Picking Losers: Climate Change and Managed Decline in the European Union

E gen, Timu ; Schmi z, Luuk
A icle — Published Ve sion
Picking Lose s: Clima e Change and Managed Decline in
he Eu opean Union
Regula ion & Go e nance
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Sugges ed Ci a ion: E gen, Timu ; Schmi z, Luuk (2025) : Picking Lose s: Clima e Change and
Managed Decline in he Eu opean Union, Regula ion & Go e nance, ISSN 1748-5991, John Wiley &
Sons Aus alia, L d, Melbou ne, Vol. 19, Iss. 2, pp. 383-398,
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383
Regula ion & Go e nance
ORIGINAL ARTICLE OPEN ACCESS
Picking Lose s: Clima e Change and Managed Decline in
he Eu opean Union
Timu E gen | LuukSchmi z
Max Planck Ins i u e o he S udy o Socie ies, Cologne,Ge many
Co espondence: Timu E gen ( e@mpi g.de)
Recei ed: 15 No embe 2023 | Re ised: 2 Feb ua y 2025 | Accep ed: 8 Feb ua y 2025
Funding: The au ho s ecei ed no speci ic unding o his wo k.
ABSTRACT
Deca boniza ion o ces socie ies o cope wi h he es uc u ing and ou igh unwinding o asse s, i ms, wo ke s, indus ies,
and egions. We a gue ha his p oblem has c ea ed legi imacy o indus ial policies managing he ealloca ion o esou ces.
We illus a e his dynamic by documen ing inc emen al s a e- building in he Eu opean Union, an adminis a ion ins i u ionally
il ed owa d egula o y s a ehood and he making o he Single Ma ke in ene gy since he 1990s. Eu opean g eening policies,
we a gue, ha e inc emen ally lessened he p imacy o egula o y ools and ha e in oduced a ple ho a o ins umen s o accele -
a e g een es uc u ing and ca bon unwinding. Bes unde s ood as a p ocess o mul i- si ed ins i u ional laye ing, he Eu opean
Union inc easingly appea s o complemen inancial and egula o y ins umen s o e ec g een ene gy ansi ions wi h he man-
agemen o decline in a ge ed egions and sec o s, based on a ge ed unds and a ge ed ansi ion planning.
1 | In oduc ion
Recen s udies examining he s a e's ole in 21s - cen u y capi al-
ism e eal ha g een ansi ions appea o compel go e nmen s
o adop in e en ionis app oaches ha di e ge signi ican ly
om adi ional models o he egula o y s a e. The go e -
nance challenges a ising om clima e change mi iga ion and
adap a ion can hence be unde s ood as d i e s o ongoing in-
s i u ional change. This a icle adds o his pe spec i e on he
clima e change- ela ed e olu ion o he egula o y s a e by doc-
umen ing esponses o an empi ically unde explo ed dimension
o g een ansi ions— he s a e managemen o socio- economic
unwinding caused by g eening policies. Complemen ing he
g owing li e a u e on Jus T ansi ions ha highligh s eme ging
compensa o y logics in he poli ical economy o clima e change
(Edenho e and Geno ese2024; Im2024; Scha e 2024), his
a icle con ibu es o unde s anding how s a es aise poli ical
legi imacy o g een s uc u al change.
The esea ch ques ion his a icle in es iga es is how he di-
es men s and losses in ol ed in deca boniza ion policies
challenge he egula o y s a e. The wo main answe s ou
analysis p o ides a e (a) ha policy- induced di es men s and
losses push s a es in o hands- on epe oi es o managing de-
cline and es uc u ing in a ec ed egions and sec o s and (b)
ha hese epe oi es may be laye ed on op o he egula o y
s a e, a he han displacing i . The empi ical case we ely on
consis s o he Eu opean Union's clima e policies since he
ea ly 2000s. We demons a e ha he bloc has g adually ex-
panded i s deca boniza ion policy oolki s o include iscal ca-
paci y building and economic planning, speci ically a ge ing
egions ansi ioning away om ca bon- in ensi e ac i i ies.
