathway to climate neutrality .......................................................... 6 

3.1 

The target..................................................................................................................... 6 

3.2  Cost of inaction ........................................................................................................... 8 

4  Delivering the 2040 target ................................................................................................ 10 

4.1 

Implementing the 2030 policy framework ................................................................ 10 

4.2  An economy that delivers for people ........................................................................ 10 

4.3 

4.4 

The EU’s energy system ........................................................................................... 11 

Industry decarbonisation deal.................................................................................... 14 

4.5  Decarbonising transport and improving mobility ..................................................... 19 

4.6 

4.7 

Land, food and bioeconomy ...................................................................................... 20 

Investing in our future ............................................................................................... 23 

5  Conclusion and next steps ................................................................................................ 26 

8 

building blocks for achieving the 2040 target .................................................................. 27 

1 

 
 
 
 
 
 
 
 
 
1  A Vision beyond 2030  

Climate  change  is  intensifying  and  its  real-life  costs  accelerating.  A  historically  high 
acceleration in  climate disruption in 2023, saw global warming reaching  1.48°C  above pre-
industrial  level  for  the  first  time,  and  ocean  temperatures  and  Antarctic  Ocean  ice  loss 
breaking records by a wide margin. It is clearer than ever that achieving a stable climate and 
safeguarding  a  liveable  planet  for  current  and  future  generations  means  cutting  global 
greenhouse  gas  (GHG)  emissions  sharply  and  rapidly  and  preparing  for  future  impacts  of 
climate change(1). This pathway can and must go hand in hand with shaping a prosperous and 
fair  society,  and  EU  industry  and  agricultural  sector  that  are  agile  and  strong  in  a  globally 
competitive and increasingly sustainable economy that delivers for all the people and in line 
with the 20 principles of the European Pillar of Social Rights and its Action Plan. 

The outcome of COP28 in Dubai and the first global stocktake of climate action shows that 
the  rest  of  the  world  is  rapidly  moving  onto  this  pathway  as  well.  The  EU,  having  written 
climate  neutrality  by  2050  into  law,  has  been  leading  in  climate  action,  and  will  stay  the 
course. 

The vision of Europe at the end of the next decade is a comprehensive one: it should remain a 
prime  destination  for  investment  opportunities  that  bring  stable,  future-proof  quality  jobs, 
with  a  strong  industrial  ecosystem.  Europe  should  lead  in  developing  the  clean  technology 
markets  of the future, where all major countries  and businesses seek to  avail themselves of 
the  market  opportunities.  Becoming  a  continent  with  clean,  low-carbon,  affordable  energy 
and sustainable food and materials, will make it resilient against future crises, such as those 
currently caused by disruptions in the supply of fossil fuels. By remaining a global leader and 
a trusted partner  in  climate action, Europe will  simultaneously  strengthen its  open strategic 
autonomy  and  diversify  its  sustainable  global  value  chains  to  be  the  master  of  its  fate  in  a 
volatile world. 

Well-designed  climate  action  can  deliver  this  vision  for  Europe  and  its  citizens.  The 
European  Green  Deal  is  the  EU’s  long-term  strategy  for  economic  growth,  investment  and 
innovation.  Its implementation will notably strengthen the EU’s energy independence from 
fossil  fuels.  In  2022,  the  value  of  fossil  fuel  imports  soared  to  EUR  640  billion  (4.1%  of 
GDP),  because  of  Russia’s  war  of  aggression  against  Ukraine.  In  2023,  when  prices  came 
down substantially, net fossil fuel import costs accounted for about 2.4% of GDP (2).  

Growing the economy on the basis of fossil fuels and resource wastage is not sustainable. The 
EU  has  shown  that  climate  action  and  sustaining  economic  growth  go  hand  in  hand  by 
decoupling growth  from greenhouse gas emissions.  According to  provisional  data, total  net 

(1) IPCC. AR6 Synthesis Report: Climate Change 2023 
(2) Based on trade data for the first 10 months and projected GDP  

2 

 
 
 
 
 
 
GHG emissions were 32.5% lower in 2022 than in 1990(3) while the economy has grown by 
67% (4). The materials productivity has increased by 37.5% between 2000 and 2022 (5).  

Record  levels  of  renewable  and  low  carbon  technologies  are  now  being  deployed.  The  EU 
installed an unprecedented 17 GW of new wind energy and 56 GW of solar (DC) in 2023. In 
2022, about 3 million units of heat pumps were sold.  

The  European  Climate  Law  introduced  an  intermediate  target  to  be  proposed  by  the 
Commission  at  the  latest  six  months  after  the  global  stocktake  under  the  Paris  Agreement. 
Hence,  in  line  with  the  scientific  advice  by  the  European  Scientific  Advisory  Board  on 
Climate Change and based on a detailed Impact Assessment, this Communication presents a 
90%  net  GHG  emission  reduction  compared  to  1990  levels  as  the  recommended  target  for 
2040  (“the  2040  target”).  It  would  ensure  that  the  corresponding  overall  greenhouse  gas 
(GHG) emissions budget for the EU between now and 2050 is in line with the provisions of 
the  European  Climate  Law  and  provides  a  credible  pathway  to  a  strong  and  sustainable 
society in Europe.  

Achieving  this  target  will  require  a  number  of  enabling  conditions,  such  as  the  full 
implementation of the agreed 2030 framework, ensuring the competitiveness of the European 
industry, a greater focus on a just transition that leaves no one behind, a level playing field 
with  international  partners,  and  a  strategic  dialogue  on  the  post-2030  framework,  including 
with industry and the agricultural sector. 

The  objective  of  this  Communication  is  to  launch  the  political  debate  and  inform  the 
preparation of the post-2030 framework. It does not propose new policy measures or set new 
sector-specific targets. 

At this, stability and full implementation of the legislative framework in place for meeting the 
2030 climate and energy targets  is  a precondition  for the EU to  stay on course to  the 2040 
target on the way to climate neutrality in 2050 and to reap the full potential of the transition. 
In fact, an extension of current policies towards 2040 would already lead to a -88% reduction 
by  2040.  Frontloading  the  decarbonisation  on  our  path  to  climate  neutrality  by  2050  will 
significantly  reduce  fossil  fuel  imports  (by  80%  in  2040)  and  hence  provide  greater 
protection against price shocks and create a lead market in clean technologies, strengthening 
the EU’s open strategic autonomy and competitiveness.  More focus is however needed on a 
framework that ensures that all citizens benefit from the climate transition, already now and 
into  the  next  decades.  For  example,  the  European  Green  Deal  must  also  be  an  industrial 
decarbonisation  deal.  Europe  needs  better  integration  of  employment  and  skills  as  well  as 
social  and  distributional  aspects  in  climate  action  and  an  enabling  framework  for 
decarbonised industry in the pursuit of sustainable economic growth, as well as a global level 
playing field for green business to thrive. Europe will also need to plan the necessary energy 

(3) Climate Action Progress Report 2023.  
(4) Estimate from AMECO database (European Commission, DG ECFIN), real GDP. 
(5) Eurostat, Circular Economy Monitoring Framework. 

3 

 
 
 
 
 
 
and transport infrastructure. These aspects will be addressed in the upcoming reviews already 
foreseen  in  existing  EU  measures  to  ensure  the  successful  achievement  of  our  2030 
objectives. 

Moreover, Europe will need to mobilise the right mix of private and public sector investment 
to make our economy both sustainable and competitive. In this area, a European approach on 
finance  will  be  needed  in  the  coming  years,  in  close  cooperation  with  Member  States,  to 
generate economies of scale and scope, while limiting fragmentation of efforts and deepening 
of regional imbalances. 

Many  investments  to  be  undertaken  to  realise  the  2030  climate  and  energy  targets  have 
impacts  spanning  decades.  Defining  a  climate  target  for  2040  now  will  provide  investment 
predictability. It will help EU decision makers, Member States and stakeholders to take the 
necessary decisions in this critical decade, so that these are compatible with the 2040 target 
and  the  climate  neutrality  objective,  minimising  the  risks  of  lock-in  to  costly,  sub-optimal 
paths and stranded assets.  

The imperative that the transition  has to  be just is  at  the heart of the European Green Deal 
given the worries among some citizens and industrial actors about the risks and costs of the 
climate and energy transition. Climate action has to bring everybody along, paying particular 
attention  to  supporting  those  who  face  the  greatest  challenge.  That  is  why  this 
Communication  is  the  start  of  a  dialogue  and  an  extensive  outreach  to  citizens,  businesses, 
social partners, NGOs, academia and other stakeholders on the right 2040 pathway to climate 
neutrality  by  2050.  Such  dialogue  with  industry  is  already  taking  place  through  Clean 
Transition  Dialogues  organised  with  the  key  industrial  sectors,  and  will  be  continued  and 
expanded,  including  in  a  2040  perspective.  The  Strategic  Dialogue  on  the  Future  of 
Agriculture with  farmers and other actors in  the food chain  on the future of agriculture has 
also been launched. Furthermore, a a structured and systematic dialogue with social partners 
should  be  strengthened  to  ensure  their  contribution,  focusing  on  employment,  including 
availability of jobs for displaced workers, mobility, job quality, investments in reskilling and 
upskilling.  The  Commission  will  present  the  stocktake  of  the  Clean  Transition  Dialogues 
prior  to  the  Special  European  Council  meeting  in  April  this  year.  These  dialogues  and 
outreach  will  allow  the  next  Commission  to  table  legislative  proposals  for  the  post-2030 
policy  framework  that  will  be  needed  to  deliver  the  2040  target  in  a  fair  and  cost-efficient 
manner. 

2  Ambitious global climate action  

The  first  global  stocktake  under  the  Paris  Agreement  found  that  parties  are  putting 
increasingly effective climate policies in place, but that urgent additional action is needed to 
put the world fully on track for achieving the goals of the Paris Agreement.   

The parties at COP28 agreed that limiting global warming to 1.5°C requires deep, rapid and 
sustained reductions in global GHG emissions of 43% by 2030 and 60% by 2035 compared 
to 2019 levels and reaching net zero CO2 emissions globally by 2050. The Global Stocktake 
highlighted  that  the  fossil  fuel  era  should  draw  to  an  end,  recognising  the  need  for  all  to 
transition  away  from  fossil  fuels.  The  agreement  also  calls  on  the  parties  to  triple  global 
4 

 
 
 
 
 
renewable energy capacity and double the rate of energy efficiency improvements by 2030, to 
accelerate efforts globally towards net zero emission energy systems, making use of zero- and 
low-carbon fuels well before or by around mid-century. While emphasising the importance of 
a  just  transition,  it  also  calls  to  accelerate  efforts  to  phase  down  unabated  coal,  emissions 
from road transport, tackle methane, and other non-CO2 emissions this decade, and phase out 
as  soon  as  possible  inefficient  fossil  fuel  subsidies  that  do  not  address  energy  poverty  or 
vulnerable groups. This will require a shift in investment patterns across the globe to ensure 
finance flows are consistent with low emission and climate resilient development pathways. 

The  results  of  COP28  set  the  minimum  expectation  for  action  from  the  entire  global 
community and put others on the trajectory that the EU is already on.  The EU will continue 
to contribute to building the means and momentum for increased global action and persuade 
and support other countries to follow suit.   

