Over the past few years, the world has changed more dramatically than at any time since the end of the Cold War. After the European Green Deal was unveiled in 2019, Europe was hit by a pandemic, a full-scale war on its border and, in consequence, a serious energy crisis. Yet European climate and energy policy still largely follows a pre-crisis script as if no major changes have happened.
The European green architecture is now struggling. The main instrument for delivering the Green Deal – the Fit for 55 package — no longer Fits for Reality. The constrained debate on the 2040 climate goals, the EU’s worsening competitiveness as highlighted by the Draghi and Letta reports, and the mounting concerns over the impacts of the new EU emissions trading system 2 (ETS2) on households and transport are not isolated issues. They are symptoms of a deeper problem: A green policy architecture that confuses ambition with reality and targets with strategy.
We believe that the current course is treacherous: It risks weakening Europe’s economic strength and social cohesion in the name of saving the planet, while in practice delivering negligible global climate benefits.
At the heart of this debate lies a fundamentally utopian approach. The EU currently accounts for less than seven per cent of the global emissions. Yet much of the Green Deal rhetoric suggests that unilateral EU action will somehow, almost automatically, change the planet. Recent COP negotiations, however, have shown that most major emitters are in no hurry to follow these standards. While Europe has tightened its own room to manoeuvre, raised prices and multiplied reporting obligations, global competitors have pursued a much more flexible, industry-oriented path. Investments are leaking out of Europe, industries are postponing or relocating projects, and entrepreneurs increasingly see the regulatory burden as intolerable.
Compared to 1990, the EU as a whole has so far achieved a green house gas reduction of 37 per cent. In other words, over 35 years we have reduced emissions by a little more than one percent per year on average. A 90 per cent reduction by 2040 implies an annual reduction rate of 3.5 per cent – more than three times the historical pace.
Recall that during the difficult period of the pandemic between 2020-2023 the EU green house gas emission fell only by exactly 3.5 per cent. Calling such a trajectory “realistic” is not honest. It raises expectations that cannot be met.
The emissions trading system (ETS) is a clear illustration of this logic: Compliance is often driven not by positive investment signals, but by the rising cost of non-compliance. As carbon prices surged from an average €25 per tonne in 2020 to over €100 by 2023, this fourfold increase created a massive cost shock for the industry. ETS also contributed to about 20 per cent of increase in energy prices in times of an energy crises, further aggravating everyday lives of citizens and businesses, without an effective mechanism quickly responding to these shocks.
It is often recalled in climate policy discussions, that there is no one-size-fits-all solution. That is why, especially when adopting measures that fundamentally affect EU economies and have uneven impacts across Member States, conducting a state-level analysis of the proposed measures in essential. By failing to provide such breakdown, the Commission ignores the disproportionate burden falling on Central and Eastern Europe. Instead of a comprehensive impact assessment, Member States are left to estimate the potential social damage on their own, essentially flying blind into a storm. At the same time, the main compensation mechanism – the Social Climate Fund – is complicated, full of discretion and therefore uncertain. Member States are only eligible to receive support if the Commission says so.
Several of the EU leaders have already recognized this problem. In the Budapest Declaration on the New European Competitiveness Deal of 2024, the leaders explicitly and unanimously called for a new competitiveness agenda, regulatory simplification and a better balance between green objectives and growth. Yet targets keep getting stricter, while the economic and social foundations remain neglected.
First, we need a realistic approach that genuinely balances competitiveness with green ambition, instead of pitting them against each other. This means aligning climate targets with a hard-nosed analysis of industrial capabilities, energy infrastructure, critical raw-material dependencies and security risks.
Second, we need a genuinely cooperative attitude that takes households, national economies and enterprises seriously. Member States differ widely in their energy structures, income levels and exposure to external shocks. Households differ in how easily they can invest in insulation, heating upgrades or cleaner cars. Enterprises differ in their margins and access to finance. A cooperative, non-ideological transition recognises these differences.
Third, instead of grandiose announcements, we need a well-designed programme: A step-by-step transition with realistic timelines and an honest discussion about trade-offs. Nowhere is this more urgent than in the case of ETS2, the EU’s Emissions Trading System for Buildings and Road Transport. Fuel suppliers and energy providers would be obliged to purchase allowances for every ton of CO2 emitted and – in line with basic market logic – they will inevitably pass these costs on to end users. It must be withdrawn, or at very least must be further postponed and fundamentally redesigned.
If the European institutions are willing to accept reality instead of clinging to treacherous ambitions, a successful green policy is possible. One that protects the environment without sacrificing competitiveness. One that drives decarbonisation without driving people into energy poverty. One that treats climate action not as a moralistic race for the boldest target, but as a complex, long-term transformation of our economies and societies.
Csaba Lantos is Minister of Energy, Hungary
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