Financing Europe’s Transition: A Toolbox for Public and Private Action

Executive Summary

Financing Europe’s transformation requires more than political will — it requires the right tools. Meeting climate and industrial transition targets demands unprecedented investment, but current fiscal rules and instruments leave governments with limited room to manoeuvre. This report examines what financing options are available — and how they can be mobilised.

Europe’s toolbox is wider than it seems. A review of historical and international experience reveals around fifty instruments that can support large-scale investment in decarbonisation, innovation, and infrastructure. Yet in Europe, only a narrow subset is currently used.

The role of the state can take many forms. The report identifies five financing models, from the State as Treasurer (fully funding investments) to the State as Prescriber (steering private capital through regulation). Between these extremes, the state can act as Co-Investor, Compensator, or Architect, using hybrid approaches that combine public leverage with private capital.

Institutional choices are political. The selection of instruments reflects competing economic philosophies about the balance between public and private responsibility. Adapting tools from abroad requires institutional reconfiguration and strong democratic legitimacy.

Policy recommendations

1. Broaden Europe’s financing repertoire. Policymakers should move beyond today’s narrow reliance on carbon pricing and budget subsidies, systematically reviewing the full range of instruments available.
2. Tailor instruments to national and EU contexts. No single model fits all. A mix of roles — Treasurer, Architect, Prescriber — can be combined depending on sectoral and fiscal conditions.
3. Embed financing choices in a democratic framework. Large-scale investment decisions must balance efficiency, legitimacy, and cohesion to sustain public trust in the transition.