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1. Sovereigns on thinning ice: debt sustainability, climate impacts and adaptation

Author:
Matteo Calcaterra, Andrea Consiglio, Vincenzo Martorana, Massimo Tavoni, and Stavros Zenios
Publication Date:
05-2025
Content Type:
Working Paper
Institution:
Bruegel
Abstract:
A fundamental problem for sovereigns enacting climate policies is whether they can manage increasing debts as their economies suffer from adverse climate impacts. We develop stochastic debt sustainability analysis integrating a coupled climate-economy model with debt financing scenario optimisation, and stress test sovereign debt for representative countries globally under the Intergovernmental Panel on Climate Change marker narrative scenarios of climate change. The stress test combines socioeconomic and climate pathways with calibrated aleatory scenario trees of economic, fiscal and financial variables to generate forward-looking debt projections over the century. These projections incorporate climate-induced damages to economic growth, spanning the broad spectrum of impact functions from the literature. Our findings reveal significant risks to sovereign debt sustainability, particularly under high climate damages, that are large from mid-century. Expected costs increase by up to 3 percent of GDP under high climate impact in a world of regional rivalries, or 0.25 percent under low impact in a middle-of-the-road narrative, with considerable variation between countries. The long-run debts of highly impacted countries are unsustainable. We assess whether adaptation investments or fiscal consolidation can mitigate potential climate-debt crises. Public financing of reactive adaptation is a justified expenditure that breaks even but does not fully restore the debt sustainability of highly impacted high-debt countries. Maintaining public spending while ensuring debt sustainability appears infeasible under climate impacts.
Topic:
Climate Change, Governance, Macroeconomics, Fiscal Policy, Public Debt, and Decarbonization
Political Geography:
Global Focus

2. Implementing the EU Nature Restoration Law: exploring pathways for member states

Author:
Heather Grabbe, Bas Heerma van Voss, Camille Mehlbaum, and Sjoerd van der Zwaag
Publication Date:
06-2025
Content Type:
Working Paper
Institution:
Bruegel
Abstract:
The European Union Nature Restoration Law (NRL) entered into force in 2024. The NRL sets quantitative restoration targets aimed at improving natural habitats that are currently in poor condition, with substantial leeway for countries to choose implementation pathways that fit their priorities. This Working Paper examines three pathways: (1) evenly spreading restoration efforts across all ecosystems; (2) prioritising cost-efficiency; and (3) maximising carbon sequestration. Each approach yields vastly different outcomes. This paper provides insights into the trade-offs. For countries seeking to minimise costs in the short run, an 81 percent reduction in costs over the period 2025-2030 is possible compared to a baseline scenario of an even restoration of all ecosystems. Countries that aim to maximise carbon sequestration benefits can achieve a 54 percent increase in climate impact over the same period. However, the different pathways converge after 2040. Prioritising cost minimisation in the early years could lead to higher costs later if delays in investment in the more costly restoration projects allow habitats to continue to degrade. Maximising cost-efficient carbon sequestration is possible, allowing relatively low investment costs and high sequestration. Countries should adopt a holistic approach to pathway selection, considering the full spectrum of ecological and societal gains alongside climate mitigation. Land ownership is an important factor that shapes feasible and effective pathways. In countries such as Spain and Germany, where private entities own substantial shares of agricultural and forest lands, policies should incentivise private investment, including through norms, subsidies or pricing mechanisms. Countries with substantial public landholdings, such as the Netherlands, may find it easier to implement direct restoration projects. These structural differences will influence the cost and pace of restoration and also the design of policies and governance mechanisms to ensure compliance with NRL targets.
Topic:
Climate Change, European Union, Decarbonization, Green Deal, Energy, and Carbon Sequestration
Political Geography:
Europe

