Chapter 7 - Investments in climate action

Investment needs

Between 1980 and 2023, climate-related extreme events caused an estimated EUR 738 billion in economic losses across the EU. Strikingly, EUR 162 billion (22% of all losses) occurred between 2021 and 2023 alone [61]. These rising costs show the urgency and importance of taking action to tackle climate change, to reduce GHG emissions and to prepare for increasing climate impacts. As well as reducing climate impacts, climate action brings wider economic and social benefits. These benefits include cleaner air, better public health, and lower healthcare costs. This is also an investment in the EU’s strategic independence – it not only saves money, but also reduces the EU’s dependency on imported energy and exposure to shocks. By switching to renewable energy, the EU could reduce the cost spent on importing fossil fuels by EUR 2.8 trillion between 2031 and 2050, compared with the 2011-2020 average [62].

Future needs

It is important to invest both in action to mitigate greenhouse gas emissions and in building our resilience to manage the growing climate impacts.

To limit climate change and meet the EU’s 2030 climate and energy targets, investment in the EU’s energy system must increase significantly to reach around EUR 565 billion a year between 2021 and 2030, up from the EUR 250 billion invested per year in the previous decade [63]. It does not include investments to decarbonise the transport sector.

Shifting away from fossil fuels and meeting rising demand for electricity will require major investments in strengthened and modernised low-emission electricity systems. Investment in new power generation, mainly wind and solar, and upgrading existing power plants will need to more than double, from about EUR 45 billion to EUR 90 billion annually.

The largest required increase on the supply side is in power grids. Investment in transmission and distribution infrastructure must triple to ensure reliable and efficient delivery of electricity.

On the demand side, investments must also more than double. The residential sector has the highest absolute needs, with an estimated needs of EUR 215 billion a year to renovate buildings and replace heating systems and appliances. This is nearly twice the average investment made in 2011-2020.

The sharpest relative increase is needed in industry. Although annual needs are lower in absolute terms, estimated at about EUR 40 billion, they represent a sixfold increase compared to the previous decade. Investments are especially needed to modernise and decarbonise energy-intensive sectors such as steel, cement, and chemicals.

Estimating the investment gap in climate adaptation requires more work. Currently, many investments assume that historic climatic conditions will continue in the future. An approach is needed that properly factors in expected future climatic developments for all investments exposed to physical risks (the principle of climate resilience by design, as explained in Section 6.2).

Table 3: Average annual investment needs in the energy system (EUR 2023, billion)

Progress made

Recent trends show encouraging signs that investment in the climate and energy transition is picking up. The total installed capacity of wind and solar power generation increased by almost fivefold between 2010 and 2024 and by 70% between 2020 and 2024. The rapidly falling cost of solar panels has led to an annual increase in installed capacity in excess of 20% in 2022-2024, and a 15% annual increase in wind power over the same period. In 2024, the combined installed capacity of solar and wind power generation amounted to 535 gigawatt, around 47% of total installed capacity.

New registrations of battery-electric cars and plug-in hybrids have also picked up significantly in recent years, to reach 1.65 million and 0.8 million, respectively, in 2024. Investment in heat pumps has also gathered momentum over the past few years, although not as rapid an increase as for solar and wind power generation as hurdles remains in terms of consumer acceptance and installation capacity, among others.

Mobilising private-sector investment

Given the scale of investment needs, private-sector contributions to financing both climate resilience and climate mitigation need to be substantial. This is why the EU put together a policy framework that aims to facilitate private-sector investments in sustainable activities. The Sustainable Finance Framework provides investors with robust definitions of sustainable activities (the EU Taxonomy) and requires companies and banks to disclose their impact on the environment and climate (Corporate Sustainability Reporting Directive, Sustainable Finance Disclosure Regulation). The rules governing sustainable finance are currently being simplified to reduce their administrative burden on companies, while making the framework more workable and impactful. In February 2025, the Commission put forward legislative proposals to reduce the volume of sustainability reports and the number of companies that need to report this information. The Commission is also considering other simplification measures.

Over the past years, the corporate and financial sectors have channelled significant resources towards green objectives in the EU. For instance, according to the latest report from the Platform on Sustainable Finance, Taxonomy-aligned capital expenditure from large listed European companies reached EUR 250 billion in 2023 [64].