Building on the success and potential of the Global Gateway, international cooperation will 
expand to new areas in line with the collective commitments of the Global Stocktake and new 
technological opportunities. Climate finance will remain at the heart of the EU’s contribution 
to  global  climate  action.  The  EU,  together  with  its  Member  States  and  the  European 
Investment  Bank  (EIB),  is  the  biggest  contributor  of  public  climate  finance  to  developing 
economies, with  a contribution of €28.5 billion in  2022 and mobilising  an additional €11.9 
billion of private finance. 

The  EU  and  its  Member  States  will  further  strengthen  climate  diplomacy  in  bilateral, 
plurilateral (G7, G20, OECD, Climate Club among others) and multilateral fora. 

The Commission will set up a dedicated taskforce to offer its expertise and deploy staff to set 
up carbon markets, develop a global approach to carbon pricing6, intensify its carbon market 
diplomacy  around  the  world  and  amplify  its  efforts  to  replicate  the  success  of  the  EU 
Emissions  Trading  System  (ETS)  by  encouraging  and  supporting  other  jurisdictions  to 
introduce or improve their own carbon pricing mechanisms.  

The gradual implementation of the Carbon Border Adjustment Mechanism (CBAM), which 
entered into force, in its transitional phase, on 1 October 2023, also incentivises governments 
to  use  pricing  measures  to  reduce  emissions  and  for  industries  to  reduce  their  GHG 
emissions, based on a methodology that has potential for international application.  

In  a  volatile  geopolitical  environment,  the  EU  will  continue  to  develop  stable  partnerships 
with  like-minded  countries.  The  Green  Alliances  and  Green  Partnerships  concluded  with 
partners since 2021 will sustain the EU and partners’ pathways to climate neutrality. It will 
broaden  and  deepen  partnerships  with 
including 
neighbourhood countries, to ensure its long-term energy security and predictability of supply 
throughout the energy transition. This will help reduce external dependencies and costs while 
de-risking  supply  chains.  It  will  also  empower  European  businesses  and  society  to  benefit 

international  suppliers, 

reliable 

(6)  This  work  should  take  due  account  of  the  EU’s  push  for  global  carbon  pricing  measures  for  international 
aviation and maritime transport, through ICAO and IMO respectively. 

5 

 
 
 
 
 
from  the  global  transition  and  from  the  increasing  demand  for  clean  technologies,  coupled 
with policy instruments to ensure the resilience of the EU net-zero technologies supply.  

Trade agreements can help advance climate goals and achieve our targets while ensuring that 
the international trading system remains fair and non-discriminatory. Trade policy can drive 
innovation,  promoting  sustainable  value  chains  and  creating  market  access  for  clean 
technologies and products.  

Reflecting  the  significant  momentum  in  enlarging  the  EU,  the  Commission  will  support 
candidate  and  potential  candidate  countries  in  aligning  with  and  adopting  the  EU’s  climate 
and energy acquis, including the European Climate Law. This includes implementation of the 
commitments  made  through  the  Energy  Community  to  deliver  2030  climate  and  energy 
targets  and  climate  neutrality  by  2050  within  a  framework  based  on  the  Energy  Union 
Governance Regulation. Commitment to  and transition  in line with  the 2040 milestone will 
also be an important factor in the accession process of future EU Member States.  

The  2040  target,  once  agreed,  will  be  the  basis  of  the  EU’s  new  Nationally  Determined 
Contribution  (NDC)  under  the  Paris  Agreement,  to  be  communicated  to  the  UNFCCC  by 
2025, ahead of COP30. A net greenhouse gas figure for the EU in 2035 will be derived once 
the 2040 target is agreed, for communication as part of the new NDC.  

3  The 2040 target and a pathway to climate neutrality 

3.1 The target 

To put the EU on a firm path to climate neutrality, this Communication presents a 90% net 
GHG emissions reduction compared to 1990 levels as the recommended target for 2040 
(‘the 2040 target’). To deliver a reduction of net GHG emissions of 90%, the analysis in the 
impact assessment shows that the level of remaining EU GHG emissions in 2040 should be 
less  than  850  MtCO2-eq  (7)  and  carbon  removals  (from  the  atmosphere  through  land-based 
and industrial carbon removals)  should reach up to 400 MtCO2. 

The proposed target is based on a thorough impact assessment (8) that looked in detail at the 
implications of three target options for 2040: 

•  Option  1,  a  reduction  of  up  to  80%  compared  to  1990,  consistent  with  a  linear 

trajectory between 2030 and 2050 (9); 

•  Option 2, a reduction of 85-90%, compatible with the level of net GHG reduction that 

would be reached if the current policy framework were extended to 2040 and   

•  Option 3, a reduction of 90-95%.  

(7) Excluding emissions from the LULUCF sector. 
(8) The analysis is based on scenarios that reflect policies and measures until March 2023. Member States will 
submit their final National Energy and Climate Plans in 2024, which may include additional measures. 
(9)  Consistent  with  the  trajectory  referred  to  in  Article  8  of  the  European  Climate  law,  a  linear  trajectory 
between the agreed 2030 target and climate neutrality in 2050, reaching around 78% in 2040.  

6 

 
 
 
 
 
 
There  is  a  clear  difference  between  the  target  options  in  terms  of  the  importance  of  novel 
technologies.  Option  3  is  accompanied  by  faster  investments  for  deployment  of  novel  low 
carbon technologies such as hydrogen production by electrolysis, carbon capture and use and 
industrial carbon removals between 2031 and 2040 than in Option 2. Option 1 largely leaves 
the deployment  of new technologies  to  2041-2050, and therefore risks not  reaching  climate 
neutrality by 2050. Option 3 anticipates the large amount of carbon removals that is needed to 
reach climate neutrality by 2050 and to deliver net negative emissions beyond.  

Option 3 leads  to  the lowest  GHG budget  for the EU, with  net  cumulative GHG emissions 
(the  indicative  GHG  budget)  of  16  GtCO2-eq  for  2030-2050.  It  is  the  only  option  that 
corresponds  to  the  advice  of  the  ESABCC  (10),  minimises  the  total  GHG  emissions  we  put 
into the atmosphere and is in line with the provisions of European Climate Law to present a 
GHG  budget  that  does  not  put  at  risk  the  EU’s  commitments  under  the  Paris  Agreement. 
With  the  remaining  global  carbon  budget  (11)  shrinking  fast,  it  is  essential  that  all  parties 
minimise their own cumulative emissions. Setting the EU on this pathway as early as possible 
will make this transition cheaper and more predictable. The more climate action is delayed, 
the  greater  the  human  and  economic  costs  and  the  greater  the  need  to  fund  restoration  and 
adaptation, drawing resources from the EU economy.  

All options feature a shift in total costs from operational (linked to fossil fuel purchases) to 
capital  costs.  Investment  needs  for  2031-2050  are  similar  across  options,  with  Option  3 
requiring higher annual investment needs in 2031-2040 than Options 1 and 2, but then lower 
in  2041-2050.  However,  with  the  exception  of  energy-intensive  industries,  the  differences 
between  Options  2  and  3  in  terms  of  resulting  total  energy  system  cost,  GDP  and 
competitiveness on global export shares remains limited. Option 3 sets a clear transition path 
away  from  fossil  fuels  as  called  for  by  COP28,  providing  the  greatest  benefits  in  terms  of 
energy independence and enhanced protection against fossil fuel price shocks. It strengthens 
the  EU’s  open  strategic  autonomy  in  the  highly  volatile  international  context  where 
dependence  on  fossil  fuel  imports  is  a  risk  for  the  security  of  the  EU  and  its  economic 
stability.  

The recommended target requires a rapid deployment of zero and low carbon technologies by 
2040, creating a large domestic market for clean tech manufacturers, incentivising  research 
and  innovation  and  the  creation  of  a  strong  European  industrial  basis,  which  will  place  the 
EU in a leading position in the global clean technology race rather than delaying action to the 
last  decade  to  2050.  However,  with  more  action  in  the  decade  2031-2040,  Option  3  also 
involves moderately higher needs for raw materials (and less in the following decade), and, if 
novel  technologies  are  not  deployed  fast  enough,  a  higher  risk  of  potential  environmental 
trade-offs notably in terms of land use and role of biomass in the energy system.  

(10)  ESABCC  (2023).  Scientific  advice  for  the  determination  of  an  EU-wide  2040  climate  target  and  a 
greenhouse gas budget for 2030–2050. DOI: 10.2800/609405 
(11) For further details, see Annex 14 of the Impact Assessment. 

7 

 
 
 
 
 
A target of 90% will require greater focus and effort to ensure a just transition than for less 
ambitious  target  options,  as  the  transition  is  somewhat  accelerated.  While  the  difference 
across options in costs for households is limited (notably thanks to higher energy efficiency 
in  Option  3  that  limits  energy  purchases),  the  post-2030  policy  framework  should  include 
adequate  policy  measures  to  ensure  affordable  energy  prices  and  access  to  decarbonised 
solutions. Redistributive measures will be essential to address social impacts so that no one is 
left behind.   

How the target options compare 

Investments and costs 
All  options  require  a  similar  level  of  investment  over  2031-2050  and  entail  the  redirection  of 
resources  that  would  otherwise,  in  the  absence  of  action,  also  need  to  be  invested  in  more  carbon 
intensive technologies in order to provide for the economy’s energy needs. Energy system investment 
needs amount to close to €660 billion (equivalent to 3.2% of GDP) per annum on average over the 
entire  period  (against  €250  billion  over  2011-2020,  or  1.7%  of  GDP,  a  decade  with  relatively  low 
investments  in  the  energy  system),  and  yearly  spendings  in  transport(12)  to  about  €870 billion 
(equivalent  to  4.2%  of  GDP,  a  similar  proportion  of  GDP  as  in  2011-2020).  Option  3  brings  some 
energy system investments forward to the  2030s, with an average annual investment of €710 billion 
over 2031-2040.  

The resulting energy system costs (13) are also similar across options, ranging from 12.4% (Option 1), 
12.7% (Option 2) to 12.9% of GDP (Option 3) in 2031-2040, a moderate increase compared to the 
11.9% of GDP spent in 2011-2020, and then fall to about 11.3% for 2041-2050. The cost of fossil fuel 
imports decreases significantly under Option 3, to less than 1.4% of GDP by 2040 and less than 0.6% 
in the last decade (against 2.3% over 2010-2021 and 4.1% in 2022 during the recent energy crisis), 
saving about €2.8 trillion over 2031-2050. 

The  assessment  also  shows  that  progress,  for  example  on  the  circular  economy,    can  reduce 
investment needs in the energy system by about 7% over 2031-2050 (representing yearly savings of 
€45 billion) and spendings in transport by about 9% (€127 billion). This leads to lower energy system 
costs of 12.6% of GDP in 2031-2040 and 10.8% in 2041-2050, substantially lower than in 2011-2020. 

Environment 
All  three  target  options  offer  significant  co-benefits,  including  improvements  in  air  quality, 
ecosystems, enhanced health, and reduced healthcare costs. 