By a ge ing ans e s and ansi ion policy aid o speci ic e-
gions and sec o s, he EU's g eening policies ha e an o e ly
di ec ional cha ac e , whe e adminis a i e decisions aim o
al e esou ce alloca ions on a g anula egional and sec o al
le el. Impo an ly, such g anula policy oolki s eme ged as
This is an open access a icle unde he e ms o he C ea i e Commons A ibu ion License, which pe mi s use, dis ibu ion and ep oduc ion in any medium, p o ided he o iginal wo k is
p ope ly ci ed.
© 2025 The Au ho (s). Regula ion & Go e nance published by John Wiley & Sons Aus alia, L d.
Timu E gen and Luuk Schmi z au ho s con ibu ed equally o his wo k.
384 Regula ion & Go e nance, 2025
pa o se lemen s mean o o e come poli ical esis ance o
egula o y policies aising he p ice o emissions. They did no
eplace he Eu opean egula o y s a e in he clima e a ena bu
we e laye ed on op o i .
G een ansi ions a e no jus abou phasing in g een echnol-
ogies o p ac ices, bu abou he phasing ou o pollu ing p ac-
ices and s uc u es (Albe e al.2021; Ellio 2021; Thu bon
e al.2023). As such, hey a e p oblems o socio- economic e-
alloca ion, s uc u al change, and es uc u ing. The es uc-
u ing p oblems associa ed wi h clima e change policy con on
s a es ins i u ionally ashioned unde e y di e en poli ical
cons ain s, dis ibu ional coali ions, and idea ional backd ops.
As has been poin ed ou by an eme ging poli ical economy o he
g een s a e, one o he majo dynamics o con empo a y clima e
policy- making conce ns he aul lines be ween ins i u ional
egimes buil in imes o egula o y s a ehood and p essu es
o accele a e clima e change mi iga ion and adap a ion. Co e
insigh s om his line o esea ch conce n a emp s o mobi-
lize (hidden) iscal esou ces o g een ansi ions (Lepon and
Thiemann2024; Me ens and Thiemann2017), o s imula e in-
dus ial and echnological inno a ion (Kupzok and Nahm2024;
Meckling2021), and o enlis inancial ma ke s o g een in es -
men (Gabo and B aun2023; an ’ Kloos e 2022).
This a icle con ibu es o his line o inqui y by showing o he
case o he Eu opean Union how p oblems o socio- economic
decline ha e condi ioned a e i al o indus ial policy epe -
oi es long hough do man —i no dead. In a u n o ph ase
common in deba es on indus ial policy (Cowling 2003), we
documen he e u n o e ical epe oi es in he clima e a ena.
Reac ing o he pos - 1980s abandonmen o policies suppo ing
s a e- picked i ms, sec o s, egions, and echnologies, indus-
ial policy deba es diagnosed a shi om e ical o ho izon al
policies—whe e he la e we e designed o imp o e condi ions
o business ac i i y wi hou “picking winne s” (see E gen and
Rademache 2023).
While ecen w i ings on he g een s a e ha e documen ed a
e u n o he s a e in he inno a ion- o ien ed “picking o win-
ne s,” his a icle desc ibes eme ging policy epe oi es a ound
g een s a es “picking lose s.” Those epe oi es e ol e a ound
he ac i e s a e managemen o s uc u al change—and pa ic-
ula ly a ound he poli ical easing o he phase- ou o ossil uel-
hea y ac i i ies. Hence, i g een ansi ions in ol e a p ocess o
“ins i u ional laye ing” (Thelen2004) o an inno a ion s a e, an
in es men s a e, and a g een mac o- inancial s a e on op o he
es ablished egula o y s a e, we a gue ha hey ha e a he same
ime gi en ise o he g ow h o a decommissioning, liquida ing,
o s anding s a e.