In the financial sector, certain instruments have emerged as a fundamental tool to mobilise private capital. Figure 26 presents the annual amounts of ESG (environmental, social or corporate governance) bonds in the EU, until the first half of June 2025. Green bonds (i.e. bonds financing green projects) continue to dominate the ESG market. The volume of new green bond issuance amounted to EUR 314 billion in 2024, its highest level since the first issuance of a green bond in 2007. In contrast, sustainability-linked bonds (i.e. bonds for which issuers pay a higher interest if they do not meet their pre-defined ‘sustainability’ objectives) continue to decrease, amounting only to EUR 26 billion in 2024, compared to EUR 66 billion in 2021 and EUR 45 billion in 2022. This decrease reflects the more rigorous approach to sustainability taken by investors. Similarly social bonds (i.e. bonds financing social projects) and sustainability bonds (i.e. bonds financing a combination of green and social projects) both saw a decrease, reinforcing the prevalence of green bonds.

The EU is a global leader in the green bonds market (see Figure 27). In every year between 2021 and 2024 they accounted for over 3% of all bond issuances (touching 2.7% in mid-2025), remarkably higher than the non-EU share of green bonds at less than 0.5%.

To bring greater transparency and credibility to these financial instruments, the EU adopted as of December 2024 the European Green Bond Regulation, a voluntary framework for issuers who wish to label their bonds as European Green Bonds. This standard is based on the detailed criteria of the EU taxonomy to define green economic activities, ensuring transparency levels that align with market best practices. It also brings in supervision for companies conducting pre- and post-issuance reviews at European level.

The market for ESG loans  (defined as a club deal, a syndication or a bilateral transaction) is traditionally less well defined than the ESG bond market, with no EU regulation. Green loan issuances have steadily increased since 2016, reaching EUR 71 billion in 2024, up from EUR 53 billion in 2023 (see figure 28).

To facilitate and accelerate the corporate transition to net zero, the Commission will also develop sector-specific transition pathways, with the direct involvement of key industries. These pathways should enable more informed investment decisions and help mobilise more capital for the transition.

The upcoming integrated framework for climate resilience will include action to mobilise climate resilience financing to ensure that all investments vulnerable to the impacts of climate change are designed to face climate risks that could materialise in their lifetime (‘resilience by design’).

Funding from the EU Emission Trading System

Three funds use revenues from the EU Emission Trading System to support clean technologies, renewable energy and energy efficiency:

• Innovation Fund;
• Modernisation Fund; and
• Social Climate Fund.

Moreover, the Recovery and Resilience Facility is partially financed by ETS revenues.

Innovation Fund

The Innovation Fund is one of the world’s largest funding programmes for the deployment of low-carbon technologies. The goal is to bring to market new clean energy and industrial technologies so the EU can reduce emissions, reach climate neutrality and stay competitive. The fund has an estimated budget of EUR 40 billion between 2020 and 2030 (based on a carbon price of EUR 75 per tonne). Projects from the EU, Iceland, Liechtenstein and Norway can apply for support from the fund.

Since 2020, the Commission has launched 11 calls for proposals, including two auctions under the European Hydrogen Bank. The Innovation Fund now backs about 190 large- and small-scale ongoing projects with funding totalling around EUR 10.8 billion.

Calls for proposals in 2024

The Commission opened three calls for proposals in December 2024 with a budget of EUR 4.6 billion.

• Net-zero technologies. This call for proposals had a budget of EUR 2.4 billion and received 359 proposals from 28 countries when it closed in April 2025. The Commission has just published the results of the evaluation and the list of projects pre-selected for grant agreement preparation.
• Batteries. For the first time, this call for proposals will support the manufacturing of electric vehicle battery cells. The call had a budget of EUR 1 billion and received 14 proposals from 8 countries in April 2025. In July 2025, it was announced that six projects were awarded funding: two from France and Germany and one from Sweden and Poland receiving a combined EUR 852 million of support. These projects will have a combined battery manufacturing capacity of around 56 gigawatt-hours (GWh) of EV battery cells per year.
• Hydrogen auction. This call for proposals was for the second round of the European Hydrogen Bank auction for the production of renewable hydrogen. The budget was EUR 1.2 billion, including a new allocation of EUR 200 million specifically earmarked for projects in the maritime sector. The auction closed in February 2025 with 66 bids from 11 countries and 15 projects in 5 different countries receiving support. These projects are expected to produce nearly 2.2 million tonnes of renewable hydrogen over 10 years, avoiding more than 15 million tonnes of CO₂ emissions.