3.2 Cost of inaction 

(12)  Investments  in  the  transport  sector  reflect  the  expenditures  on  vehicles,  rolling  stock,  aircraft  and  vessels 
plus  recharging  and  refuelling  infrastructure.  They  do  not  cover  investments  in  infrastructure  to  support 
multimodal  mobility  and  sustainable  urban  transport.  In  particular,  the  acquisition  costs  of  private  vehicles 
represent about 60% of the total. 
(13)  The  energy  system  cost  is  broader  than  the  investments,  and  consists  of  the  capital  cost  (annualised 
investment  cost)  and  the  energy  expenditures  for  economic  activities.  See  the  impact  assessment  for  more 
details. 

8 

 
 
 
 
 
 
 
 
 
 
The costs and human impacts of a  changing climate are large and growing. Climate-related 
extreme  events  have  risen  between  1980  and  2022,  causing  220 000  deaths  and  EUR  650 
billion in  economic losses over the period in  the EU, of which about  EUR 170 billion over 
the  past  5  years  only.(14)  As  one  of  the  consequences,  in  February  2024  it  was  decided  to 
increase the EU’s Solidarity and Emergency Aid Reserve by EUR 1.5 billion for the period 
2024-2027 (i.e. on top of the EUR 1.2 billion per year under the original MFF). It is further 
estimated that 61 000 lives were lost to heat in 2022, a figure that was only superseded by the 
heatwaves of 2003, which caused 70 000 deaths (15). These numbers might increase rapidly, 
since the compound  effects  of climate change, land use and environmental degradation can 
also  affect  health  in  multiple  ways  creating  new  opportunities  for  transmission  of  viral 
infections among previously geographically isolated species of wildlife and the transition of 
diseases  from  wild  animals  to  humans.  In  addition,  climate  change  in  combination  with 
biodiversity loss is a significant driver of food insecurity.  We now face increasing risks of 
reaching  irreversible  climate  tipping  points,  with  unknown  and  potentially  catastrophic 
consequences for societies, ecosystems and economies.  

Inaction  would  lead  to  far  larger  and  growing  costs  in  the  coming  decades.  Although 
estimates  of  the  costs  of  extreme  weather  events  are  uncertain,  the  impact  assessment 
estimates  conservatively,  without  taking  account  of  possible  tipping  points,  that  such  costs 
could  lower  GDP  by  about  7%  by  the  end  of  the  century.  Over  the  period  2031-2050,  the 
cumulative additional GDP cost of a pathway leading to worse global warming could amount 
to  EUR 2.4 trillion  in  the  EU,  compared  to  the  costs  under  a  pathway  compatible  with  the 
1.5°C objective of the Paris Agreement. (16)   

While  the  challenges  linked  to  the  transition  to  climate  neutrality  should  not  be 
underestimated,  the  process  itself  will  generate  major  new  opportunities  and  secure  a 
sustainable  future  for  all.  The  impact  assessment  estimates  that  achieving  the  90%  target 
could reduce premature deaths due to air pollution from 466 000 per year in 2015 to 196 000 
per year in 2040, with a related reduction in costs from about EUR 1 700 billion in 2015 to 
EUR 670 billion in 2040 (17).  

Net imports of fossil fuels would be reduced while the economy will grow larger. The impact 
assessment estimates that the cost of stylised fossil fuel price shocks in terms of lost output 
and employment would be halved if they were to take place in a significantly decarbonised 
economy (as attained under the 2040 climate target).  

(14)  European  Environment  Agency  (2023).  Economic  losses  from  weather-  and  climate-related  extremes  in 
Europe. 
(15) Ballester, J., Quijal-Zamorano, M., Méndez Turrubiates, R.F. et al. Heat-related mortality in Europe during 
the  summer  of  2022.  Nat  Med  29,  1857–1866  (2023).  https://doi.org/10.1038/s41591-023-02419-z, 
https://www.nature.com/articles/s41591-023-02419-z.  
(16)Comparison  between  the  impact  of  IPCC’s  Representative  Concentration  Pathway  RCP7.0  “higher 
warming”  pathway  (with  a  “best  estimate”  warming  of  2.1°C  in  the  mid-term  (2041-2060)  and  3.6°C  in  the 
long-term (2081-2100)), and the  1.5°C compatible RCP1.9 pathway (with the “best estimate” temperatures of 
1.6°C and 1.4°C). 
(17) Based on the value of statistical life (high valuation method). These estimates are indicative , derived from 
the  methodology  underpinning  the  Commission  dedicated  clean  air  analysis,  such  as  in  the  3rd  Clean  Air 
Outlook. 

9 

 
 
 
 
 
 
 
 
4  Delivering the 2040 target 

Delivering  the  2040  target  will  depend  on  the  full  implementation  of  the  2030  climate  and 
energy framework and calls for the development of a post-2030 policy framework. This must 
be complemented with a broad enabling framework for the two equally important objectives 
of  the  European  Green  Deal,  namely  just  transition  and  competitive  sustainability.  This 
double  focus  will  trigger  the  necessary  investment  decisions  and  mobilise  finance,  roll-out 
innovative  technologies  and  ensure  that  all  EU  citizens  and  economic  sectors  can  benefit 
from the transition and access affordable solutions. 

4.1 Implementing the 2030 policy framework 

All  efforts  must  be  made  to  implement  the  2030  energy  and  climate  framework  as  the 
stepping  stone  to  reaching  the  2040  target  and  climate  neutrality  in  2050,  in  line  with  the 
European  Climate  Law.  The  on-going  update  of  the  National  Energy  and  Climate  Plans 
(NECPs) is  a key element  in  monitoring the progress  towards the 2030  climate and  energy 
targets.  The initial  assessment of the draft NECPs (18) highlights the need for the increased 
level  of  ambition  and  improvements  in  the  final  submissions  due  from  Member  States  by 
June 2024. The Commission calls on Member States to take decisive measures in effectively 
implementing  the  commonly  agreed  policies  and  legislation  and  is  ready  to  work  with 
Member  States,  sectors  and  social  partners  to  facilitate  the  necessary  actions.  Tailor-made 
expertise  through  the  Commission’s  Technical  Support  Instrument  can  help  Member  States 
undertake reforms supporting the implementation of the 2030 policy framework. 

4.2 An economy that delivers for people  

EU  citizens  are  at  the  heart  of  the  Green  Deal.  The  most  vulnerable  people,  such  as  those 
with lower income, persons with disabilities, marginalised communities and older people are 
much more exposed to climate hazards as they lack the means to protect themselves against 
such risks. This makes the EU’s climate agenda even more important, alongside  investment 
and  support  policies  that  generate  social  and  economic  benefits,  which  reduce  poverty  and 
inequalities.  This  includes  investing  in  people  through  re-skilling  and  upskilling  of  the 
workforce,  support  for  labour  market  transitions  and  targeted  income  support  measures. 
Effective social dialogue as well as a strong involvement of stakeholders and citizens is key 
to anticipating and managing change alongside measures to help all to participate actively in 
the green transition through accessible and affordable environmentally friendly options.  

A just and fair transition for people  

The  transition  to  climate  neutrality  is  happening  alongside  the  development  of  artificial 
intelligence, digitalisation, ageing and geopolitical insecurity amongst other trends. Together 
they  will  lead  to  changes  in  the  way  we  produce  and  consume  goods  and  services,  with 
implications for households and workers.  

(18) COM(2023) 796 final 

10 

 
 
 
 
 
 
In  terms  of  employment,  the  effects  of  the  transition  will  vary  by  sector  and  by  region, 
according  to  their  dependence  on  specific  activities.  Fossil  fuel-dependent  sectors,  such  as 
transport and energy intensive industries will go through a fundamental transformation. It is 
also crucial to ensure that mobility options remain affordable and accessible for all, citizens 
and  economic  operators  alike,  and  that  rural  and  remote  regions  across  the  EU  are  better 
connected  to  further  facilitate  their  development. Workers,  communities  and  regions 
dependent on carbon-intensive activities will be the most affected, calling for continued just 
transition  support  as  the  transition  takes  shape,  in  tandem  with  closely  coordinated  and 
comprehensive  Member  State  action  and  measures  (19).  The  transition  will  bring  new 
opportunities  for  business  and  job  creation,  for  workers  at  all  skill  levels,  but  will  benefit 
some  regions  more  than  others.  EU  cohesion  policy,  with  its  investments  and  specifically 
from  the  Just  Transition  Fund,  an  instrument  dedicated  to  supporting  the  economic 
diversification  and  reconversion  of  impacted  territories  and  communities,  and  national 
measures, will continue to play an essential role in supporting regions the most affected by 
the transition. 

Carbon pricing, such as under the EU ETS, is reducing emissions while generating significant 
revenues  for  Member  States  to  tackle  climate  change  and  increasingly  to  support  industrial 
innovation  and  households  for  a  fair  transition.  The  ETS  funded  Social  Climate  Fund, 
including  obligatory  Member  State  contributions,  will  mobilise  EUR 87 billion  to  support 
vulnerable households, transport users and micro-enterprises. On top of that, Member States 
are  obliged  to  spend  their  overall  national  revenues  from  the  ETS  for  climate  and  energy 
purposes, that include addressing the social impacts of the transition. Used effectively, these 
funds can support people through the transition and have a lasting impact on their quality of 
life.  Support  will  continue  to  be  necessary  after  2030,  including  through  Member  State 
measures and a strengthened just transition policy framework.  

4.3 The EU’s energy system 

Renewable, zero and low carbon energy solutions 

All zero and low carbon energy solutions (including renewables, nuclear, energy efficiency, 
storage, CCS, CCU, carbon removals, geothermal and hydro-energy, and all other current and 
future net-zero energy technologies) are necessary to decarbonise the energy system by 2040. 
Solar  and  wind  will  make  up  the  vast  majority  of  renewable  energy  solutions.  The 
Commission will pursue its policies to ensure a fast deployment of all renewable energy, as 
well as of zero and low carbon solutions, a further development of energy efficiency. It has 
established  a  number  of  initiatives  to  accelerate  renewables  deployment,  create  enabling 
conditions for EU renewable industry and boost their competitiveness, such as the EU Solar 
PV Alliance and the Wind Charter. Ambitious electrification is key and the Commission will 
continue  to  work  with  Member  States  to  further  develop  smarter  grids,  system  integration, 
demand  flexibility  and  storage  solutions.  Accelerated  permitting  and  cross-border  cost 

(19)  In line  with and building on the Council Recommendation on  “ensuring a fair transition towards climate 
neutrality” (C/2022/243). 

11 

 
 
 
 
  
 
sharing will speed up the development of offshore wind projects in line with the recent action 
plans on wind and grids. 

The  Communication  on  Industrial  Carbon  Management  sets  out  a  roadmap  to  deploy  the 
necessary  CCS  and  CCU  technologies  for  hard-to-abate  sectors,  stressing  the  need  for  a 
regulatory  framework  in  areas  such  as  injection  and  transport  of  CO2,  as  a  precondition  to 
create a single market for CO2. The Commission is also launching an Industrial Alliance to 
facilitate  stakeholder’s  cooperation  at  EU  level  and  to  accelerate  the  deployment  of  Small 
Modular  Reactors  (SMRs)  and  ensure  a  strong  EU  supply  chain,  including  a  skilled 
workforce. This will leverage EU’s manufacturing and innovation capacities to accelerate the 
deployment  of  first  SMR  projects  in  the  EU  by  early  2030  under  the  highest  standards  of 
nuclear safety, environmental sustainability, and industrial competitiveness. 