The main empi ical case we ely on o illus a ion is he
Eu opean Union since he la e 1990s. We documen an inc emen-
al p ocess o laye ing h ough which egula o y ins umen s in-
ended o make ca bon emissions mo e cos ly a e inc easingly
complemen ed wi h in e en ionis policy oolki s a ge ing
ansi ion lose s. The Eu opean Union emissions ading sys em
(ETS)—long he alded as an ins i u ionally elegan and e icien
way o phase ou ca bon emissions—has inc easingly been sup-
plemen ed wi h ans e p og ams a ge ed a he deca boniza-
ion o speci ic indus ies and egions. Since he mid- 2010s, he
EU has ac i ely buil go e nance capaci ies o plan o decline
in a ec ed egions. He e, we a e among he i s o shed ligh
on he ole o he Eu opean Commission's Di ec o a e- Gene al
o S uc u al Re o m Suppo (DG REFORM)—an ins i u ional
complex epu posed om wo king on G eece's s uc u al e-
o ms du ing he Eu opean so e eign deb c isis— o an agency
ac i e in g eening he Eas by wo king o ansi ion egions hea -
ily dependen on ossil uels.
This a icle is s uc u ed in wo majo pa s. Sec ion2 econ-
s uc s p e ious wo k on de ia ions om he egula o y s a e
ela ed o clima e change policy and desc ibes how he man-
agemen o socio- economic decline ep esen s a dis inc i e
added ansi ion challenge. We aim o show how he li e a u e
in a ious ields has documen ed piecemeal bu sys ema ic de-
ia ions om classic pa e ns o egula o y s a ehood ela ed o
low- ca bon ansi ions. Laying he g ound o ou a gumen ,
we ske ch sca e ed p e ious e idence ha g een ansi ions
lead s a es owa ds g anula ansi ion go e nance. Sec ion3
illus a es ou a gumen based on a case s udy o Eu opean
ansi ion policies. We demons a e how a p ocess o ins i u-
ional laye ing un olded o e he las 30 yea s. Since he ea ly
2000s, a egula o y egime o emissions ading was inc e-
men ally punc u ed by indus ial and egional policies seeking
o o ganize and enable g een es uc u ing in speci ic egions
and sec o s. In he conclusion, we lay ou he main ways in
which ou a gumen can en ich ongoing deba es in poli ical
economy.
2 | The Regula o y S a e, Clima e Change, and he
Ques ion o G een S a ehood
Obse a ions o a eeme gence o a mo e ac i is , o “posi i e,”
s a e in he ea ly 21s cen u y span mul iple empi ical ields o
esea ch. Thi y yea s a e Majone's seminal pape on he de-
cline o di igisme in Eu ope (Majone1994), he egula o y s a e
appea s o be unde siege on mul iple in e locking on s. One
majo issue a ea leading he cha ge ela es o he eappea ance
o geopoli ics and secu i y as majo conce ns (Le i- Fau 2013;
McNama a 2024; Seidl and Schmi z 2024). O he impo -
an issues conce n p oblems o apid echnological change
(Mügge 2024), as well as p oblems o inequali y, s uc u al
change, and poli ical legi imacy (Pio e2019).
In he o iginal o mula ion by Majone(1994), he Eu opean eg-
ula o y s a e appea ed as a pos - s a is poli y ocused on ma ke
egula ion. This cha ac e iza ion eac ed bo h o he inc easing
powe o egula o y agencies a e widesp ead p i a iza ion
and de egula ion and o he EU's ins i u ional oddi ies, such
as i s iscal limi a ions. A e ag icul u al policy expendi u e,
Majone(1994, 87) obse ed ha “ emaining esou ces a e insu -
icien o suppo la ge- scale ini ia i es in a eas such as indus-
ial policy, ene gy, esea ch, o echnological inno a ion. Gi en
his cons ain , he only way o he Commission o inc ease i s
ole was o expand he scope o i s egula o y ac i i ies.” The
p imacy o egula o y s a ehood o Majone implied a na ow-
ing down o s a e goals o “a single no ma i e jus i ica ion:
imp o ing he e iciency o he economy by co ec ing speci ic
o ms o ma ke ailu e such as monopoly, impe ec in o ma-
ion, and nega i e ex e nali ies” (Majone1994, 79). This mean a
385
s a k de ia ion om he “posi i e s a e” o he pos wa decades,
whose policies whe e mo i a ed by a ple ho a o poli ical goals.