As announced in the Clean Industrial Deal communication, the Innovation Fund will launch new call for proposals to support clean technology, battery manufacturing and renewable hydrogen at the end of 2025. It will also launch a new auction for decarbonising heat in industrial processes.

All projects, country fiches and interactive dashboards are available in Innovation Fund Project Portfolio.

Innovation Fund services

The Innovation Fund provides several services that let additional projects receive financing even after the initial budget of a call for proposals has been allocated.

Germany, Austria and Spain have all made contributions under the ‘auctions-as-a-service’ mechanism, deploying up to EUR 836 million to support promising projects that did not receive funding in the last hydrogen auction.

The Commission is working to set up a similar feature for the regular calls for proposals, called ‘grants-as-a-service’.

Both features enable Member States to use the Innovation Fund evaluation procedures and avoid unnecessary administrative and financial burdens to develop and run new support schemes for the same technologies.

Support from the Innovation Fund goes beyond public financing. In particular, small-scale projects or projects from lower-income countries can receive Project Development Assistance. The European Investment Bank offers tailored technical and financial advisory to improve the maturity of innovative projects and ensure balanced spread of Innovation Fund support across regions and sectors.

Modernisation Fund

The Modernisation Fund uses revenue from the EU ETS to help lower-income Member States meet their 2030 climate and energy targets. 13 Member States: Bulgaria, Croatia, Czechia, Estonia, Greece, Hungary, Latvia, Lithuania, Poland, Portugal, Romania, Slovakia and Slovenia can benefit from this support.

The Fund finances renewable energy sources, modernisation of energy networks, and energy efficiency in buildings and industry. These investments speed up the clean transition and keep the whole EU competitive.

The Modernisation Fund has an estimated budget of EUR 57 billion from 2021 to 2030, assuming an average carbon price of EUR 75 /tCO₂. Since 2021, EUR 19.1 billion has already been disbursed to 12 beneficiary Member States.

The latest disbursements include EUR 2.7 billion in December 2024 and EUR 3.7 billion in June 2025. The latter is the largest disbursement since the Fund was created. These recent disbursements saw the first ever funds invested in Slovenia (December 2024) and Greece (June 2025).

Social Climate Fund

The Social Climate Fund was set up together with the ETS2 (see Chapter 2), the EU’s emissions trading system for fuel used in buildings, road transport, and small industry. Its main goal is to help reduce the social and economic impact of this new system by providing help to the most affected people, especially households and microenterprises struggling with higher costs of energy and transport. Together with a mandatory contribution from Member States it should provide at least EUR 87 billion in public support from 2026 to 2032, ensuring no one is left behind as we shift to a cleaner economy.

A description of how the funding from the Social Climate Fund will be spent is contained within Social Climate Plans to be adopted by Member States and that need to be positively assessed by the Commission. These plans must identify the most vulnerable groups in relation to energy and transport poverty as well as ETS2 impacts, and describe the measures and investments to support them. In designing their plans, Member States must conduct public consultation, involving a range of stakeholders broadly defined: regional and local authorities, representatives of economic and social partners, relevant civil society organisations, youth organisations, etc. A summary of the consultation as well as an explanation of how input has been integrated should also be included in the plan. The involvement of regional and local actors continues in the implementation of investments on the ground and throughout the duration of the fund, so to ensure tailored and effective action.

So far Sweden and Latvia have submitted their draft Social Climate Plans to the Commission. The European Commission has started reviewing the plans and a final decision is expected within the five-month legal deadline following their submission. The Commission is also in close contact with remaining Member States to help finalise and submit all plans.

If a Member State’s plan is positively assessed, funding can begin on 1 January 2026. However, only countries that fully convert the ETS2 into their national law will be able to access the fund.