Affordability  of  energy  prices  is  crucial  to  ensure  that  the  benefits  of  decarbonisation  are 
brought  to  the  whole  economy.  Fossil  fuel  prices  are  volatile  and  set  by  global  markets. 
Generation costs of renewable electricity have consistently been lower than those generated 
by fossil-fuels for more than a decade. The progressive substitution of fossil-fuel generation 
by renewables, complemented by efficient uptake of clean flexibility sources such as nuclear, 
and  supported by a  full  implementation of  an updated electricity market  design,  the further 
integration of cross-border EU (and extra-EU) power systems, and efficient uptake of clean 
flexibility sources may contribute to the lowering of wholesale electricity prices. Once fossil 
fuels  are permanently displaced of the power mix over the next  two decades and necessary 
investments  are  made  on  grids,  storages  and  batteries,  power  prices  might  start  to 
significantly  decrease  in  the  EU.  Investments  are  necessary  to  avoid  bottlenecks  in  the 
electrification  of  the  economy.  It  is  critical  to  ensure  proper  financing  tools  to  avoid  the 
required  investments  to  increase  final  prices  for  consumers  and  industry.  In  the  meantime, 
promoting and expanding the use of PPA’s will help to stabilise prices and shield companies 
from high and volatile prices caused by fossil fuels. 

Complementary  social  and  industrial  policies  will  be  needed  to  ensure  a  smooth  transition 
from  current  energy  price  levels  to  affordable  clean  energy.  EU  and  Member  States  can 
protect  lower-income and middle-income households from  steep increases  in  energy prices. 
Tailor-made  support  will  be  needed  for  energy-intensive  industries  to  bridge  the  transition 
period  when  they  face  the  dual  challenge  of  investing  in  clean  production  methods  when 
available,  and  coping  with  high  energy  prices.  As  a  start,  the  Innovation  Fund  matches 
innovation  support  with  such  solutions  in  the  form  of  carbon  contracts  for  difference.  The 
transition  will  bring  new  challenges,  such  as  land  and  water  use.  Win-win  solutions  (solar 
rooftops,  agri-PV,  biogas  and  biomethane  from  organic  waste  and  residues)  have  to  be 
prioritised, engaging citizens in the decisions. 

Energy efficiency and buildings 

The ‘Energy Efficiency First principle’ remains a central policy principle, and the impact of 
the  2030  energy  efficiency  target  extends  up  to  2040.  This  will  leverage  private  financing 
across all sectors and can unlock a European marketplace for energy efficiency investments. 
Circular business models reduce energy and resource consumption. The public sector, at all 
levels,  should  lead  by  example,  including  through  green  public  procurement  that  considers 
sustainability criteria, and provide a blueprint to facilitate the transition.  

12 

 
 
 
 
The  EU  building  stock  accounts  for  42%  of  final  energy  consumption,  more  than  half  of 
natural  gas  gross  inland  consumption  and  about  35%  of  energy  related  greenhouse  gas 
emissions. Around 80% of energy consumption in buildings stems from heating and cooling 
needs. Carbon pricing for all fuels, foreseen as of 2027, will create a level-playing field for 
electricity,  and generate  revenues  including  for the Social Climate  Fund  that could  be used 
for  investments  and  the  financing  of  structural  reforms.  An  updated  energy  tax  design  can 
further accelerate the green electrification of the building stock and the energy system. 

Electrification,  grids  and  infrastructure,  system  integration,  storage,  digitalisation  and 
flexibility 

Electrification  with  a  fully  decarbonised  power  system  by  2040  is  the  main  driver  of  the 
energy transition. The share of electricity in the final energy consumption will double from 
25%  today  to  about  50%  in  2040.  The  impact  assessment  shows  that  renewable  energy  in 
majority (20), complemented by nuclear energy (21), will generate over 90% of the electricity 
consumption in the EU in 2040 (22).  

Today, the average yearly gain from the integrated electricity market for European consumers 
is about EUR 34 billion per year (23). Higher renewable shares and electrification will require 
substantial  investments  in  the  expansion  of  the  EU’s  power  grids  at  distribution  and 
transmission  level,  as  well  as  in  upgrading  to  smarter  and  more  flexible  grids.  New 
interconnectors  expanded  distribution  grids,  energy  storage  facilities,  dispatchable  energy 
supply, flexibility market solutions, and sector coupling will be needed to ensure flexibility 
and  security  of  supply.  The  recent  EU  Grid  Action  Plan  is  a  first  step  and  its  swift 
implementation should remain a priority for the Commission, Member States and industry in 
view  of  delivering  on  the  2030  and  2040  targets.  This  experience  could  lead  to  a 
comprehensive  masterplan  for  accelerating  the  development  of  European  integrated  energy 
infrastructure. Security and resilience of critical energy infrastructure is a key priority to for a 
secure and stable energy supply.  

Consumers  should  be  empowered  to  adapt  their  consumption  to  market  conditions.  The 
digitalisation of the energy system, including AI, is key for more flexible energy sources (24). 

With  all  these  workstreams  in  mind,  avoiding  excessive  high  network  tariffs  for  end  users 
due  to  the  pay-back  of  upfront  grid  investment  and  electrification  will  be  a  key  regulatory 
objective at the EU and national level.   

Fossil fuels  

(20) Including bioenergy conversion technologies (e.g. biogas), coupled with a sustainable biomass supply. 
(21) The analysis is based on scenarios that reflect policies and measures until March 2023. Member States will 
submit their final National Energy and Climate Plans in 2024, which may include additional measures,  notably 
reflecting most recent announcements by some Member States to increase the deployment of nuclear energy. 
(22) The remaining 10% are compensated by negative emissions or supplied with low carbon solutions including 
use of carbon capture and storage. 
(23) ACER (2022). Final Assessment of the EU Wholesale Electricity Market Design.  
(24) Commission Action Plan for the Digitalisation of the Energy System. 

13 

 
 
 
 
 
In  2040,  the  consumption  of  fossil  fuels  for  energy  would  reduce  by  approximately  80% 
compared  to  2021.  Coal  will  be  phased  out,  while  oil  in  transport  (road,  maritime  and 
aviation)  would  represent  about  60%  of  the  remaining  energy  uses  of  fossil  fuels.  The 
remaining  use  of  natural  gas  would  be  divided  between  industry,  buildings,  and  the  power 
system.  In  line  with  the  international  commitment  to  transition  away  from  fossil  fuels, 
policies should ensure that any remaining fossil fuel combustion will be coupled as soon as 
possible with carbon capture (utilisation) and storage.  The gas market structure will change 
significantly,  with  an  increasing  role  for  low-carbon  and  renewable  liquid  fuels  and  gases. 
Gas infrastructure will need to adapt to the decentralized production, and a significant share 
of  the  oil  and  gas  network  may  gradually  be  repurposed  for  e-fuels,  advanced  biofuels  and 
renewable and low carbon hydrogen. Non-energy uses, such as feedstock for manufacturing, 
would  account  for  about  a  third  of  the  remaining  fossil  fuel  consumption.  Inefficient  fossil 
fuel subsidies which do not address energy poverty or just transition should have been phased 
out by then.  

4.4 

Industry decarbonisation deal  

To  make  the  European  Green  Deal  succeed  in  the  next  decade,  a  firmer  and  renewed 
European agenda for sustainable industry and competitiveness must complement it now and 
in the coming years. This enabling framework for industry decarbonisation will build on  the 
Green Deal Industrial Plan (25). Creating the right framework conditions for all sectors in the 
economy  (including  access  to  finance,  skills,  affordable  energy)  is  a  precondition  for  the 
successful  transition.  At  the  same  time,  there  are  economic  sectors  which,  given  upfront 
investment  for  clean  technologies  and  a  challenging  market  environment,  merit  special 
attention  to  adapt  their  production  processes  in  order  to  implement  the  Green  Deal 
framework. The same goes for SMEs, who will need dedicated support to access finance for 
sustainable investments and to navigate the relevant EU regulations. 

Success in the transformation will allow the EU to maintain its industrial strength in sectors 
like  wind  power,  hydropower,  and  electrolysers,  where  it  already  has  a  trade  surplus,  and 
continue  to  increase  domestic  manufacturing  capacity  in  growing  sectors  like  batteries, 
electric  vehicles,  heat  pumps,  solar  PV,  CCU/CCS,  technology  for  sustainable  biogas  and 
biomethane, and circular economy. The development of strong green and circular industries, 
both  domestically  and  in  like-minded  partners,  will  strengthen  the  EU’s  competitive 
sustainability, multiply business opportunities for companies, generate economies of scale, as 
well as benefit more widely to the European economy, generating highly skilled jobs to help 
and ensure that the climate transition is socially just and inclusive. 

Global competition for zero and low emission technologies will be intense. Large recourse to 
public subsidies and policy initiatives from our main competitors are distorting fair and free 
trade.  Net-zero  technologies  are  the  focus  of  strong  geostrategic  interests  and  a  global 
technological race. In China, long term planning, the vertical integration of entire sectors, and 
public  subsidies  have  driven  down  costs,  leading  to  China’s  dominance  in  many  cleantech 

(25) COM(2023) 62 

14 

 
 
 
 
 
supply  chains,  from  raw  materials  to  components  and  end  products.  In  the  US,  the  US 
Inflation Reduction Act provides fiscal incentives for investment and production in cleantech 
manufacturing. Europe is taking action to secure its own leadership role in this race, playing 
to  its  core  strengths  and  ensuring  win-win  partnerships  with  like-minded  partners.  .  It  will 
continue  to  apply  its  trade  defence  instruments  to  protect  the  industry  from  unfair  trade 
imports and, as a result, ensure resilient supply chains.Europe’s strength lies, amongst others, 
in  its  stability,  its  predictable  policies  and  long  history  of  bringing  high  quality  and 
innovative industrial solutions to markets. 

An enabling framework for investment and competitiveness in Europe…. 

Securing  a  conducive  regulatory  and  financing  environment  will  attract  investment  and 
production  to  Europe.  The  Critical  Raw  Materials  Act,  the  Ecodesign  for  Sustainable 
Products  Regulation  and  the  Net  Zero  Industry  Act  are  key  instruments  to  deliver  an  open 
strategic autonomy, including by scaling up domestic production, setting up key partnerships 
with  like-minded  partners,  applying  circular  economy  approaches  along  the  value  chain, 
diversification, strategic projects and easier permitting across technologies and infrastructure. 
The Net  Zero  Industry  Act  is  a concrete step in creating an industrial  business case  for the 
European  transition  to  carbon  neutrality.  It  addresses  the  right  topics  by  substantially 
accelerating  permitting,  focusing  R&D  investments,  and  access  to  existing  EU  funding 
schemes.  

