The European Green Deal has established ambitious decarbonisation targets for the transport sector, but insufficient financing at the EU and national levels jeopardises its implementation. A robust investment agenda is essential to achieve both climate and competitiveness goals.

Transport is the EU’s largest source of greenhouse gas emissions, accounting for 29% of all EU emissions in 2022. The sector requires €870 billion annually to meet 2050 climate objectives, according to the European Commission. High capital costs for green technologies and limited fiscal space under the EU Growth and Stability Pact exacerbate the investment gap. This is particularly critical as transport faces one of the steepest transitions to carbon neutrality.

Fierce global competition on cleantech exacerbates the need for an EU green industrial strategy. Europe must secure local production of key technologies like electric vehicles (EVs), batteries, and e-fuels for planes and ships to reduce dependency on the US and China while enhancing climate resilience. Hence, turbo-charging investments in clean transport technologies is paramount to the success of the EU Clean Industrial Deal. Investments are the linchpin to aligning smart regulation, climate goals and industrial policy.

Our study, “Financing transport decarbonisation”, estimates that Europe needs €39 billion in public funding annually until 2030 to produce EVs, batteries, and clean shipping and aviation fuels, and to build sufficient road charging infrastructure [1]. This public investment would attract €271 billion in private capital each year, resulting in a total annual investment of €310 billion to bolster sustainable technology manufacturing and competitiveness.

A priority is to stimulate demand and democratise access to EVs, that are still out of reach of most due to their high purchase cost. A flagship initiative should be the creation of an EU affordable EV platform to promote social leasing schemes targeting lower-income households across Europe. The adequate funding source is the Social Climate Fund and co-financing at the national level via revenues from the ETS 2 and unspent EU recovery funds.

Then, more decisive short-term support for the EU battery industry is crucial. Europe can achieve self-sufficiency in battery cell manufacturing as early as 2026 and meet much of its demand for key components like cathodes and materials like lithium by 2030, provided announced projects come to fruition. However, industry vulnerabilities, such as Northvolt’s bankruptcy, highlight the need for more substantial public backing for scaling local battery production, accessing key materials, de-risking investments in key components such as cathodes and promoting recycling.

A first step is to rapidly build on the €1 billion call for proposal launched in December 2024 to support the battery value chain under the EU Innovation Fund. This EU Battery Fund should be scaled up to a sizable €25 billion by 2030 with extra funding from ETS revenues (including national co-financing under the “grants-as-a-service” approach) and revenues from tariffs on Chinese EVs. Then, support in loans, guarantees and equity by public banks – the EIB and national promotional banks – should reward best-in-class projects and crowd-in private capital.

In hard-to-abate sectors like aviation and shipping, e-fuels are the most promising decarbonisation technology. Still these fuels remain more costly than conventional diesel and kerosene, and airlines and shipping companies are reluctant to adopt these alternatives. This leads to a situation where e-fuel projects struggle to reach a Final Investment Decision. 

We estimate that a total of €86 billion in capital investments is needed by 2030 to kickstart mass e-fuel production across Europe. Well-calibrated public support can cover half of this gap by consolidating and de-risking this nascent market. A decisive step is to transform a tested instrument – the EU hydrogen bank under the Innovation Fund – into a new European Hydrogen Clearing House. Backed by ETS revenues and combined with loans, guarantees and equity from public banks, it can cover part of the price difference between sustainable and conventional fuels, ensuring stable demand and offtake while giving certainty to production.

The solutions outlined should be central to the future Sustainable Transport Investment Plan led by new Transport Commissioner Tzitzikostas, and be integrated into the European Competitiveness Fund for the next EU budgetary period starting in 2028. 

Achieving these investment targets is feasible. Public funds can rely on existing instruments, such as carbon taxation and phasing out harmful subsidies. The €39 billion a year required for transport cleantech manufacturing is less than the €42 billion that European governments spend annually on subsidies for petrol and diesel company cars [2]. Subsidies at national and EU levels should support non-bankable infrastructure and vulnerable households while catalysing private finance, especially in areas where private capital alone is inadequate to drive the transition.

A “Made-in-Europe” strategy for clean technologies can ensure the creation of quality green jobs, accelerate the market uptake of clean technologies, and place the transition on track.

Achieving EU climate goals and maintaining industrial leadership demands a bold investment strategy. Early action reduces costs and ensures resilience. By mobilising private capital and securing local production, Europe can turn transport decarbonisation into a driver of sustainable growth and competitiveness.