While Majone's cha ac e iza ion has been amended, his o -
ically si ua ed, and c i icized o yea s, i can s ill se e as a
aluable baseline o cha ac e ize s a e ac i i y—pa icula ly in
he Eu opean Union whe e egula o y jus i ica ions o Union
esponsibili y is- à- is membe s a es a e s ill ex emely com-
mon. In he li e a u e on he Eu opean Union, he ideal- ypical
egula o y s a e has inc easingly been desc ibed as coming
unde siege om mul iple on s (among many: Genschel and
Jach en uchs 2018; Di Ca lo and Schmi z 2023). This a icle
builds on his pe spec i e by highligh ing a on ela ed o he
managemen o clima e policy- induced decline. We wan o
highligh ha we do no conside his on dominan o o e all
cha ac e is ic o he Eu opean Union. One o he majo ene s o
he deba e on he egula o y s a e since Majone has been a cau-
iona y ake agains monomo phic no ions o s a e in e en ion
(Le i- Fau 2013; Mo gan and O lo 2019). Ins ead, la ge pa s
o he li e a u e on he siege o he egula o y s a e desc ibe p o-
cesses o pa ial and issue- speci ic b icolage and ins i u ional
laye ing, a he han unidi ec ional change. This is pa icula ly
ue o esea ch unco e ing ins i u ional change in clima e
policy.
As laid ou in he ollowing, in luen ial esea ch on he e u n o
he ac i is s a e as a g eening s a e desc ibes localized expe i-
men s wi h non- con en ional policy ins umen s, niche de elop-
men s, he p esence o con lic ing logics, and o ms o “hidden”
policies ha do no openly challenge o malized no ions o he
egula o y s a e. The e cu en ly exis h ee majo akes on how
he g een s a e punc u es he egula o y s a e in he Eu opean
Union: he in es men s a e, he de isking s a e, and he ise o
g een indus ial policy. To si ua e he o iginal con ibu ion o
ou a icle, we b ie ly econs uc he basic ene s o each pe -
spec i e be o e poin ing o an eme ging addi ional iew s ess-
ing how s a es deal wi h ansi ion lose s.
2.1 | The Eu opean G een S a e as an
In es men S a e
Pa icula ly o he Eu opean case, ecen esea ch has docu-
men ed he ise o a wide ange o uncon en ional o ms o is-
cal s a ehood aimed a deca boniza ion. Mos o he ins i u ional
ounda ions o he Eu opean in es men s a e ha e exis ed
o a long ime bu ha e g own signi ican ly in he a e ma h
o he Eu opean so e eign deb c isis. Ins i u ions such as he
Eu opean In es men Bank and membe s a es' de elopmen
banks ha e become la ge- scale de ac o p o ide s o in es men
assis ance ac oss Eu ope in a si ua ion o ins i u ionalized aus-
e i y in membe s a es and he lack o iscal capaci y o he
Eu opean Union i sel (Me ens and Thiemann 2017; Lepon
and Thiemann2024). Gi en he cen ali y o iscal unde de el-
opmen in Majone's o iginal scheme, he de elopmen o cen al
iscal powe s implies a majo de ia ion.
The li e a u e on he Eu opean in es men s a e has s essed
ha he expansion o iscal capaci y is pa ially un olding in a
poli ically “hidden” way—wi hou o e challenges o ins i u-
ionalized no ions o iscal policy in he EU. None heless, he
emodeling o ins i u ions o se e g een policy ends has been
unde w i en by o icial acknowledgmen s ha clima e change
mi iga ion as an in as uc u al p oblem equi es massi ely is-
ing le els o public in es men (Me ens and Thiemann2023).
Gi en he ha d- coded ins i u ional cons ain s o Eu opean
iscal policy, howe e , he public p o ision o in es men has
la gely elied on o - balance- shee ehicles and he public un-
de w i ing o p i a e in es men (Alay ac and Thy a d 2024;
End eja 2024).
2.2 | The Eu opean G een S a e as a
De isking S a e
The Eu opean endency o a o public- p i a e co- inancing
o e ac ual public in es men has been a he cen e o wo k on
he ise o he de isking s a e. In pa icula , Gabo (2021) has
a gued ha 21s - cen u y mac o- inancial egimes push s a es o
ely on p i a e in es men o ansi ion inancing by c ea ing
a ac i e asse s in he g een economy. Shadowing he ea lie
wo k on he s uc u al dominance o inancial in e es s in de-
elopmen policy, Gabo a gues ha he Eu opean “small” g een
s a e p ima ily de isks in es men s o c ea e p o i able asse s
o la ge inancial pools (Gabo 2022; Gabo and B aun2023).