Industrial policy should strengthen those sectors that are needed for the green transition, but 
may be challenged by this transition as they are harder to decarbonise, and hence fail without 
targeted  and  conditioned  attention  and  support.  Examples  could  include  industrial  alliances 
and  symbiotic  industrial  clusters,  like  hydrogen  valleys  (26),  within  the  EU  and  its 
neighbourhood.  Such  clusters  help  suppliers  of  clean  technologies  to  scale  up  their 
operations, and improve their commercial viability by supplying several industrial off-takers 
within  a  cluster,  while  manufacturing  industry  could  decarbonise  their  operations  more 
effectively  and  at  a  lower  cost  by  securing  access  to  clean  technologies  and  sharing  costs. 
Particular attention should be paid to the creation of lead markets for clean technologies and 
products in Europe, embracing, among others, circularity, and sustainably sourced bio-based 
products. 

Furthermore,  bridging  instruments  are  required  to  support  industries  before  they  become 
commercially  viable.  This  requires  a  comprehensive  reflection  on  all  elements  leading  to 
private investments: from taxation to access to finance, from skills to regulatory burdens and 
energy  costs  for  the  day-to-day  business  activities.  In  this  context,  far  more  and  continued 
attention is needed for a simplified regulatory environment for business and a fresh impetus 
in a strong Single Market that removes undue national regulatory barriers, especially for key 
technologies.  This  allows  businesses  to  ramp  up  standard  solutions  across  Europe,  thus 
boosting  their  economic  attractiveness  for  investors  and  is  a  crucial  element  for  the  future 
success of the EU agenda.  

(26) https://s3platform.jrc.ec.europa.eu/hydrogen-valleys   

15 

 
 
 
 
 
Particular attention should also be paid to the role of SMEs. They are drivers of the transition, 
vital  in  a number of supply  chains  and very often also  impacted at  large by changes in  the 
policy and regulatory framework. Given their more limited size, and by extension resources, 
they may need additional support to adapt for instance their production processes in order to 
implement the Green Deal framework. 

Public investment must be well-targeted, with the right mix and pooling of large-scale grants, 
loans,  equity,  guarantees,  advisory  and  other  public  support,  which  is  accessible  in  the 
quickest and simplest manner. The Recovery and Resilience Facility (RRF), the instrument at 
the  heart  of  NextGenerationEU  will  continue  to  contribute  to  the  green  transition.  The 
Innovation  Fund,  estimated  to  amount  to  EUR  40  billion  by  2030,  can  play  a  big  role, 
including  through  EU-wide  competitive  bidding  instruments  and  ‘auctions-as-a-service’ 
jointly with Member States. The InvestEU budgetary guarantee is expected to mobilise more 
than 110 billion of green investment building on Union budgetary alongside EIB Group and 
other implementing partners’ resources.  

With due attention for decarbonised and competitive manufacturing industry  

Electrification,  adapted  production  processes,  low  carbon  fuels  and  a  full  deployment  of 
capture for process emissions will allow manufacturing industry to significantly reduce CO2 
emissions by 2040. The EU ETS with its common carbon price, provides a market-based tool 
to innovate with long-term predictability for Europe’s main emitters. For some industries, this 
implies investing in a profound transformation of the production process (27). Carbon capture, 
use and storage is a solution in hard-to-abate sectors in the absence of other solutions.  

Energy costs are key for the competitiveness of industry and in particular European Energy 
Intensive Industries (28) and merit particular attention with dedicated policies to allow early 
movers to clean energy to benefit from  a smooth transition in energy prices.  As a start, the 
adopted  Electricity  Market  Design  Reform  makes  energy  bills  of  companies  more 
independent  from  the  short-term  market  price  of  electricity.  Further  expansion  of  the 
principle  of  competitive  sustainability  by  rewarding  European  companies  investing  in  low 
carbon  technologies,  including  through  public  procurement  processes  or  through  targeted 
reforms in electricity grid access regulations, will be key both to create a thriving domestic 
manufacturing base and achieve climate ambition. 

… built on a more circular economy and sustainable bioeconomy 

(27) This includes electrification and switching to alternative fuels (e.g. renewable and low carbon hydrogen, e-
fuels  or  bioenergy),  symbiotic  industrial  clusters,  innovation  in  low  carbon  processes,  energy  and  resource 
efficiency, material replacement and circular business models. 

(28)  According  to  the  International  Energy  Agency,  the  strong  fossil  fuel  dependence  of  the  EU  exposes 
European EIIs to higher share of energy expenditures in total cost of production than competitors in the US or 
China.  In  the  aftermath  of  the  2021-2022  energy  shock  due  to  the  EU’s  dependence  on  fossil  fuel  imports, 
recent  data  suggests  that  part  of  the  reduction  in  natural  gas  consumptions  has  been  driven  by  a  decrease  in 
industrial output, in particular by energy intensive industries. 

16 

 
 
 
 
 
 
The  Impact  Assessment  shows  that  up  until  2040,  the  circular  economy  will  become 
increasingly  important  to  achieve  both  climate  ambition  and  a  new  prosperity  model  for 
Europe. It is key to wed action against climate change and excessive resources use with new 
economic  opportunities  and  greater  EU  autonomy.  This  makes  implementation  of  the 
Circular Economy Action Plan a must and calls for a renewed partnership with industry for a 
circular economy agenda going forward.  

A  renewed  agenda  for  the  circular  economy  has  clear  benefits.  Through  repairing, 
refurbishing, reusing and recycling existing  products  and thereby extending their functional 
lifetime,  resources  are  used  more  efficiently  in  production.  Primary  raw  materials  can  be 
substituted with secondary raw materials that are less carbon-intensive. Fossil based materials 
can  also  be  replaced  by  sustainably  sourced  biobased  renewable  materials,  or  other 
environmentally  friendly  innovative  materials.  This  is  in  particular  the  case  in  sectors  like 
construction,  chemicals  or  textiles.  Investments  into  material  innovation  need  to  be 
strengthened including up-skilling in the bioeconomic sector.  

A stronger circular economy offers innovative business models that meet evolving consumer 
preferences  and  seize  digital  solutions.  For  example, circular business  models  like product-
as-a-service,  circular  product  design  ensuring  longer  lifetime,  reuse  and  repair,  shared 
economy or on-demand production can reduce economic cost of energy and material use and 
make  waste  via  a  loop  back  into  the  economy  a  resource  with  economic  value.  Circular 
business can create significant greenhouse gas emissions reductions in hard-to-abate sectors. 
Examples  include  the  built  environment  through  better  management  of  construction  and 
demolition  waste,  heavy  industry  through  material  management  solutions,  clustering  of 
resource-intensive complementary industrial activities, transport through shared mobility and 
reverse  logistics,  and  the  food  sector.  In  2021  there  were  4.3  million  jobs  in  the  economic 
sectors directly linked to the circular economy, an increase of 11% compared with 2015(29). 
Reducing materials input through re-use and recycling has the potential to boost growth and 
create a significant number of jobs in the EU, with upgraded knowledge and skills. 

By reducing dependence on imports of critical raw materials, and reducing the environmental 
pressure  and  risks  associated  with  natural  resource  extraction  and  consumption,  circularity 
can boost the EU’s security and open strategic autonomy.  

With a growing need for industrial carbon management and carbon removals  

Industrial  decarbonisation  will  also  have  to  address  “process  emissions”  not  related  to  fuel 
combustion. For these, carbon capture can be a solution. 

The 2040 target entails an earlier deployment of carbon capture (30). Part of it will allow to 
generate  industrial  carbon  removals  which  would  complement  land-based  removals 

(29) Eurostat (2023) EU circular economy monitoring framework. May 2023. Direct jobs. These figures do not 
include jobs in the circular economy when it is integrated in other sectors. 
(30)  “Carbon  capture”  includes  carbon  captured  from  industrial  processes,  power  and  heat  production,  biogas 
upgrade and direct air capture.  

17 

 
 
 
 
 
sequestering  carbon  in  biomass  and  soils  to  contribute  to  the  90%  reductions  of  net  GHG 
emissions.  

This  will  require  a  large  portfolio  of  options  such  as  BioCCS  (31),  DACCS  (Direct  Air 
Capture  with  Carbon  Storage)  and  possibly  other  novel  approaches.  Carbon  Capture, 
Utilisation and Storage (CCUS) technologies enable the decarbonisation of industrial sectors 
without alternative decarbonisation solutions by storing carbon permanently underground or 
in  products,  and  by  replacing  the  fossil  carbon  currently  used  as  feedstock  in  various 
industries  with  non-fossil  carbon.  Likewise,  the  development  of  CO2  value-chains  through 
carbon capture and use (CCU), nature-friendly biobased materials, mechanical and chemical 
recycling  can  all  boost  the  development  of  non-fossil  feedstock  to  substitute  fossil  fuels  in 
carbon-based products. Carbon capture will also remain important to reach net-zero by 2050 
and  absolute  negative  emissions  thereafter.  This  calls,  amongst  others,  for  a  continuous 
assessment  how  best  to  provide  incentives  for  industrial  carbon  removals  in  existing  EU 
legislation  or  through  new  instruments,  be  it  the  ETS  Directive  up  for  review  in  2026  or 
dedicated instruments. To reap the economic opportunities of these technologies, it  remains 
key  to  develop  full  economic  value  chains  for  them.  That  is  why  the  Commission  is 
presenting  alongside  this  Communication  a  dedicated  Industrial  Carbon  Management 
Communication with a strategy for the policy framework, more innovation and investments 
to  unlock  this  potential.  More  public  investment  will  be  required  to  scale  up  research  and 
innovation  for  this  nascent  industry.  Industrial  carbon  removals  do  not  replace,  but 
complement, natural carbon removals, which remain essential to reach the climate target. 

On a global level playing field 

The transition  will only  be successful if Europe  remains a sovereign  and resilient economy 
that diversifies its sources of supply and that is resilient to supply disruptions, price volatility 
and  other  shocks.  As  the  EU  reduces  its  dependence  on  imported  fossil  fuels,  strategic 
decisions  have  to  be  made  not  to  create  new  vulnerabilities  through  its  imports  of  net-zero 
technologies or low-emission energy commodities. 

Alongside the efforts to  create value chains  for key technologies on our own continent,  the 
EU  must  strategically  approach  global  markets,  to  ensure  access  to  strategic  commodities 
including critical raw materials at affordable prices. The EU should also leverage its greatest 
strength,  the  Single  Market,  through  joint  purchase  instruments  and  by  allowing  industrial 
actors  to  engage  in  various  cooperation  models  to  jointly  negotiate  better  conditions, 
including  prices  from  global  producers  with  important  safeguards  for  encouraging  the 
transfer  of  benefits  to  end  users  and  the  involvement  of  smaller  companies.  In  parallel,  the 
EU  should  ensure  global  cooperation  and    trade  to  support  sustainability.  The  EU  should 
foster  the  development  of  international  standards  on  the  global  stage,  building  on  EU 
standards as a source of best practices.  

(31)  Carbon  capture  and  storage  of  biogenic  CO2  emissions  originated  from  the  combustion  of  biomass  to 
produce energy (BECCS) or from the processing of biomass in industrial applications. 

