The energy transition in Europe, Part 2: How EU policy has responded to Draghi’s call to action

In September 2024, the EU and the European Commission got a wake-up call from former European Central Bank president Mario Draghi with the release of his report on the future of European competitiveness. In the report, Draghi made a strong plea for the EU to focus on three ambitions:

To reach these goals, Draghi urged the EU to embark on three major transformations, related to:

Zooming in on the last item, Draghi stressed that to regain competitiveness, the EU needs to invest in clean energy to ensure access to affordable, homegrown energy. The first article in this series explained Draghi’s rationale for pushing strongly for the energy transition: Energy independence and affordable energy prices are crucial to keeping industries in Europe internationally competitive in a rapidly changing global context. Draghi also emphasized the need to rapidly develop local supply chains and circular business models for critical raw materials and components, due to the significant supply chain risks of relying heavily on China.

In addition to the complexities of orchestrating extensive systemic changes, an estimated EUR 800bn in annual additional investments was initially projected as necessary for these transitions through 2030. According to Draghi, of this EUR 800bn, the energy transition would have required EUR 300bn in energy investments plus EUR 150bn in the transport sector. These funds would be needed to address the causes of energy spikes, develop new pricing mechanisms, alleviate systemic bottlenecks such as permitting queues, and design energy taxation.

Since September 2024, Draghi’s report has effectively served as the blueprint for the current European Commission’s working program. The question then arises: Has the European Commission actually introduced policies that could speed up the energy transition?

In response to Draghi’s urgent call to action, the European Commission began drafting a raft of policies, starting with the Competitiveness Compass (see figure 1). The compass outlines an approach and a selection of flagship measures to implement Draghi’s recommendations for the three transitions necessary to restore the EU’s competitiveness. There are two overarching goals: 1) to identify policy gaps and barriers that require swift action, and 2) to “develop new ways of working together to increase the speed and quality of decision-making, simplify our frameworks and rules, and overcome fragmentation.”

The Clean Industrial Deal and one year of policy responses: going in the right direction

Following the path laid out by the Competitiveness Compass, the European Commission released the Clean Industrial Deal (CID) in February 2025. It’s an extensive roadmap of EU policy initiatives aimed at recovering Europe’s lost industrial competitiveness while decarbonizing industry to achieve strategic autonomy. The initiatives within the CID are organized according to the “business drivers” they aim to influence:

In a previous article, we identified the 20 proposals in the CID deemed to have the highest impact on the energy transition that have been or will be launched through 2026. The timeline in figure 2 shows that around half of the these key policy measures have been published so far. An overview of each initiative in figure 2 can be found in the appendix of this article. The overarching conclusion is that the European Commission has prioritized speeding up policymaking in support of the energy transition, with the Action Plan for Affordable Energy (APAE) considered the cornerstone policy.

The key ambition of the APAE is to secure affordable, efficient, and clean energy. According to the APAE, energy bills should be lowered, for example, through power purchase agreements (PPAs) and the development of well-functioning gas markets. The rollout of clean tech and energy should be accelerated with 100GW of renewable energy capacity installed annually until 2030, leading to an electrification rate of 32%. The APAE should also result in fossil fuel import savings of EUR 130bn per year by 2030, growing to EUR 240bn per year by 2040. Flagship actions to reach these targets include the development of additional action plans, packages, acts, and recommendations focused on PPAs and tripartite agreements, state aid (CISAF), electricity tax and market design, permitting, grid upgrades, digitization, AI, LNG procurement, demand creation, nuclear energy, and heating and cooling.

There are additional CID policy initiatives to support the energy transition in the pipeline. The most relevant are:

Ursula von der Leyen has touted the European Commission’s achievements to address Draghi’s recommendations at several events like the 2025 State of the Union Address and her September 16 speech to address the accomplishments one year after his report was delivered. Von der Leyen noted that 90% of the EU Competitiveness Compass flagships are “directly inspired by Draghi’s most pressing recommendations.” She has continuously stressed the need to invest in the energy transition to bring down costs and improve energy security. This includes investments in nuclear energy as a base load, in addition to renewable energy, storage solutions, and grid infrastructure.

Draghi, on the other hand, appears less impressed with the EU’s achievements in its quest to regain strategic autonomy, growth, and competitiveness. During the September 16 meeting, Draghi addressed what he considered shortcomings in the EU’s policy response. In his words, “each challenge has become more acute” in the past 12 months due to weakened exports, persistent high energy costs, US tariffs, a strengthened China, growing security threats, and the inherent weakness of the EU’s model, which Draghi deems too slow to respond. He sees the EU’s growth model fading and no clear investment path. He warned that inaction threatens both competitiveness and sovereignty. He also blamed the EU for its “blind faith in market forces,” which doesn’t work in the current world order due to the increasingly blurred lines between economy and security. For example, he called for a new approach to state aid to “build European, not national, industry” to benefit all EU citizens. Table 1 outlines the positions of the two leaders.

Perhaps Draghi’s most urgent call was for the EU to engage in deep reforms to function more like a federation, and to “set real deadlines and milestones.” We “need to respond with urgency” and “do what has not been done before and refuse to be held back by self-imposed limits,” urged Draghi. He also warned that the challenge has mounted given the current state of the world. According to European Central Bank estimates, the 2024 assumption of EUR 800bn in annual investment needed in the coming years to finance the three strategic transitions has increased to EUR 1.2 trillion.

In addition to the European Commission’s rush to fill in the puzzle to accomplish the ambitions outlined in the CID, numerous other political factors continue to shape the energy transition landscape in Europe, for example, those related to defense or climate change.

From climate and trade to public procurement

There are countless other policy developments that could also impact the speed and direction of the energy transition in both positive and negative directions.

