EU public funding Globally, €4.6 trillion115 is needed annually to achieve the 1.5°C target by 2050, which is more than four times higher than the 2022 global investments across energy transition technologies.116 According to the European Commission, the EU needs €1.2 trillion annually by 2030 to deliver on its 55% emission reduction target.117 Only 20-25% of the investment needs will be covered by the public sector,118 translating to roughly €0.9 trillion119 of private capital required. The European Commission estimates the gap in private funding to stand at €477 billion.120 A small part of the investment gap can be closed by the efficient use of revenues from the Emissions Trading System (ETS) and the CBAM (Carbon Border Adjustment Mechanism). It is estimated that 33% of ETS revenues, approximately €9 billion, remain unused despite clear guidance from the EU that member states should use these budget allocations for investments into renewable energy, energy efficiency improvements and low-carbon technologies.121 The revenues from CBAM are projected to reach over €2.1 billion per year by 2030122 and are currently not earmarked for climate action. Yet these funds are still insufficient to cover all the required investments, which underscores the importance of public-private partnerships in mobilizing the necessary capital. Blended finance Blended financing models, which combine public and private funds, are essential for enabling an effective energy transition. Blended finance partnerships vary by technology and project maturity. Public funding mitigates risks in early- stage innovations to demonstrate financial viability, often through grants, loans and equity. Public funding aids early market development for green products by providing predictable incentives and tax credits.123,124,125The effective use of public funding can improve the business case for green investments by providing guarantees, subsidies and first-loss capital for proven emission-reducing technologies.126,127,128 The EU focuses on direct financial support with most financing being distributed through grants, loans and financial guarantees. Tax incentives have also proven efficient, however, in attracting investments as seen with the Inflation Reduction Act (IRA) in the US. Offtake agreements, where the buyer agrees to purchase the producer’s future output often before production begins, are needed to ensure the long-term profitability required to mitigate risks for investors. In the case of Swedish H2 Steel, half of the initial annual volumes of 2.5 million tons have been sold in binding five- to seven-year customer agreements. The H2 Steel project is also an example of combining various financing instruments from both public and private sources in the form of equity and debt.129,130,131,132,133,134,135,136 The predictability of the regulatory system is critical to support any kind of long-term supply-demand commitment. As highlighted by interviewed executives, a lack of clarity on the future state of incentives for clean technologies, notably for Sustainable Aviation Fuel (SAF) and hydrogen electrolysers, makes it difficult for the private sector to plan and ensure long-term profitability. The complexity of going through the funding process is a major obstacle for European businesses seeking to tap into EU funding. Almost all of the surveyed companies said that the funding landscape in the EU is either very complex or somewhat complex.137 By contrast, under the IRA (Inflation Reduction Act) in the US, interviewed applicants received a first go/no-go decision on funding within six weeks of applying, based on a 1.5-page document. The full process lasted three months and only required 40 pages of application. In the EU, the same applicant was required to submit 400 pages of application to enter the process, which took nine months to complete.1382.2 Funding and financing Only 20-25% of the investment needs will be covered by the public sector, translating to roughly €0.9 trillion of private capital required. 22 Delivering on the European Green Deal: A Private Sector Perspective

Delivering on the European Green Deal A Private Sector Perspective 2025