How the geopolitical situation is affecting the green transition

A new report produced by IVL as part of the Nepp research programme analyses how the geopolitical situation is affecting the green transition in Sweden and the EU. Among other things, the report presents the EU's future priorities, how the EU ETS and international trade will develop, and what this will mean for energy-intensive industries.

With the deteriorating geopolitical situation, one might wonder what will remain of the EU's climate policy. An important part of the answer can be found in the EU's recently concluded negotiations on a 2040 framework, which shows that the green transition will continue, but will be adapted to the new global situation, says Lars Zetterberg, report author and climate expert at IVL Swedish Environmental Research Institute.

He maintains that there is a strong belief within the EU bureaucracy that the green transition is necessary to address the climate crisis, and can foster new industries and reduce the EU's reliance on energy imports.

However, climate ambitions will be balanced against the risk of excessively high energy and carbon dioxide prices, and the risk that certain industries will not have time to adapt. The social unrest that high energy costs can cause for citizens and businesses will also need to be taken into account, says Lars Zetterberg.

As for emissions trading, this probably means that it will be reformed so that the emissions cap does not reach zero in 2039. A limited number of emission allowances will remain in the EU ETS system after 2039.

This could lead to a slower increase in the price of emission allowances, which in turn could delay green investments. Also, the introduction of a new emissions trading system for transport and heating, ETS-2, will be postponed, says Lars Zetterberg.

The signal sent by the EU postponing the phase-out of free allocation and the introduction of ETS-2 could be negative for the transition in the industrial sector. Here the lead times are long, so it is important that EU policy is clear and long-term.

At the same time, the report finds that the EU will continue to phase out fossil fuels and develop renewable energy. This will make the EU less dependent on imported oil and gas and reduce Russia's revenues. The EU will also continue to develop fossil-free technologies, such as green steel and green cement, electric vehicles and work machines, biorefineries, and build systems for carbon capture and storage.

Green technology can help to reduce emissions and become a new area of economic development for the EU, says Lars Zetterberg.

Read more: EU:s klimatpolitik i ett nytt geopolitiskt läge – implikationer för den energiintensiva industrin External link, opens in new window. [EU climate policy in a new geopolitical context – implications for the energy-intensive industrial sector] (in Swedish)

In case of questions, contact:
Lars Zetterberg, lars.zetterberg@ivl.se, tel. +46 (0)10-788 65 57