3. Upgrading Europe's electricity grid is about more than just money

Author:
Conall Heussaff and Georg Zachmann
Publication Date:
02-2025
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
Electricity network investment is essential for the energy transition, with annual investments of tens of billions of euros required across Europe. Network companies are already investing such amounts and delivering efficient grid investments requires more than additional money. Assessing infrastructure needs is the first step in grid investment. At local, national and European Union levels, network development planning is determined by policy choices and can greatly affect the efficiency of investments. Coordinated grid planning is crucial to set the right incentives for the efficient development of the European electricity system. An EU independent system operator could assume responsibility for network planning by providing regular, independent assessment of efficient network investment needs from a holistic European perspective. Although significant capital expenditure is undoubtedly necessary, network regulation should encourage network companies to invest in the most-efficient solutions. Current regulatory approaches may favour traditional capital expenditure, leading to system inefficiencies and higher-than-necessary consumer costs. Cross-border electricity transmission infrastructure is critical to integrate renewables into the electricity system at scale and reduce costs for European consumers. But such projects are often not built or are delayed because those that decide on and pay for the infrastructure are not necessarily those that benefit from it. A European fund could smooth negotiations between parties and accelerate the physical interconnection of the European electricity system. Fairly recovering the costs of grid investments from consumers is vital to maintain public support for the energy transition. National funds could smooth out cost impacts over time, keeping electricity affordable throughout the energy transition.
Topic:
Climate Change, Electricity, Decarbonization, and Energy Security
Political Geography:
Europe

4. Making the best of the new EU Social Climate Fund

Author:
Eva Jüngling, Giovanni Sgaravatti, Simone Tagliapietra, and Georg Zachmann
Publication Date:
04-2025
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
The slow pace of decarbonisation of buildings and transportation threatens the European Union’s goal of reducing emissions by 55 percent by 2030 and achieving net zero by 2050. To address this, a new emissions trading system, ETS2, is being introduced to put a carbon price on fuels used in buildings and road transport. However, the resulting cost increases risk a disproportionate impact on vulnerable households and small and medium sized enterprises. The European Union has created the Social Climate Fund (SCF) to address these distributional challenges. This instrument redistributes a portion of auction revenues generated by the ETS2 among EU countries, in order to protect the most vulnerable. A much larger share of ETS2 revenues will flow directly to national governments, offering significant opportunities for social measures and investments in the green transition. The use of those revenues will dictate how successful EU countries are in managing the transition and protecting households, particularly in higher-income member states, which will receive relatively smaller shares of SCF funding. ETS2 is an essential part of the EU climate policy toolkit. Governments should employ good practices, as identified by the European Commission, to tackle emissions from buildings and transport and to gradually phase out income support, in line with the achievement of investment targets and milestones. Higher-income EU countries should develop additional targeted financing levers to protect the vulnerable and to introduce extra enablers to encourage private investment. Proper sequencing, outreach and communication will be essential to ensure the uptake of measures and public support for policy instruments. Cross-country learning should be leveraged, including through the creation of a European policy registry that will help countries compare their approaches and potentially amend their SCF spending plans on the basis of learning from policies that been successful elsewhere.
Topic:
Climate Change, European Union, Welfare, Transportation, Carbon Emissions, Decarbonization, and Protection
Political Geography:
Europe

5. Building coalitions for climate transition and nature restoration

Author:
Jean Pisani-Ferry, Beatrice di Mauro, and Jeromin Zettelmeyer
Publication Date:
07-2025
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
Global climate and biodiversity outcomes will largely be determined in emerging and developing economies (EMDEs). We propose a four-pillar strategy to support climate and nature preservation in line with the economic interests of both developing and advanced countries. This would move beyond voluntary pledges to embed climate and nature objectives into the structures of trade, finance and industrial policy, creating a self-reinforcing system of cooperation and reducing the net costs of the green transition. Under Pillar 1, a coalition of advanced and developing countries would link tiered carbon pricing with a common carbon border adjustment mechanism (CBAM). Pillar 2 would create a climate-finance coalition to decarbonise the power sectors of developing countries. Pillar 3 would involve partnerships to develop clean energy-intensive industrial production stages in developing economies with rich renewables endowments; these would feed into the supply chains of the European Union and other energy-importing advanced economies. Pillar 4 would redesign markets to create scalable and credible mechanisms to fund carbon removals. Technology-based removals can be incentivised through the introduction of clean-up certificates into the EU emissions trading system, while nature-based removals would require improved market design centred on a new asset class: nature shares. The four pillars reinforce each other. A multi-country CBAM and carbon pricing coalition (Pillar 1) would reduce the cost of financing power sector decarbonisation (Pillar 2). Linking EMDE membership of the CBAM and carbon-pricing coalition to financial support for the decarbonisation of power sectors would also make it more attractive for EMDEs to adopt carbon prices. Decarbonisation of power sectors (Pillar 2) would be a precondition for developing clean, highly energy-intensive industry in renewables-rich EMDEs (Pillar 3). The Pillar 1 coalition should include the EU, China and as many other countries as possible. Advanced countries and China could underpin the Pillar 2 financier coalition. Pillar 3 would involve the EU and potentially other energy-poor advanced countries, along with EMDEs that are richly endowed with renewables. Pillar 4 would include the main custodians of the planet’s natural capital. Enabling these coalitions will require EU leadership.
Topic:
Climate Change, Economics, Industrial Policy, Trade, Sustainability, Decarbonization, and Green Transition
Political Geography:
Europe