C i ical mac o- inance places he locus o s a e ac ion a he
le el o ins i u ions seeking o ca e pa hways o inance o
low in s a egic di ec ions. As a heo y o changing o ms o
s a ehood unde condi ions o clima e change, Gabo 's analyses
poin owa d he odd o ms in which de elopmen al ambi ions
in he g een economy a e channeled in o s a es unde w i ing
ma ke - led ansi ion policies. In ecen compa a i e ex ensions
o he mac o- inancial app oach o g een ansi ions, Gabo and
B aun(2023) poin o how ins i u ional, ideological, and in e -
na ional powe dynamics shape he ex en o which s a es seek
in es men h ough inancial ma ke s, a he han h ough pub-
lic means. The de isking s a e s ands in an odd ela ionship o
Majone's no ion o he egula o y s a e. I highligh s he e u n
o non- egula o y goals o policy bu desc ibes (in pa s sel -
in lic ed) limi a ions o policy capaci y ha induce s a es o seek
public policy goals by incen i izing p i a e se ice p o ision.
2.3 | The Eu opean G een S a e as a G een
De elopmen al S a e
A hi d co e s and o esea ch on g eening s a es emphasizes
he e u n o de elopmen al policies o g een indus ies and
echnologies. G een indus ial policies ha e been eme ging
a ound he wo ld as go e nmen s seek o de elop echnolo-
gies o comba clima e change and ie o posi ion in eme g-
ing indus ies (Allan e al.2021; Meckling2021; Rod ik2014).
Compa ed o he “old” Eas Asian de elopmen al s a e o he
1980s, ecen g een indus ial policies in ich coun ies ha e
deployed a ange o mo e ligh - ouch policies, such as s a - up
assis ance, R&D suppo , conso ia, g an s and loans, and
consul ing se ices (Block2008; Nahm2021). “Winning coali-
ions” o businesses, in es o s, social mo emen s, wo ke s, and
poli ical bene icia ies may o m a ound g owing g een indus-
ies, which may hen inc easingly ma ginalize ansi ion los-
e s (Meckling e al.2015). Th ough he logic o posi i e policy
eedback (Béland e al.2022), g een indus ial de elopmen may
386 Regula ion & Go e nance, 2025
subsequen ly buy poli ical oom o maneu e ing o scale down
pollu ing indus ies (Meckling e al.2017). In he Eu opean case,
many his o ical g een indus ial and echnology policies ha e
been de ised by membe s a es—some imes using ca e- ou s,
some imes in open con lic wi h he bloc's egime o limi s a e
aid o indus y. Recen ly a numbe o s udies ha e documen ed
g een de elopmen alis ini ia i es o igina ing a he Eu opean
le el (Cooiman 2023; Mocanu and Thiemann2024; Di Ca lo
and Schmi z2023; P on e a and Qui zow2021). As compa ed o
pe spec i es on in es men and de isking s a es, desc ip ions o
a g een neo- de elopmen al s a e de ia e s ongly om Majone's
cha ac e iza ion o he EU. In he g een indus ial policy space,
s a es appea o no jus e u n o non- egula o y policy goals
bu o de elop posi i e s a e capaci ies enabling hem o ac i ely
pick (g een) winne s.
2.4 | The Eu opean G een S a e and he P oblem
o Decline
The e a e sca e ed obse a ions in he li e a u e on g een an-
si ions ha sugges ha con empo a y de ia ions om he eg-
ula o y s a e ela e o a dis inc addi ional challenge. Policies
appea o play an ac i e ole in managing he unwinding o
emission- in ensi e ac i i ies and he es uc u ing o a ec ed
communi ies. We discuss exempla y e idence on p oblems o
go e ning g eening- ela ed decline be o e o mula ing a sys em-
a ic ake on decline as a g een ansi ion challenge.
