Decarbonise and democratise: How the European Green Deal could transform high-carbon economies

At the turn of the millennium, the European Union adopted the Lisbon Agenda – a pioneering attempt to use innovation to boost the bloc’s economy, combining the economic, social, and environmental aspects of development and regeneration. Its successor in 2010, the Europe 2020 strategy, held similar ambitions.

But in each case, short-term thinking and narrow conceptions of the national interest stifled progress. Instead of achieving more and better jobs through the development of new industries, EU member states too often concentrated on protecting traditional sectors. The result was that European companies and higher education institutes made strides in some areas of science and technology. Yet these rarely translated into fast-growing, profitable sectors. In contrast, the United States and China successfully turned ideas into jobs and businesses: the US now has five times more unicorns (private companies worth over $1bn) than the EU; China has two and a half times more.  

The European Green Deal presents an opportunity to address this, and at a time when the opportunities – and the stakes – are greater than ever. The dire findings of the Intergovernmental Panel on Climate Change’s special report in 2018, and the successive crises of the covid-19 pandemic and Russia’s war in Ukraine, led EU leaders to articulate the need for bolder measures. The climate imperative at the heart of the European Green Deal could set it apart from its predecessors. In the Lisbon Agenda and Europe 2020, sustainable growth was just one of the objectives, and policymakers did not always interpret this as relating to the environment. Now, the burgeoning green tech revolution promises to empower people and provide previously unheard-of opportunities for much broader groups to control and allocate their own resources. Innovation is essential to the revolution’s full realisation.

How can policymakers ensure member state governments all pull in the same direction and no longer work to preserve waning industries? Crucially, states in the EU’s east have within living memory undergone radical transformations when they transitioned to when they transitioned to market economies, democracy, and the rule of law after the end of the cold war. In this regard, the experience of driving change in countries such as Bulgaria from the 1990s onwards provides insight into how to drive change once more.

Though the country remains an “emerging innovator” in the EU, finishing second to last in the annual EU Innovation Scoreboard 2022, in recent years Bulgaria’s economy has made important strides in product innovation, knowledge-intensive service exports, environment-related technologies, and innovation in small and medium-sized enterprises. Many of the country’s companies are well aware of the need to change and have already embarked on this journey. To find out more about this transformation, the European Council on Foreign Relations spoke to senior figures in Bulgarian industries such as the chemical, mining, metallurgical, cement, and transport sectors. Together, these are responsible for around 70 per cent of the country’s greenhouse gas emissions. If the EU is to achieve its strategic goals, low-income, carbon-intensive economies like Bulgaria’s will need to make strong progress in such areas.

The research revealed that these businesses have taken a proactive stance on decarbonisation and transitioning to a green economy. Many are already working to maximise their energy efficiency and resource productivity and are developing substitution technologies. This dual-track approach reduces both their consumption of energy and their dependence on external sources of energy. For example, leading companies in each sector have invested in photovoltaic plants for solar energy. The chemical industry has partially replaced natural gas with ammonia in response to the energy crisis. And alongside electric vehicles, transport firms are increasingly using biodiesel (around 4 per cent of total consumption). This suggests Bulgarian companies realise the competitive advantage such actions bring: lower energy costs, opportunities for new investment, and the image of a reliable partner.

The EU can support member states’ green transition in numerous ways, and directly assist businesses that want to innovate. Policymakers should consider the following approaches.

Provide financial support for technological renewal and modernisation

This is where the EU plays a vital role. Further funding (alongside revised regulations) can facilitate pilot projects and programmes for technological renewal and the modernisation of existing facilities. One example is the EU Innovation Fund-financed Devnya Cement’s carbon capture ANRAV project. This will receive €190m in direct EU funding along with additional private investments to be acquired. The opportunities of the EU’s Modernisation Fund, which the Bulgarian government has not yet taken the steps to access, would also be a move in the right direction. The EU should encourage member states to make use of the fund.

Tie funding to reform

The major driving force for reform in Bulgaria since its accession has been the EU’s policy push in terms of legislation and financial support. However, Bulgarian political elites learned over the years how to absorb EU pressure and adjust the transformation according to their own benefit. One key technique was to postpone reform for as long as possible or insist on special treatment or delays, such as securing greenhouse gas emissions exemptions for coal-fired power plants.

But the EU learned too – and with the advent of the European Green Deal it has conditioned European Green Deal support on Sofia carrying out judicial reforms. This is not just reform for its own sake: the rule of law is essential to innovation and successful economic transition. Without it, there is no guarantee of fair play for businesses, and risks remain of state capture and foreign influence. To capitalise on the promise of innovation in Bulgaria’s private sector, the EU should continue with this approach.

Facilitate knowledge transfer

The EU should also pursue knowledge transfer as a key means of boosting bottom-up developments in member states. Bulgarian company HEC is one of the largest solar panel installers in the world. The key to its success was to tap into global networks of investors and construction experts, which helped the firm transition away from its hydropower origins after that sector faltered. Central to this was knowledge transfer from Norway: one of the HEC’s founders stated that “due to the professionalism and shared expertise and resources of Innovation Norway, HEC works on four continents, with more than 600 workers in 10 locations across the globe.”

And HEC is not an exception. Other companies may not share its global success, but there are many examples of Bulgarian photovoltaic entrepreneurs applying their expertise to compete in neighbouring countries such as North Macedonia, Serbia, Romania, Turkey, and Albania. The EU should use its financial firepower to support the establishment of national knowledge-transfer programmes for small and medium-sized enterprises to foster an innovation-driven transition in Bulgaria.

The green transition will involve not only the transformation of economies but also the democratisation of how societies use their resources – no longer a question to be left to experts and closed professional communities. Installing solar panels on their roofs and producing electricity is turning every consumer into “prosumers” – both producer and consumer at the same time. This is just one example of how the energy sector is opening up to a multiplicity of actors, not only businesses but households as well. With support for bottom-up initiatives (as set out in Bulgaria’s official plans to implement the European Green Deal) and the diffusion of green technologies in communities, the transition will help them become energy-independent.  

The EU should regard transitions in some of its member states as a chance to create a green development model for low-income, carbon-intensive economies, not only in Europe (such as in the Western Balkans and post-Soviet countries) but potentially in the global south as well. This matters not least because many lower-income countries currently harbour great concerns about the impact of the EU’s forthcoming carbon border adjustment mechanism. As the European Green Deal sets out, development and quality of life depend on a balance of economic, social, and environmental factors. Initiatives that aim to achieve such objectives will provide the next generation in these countries with a purpose as well as prospects for new work. This will strengthen the resilience of these societies, reduce inequality, and improve social cohesion. EU support for innovation should be at the centre of this transformation.