2.8 Climate action financing

This briefing covers the scale of investments in climate action to date and considers what investments are still needed (public and private) to achieve the EU climate change targets (with sums converted into constant values based on 2024 (EUR₂₀₂₄) to account for changing values over different years). It is possible that certain investments included here will also contribute to other environmental objectives. The cost of inaction is covered in briefing 2.6 Climate risks to the economy and the EU sustainable finance agenda is covered in briefing 4.12 Financing the transition towards sustainable activities.

Key policies

There are no financial targets for economy-wide climate action investment. As such, the policies setting out the targets for climate change mitigation and adaptation (Governance Regulation 2018/1999 and the European Climate Law) are the key policies for climate action financing. These are related to 2030 and 2050 emission reduction targets, and the goal to enhance ‘adaptative capacity’.

The EU budget’s climate change mitigation and adaptation spending target is 30% across the EU’s Multiannual Financial Framework (MFF) and NextGenerationEU (NGEU) funds for the period 2021-2027.

Under the EU Emissions Trading System (ETS) Directive, legal rules are in place to ensure a very large portion of the revenues generated from the carbon tax are spent on climate- and energy-related actions.

Past trends (10-15 years)

Improving trends/developments dominate

Clean energy investments increased by 98% between 2015 and 2025, with a sharp increase following the pandemic in 2020. Most of these investments have been focused on renewable energy, energy efficiency and end use, and the electricity network (Figure 1). However, over the last 2 years investments in energy efficiency have slowed down.

Nevertheless, investments in fossil fuels persist, though they decreased by 32% between 2015 and 2025. Most of the investments in fossil fuels in this period were in oil and gas. However, in 2025 both coal and gas fuel investments increased. The increased investments in gas reflect the focus on diversifying the supply of gas imports. Overall, this highlights Europe’s continued reliance on fossil fuel infrastructure, which leads to further high-cost fossil fuel imports. It is estimated that these imports cost EUR₂₀₂₄ 658 billion in 2022. More action is required to direct this money towards climate-friendly investments.

For climate change adaptation there is a lack of data. This is because funds are not specifically earmarked for climate adaptation, or are earmarked for other objectives where adaptation is seen as a co-benefit. Reporting in this area needs to improve to enable more nuanced assessments on this topic going forward.

Outlook (10-15 years)

Trends/developments expected to show a mixed picture

There is currently an investment gap^[i] for achieving climate change mitigation targets. Further investments are required for EU goals to be met. For the 2030 emission reduction target, the estimated annual investment gap (for all sectors beyond existing commitments) ranges from EUR₂₀₂₄ 408 and 528 billion. For the 2050 climate neutrality target this gap is estimated to be from EUR₂₀₂₄ 418 and 691 billion. Most sources agree that the largest investment needs are in transport^[ii] , buildings and energy supply (Figure 2). Focusing on energy system transitions (excluding transport) by 2030, according to the European Commission’s report on climate action progress, the estimated total annual investment need is EUR₂₀₂₄ 581 billion.

This gap is not insurmountable but it does require a shift in capital flows and the strong support of the private sector for climate-friendly investments. Between 2020 and 2024, the average annual investment (gross fixed capital formation) in the EU was EUR₂₀₂₄ 3.8 trillion (21% of GDP in 2024). At the same time, fossil fuel imports to the EU cost an estimated EUR₂₀₂₄ 658 billion and public fossil fuel subsidies totalled EUR₂₀₂₄ 134 billion.

Going forward, the EU must be aware of competing policy objectives and must ensure that adequate financing is deployed to achieve climate targets in synergy with other targets. Further transparency and monitoring on this topic are required to understand where concrete actions are being taken and where investment deficits or financial constraints exist. This is especially the case for adaptation.

Prospects of meeting policy targets 2030/2050

2030: Partially on track to meet targets/highly uncertain

The EU budget — including NextGeneration EU — is projected to spend 34.3% of its budget on climate change mitigation and adaptation from 2021 to 2027, surpassing the 30% target for the period. However, this does not amount to the EU public spending required to achieve broader climate targets. At the same time, there is currently no explicit 2030 target for climate action investment in Europe.

It is also important to note that for the 2014-2020 budget’s 20% target, the European Court of Auditors found that the reported spending was not always relevant to climate action and that the total contribution to climate-relevant spending was overestimated.

2050: No specific policy targets

Robustness

Information on past energy investments comes from the International Energy Agency (IEA) and includes energy investments in the geographic region of ‘Europe’ rather than the EU-27; thus, it has a larger geographical scope. Furthermore, it does not include non-energy investments. Data on fossil fuel subsidies and import costs largely increased in 2022. However, it is yet to be seen if this was an outlier and what the future trend will be.

Information on future investment needs and gaps is based on scenarios and assumptions to reach EU climate targets; these differ significantly depending on the authors/studies. Any figures are therefore indicative and should not be considered as forecasts. Additionally, the sectoral scope and temporal ranges used for these scenarios and assumptions are not always aligned. 

To ensure that values are comparable, they have all been inflated to EUR₂₀₂₄ constant prices.

Charts/maps

Figure 1. European energy investment in clean energy and fossil fuels

Figure 2. Investment needed to achieve climate targets