18 

 
 
 
 
 
As the EU is leading in decarbonising its industry, additional measures are needed to ensure 
competitiveness  of  European  exports  on  global  markets.  A  true  level  playing  field  for 
businesses  in  Europe  and  globally  is  created  when  other  countries  adopt  carbon  pricing  of 
their own, which would also contribute to an increase of global climate ambition.  

4.5 Decarbonising transport and improving mobility 

In  the  transport  sector,  the  implementation  of  the  “Fit  for  55”  measures,  combining 
technological  solutions  and  carbon  pricing,  as  well  as  an  efficient  and  interconnected 
multimodal  transport  system,  for  both  passengers  and  freight,  will  allow  emissions  to 
decrease by close to 80% in 2040 relative to 2015.   

Decarbonising  transport  in  a manner that  continues to  ensure  affordability and  accessibility 
will  require  significant  investments  both  in  new  assets  (zero  and  low  emission  vehicles, 
aircraft, vessels, rail equipment) and infrastructure for refuelling and recharging. At the same 
time,  the  renewable  and  low-carbon  fuel  costs  should  not  be  underestimated,  and  remain  a 
key  factor  for  the  competitiveness  of  transport  operators,  in  particular  in  the  maritime  and 
aviation sectors. Ensuring that a sufficient feedstock of sustainable alternative fuels is made 
available through dedicated measures, including regulatory where necessary, is key to reach 
the set ambition in a cost-effective way. As for other sectors, the associated investment needs 
in  transport  merit  a  discussion  with  Member  States,  the  European  Investment  Bank  and 
financial  institutions  how  innovative  EU  finance  tools  can  de-risk  make-or-break  strategic 
investments in a technology neutral manner for the European economy. 

Projected emissions vary greatly across transport modes. Reductions of CO2 emissions from 
road transport will accelerate over time and will come with significantly improved air quality 
in cities through the deployment of zero emission vehicles driven by the CO2 standards, more 
than  quadrupling  the  electrification  of  the  sector  over  2031-2040.  The  shares  of  battery-
electric and other zero-emission vehicles are projected to rise to over 60% for cars, over 40% 
for  vans  and  close  to  40%  for  heavy-duty  vehicles  (32)  by  2040.  This  transformation  is  a 
fully-fledged  industrial  policy  opportunity  for  a  sector  vital  for  the  EU  economy,  through 
investments in infrastructure and the full integration of the sector in the electricity grid, the 
development  of  critical  raw  materials  supply  chains  and  the  development  of  a  skilled 
workforce. Beyond CO2  standards, carbon pricing  and updated fuel  policies will enable the 
decarbonisation  of  the  stock  of  existing  vehicles  already  on  the  roads  that  constitute  the 
legacy fleet.    

Maritime and air transport emissions will be reduced through the combined effects of “Fit for 
55” measures. This includes the achievement of the targets set out in FuelEU Maritime (33) 
and ReFuelEU aviation(34), spurring the deployment of renewable and low carbon fuels and 
of zero-emission aircraft and vessels. Through the ETS, the EU is the first jurisdiction to put 

(32) including trucks, buses and coaches. 
(33) Regulation (EU) 2023/1805 of the European Parliament and of the Council of 13 September 2023 on the use 
of renewable and low-carbon fuels in maritime transport, and amending Directive 2009/16/EC 
(34) Regulation (EU) 2023/2405 of the European Parliament and of the Council of 18 October 2023 on ensuring 
a level playing field for sustainable air transport (ReFuelEU Aviation) 

19 

 
 
 
 
 
an  explicit  carbon  price  on  emissions  from  these  sectors.  This  will  stimulate  and  generate 
revenues for speeding up the large-scale uptake of zero-emission technologies, renewable and 
low carbon fuels and energy efficiency solutions in aviation and shipping. For instance, the 
Commission  will  organise  calls  for  proposals  with  dedicated  topics  for  the  maritime  sector 
under the Innovation Fund, as already announced. 

As agreed in 2023, in 2026, the Commission will assess an extension of the carbon pricing 
for  the  aviation  and  maritime  sectors  (35).  Addressing  barriers  to  the  deployment  of 
alternative  low-  and  zero-emissions  fuels  (including  e-fuels  and  advanced  biofuels)  in 
aviation  and  maritime  and  giving  them  priority  access  to  these  fuels  over  sectors  that  have 
access  to  other  decarbonisation  solutions,  such  as  direct  electrification,  will  enable  these 
sectors to contribute to the EU’s climate objectives and to the global climate agenda (36). In 
doing so, the full climate impacts of aviation should be duly considered, in line with the latest 
scientific findings, and a system for airlines to monitor, report and verify non-CO2 emissions 
and climate effects of aviation will be put in place.   

Significant  investments  will  be  required  in  the  energy  system  to  replace  fossil  fuels  with 
renewable  and  low-carbon  fuels  necessary  to  power  the  transport  sector.  Ensuring  that  a 
sufficient  feedstock  of  sustainable  alternative  fuels  is  made  available  through  dedicated 
measures is key to reaching the set ambition. 

Higher use of rail thanks to increased use of railway infrastructure capacity, and an efficient 
and interconnected multimodal transport system for both passengers and freight supported by 
the multimodal Trans-European Transport Network, can therefore be significant contributors 
to  reducing  overall  emissions.  Deployment  of  different  models  based  on  mobility  as  a 
service,  multimodality,  digital  solutions  and  optimised  green  logistics  (e.g.  for  freight)  will 
modernise and decarbonise the transport sector. Promoting sustainable and affordable urban 
mobility, including through adequate urban planning, will be important to enable more public 
transport, active mobility (i.e., walking and cycling) for short distance trips, with benefits for 
both the climate and people’s health.   

4.6 Land, food and bioeconomy 

Ensuring climate-neutral food production and strengthening the bioeconomy sectors 

Ensuring sufficient, affordable, quality food production in Europe is of strategic importance. 
At  the  same  time,  European  farmers  and  foresters  offer  multiple  vital  services  for  the  EU 
society,  environment  and  economy.  They  ensure  the  production  of  primary  food  and  bio-
based  materials,  are  at  the  core  of  the  bioeconomy  and  the  food  system’s  value  chains  and 
have a vital role in ensuring food security. As managers of the land, they are also essential to 
ensure ecosystem services such as biodiversity protection and restoration, carbon removals or 
adaptation to climate change.  

(35) E.g. to cover excluded business aviation and vessels below 5000 GT. 
(36) Including to the meet the IMO Strategy on Reduction of GHG Emissions (net zero GHG by  or around, i.e. 
close to 2050, with indicative checkpoints of at least 70% striving for 80% compared to 2008 by 2040). 

20 

 
 
 
 
 
Like  all  other  sectors,  agricultural  activities  play  an  important  role  in  achieving  the  EU’s 
2040  climate  ambition,  while  contributing  to  EU  food  sovereignty.  The  right  policies,  like 
boosting  the  availability  of  low-carbon  alternatives  (37)  and  circular  applications,  such  as 
renure (38), with the right support to address trade-offs and decrease costs, show the potential 
to contribute to solutions. This is why the Commission chose to set up a Strategic Dialogue 
on the future of EU agriculture in order to, among other things, jointly shape the transition, 
and  has  committed  to  intensifying  dialogue  also  with  forest  owners  and  other  forest 
stakeholders. This dialogue will address issues such  as viable livelihoods, reducing burdens 
and  ensuring  competitive  and  sustainable  food  production  in  the  future.  Given  that  it  is 
among  the  most  efficient  global  producers  of  food  in  terms  of  greenhouse  gas  (GHG) 
emissions,  the  EU  should  also  work  to  prevent  unfair  competition  and  to  ensure  a  level 
playing field with non-EU producers, in particular through trade agreements.  

Bio-based materials that are sustainably sourced can not only store carbon over long periods 
(e.g., if wood is used as a construction material) but also replace fossil-based materials, and 
in this way the land sectors contribute to the decarbonisation of other sectors. More resource-
efficient  and  biodiversity-friendly  management  of  the  land  sector  will  also  increase  its 
resilience  to  the  impacts  of  climate  change,  improve  soil  fertility  and  protect  and  restore 
nature, bringing win-win solutions for food security and the productivity of land. Also for the 
fisheries and aquaculture sector, in February 2023 the Commission has proposed measures to 
become  climate  neutral  by  2050,  by  improving  fuel  efficiency  and  switching  to  renewable, 
low-carbon power sources (39). 

This being said, policies addressing the food sector in a holistic way are more efficient than 
looking at the farming and fisheries sectors in isolation, because many decisions with a large 
mitigation potential are taken outside the farm gate: the chemical composition of fertilisers, 
the circular use of food waste (crop residues, manure, fisheries by-product), the reduction of 
food waste at  the manufacture and  retail  stages,  the choice of ingredients for manufactured 
food products, and consumers’ dietary choices. A whole-of-food-sector approach is also the 
best way to give farmers perspective to solid and fair earnings from their produce.  

The food industry plays an important role in driving producers’ and consumers’ decisions. It 
should  receive  the  right  incentives  to  procure  more  sustainable  food  ingredients  and 
contribute  to  a  food  environment  that  makes  healthier  diets  an  accessible  and  affordable 
choice  for  consumers  (40).  The  Common  Agricultural  Policy  provides  essential  tools  to 
support  the  transition  of  the  farming  sector  towards  new  sustainable  practices  and  business 
models.  In  particular,  diverse  and  family-owned  farms  and  those  who  combine  crop  and 
animal  production  are  the  backbone  of  EU  farming  and  should  be  accompanied  in  the 

(37)  Mitigation  technologies  such  as  selective  breeding,  optimised  feed  efficiency  and  improved  manure 
management can reduce methane emissions from livestock. Precision farming and enhanced fertiliser efficiency 
can reduce nitrous oxide emissions. 
(38) REcovered Nitrogen from manure 
(39)  The  common  fisheries  policy  today  and  tomorrow:  a  Fisheries  and  Oceans  Pact  towards  sustainable, 
science-based, innovative and inclusive fisheries management - European Commission (europa.eu) 
(40) COM(2020) 381 final 

21 

 
 
 
 
 
transition  to  a  climate-neutral  land  sector,  taking  into  account  its  social, environmental  and 
economic dimension. 

In  addition,  it  is  crucial  to  create  further  business  opportunities  for  a  sustainable  agrifood 
value  chain  and  leverage  private  funds  in  synergy  with  public  funding.  This  could  be  done 
with new market-based mechanisms to boost sustainable food, as this could result both in a 
better food price to reflect sustainability as well as a fair reward for farmers and new source 
of funding for investments. Only firm coordination with all industrial actors in the entire food 
value  chain  and  focus  on  fair  trading  practices  across  that  chain  can  unlock  the  right 
incentives  for  sustainable  farming  practices,  ensure  a  decent  and  sustainable  income  for 
farmers and generate revenues to support the transition. and.  

Thanks  to  advancements  in  digital  monitoring  technologies  and  advisory  services,  farmers 
and  foresters  will  be  able  to  quantify  their  GHG  balance  using  reliable  and  harmonised 
certification methodologies (41). Approaches such as carbon farming enable certified climate 
action  to  be  appropriately  rewarded  through  result-based  contracts  with  other  actors  in  the 
value chain or through public support. Precision farming is one of the important tools to build 
on  these  achievements,  allowing  farmers  to  make  better  use  of  their  soil  and  other  natural 
assets, to the benefit of climate and environment. 

