Map of Europe showing varying degrees of success in emission reduction efforts from EU structural funds.

Are EU Green Investments Really Working? Unpacking the Climate Impact of Structural Funds

Jordan Keane in Climate & Environment June 2025 • 5 min read.

"A deep dive into how EU "low-carbon economy" expenditures affect greenhouse gas emissions across different European regions – and why the results might surprise you."

The European Union is aiming for climate-neutrality by 2050, but achieving this ambitious goal requires massive investment in the energy transition. The European Commission estimates that energy investments in the EU must reach hundreds of billions of euros annually. A significant portion of this funding should come from public investments designed to boost infrastructure, deploy new technologies, and attract private capital. With the EU earmarking substantial portions of its budget for climate action, it's essential to ask: Are these investments truly effective in cutting greenhouse gas emissions?

This article explores the effectiveness of the EU's climate spending by examining regional variations in climate investments. The EU channels funds through the European Structural and Investment Funds (ESI funds), totaling hundreds of billions of euros, distributed across regions based on their development level. Regions are categorized into least developed, transition, and developed, influencing their eligibility for structural funds. A key "Low-Carbon Economy" tag identifies funds allocated to climate action, allowing us to assess their impact on reducing greenhouse gas (GHG) emissions.

Using econometric panel data models, this analysis investigates the influence of low-carbon economy investments on GHG emissions across European regions. By decomposing emissions data into trend and cycle components, this strategy offers deeper insights into the relationship between economic growth and environmental sustainability. It accounts for regional heterogeneity, policy impacts (via the OECD Environmental Policy Stringency index), and political factors to provide a comprehensive assessment of the effectiveness of EU climate policy.

Decoding the Impact: How EU Green Funds Affect Emissions

Map of Europe showing varying degrees of success in emission reduction efforts from EU structural funds.

The study reveals that the impact of EU structural fund investments in low-carbon economies on GHG emissions reductions varies significantly across European regions. Here's a breakdown of the key findings:

In developed and transition regions, low-carbon investments significantly lowered long-term emission trends, measured both per capita and relative to GDP. This positive impact was observed across both the 2007-2013 and 2014-2020 program periods. However, in less developed regions, these "low-carbon" investments had a positive impact on emissions, meaning emissions actually increased. Additionally, the effectiveness of reducing specific greenhouse gases (CO2, CH4, and N2O) varies, indicating a complex interaction between investment strategies and pollutant type.

Regional Disparities: The effectiveness of EU climate spending is highly dependent on the region's level of economic development.
Emission Type Matters: Reducing different greenhouse gases requires tailored strategies, as the impact of investments varies by pollutant.
Cyclical Effects: Transition economies show different impacts on cyclical emissions components between the two program periods.

The analysis suggests that low-carbon public investments in Europe are only partially efficient, calling for a more refined spatial and temporal allocation of these funds. This means that a one-size-fits-all approach to climate investment isn't working, and the EU needs to adapt its strategies to the specific needs and conditions of each region.

The Road Ahead: Tailoring Strategies for a Greener Europe

The research underscores the need for tailored environmental policies to optimize interventions across European regions. The differential impacts of cohesion policy investments on regional emission trends and cycles highlight the necessity of moving away from one-size-fits-all solutions towards development-sensitive and emission-specific strategies. Special attention should be given to less developed regions, which, although not major emitters per capita currently, risk becoming significant pollution producers as they develop economically. Aligning investment strategies with regional profiles can enhance the effectiveness of emissions reduction efforts, contributing to a more nuanced policy dialogue on sustainable development. This underscores the critical intersection of regional growth, sustainability investments, and environmental outcomes within the EU's policy framework.

About this Article -

This article was crafted using a human-AI hybrid and collaborative approach. AI assisted our team with initial drafting, research insights, identifying key questions, and image generation. Our human editors guided topic selection, defined the angle, structured the content, ensured factual accuracy and relevance, refined the tone, and conducted thorough editing to deliver helpful, high-quality information.See our About page for more information.

This article is based on research published under:

DOI-LINK: https://doi.org/10.48550/arXiv.2408.01782,

Title: Are Eu Low-Carbon Structural Funds Efficient In Reducing Emissions?

Subject: econ.gn physics.soc-ph q-fin.ec

Authors: Marco Dueñas, Antoine Mandel

Published: 03-08-2024

Everything You Need To Know

What are the main goals of the EU's climate investments?

The primary goal of the EU's climate investments is to achieve climate-neutrality by 2050. This involves massive investment in the energy transition, focusing on infrastructure, new technologies, and attracting private capital. The European Commission estimates that hundreds of billions of euros are needed annually to meet these objectives, with a significant portion coming from public investments channeled through the European Structural and Investment Funds (ESI funds). The ultimate aim is to reduce greenhouse gas emissions and promote environmental sustainability across all European regions.

How do the European Structural and Investment Funds (ESI funds) work in relation to climate action?

The ESI funds are the primary mechanism through which the EU channels its climate investments. These funds, totaling hundreds of billions of euros, are distributed across European regions based on their level of economic development. The regions are categorized as least developed, transition, and developed. A significant portion of these funds is earmarked for climate action and identified by a "Low-Carbon Economy" tag. This allows for the assessment of their impact on reducing greenhouse gas (GHG) emissions. The allocation of funds and the specific projects supported are designed to boost infrastructure, deploy new technologies, and attract private capital, all geared towards achieving the EU's climate goals.

What are the key findings regarding the impact of "Low-Carbon Economy" investments on greenhouse gas emissions across different regions?

The impact of "Low-Carbon Economy" investments varies significantly across European regions. In developed and transition regions, these investments significantly lowered long-term emission trends. However, in less developed regions, these investments actually increased emissions. The analysis also reveals that the effectiveness of reducing specific greenhouse gases (CO2, CH4, and N2O) varies. This highlights that a one-size-fits-all approach isn't effective. Tailored strategies considering regional development levels and specific emission types are essential for achieving meaningful emission reductions.

Why is a 'one-size-fits-all' approach to climate investment ineffective, and what is the alternative?

The analysis indicates that a 'one-size-fits-all' approach to climate investment is ineffective because the impact of EU structural funds varies depending on the region's level of development and the type of greenhouse gas. For example, investments in "Low-Carbon Economies" in developed and transition regions have been shown to reduce emissions, while in less developed regions, they can lead to increased emissions. The alternative is to move towards development-sensitive and emission-specific strategies. This involves tailoring environmental policies to the specific needs and conditions of each region, considering their economic development level and the type of emissions targeted. This approach enhances the effectiveness of emissions reduction efforts and promotes a more nuanced policy dialogue on sustainable development.

How can the EU improve the effectiveness of its climate spending and ensure that all regions benefit from its investments?

To improve the effectiveness of its climate spending, the EU needs to adopt tailored environmental policies. These policies should consider the regional economic development level, moving away from a 'one-size-fits-all' approach. Special attention should be given to less developed regions. Aligning investment strategies with regional profiles can help mitigate the risk of these regions becoming significant pollution producers as they develop economically. Furthermore, the EU should focus on emission-specific strategies, understanding that different greenhouse gases require distinct approaches. By prioritizing these tailored strategies, the EU can ensure that all regions benefit from its investments and contribute effectively to the goal of climate neutrality by 2050.