6. Reconciling the European Union’s clean industrialisation goals with those of the Global South

Author:
Ben McWilliams, Simone Tagliapietra, and Jeromin Zettelmeyer
Publication Date:
07-2025
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
Clean industrialisation is a political and economic priority for the European Union. For it to work, affordable clean energy is needed. However, producing this energy in Europe is constrained by limited renewable energy endowments (sunshine and wind) and land availability, while the transportation costs for imported clean energy (in the form of electricity or hydrogen) are much higher than for fossil fuels. An alternative way to fuel Europe’s clean industrial sector would to import energy-intensive primary tradeable products such as ammonia, methanol and reduced iron. We estimate that more than ten percent of total future EU clean energy demand will be met by such products. Public policy in Europe should aim to facilitate trade in energy-intensive intermediate inputs, which are cheaper to import than energy directly. Imports of these inputs could boost the competitiveness of downstream stages in the energy-intensive value chain (such as steel production). By lowering overall energy demand and thus electricity prices, such imports would also raise EU competitiveness more broadly. In many cases, they would replace imports of less energy-intensive commodities such as iron ore, therefore not adding to Europe’s overall import dependency. The direct economic impact in terms of jobs and value added that would be offshored is not substantial. The international benefit of such a strategy would be that it would embed third countries – especially emerging and developing economies – into clean industrial value chains. Stable European demand can help such countries develop export-driven, clean industrial strategies. Politically, this could be an important incentive that could offset the EU’s carbon border adjustment mechanism. Governments should therefore not use taxpayer money to fight the relocation of energy-intensive and tradeable primary products, beyond some minimum threshold that is desirable for economic security and innovation reasons. Meanwhile, ongoing negotiations with third countries to establish Clean Trade and Investment Partnerships should put trade in energy-intensive clean products at the core of new international clean supply chains.
Topic:
Industrial Policy, European Union, Global South, Industrialization, Decarbonization, Energy, and Emerging Economies
Political Geography:
Europe

7. Global Futures Bulletin: The BRICS and the Decarbonization and Biodiversity Protection Challenges

Author:
Igarapé Institute
Publication Date:
01-2025
Content Type:
Special Report
Institution:
Igarapé Institute
Abstract:
The world faces an unprecedented convergence of environmental crises – climate change, pollution, and biodiversity loss – that collectively threaten the planet’s ecological balance and humanity’s future. Reversing the Triple Planetary Crisis necessitates urgent and coordinated action across all sectors and countries, accelerating the transition to low-carbon economies while protecting biodiversity are key challenges for the coming years. Countries that have joined the BRICS in its inception (Brazil, Russia, India, China, and South Africa) are increasingly an important geopolitical force in current global politics, and their individual and collective action is key to the success of concerted global action. The group’s recent expansion – BRICS+ includes Egypt, Ethiopia, Iran, and the United Arab Emirates (UAE), Indonesia joining in 2025 and Saudi Arabia finally formalizing its membership – offers an opportunity to boost the role of their New Development Bank (NDB) in bridging climate, biodiversity, and development finance, and aim for greater policy coherence for concerted global action across these agendas. Combined, BRICS countries are not only biodiversity and energy-rich but also contribute to a large share of greenhouse gas (GHG) emissions. This Strategic Paper examines the role of the expanded BRICS+ and explores whether and how this “mini-multilateral” grouping, with its considerable human and technological capacity, can address two major global challenges: accelerating decarbonization and protecting biological diversity. The discussion is framed around the opportunities and challenges faced by the member countries to increase their ambitions and become leading voices in these agendas – not only for BRICS countries (some of which are among the most biodiverse in the world) but also for the wider international community. Without a strong commitment by BRICS countries (individually and as a group) the world will fail to accelerate action on decarbonization and biodiversity protection.
Topic:
Climate Change, Pollution, BRICS, Decarbonization, Biodiversity, and Minilateralism
Political Geography:
Russia, China, South Africa, Brazil, and Global Focus