Finally,  as  fossil-based  carbon  is  phased  out  of  the  EU  economy,  farmers,  foresters  and 
fishermen will have new business opportunities to deliver biomass and bio-based materials in 
a  sustainable  manner  for  different  uses  in  the  bioeconomy,  including  in  industry, 
construction,  chemicals,  energy  or  mobility.  The  enhanced  use  of  biomass  residues  and 
technologies,  and  biobased  products  should  be 
waste,  advanced  biofuels,  BECCS 
accompanied with clear rules that promote sustainability and consider the impacts on the size 
of the natural carbon sink in the LULUCF sector.  

Healthy ecosystems, sustainable land use, nature & biodiversity   

A 2040 target and clear pathway from 2030 to 2050 should exploit and encourage synergies 
between climate neutrality, biodiversity and other environmental objectives.  

Cutting  GHG  emissions  and  increasing  carbon  removals  can  improve  resilience  and 
biodiversity, whilst healthy nature and biodiversity are essential for climate change mitigation 
and resilience. Fire-prone areas are expected to expand across Europe due to climate change, 
threatening carbon sinks and biodiversity. Water ecosystems are highly vulnerable to climate 
change. High ozone levels, and air pollution damage forests, ecosystems and crops, reducing 
the potential for carbon removals and adaptation.  

Given the intensifying competition for land and water, policies can be designed to ensure the 
sustainable,  water  efficient  production  and  consumption  of  food,  materials  and  bioenergy. 

(41) COM(2021) 800 final. The Communication on Sustainable Carbon Cycles announced an objective that, by 
2028, every land manager should have access to verified emission and removal data to enable a wide uptake of 
carbon farming. In 2022, the Commission adopted a proposal for a Regulation establishing a Union certification 
framework for carbon removal, which is currently in co-legislation procedure. 

22 

 
 
 
 
 
Bioenergy  should  go  in  priority  to  sectors  where  the  potential  for  electrification  is  limited, 
such as air or maritime transport.  

4.7 Investing in our future  

A comprehensive investment agenda 

In  a  context  of  very  intense  global  competition  for  attracting  investment  the  EU  needs  a 
significant policy and financial initiative to attract and mobilise private investment within its 
borders and an enabling environment for the private sector to invest outside EU borders. 

The  EU  has  a  strong  basis  to  build  on.  The  EU  sustainable  finance  framework  has  already 
helped  to  enhance  the  transparency  of  corporates’  business  decisions  and  to  increase  the 
contribution  of  the  financial  sector  to  the  transition.  This  framework  will  continue  to  be 
finetuned and developed for the needs of more actors, including those at earlier stages of the 
transition,  in  order  to  maximise  its  impact.  However,  the  transition  will  not  be  achieved 
through predictability and regulation alone; Europe must become more attractive for private 
investment.  For one, the EU Capital  Markets  Union  must be deepened to  unleash  the  EUR 
470  billion  in  potential  of  annual  private  funding  for  companies  at  all  stages  of  their 
development,  including  venture  capital  targeted  at  meeting  the  EU  sustainability  objectives 
and sustainable long-term investments for the climate transition (42).  

Scaling up the impact calls for a reinforced, strategic capacity to identify and facilitate new 
investment  opportunities  and  projects  in  sectors  with  the  most  impacts.  The  Commission, 
Member States and industry must jointly work towards creating a business case for the new 
business models in key sectors of the economy needed for the transition and notably in clean 
tech  and  decarbonised  energy  intensive  industries  and  agriculture.  Efforts  on  a  simplified 
regulatory environment and a strong Single Market for businesses help in this regard. 

Public  sector  support  and  direct  investment  should  be  strategically  deployed,  also  by 
frontloading and maximising existing resources with large-scale pooling of funding, making 
it  accessible  in  the  fastest  and  simplest  way  possible  and  facilitating  synergies  between 
different instruments. Coordination between EU and Member State-level actions is crucial to 
maximise the impact of financing initiatives, with EU-level actions providing a framework to 
optimise policies and mobilise financial resources, while Member States tailor initiatives to 
specific  regional  and  national  needs  in  compliance  with  the  State  Aid  framework.  The 
proposed Strategic Technologies for Europe Platform (STEP), for instance, aims to improve 
coordination of funding to further leverage strategic investments into clean tech and bio tech. 

From  a  public  sector  perspective,  diversifying  the  financial  landscape  by  using  innovative 
financial instruments  and targeted grants  is  crucial to  attract  private capital  and to  meet  the 
investment  targets.  There  is  a  clear  need  for  a  more  efficient  and  tailored  use  of  public 

(42) A recent think tank report suggested that companies in the EU could raise an additional  EUR 470 billion in 
funding  every  year  from  the  capital  markets.  See  A  renewed  vision  for  EU  capital  markets  (New  Financial), 
January 2024. 

23 

 
 
 
 
 
financial  resources,  and  the  use  of  financial  products  and  blending  of  financial  sources  to 
catalyse and de-risk private investments.  

Grants should only be strategically deployed to support early-stage low carbon projects such 
as  renewable  energy,  in  the  industrial  sector,  and  other  projects,  where  projects  lack 
comfmercial viability, private investment is still nascent and difficult to market investments. 
For mature projects with proven revenue streams, market-oriented financial instruments, such 
as  debt  and  equity  finance,  can  play  a  pivotal  role.  These  instruments  can  also  be  used  for 
high  risk  first-of-a-kind  or  breakthrough  projects  in  the  form  of  impact  finance  or  venture 
debt.  The  role  of  the  EIB  Group  and  other  international  and  public  financial  institutions  is 
critical  to  mobilise  private  investments,  especially  to  de-risk  projects,  such  as  critical  raw 
materials,  and  unlock  the  investments  in  infrastructure,  provide  longer  tenors  and  larger 
tickets, as well as providing the signalling effect to other market participations.  

Overall,  a  European  approach  on  finance  will  be  needed  in  the  coming  years,  in  close 
coordination  with  Member  States,  the  European  Investment  Bank  and  the  financial 
institutions to ensure a level playing field across the Single Market. Given the challenges for 
accelerating the  deployment of net-zero technologies, intervention at  the level  of the Union 
helps coordinate responses accross Member States.  

The recent European Investment Bank’s counter-guarantee of EUR 5 billion for wind energy 
projects, for example, is expected to generate EUR 80 billion in investment. This shows the 
merit of a discussion with Member States how such innovative EU finance tools can de-risk 
make-or-break strategic investments in a technology-neutral manner into our economy. 

Building  on  the  experience  the  Commission  gained  with  InvestEU,  the  use  of  financial 
instruments  should  be  simplified  further  to  make  them  more  attractive  to  investors  and 
project developers, including by tailoring instruments to specific investment types, providing 
clear  terms,  streamlining  application  processes,  and  developing  user-friendly  platforms, 
guidance  and  reducing  administrative  burdens.  Further  simplification  throughout  EU 
Programs and EU Financial Regulation is needed to offer true one-stop shops for finance and 
funding opportunities, which allows for pooling of resources, accelerated and easy access to 
finance,  eventually  combined  with  grants,  limiting  the  number  of  forms  to  access  support. 
These measures are necessary to ensure a level playing field for access to finance, which is 
particularly  relevant  for  financial  intermediaries  and  smaller  businesses  with  limited 
organisational capacity. 

It  is  important  that  sufficient  fiscal  space  is  preserved  in  Member  States  for  investment, 
within the frame of medium- to long-term debt sustainability. The Innovation Fund as well as 
the national revenues under the EU ETS provide Member States with an important amount of 
funds  that  can  be  used  for  future-proof  investments.  This  should  be  complemented  by 
structural  reforms  to  accelerate  the  transition  towards  climate  neutrality.  Similarly,  the  EU 
budget should be geared towards promoting, enabling and encouraging investment resulting 
in a lower level of emissions, while continuing, to implement, where applicable, the “do no 
significant harm” criteria, as already agreed by co-legislators for the next MFF. It should be 
reinforced  to  deliver  higher  quality  investments  and  in  this  context  the  Commission  urges 
swift progress on the proposed ETS own resource. 

24 

 
 
 
 
The  2040  target  should  also  guide  the  financial  sector  and  supervisory  authorities  when 
assessing  the climate transition  risks of investments,  leading  to  favourable conditions  when 
risks are minimised and adequate risk mitigation measures when they are not.  

Research, innovation and skills  

Technologies  to  be  deployed  to  meet  the  EU’s  2040  target  include  some  that  are  market-
ready, such as solar power, as well as a number that still need to be improved and scaled up.  

It  is  therefore paramount to  keep investing in  the research  and demonstration of innovative 
net-zero  technologies,  coordinating  the  EU  and  national  R&I  efforts,  and  strengthening 
efforts  to  bring  innovations  to  the  market  and  to  scale  them  up.  World-leading  research  on 
zero and low-carbon industrial technologies is being carried out at EU, national and regional 
levels  across  the  EU,  with  the  Horizon  2020  and  Horizon  Europe  programmes  funding 
cutting-edge R&I, including via partnerships with industry and Member States to help move 
low-carbon  technologies  for  energy-intensive  industries  from  basic  research  to  deployment 
(43). Horizon Europe alone will allocate over EUR 30 billion (at least 35% of its budget) to 
climate action.  

Revenues  from  carbon  pricing  are  a  clear  source  of  financing  for  the  deployment  of 
innovative  low  carbon  technologies  and  solutions.  Since  its  creation  in  2005,  the  ETS  has 
generated  more  than  EUR  180  billion,  the  largest  share  of  which  goes  to  Member  States. 
Member  States  should  be  incentivised  to  invest  these  revenues  into  structural  forward-
looking  reforms  that  significantly  accelerate  the  manufacturing  of  innovative  clean  tech 
equipment  and  demonstrate  and  support  the  early  deployment  of  industrial  near  zero 
solutions.  

At EU level, the EU ETS Innovation Fund provides a strategic tool to support and scale up 
innovation in net-zero technologies towards full technological and commercial maturity. It is 
becoming a key instrument to deploy the EU green deal industrial strategy.  In its first three 
rounds,  the  Innovation  Fund  allocated  EUR  6.5  billion  to  around  100  pilot  projects  and 
demonstration  plants  for  innovative  low-carbon  technologies.  The  amount  and  sectoral 
distribution  of  applications  to  the  Innovation  Fund  show  strong  engagement  of  industrial 
actors in this transformation and a promising and abundant project pipeline. The heavy over-
subscription  of  all large-scale  calls  for proposals  calls  for increasing  available funding.  For 
example,  in  the  first  two  rounds  of  applications  projects  applied  for  EUR  33.8  billion  of 
funding, for a total budget of EUR 1.1 billion. EU industry clearly has the know-how but also 
a  challenge to invest in the new industrial revolution, for which the Innovation Fund can be 
an  EU-based,  single-market-aligned  driver  for  cost  efficient  investments.  The  Commission 
will  therefore  seek  to  maximise  the  budget  under  the  Innovation  Fund  until  2028  by 
frontloading  the  commitment  of  available  funds.  The  Commission  will  also  strengthen  the 
synergies  with  other  instruments  and  develop  the  Innovation  Fund  as  a  platform,  through 
auctions to help Member States select and support the most promising projects with national 
funds  in  a  cost-effective  way.  Innovative  approaches,  such  as  ’auctions-as-a-service’  are  a 

(43) European Commission (2023) Scaling up innovative technologies for climate neutrality 

25 

 
 
 
 
 
promising way to select  the most competitive and environmentally  effective projects across 
the Single Market, without competition distortions and in respect of the State aid rules. 