Climate expenditure in the EU budget

The EU budget – both the EU’s ‘multiannual financial framework’ covering the 2021-2027 period and the post-Covid recovery instrument NextGenerationEU – is a key driver of the green transition.

Current budget commitments suggest that in 2021-2027 the EU will spend around EUR 662 billion on climate action. This is 34% of the whole EU budget and above the 30% target.

With 78 % of its budget going to climate, the Connecting Europe Facility (CEF) has one of the highest shares of spending on climate of any EU programme. The LIFE programme and the Recovery and Resilience Facility (RRF) also spend a large share of their budgets on climate projects (see Figure 29).

Figure 29: Expected share of the EU budget and of selected funds and policies spent on climate (%, 2021-2027)

Text version

Source: Budget commitments on climate. Climate mainstreaming - European Commission

All these funds deliver tangible results. For example:

• 45 gigawatt-hours of estimated energy efficiency savings per year from private and public buildings;
• 98 million tonnes of carbon dioxide equivalent avoided per year, of which more than half was through Next Generation EU green bond investment. Additionally, 452 million tonnes of carbon dioxide reduction are expected from the Innovation Fund over the first 10 years of operation.
• 543 additional gigawatt-hours of renewable energy capacity installed.

The Commission’s July 2025 proposals for the multiannual financial framework 2028-2034 include a 35% spending target on climate and environment objectives. This would mobilise over EUR 700 billion to support green investments. The proposal also envisages applying the ‘do no significant harm’ principle across the entire budget to ensure that EU funding does not run counter to EU climate and environmental objectives. The proposal also includes a ‘climate resilience by design’ principle, which would be applied for the first time to EU funding.

Connecting Europe Facility

The Connecting Europe Facility (CEF) is the EU’s funding scheme for transport, energy and digital infrastructure. The facility has total budget of EUR 33 billion, of which 60% is earmarked for climate action. It comfortably exceeds that target, with 78 % of the budget, almost EUR 26 billion, going to climate related investments such as electricity transmission upgrades, alternative fuel supply points and new or improved railway lines.

Recovery and Resilience Facility

The Recovery and Resilience Facility is a temporary fund and the main part of NextGenerationEU, the EU’s plan to recover after the recent crises: the COVID-19 pandemic and the energy crisis triggered by Russia’s invasion of Ukraine. It has a budget of up to EUR 650 billion and enables Member States to significantly increase climate-related investments [65].

All Member States committed to spend more than required 37% on climate, with some Member States projected to spend well over half of their allocation on climate action. Collectively Member States plan to spend 42.5% of their allocations on climate (EUR 276 billion). By September 2025, climate-related disbursements had reached EUR 62 billion.

Substantial progress has been made and several success stories have materialised on the ground. However, since the RRF sets deadlines for spending this temporary fund (all payments to be made by end 2026), it will be essential to accelerate and finalise implementation over the coming year.

InvestEU

The InvestEU uses an EU budget guarantee to help international and national promotional banks finance sustainable investment, innovation and job creation. One of the four priority ‘windows’ is sustainable infrastructure, which supports clean transport, renewable energy, energy efficiency and other clean technologies.

The programme aims to trigger EUR 372 billion in investment, with at least 30% going to climate action. By the end of 2024, it had already mobilised EUR 300 billion, 38% of which was climate related. For 2021-2027, it expects to invest EUR 110 billion into climate projects, roughly 35% of all investments.

Horizon Europe programme

The Horizon Europe framework programme is the EU’s key funding programme for research and innovation. It tackles climate change, helps to achieve the UN’s Sustainable Development Goals and boosts the EU’s competitiveness and growth.

The Horizon Europe programme has a total budget of EUR 95.5 billion for the whole 2021-2027 timeframe. The programme must contribute at least 35% of expenditure to climate objectives – this is equivalent to EUR 34.8 billion in funding over the 2021-2027 timeframe.

Given the budget allocated to climate for the years 2021-2024, and the estimates for 2025-2027, the programme is on track to meet the overall commitment of 35%. By end of 2024, nearly EUR 20 billion have already been earmarked to research and innovation activities supporting climate action [66]. This demonstrates the programme’s commitment to tackling climate change and advancing sustainability goals.