8. European Solar PV Manufacturing: Terminal Decline or Hope for a Rebirth?

Author:
Thibaud Voïta
Publication Date:
04-2024
Content Type:
Working Paper
Institution:
Institut français des relations internationales (IFRI)
Abstract:
While solar photovoltaic (PV) installations are booming in Europe (and in other parts of the world), the local industry is closing down. Over the past two years, the European installed solar PV capacity has been multiplied by two. On the other hand, the remaining European manufacturers of solar PV panels are dying. Installed solar PV capacities are experiencing an unprecedented increase in Europe: in two years, they have been multiplied by two with 60 gigawatts (GW) added in 2023. However, local solar PV manufacturers are not benefiting from it as the Chinese competition is knocking them down. Structurally much more competitive, prices of Chinese solar panels have further decreased by 42% in 2023 – making it difficult even for some Chinese companies to survive and forcing many of the remaining European manufacturers out of the market. This situation fragilizes Europe’s strategic autonomy and decarbonization. Covid-19-like disruption or an aggression against Taiwan would leave the continent without any supply. American manufacturers are also flexing their muscles with the aggressive Inflation Reduction Act. Europe’s answer, the Net Zero Industry Act (NZIA), a tougher approach to China’s imports and national support measures, could create a new generation of solar PV manufacturers in Europe.
Topic:
Manufacturing, Renewable Energy, Solar Power, Decarbonization, Strategic Autonomy, and Energy Transition
Political Geography:
Europe

9. Blockchain and Energy Understanding Opportunities and Challenges

Author:
Nicola De Blasio and Charles Hua
Publication Date:
02-2024
Content Type:
Special Report
Institution:
Italian Institute for International Political Studies (ISPI)
Abstract:
The transition to a decarbonized, decentralized, and digitized energy future will unlock new business, policy, and technology models with the associated opportunities and challenges. Innovative technologies like blockchain, a shared, decentralized, and immutable digital ledger system that processes, validates, and manages digital transactions based on algorithmic consensus protocols, may enable this transition. Potential blockchain applications in energy range from enhanced distributed energy resources and peer-to-peer energy trading regimes to more robust grid management and smart energy contracts. There has been significant hype around blockchain’s potential impact in shaping economic and energy systems. Yet, it is essential to separate signal from noise and assess blockchain’s potential impact. This paper aims to provide a comprehensive analysis by identifying key use cases and then addressing which key characteristics blockchain technologies need to bring to fruition to support them. It also proposes an analytical framework to evaluate the potential impact of eight applications based on four key criteria: feasibility, maturity, scalability, and value additivity.
Topic:
Science and Technology, Innovation, Blockchain, Decarbonization, Energy, and Geoeconomics
Political Geography:
Global Focus

10. How to finance the European Union’s building decarbonisation plan

Author:
Ugnė Keliauskaitė, Ben McWilliams, Giovanni Sgaravatti, and Simone Tagliapietra
Publication Date:
07-2024
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
By 2030, the European Union must reduce emissions from the heating and cooling of buildings – responsible for 13 percent of EU emissions – by the equivalent of the annual emissions of Slovakia. This requires a near tripling of the current decarbonisation rate. But the time gap between high upfront costs and long-term payback from renovation works deter consumers from investing in energy renovation. To address these challenges, the EU has introduced a policy toolkit that includes strengthened price signals against fossil-fuel heating through emissions trading, and setting energy-consumption reduction targets in the Energy Performance Building Directive (EPBD). EU countries must take the EPBD targets seriously and implement policies to accelerate building retrofits and the adoption of clean heating. If they don’t, there is a risk that EU climate targets will not be met, and the costs for households of subjecting domestic heating to emissions trading could be almost twice the higher costs seen during the 2022 energy crisis. We estimate that achieving the EPBD’s energy savings targets requires filling an investment gap of about €150 billion per year up to 2030. This is a daunting but feasible goal. By leveraging energy savings from electrification and retrofitting to reduce renovation costs, the investment gap could be more than halved. Additionally, effective use of EU funds and emissions trading revenues will further shrink the gap. A mix of grants, preferential loans and obligations is needed, as no single policy will speed up energy renovations. Prioritising grants for the worst-performing buildings, often occupied by vulnerable consumers, will yield climate benefits and benefits in terms of improved air quality, health, productivity, energy security and lower future government outlays to alleviate energy poverty. Traditional public subsidies have not successfully engaged the banking sector, which now must help to foster private-public financing mechanisms. Countries also need to adjust relative energy prices for heating through taxation and subsidies, and expand one-stop-shops to streamline the renovation process for consumers.
Topic:
European Union, Carbon Emissions, Decarbonization, and Energy
Political Geography:
Europe