Case studies from Europe and the US3 Europe has chosen a more market- focused approach driven by regulations to promote its climate goals while the US government has opted for policy incentives. However, both have attracted criticism for being overly protectionist. The European Green Deal aims to make Europe climate-neutral by 2050.135 The European Climate Law, passed in 2021, sets legally binding targets for achieving climate neutrality by 2050 and reducing emissions by at least 55% by 2030 compared to 1990 levels for all EU member states. This establishes a firm framework for accountability and intermediate targets to ensure continuous progress and adherence to common but differentiated responsibilities and respective capabilities (CBDR-RC). Its comprehensive scope integrates climate action across all sectors, aims to align with international agreements and promotes innovation. Additionally, the law emphasizes mechanisms for public participation and socio- economic considerations, with a view to ensuring a fair and inclusive transition to a sustainable long- term future.136 The European Green Deal provides the strategic framework and comprehensive policy initiatives to achieve the goals set by the European Climate Law, encompassing a wide range of strategies, policies and interventions across multiple sectors. It aims to promotes economic growth, job creation and social inclusion.137 It exists alongside the Fit for 55 policy, introduced in 2021 – a comprehensive set of proposals aimed at achieving the EU’s legally binding emission reduction targets across sectors.138 The transition to a low-carbon economy offers new opportunities for investment, innovation and green jobs across all sectors. Hence the mechanisms driving this change aim to restore the EU’s biodiversity, decarbonize industrial systems, transition food systems to resilient and sustainable models, shift to circular systems of production and consumption, and implement EU forest and deforestation strategies.139 Several incentive-based market instruments and funding mechanisms, some of which pre-date the Green Deal, are employed to operationalize it, including the EU-ETS, ETS2,140 NextGenerationEU Recovery Plan,141 Multiannual Financial Framework (MFF) 2021-2027,142 and the Just Transition Mechanism.1433.1 European Green Deal The European Climate Law, passed in 2021, sets legally binding targets for achieving climate neutrality by 2050 and reducing emissions by at least 55% by 2030. Bridging the Gap: How to Finance the Net-Zero Transition 22

Bridging the Gap How to Finance the Net Zero Transition 2025