Europe's Green Deal Is Unraveling

Europe's Green Deal Is Unraveling

 Mohamed Moutii via the American Institute for Economic Research (AIER)

Over the past decade, Europe has played a leading role in shaping global climate policy, highlighted by the launch of the European Green Deal in 2019—Ursula von der Leyen described it as a “man on the moon moment.” The initiative aims to make Europe the world’s first climate-neutral continent by 2050 while fostering innovation and strengthening its industrial base.

Yet several years later, the results are deeply disappointing. Instead of meeting its goals, the Green Deal is increasingly associated with higher energy costs, weakened competitiveness, and growing political backlash. It has deepened divisions within the EU, strained global relations, and increased pressure on households and businesses—raising serious doubts about its feasibility and long-term economic impact.

Europe’s economic stagnation points to a deeper structural problem in its energy and climate strategy—one closely tied to the direction set by the European Green Deal. Since its launch, competitiveness has eroded sharply, with soaring energy costs at its core. Electricity prices in Europe are now two to three times higher than in the United States and China, with taxes accounting for nearly a quarter of the total cost.

These outcomes largely stem from policy choices. The EU’s binding targets—net zero by 2050 and a 55-percent emissions reduction by 2030—have constrained energy supply, despite Europe accounting for only six percent of global emissions. At the same time, phasing out nuclear, restricting gas, and relying on intermittent renewables have weakened energy security and increased price volatility. For industry—where energy can account for up to 30 percent of total production costs—this, combined with carbon pricing, has become a critical constraint, driving firms to scale back, relocate, or shut down, accelerating deindustrialization across the continent.

The automotive industry clearly illustrates these pressures: representing over 7 percent of EU GDP and nearly 14 million jobs, the sector is under pressure from the 2035 ban on combustion engines, forcing a rapid shift to electric vehicles despite unresolved technological challenges and market constraints. As Mercedes-Benz CEO Ola Källenius warned, the policy risks driving the sector “full speed into a wall.” The consequences for the sector are already visible: declining production, mounting restructuring, and significant job losses—86,000 jobs since 2020, with up to 350,000 more at risk by 2035—while tightening regulations are set to reduce profits by seven to eight percent by 2030, pushing the sector toward losses and eroding Europe’s automotive leadership.

Agriculture has also become one of the Green Deal’s clearest casualties. Stricter rules on emissions, land use, pesticides, and fertilizers are raising costs and increasing yield volatility, hitting small farmers hardest and accelerating consolidation among large agribusinesses. Targets such as cutting pesticide use by 50 percent and expanding organic farming risk significant declines in output, threatening both rural livelihoods and food security. Rather than enabling farmers to innovate and improve productivity, these policies are constraining production—fueling widespread protests and weakening both competitiveness and sustainability.

Taken together, these pressures are not isolated—they reflect a broader economic burden. The European Commission estimates that the transition will require at least €260 billion in additional investment each year, with total costs reaching up to 12 percent of EU GDP—a burden that is increasingly difficult for the European economy to sustain.

The economic strain is now translating into political backlash. In recent years, opposition to the European Green Deal has surged across the continent—from farmers and industrial groups to voters and political parties. The 2024 EU elections confirmed what was already clear: the once-dominant green consensus is fracturing. In response, Brussels has begun quietly rolling back key elements of the policy—weakening regulations, introducing loopholes, and even avoiding the term “Green Deal” itself. What was presented as a historic transformation is now unraveling.

This backlash reflects a deeper failure. Although the EU allocated $680 billion from 2021 to 2027—over a third of its budget—the Green Deal has achieved only modest environmental improvements, while imposing a heavy economic burden on households and businesses, who now face higher energy prices, taxes, and regulatory pressure.

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