For example, the current Danish EU Presidency is focused on two overarching priorities: “a secure Europe and a competitive and green Europe.” The Danish leadership is ambitious in realizing these ambitions, and key topics on the agenda include reaching a decision on the EU’s 2040 climate target and the 2035 EU climate target (its nationally determined contribution, or NDC) for COP30 in Brazil. Just before COP30, the EU agreed on an indicative NDC of reaching a greenhouse gas emissions reduction of 66.25% to 72.5% in 2035. The EU Council also endorsed the European Commission’s July proposal to set an intermediary target of a 90% reduction in greenhouse gas emissions by 2040 to reach net zero by 2050. On the positive side, the EU still has support for its long-term climate strategy, as 81% of EU citizens support the 2050 carbon-neutrality target. A second priority is reaching an agreement on instruments related to achieving affordable energy and the future role of the energy system, also linked to the digital transformation.

The EU will also launch two proposals this year related to supporting the domestic industries related to the energy transition. The RESourceEU proposal to strengthen Europe’s supply chain resilience for strategically crucial metals will focus on increasing domestic mining, refining, and joint stockpiling and will complement the 2024 Critical Raw Materials Act. The European Commission will also launch a “buy European” proposal for public procurement in strategic sectors like clean tech, which has become a EUR 80bn export industry. The sector risks losing share at home and abroad to “heavily subsidized Chinese competitors,” in line with how China took control of solar PV production.

A final example is the EU’s July tariff deal with the Trump administration, which would subject the EU to a flat 15% all-inclusive export tariff. The EU also committed to buy US energy products worth EUR 700bn in the next three years, mainly LNG, and the Trump administration touted that the EU had agreed to invest an additional EUR 600bn in the US in the same period, for example in weapons. The European Commission considers this an aspirational pledge.

Defense and energy more intertwined

The ongoing war in Ukraine, the growing threat from hybrid warfare, and President Trump’s push for NATO members to up their defense spending is driving the EU’s rearmament need. Defense is now anchored in the European Commission’s strategic agenda as one of the three pillars of the Competitiveness Compass. During 2025, the European Commission launched several initiatives in support of defense activities, for example, the ReArm Europe Plan/Readiness 2030 defense package and a white paper specifying the recommended actions. The cornerstone of this package is the ambition to unleash an additional EUR 800bn in defense spending through a combination of increased defense spending and the Security Action for Europe (SAFE) Instrument. The Defence Readiness Roadmap 2030 includes proposals to set up four flagship projects and actions to be taken by stakeholders to strengthen the EU’s defense industrial base and boost defense investments. In addition, NATO members committed to invest 5% of GDP annually in defense and security-related spending by 2035 in the Hague Summit Declaration. For almost all EU countries, this will be a significant step-up in spending compared with today (see figure 3).

Source: NATO, Macrobond, RaboResearch 2025

While increased defense spending could compete with the energy transition for resources, it might also present an opportunity due to the way countries can account for the 5% spending: 3.5% must go to “classic” NATO expenditures while 1.5% can be spent to “protect our critical infrastructure, defend our networks, ensure our civil preparedness and resilience, unleash innovation, and strengthen our defense industrial base.” Energy infrastructure projects might be included in this second category, as called for by a group of retired military leaders in a letter to EU leaders: “To have a strong military deterrence, we need a resilient homeland. … If we want to build a resilient country, low-carbon energy is a very important component.” Ukraine has been cited as a prime example of resilience, in which war has driven innovation and accelerated the path of the energy transition toward more wind power, for example. In the words of the CEO of DTEK, the largest private energy company in Ukraine, as paraphrased in The Times, “While a 200MW coal-fired unit can be destroyed by one or two missiles, the equivalent capacity wind farm would comprise 35 turbines, requiring hits from at least 35 missiles.”

In Part I of this series, we explained what is driving Draghi’s strong push for the EU to transform itself, and we outlined why the energy transition is crucial to support the EU’s quest for strategic autonomy, improved competitiveness, and growth. Being energy independent is of strategic importance. Supply chain transformation is needed to achieve better access to critical raw materials and components, for example, through circular business models. The economics are also largely in favor of renewable energy, in particular in combination with batteries. With the CID and its extensive policy scope and guiding principles, the European Commission responded rapidly and ambitiously to Draghi’s urgent calls for action with the overarching purpose of creating an energy-independent and competitive Europe based on affordable energy prices.

At the same time, policies are one thing; but reality may be something different. Draghi is unconvinced the EU’s current actions represent bold progress and is concerned that decision-making and extensive strategic planning are stalled due to the red tape and decision-making structure at the EU level. A policy sets a framework that will take years to implement, but businesses want clarity now to make investments, especially as the EU and its businesses are operating in a more complex economic and geopolitical environment. Therefore, speed is of the essence. Meanwhile, the task of raising public and private funds has grown: Required annual investments for the three transitions in the years to come are now an estimated 50% higher than last year, including more funding to be allocated to defense.

Achieving meaningful energy independence in the short term remains unlikely, given the many challenges, including the slow pace of actual policy implementation. Yet, we expect companies to not lean solely on policies and regulations in their energy transition journey. Despite the many challenges, the drivers are strong – for example, the acknowledgement of the strategic necessity to change and the new funds being made available. And in a growing number of cases, it makes economic sense to switch away from fossil fuels and/or to electrify. Europeans do continue to invest in renewable energy, but deindustrialization, supply chain limitations, access to critical raw materials, and the magnitude of the required annual investment – EUR 1.2 trillion – present new challenges that Europe must address promptly to maintain its trajectory and momentum. And, realistically, while the course for the energy transition has been set, change will not happen overnight. It’s a massive systemic change and enormous financial and supply chain challenge.

Appendix: Snapshot of selected policy initiatives linked to delivering the Clean Industrial Deal