New net-zero business opportunities lead to job creation and demand for new skills. Demand 
for  additional  skilled  workers  will  come  with  investment  made  ahead  of  2030  to  meet  the 
2040  target,  in  net-zero  technologies,  in  building  renovations,  innovative  materials,  and  in 
servicing of net zero equipment. The skill sets of workers in declining fossil fuel or emission-
intensive  activities  cannot  always  be  easily  transferred  to  new  activities.  An  ambitious 
training  and  re-skilling  development  agenda  coordinated  at  EU  and  Member  State  level 
should  be  developed  to  address  the  needs  for  new  skills  and  jobs,  building  on  the  Skills 
agenda,  European  Year  of  Skills  and  existing  EU  initiatives.  It  should  ensure  new  and 
improved job opportunities for those currently employed in sectors that are phasing out, and 
that the transition is not hampered by skills mismatches and shortages.  

The  further  digitalisation  of  the  economy  will  provide  tools  for  example  to  manage  the 
energy system integration and to contribute to a sustainable management of our land (44).   

5  Conclusion and next steps 

Securing the prosperity  and well-being of current and future generations requires the EU to 
continue  its  transformation  to  climate  neutrality  and  a  sustainable,  competitive  economy 
resilient to climate hazards, geo-political risks and free of critical dependencies.  

Key conclusions and policy insights for the transition can be drawn from the Commission’s 
analysis (Annex to this Communication) to inform a broad debate on the action needed within 
the EU and in cooperation with our partners worldwide.  

This Communication paves the way for a political debate and choices by European citizens 
and  governments  on  the  way  forward.  This  will  inform  the  next  Commission  making  the 
legislative proposal to include the 2040 target in the European Climate Law and designing an 
appropriate  post-2030  policy  framework.  The  work  done  from  2024-2029  will  shape 
Europe’s  path  to  2040  and  onwards  to  2050.  The  policy  framework  will  need  to  ensure  a 
balanced and cost-effective contribution of all sectors to greenhouse gas emission reductions 
and carbon removals.  

At the same time, to  achieve the necessary greenhouse gas  emission reductions and carbon 
removals, enabling conditions need to be in place. These include the full implementation of 
the  2030  framework;  ensuring  competitiveness  of  the  European  industry  and  agriculture; 
measures for ensuring a just transition; a global level playing field; and a strategic dialogue 
with  stakeholders  on  the  post-2030  framework,  among  others  with  a  view  to  enabling  the 
agricultural sector to maintain its role as guarantor of food security while decarbonising. 

(44) Such as “Destination Earth”, a European Commission flagship initiative for a sustainable future. 

26 

 
 
 
 
 
 
 
Setting the EU’s 2040 target will demonstrate the EU’s determination to stay at the forefront 
of  the  global  momentum  of  expanding  cleantech  manufacturing  and  harnessing  the 
opportunities for economic growth and job creation. It will send a clear signal to the rest of 
the  world  that  Europe  remains  fully  committed  to  the  Paris  Agreement  and  to  multilateral 
action providing the example and the means for others to act. 

ANNEX  

8 

building blocks for achieving the 2040 target 

1.  A resilient and decarbonised energy system for our buildings, transport and industry. 

•  All  zero  and  low  carbon  energy  solutions  will  be  necessary  (renewables,  nuclear,  energy 
efficiency, more sustainable bioenergy, storage, CCU, carbon removals, and all other current 
and future net-zero energy technologies).  

•  The transition away from fossil fuels will increase the EU’s independence and open strategic 
autonomy and reduce the risk of price shocks. Solid fossil fuels should be phased out. In line 
with  REPowerEU,  gas  and  oil  use  should  decrease  over  time  in  a  way  that  guarantees  the 
EU’s  security  of  supply.  A  renewable  and  low  carbon  hydrogen  supply  chain  should 
contribute to seasonal storage and hard to decarbonise sectors. 

•  Electrification  will  be  at  the  heart  of  the  transition,  through  the  deployment  of  recharging 
infrastructure, heat pumps and building insulation. The electricity sector should come close to 
full decarbonisation in the second half of the 2030s, with increased flexibility through smart 
grids,  energy storage,  demand  response  and low  carbon  dispatchable  power  energy  storage. 
This will require an important reskilling effort in the manufacturing and servicing sectors. 
•  The  2040 climate target  will require  substantial  expansion  and  upgrades  of  the EU’s  power 
grids  and storages.  Changes  in the  energy  mix  will require  significant  investments  over  the 
coming  10-15  years  and  hinge  on  the  ability  to  establish  the  right  regulatory  framework, 
integrated  infrastructure  planning,  competitive  manufacturing  and  incentives  for  resilient 
supply chains.  

2.  An industrial revolution with competitiveness based on research and innovation, circularity, 
resource efficiency, industrial decarbonisation and clean tech manufacturing at its core.  

•  Need  for  a  comprehensive  investment  agenda  to  attract  private  capital  and  ensure  the  EU 
remains an attractive destination for investment for research, innovation, deployment of new 
technologies,  circular  solutions  and  infrastructure.  There  is  also  a  need  for  a  smart  and 
frontloaded  use  of  public  support  for  this  transition,  coupled  with  de-risking  of  private 
investment at scale. 

•  As the Green Deal must also be an industrial decarbonisation deal, an enabling framework for 
decarbonised industry should complement a strengthened EU industrial policy with resilient 
value  chains,  notably  for  primary  and  secondary  critical  raw  materials,  and  increased 
domestic  manufacturing  capacity 
in  strategic  sectors  and  principle  of  competitive 
sustainability  fully  incorporated  in  public  procurement.  This  would  require  well-resourced 
funding mechanisms at EU level and the creation of lead markets, including through public 
procurement  rules,  market-based  incentives,  standards  and  labels  to  steer  consumption 
towards sustainable, near-zero carbon materials and goods.  

•  This  will  also  require  a  more  strategic  approach  to  securing  strategic  commodities  on  the 
global  market  through  joint  purchase  mechanisms,  as  well  as  measures  addressing 
competitiveness of European exports on global markets.   

27 

 
 
 
 
 
 
 
 
•  Along targeted investment support, carbon pricing will remain a principal driver for change. 
The current Emission Trading Systems will need to be supplemented with the efficient use of 
energy taxation and the phase out of fossil fuel subsidies which do not address energy poverty 
or just transition.  

3.  Infrastructure to deliver and to transport and store hydrogen and CO2.   

•  Targeted  public  intervention  can  act  as  a  catalyst  to  accelerate  investment,  including  at 
European level. Particular attention should be paid to the development of a smart integrated 
energy  infrastructure  at the  distribution  level,  including  for  the  recharging  and  refuelling of 
vehicles, and for industrial clusters, including to supply hydrogen and low-carbon feedstock 
to substitute fossil-based input. 

•  Urban and city planning will allow citizens and business to decarbonise their environment, be 

it via recharging infrastructure or district heating. 

4.  Enhanced emissions reductions in agriculture.  

•  Agriculture plays a vital role in ensuring food security. Like other sectors, agriculture alsohas 
a role to play in the green transition. With effective policies that reward good practices there 
is room to decrease emissions from the sector faster while enhancing carbon removals in the 
land  sector,  in  soils  and  forests.  The  agri-food  value  chain  should  be  involved  in  order  to 
create synergies and exploit the maximum mitigation potential. 

•  Clear policies and incentives should be put in place to realise the innovation potential in the 
food system and the bioeconomy at large as well as to deliver healthy and sustainable food to 
EU citizens. 

5.  Climate policy as an investment policy.  

•  An additional 1.5% of GDP compared to the 2011-2020 decade should be invested annually 
in the transition – moving resources away from less sustainable uses like fossil fuel subsidies. 
A  strong  mobilisation  of  the  private  sector  will  be  pre-requisite  to  make  this  possible.  The 
private sector will deliver most of these investments if the policy framework incentivises low 
carbon  investment  and  discourages  carbon  intensive  investment,  provided  there  is  a  strong 
business case for these investments.  

•  Dedicated  policies  are  needed  to  promote  the  EU  as  a  leading  destination  for  sustainable 
investments. This requires a comprehensive reflection on all elements: from taxation to access 
to finance, from skills to regulatory burdens, and from a deepening of the Single Market to 
energy costs. This is a crucial element for the future success of the EU agenda and should be 
coordinated with EU Member States.  

•  The  transition  also  requires  smart  use  of  public  support  and  financial  schemes  to  leverage 
private  investment  at  scale.  Public  support  at  scale  in  the  sectors  faced  with  high  business 
risks and for households, where equity is a concern, will be essential. This will require a more 
active  engagement  and  less  risk-aversion  from  institutional  financial  actors  and  notably  the 
EIB.  At  the  same  time,  public  support  remains  crucial,  and  the  effective  use  of  adequate 
resources, including through EU funding , should form part of a reflection, to make zero and 
low carbon industrial projects commercially viable. 

6.  Fairness, solidarity and social policies at the core of the transition.  

•  A  climate neutral, inclusive  and resilient economy  will  ensure  the  long-term  prosperity  and 
well-being of EU citizens. However, public policy and funds, as well as social dialogue, will 
have  to  tackle  challenges  for  certain  groups  and  regions,  supporting  decarbonisation 
investments by households.  

•  Addressing social concerns will require a clear policy focus on fairness, solidarity and social 
policies  that  not  only  alleviate  the  direct  impact  of  carbon  pricing  where  needed,  but  also 

28 

 
 
 
 
 
 
 
 
allow low-income households to make the effective transition towards no carbon emissions. 

7.  EU climate diplomacy and partnerships to encourage global decarbonisation.  

•  The  EU  should  continue  to  lead  by  example  and  provide  a  wide-ranging  contribution  to 
achieving the Paris Agreement goals and broaden and deepen its international partnerships. 
It should deploy an active global carbon pricing diplomacy in synergy with other EU climate 
policy instruments such as CBAM.   

• 

8.  Risk management and resilience.  

•  The EU’s natural resources are crucial to fully provide their ecosystem services, in particular 

in terms of controlling climate change and enhancing carbon sequestration. 

•  The implementation of the Kunming-Montreal Global Biodiversity Framework and of the EU 
Biodiversity Strategy will be key to achieve the EU’s climate objectives, including the 2040 
target. 

•  Climate change will nevertheless impact our societies for years to come, so we must prepare 
and  adapt  in  parallel.  Stepping  up  risk  prevention  and  preparedness  measures  and 
implementing policies like water-efficiency or nature-based solutions in a coordinated manner 
will improve the resilience of the whole of our economy and reduce the costs.  

29