Horizon Europe supports climate research and innovation activities in areas such as climate science and climate adaptation, renewable energy and energy storage, industry decarbonisation, circularity, sustainable mobility, buildings upgrades and bio-based solutions.

Horizon Europe includes several timebound ‘missions’ that target major challenges such as adapting to climate change, improving soil health and creating climate neutral cities. One such mission, adaptation to climate change, aims to make at least 150 European regions and communities climate resilient by 2030. So far it has awarded EUR 517 million to 61 projects. By handing resources and decisions to local and regional bodies, the mission speeds up action and stimulates innovation and nature-based, digital and other systemic solutions. The mission on climate-neutral cities supported 92 cities through contracts that include a commitment as well as an action and investment plan.

LIFE programme

The LIFE programme is the EU fund for environment, energy and climate. LIFE projects focus on innovative industrial solutions to reduce GHG emissions, carbon removals in agricultural and forests, climate adaptation in urban and rural areas and greater preparedness for extreme weather events. With an overall budget of EUR 5.4 billion for the 2021-2027 period, the LIFE programme has a specific subprogramme on climate change mitigation and adaptation.

61% of the total budget should be spent on climate action. The programme is slightly below this target at 59%.

Since the beginning of the programming cycle in 2021, the climate subprogramme has financed 117 projects providing EUR 367 million. Under the 2024 calls for proposals, the subprogramme awarded 23 projects including two strategic integrated projects, for a total EUR 25 million.

Cohesion policy

Cohesion policy is the cornerstone of balanced and fair development across EU regions. Its main goal is to ensure that everyone, no matter where they live, gets the same chance to succeed. This is important because it helps create fair opportunities and reduces inequalities across the EU.

Cohesion policy also drives climate action. It finances projects that reduce energy consumption, boost renewable energy, improve public transport, protect nature and strengthen local and regional resilience to extreme weather. By linking regional growth with clean and green solutions, cohesion policy helps the EU reach its climate goals while ensuring no region is left behind.

In September 2025, based on the Commission’s mid-term review, new rules were adopted to make it easier for Member States to support the EU’s strategic priorities. For example, new rules would allow the European Regional Development Fund to fund large businesses in key areas such as decarbonisation or strategic technologies.

All data, interactive charts and illustrative stories on cohesion policy are available on the Cohesion Open Data Platform.

European Regional Development Fund, Cohesion Fund and Interreg

Member States’ have allocated about 57% (EUR 22.29 billion) of their Cohesion Fund and 33% (EUR 70.63 billion) of their European Regional Development Fund allocations to climate action. Additionally, about 24.5% of the EUR 10.7 billion of programmes focused on European regional cooperation (Interreg funds) financed by the EU are expected to support climate-relevant measures. Combined, these investments will not only significantly reduce GHG emissions and boost adaptation to climate change, but they will also create jobs, increase competitiveness, enhance mobility and maintain balanced regional development across the EU. Figure 30 shows the funding allocated to climate relevant policy areas as a share of total spending from the European Regional Development Fund, the Cohesion Fund and Interreg on climate action.

By 30 June 2025, some 45% of the European Regional Development Fund and 61% of Cohesion Fund for the 2021-2027 period had been allocated to specific projects.

Just Transition Fund

The Just Transition Fund provides EUR 19.7 billion to help people and regions the most affected by the transition to climate neutrality, such as areas where coal mines are closing or heavy industry is transforming. Currently, it supports 96 coal and carbon-intensive regions with tailored just transition plans, for example by supporting diversification of the local economy, and helping people acquire new skills. Up to 120 000 unemployed people will benefit from the measure and almost 200 000 people will gain new skills.

The Just Transition Fund is moving forward: 47% of the fund had already been assigned to projects by June 2025, up from 22% a year before. There are notable differences in progress. Estonia and Malta have selected all projects and Luxembourg, Sweden and the Netherlands have selected almost all projects to be financed. On the other hand, Belgium, Hungary and Bulgaria have assigned less than 10% of the total budget.

European Social Fund

In the 2021-2027 programming period, the European Social Fund Plus is investing EUR 5.7 billion in green skills and jobs and in measures and reforms supporting the green economy. This includes upskilling and reskilling of workers, support to displaced workers or workers working for enterprises affected by the green transition or training of employed and unemployed people in green skills.