In poli ical economy, B ee z e al. (2018) ha e sugges ed ha
e o s o in oduce comme cialized g een echnologies in o
ene gy sys ems shi he poli ics o ansi ions owa d con lic s
o e adminis a i e and ins i u ional e o m and he edesign
o la ge echnological sys ems. Simila a gumen s abou a dis-
inc “la e- s age” poli ics o g een ansi ions ha e been de-
eloped in he specialized ansi ion li e a u e (Geels 2014;
Isoaho and Ma ka d2020; Ko e sky e al.2023; Tu nheim and
So acool2020). A majo p oblem is ha clima e policy- ela ed
losses a e hea ily concen a ed in speci ic egions and indus-
ies (Jakob e al.2020). B aue s e al.(2020) ha e documen ed
he poli ical challenges o phasing ou coal in Ge many and he
Uni ed Kingdom. Like any a emp a o ced la ge- scale socie-
al change, clima e policy- making as a deep socio- economic
ans o ma ion ends o u n “noisy” e en a e ini ial ad ances
(Pa e son 2022). Highligh ing sequencing and po en ial mis-
alignmen be ween he “c ea i e” and “des uc i e” aspec s o
ansi ion policy, Thu bon e al.(2023) ha e shown o he cases
o Ko ea and China how he s a e has ecen ly aken up he
phasing ou o ossil in as uc u es as a dis inc i e ask beyond
g een indus ial policies.
Conce ns abou he clima e change- ela ed unwinding o socio-
economic s uc u es ha e isen ma kedly in ecen yea s—pa -
icula ly a e he Pa is Ag eemen o 2015. In ich Wes e n
na ions, his is especially ue o clus e s ela ed o coal mining,
p ocessing, and use. The e a e ansna ional as well as na ional
aspec s o deba es abou he o ganized winding down o coal
powe gene a ion. In he ealm o ansna ional clima e change
go e nance, a majo conce n is how o compensa e poo e and
medium- income na ions o o going he de elopmen al po en-
ial o con inued (i no expanded) ossil uel usage and how o
ewi e expo ing na ions' g ow h models (Edwa ds2019). Ac oss
coun ies, he ela ionship be ween asse s deemed as “s anded”
due o clima e change and s a es is any hing bu uni o m, as
s a es can be majo di ec and indi ec owne s o ossil asse s and
in as uc u es (Babic e al.2022; Semieniuk e al.2020).
Fo he case o he Eu opean Union, an eme ging esea ch li e -
a u e in es iga es no ions and p ac ices o Jus T ansi ion. While
hi he o la gely a no ma i e deba e abou he need o edis ib-
u i e logics in g een ansi ions (Newell and Mul aney2013),
a ange o ecen policy ini ia i es picks up he language and
compensa o y ocus o he deba e o policy- making. B adlow
and Swamidu ai (2024) show how he ecen p oli e a ion o
“Jus Ene gy T ansi ion Pa ne ships” be ween Global No h
and Sou h coun ies is hea ily il ed owa d phase- ou policies.
Compensa o y ans e s a e e ec i ely ied o decommissioning
commi men s, a he han o de elopmen al p ojec s. Volin i u
and Nicola(2024) ha e documen ed how Eu opean ins i u ions
ha e inse ed hemsel es in o he Romanian policy p ocess o
es uc u e he mining- in ensi e Jiu Valley h ough he EU Jus
T ansi ion Mechanism. They show how Eu opean compensa o y
esou ce lows a e ied o local in es men p ojec s wi h high
echnical planning equi emen s and highly unce ain es uc-
u ing ou comes.
The sys ema ic p oblem esea ch on es uc u ing in ene gy
ansi ions poin s o is ha common no ions o g een ansi ions
emphasizing he s a e- led manipula ion o ela i e p ices ope -
a e wi h a educ i e no ion o socio- economic change. No ions
o g een ansi ions in which socie ies luidly and p oac i ely
adap o p edic ed u u es o cheap g een and expensi e ca bon-
hea y ene gy as ly unde es ima e he ine ia o socio- economic
s uc u es. This is all he ue as g een ansi ion policies a ge
he unwinding o socio- economic s uc u es ha a e iable, p o-
ide o economic li elihoods, and sus ain communi y li e on
an ongoing basis—no o speak o he hi he o ex emely p os-
pe ous and p o i able sec ions o he global ossil uel economy
(Ch is ophe s2022).
In his sense, we sugges unde s anding policies easing, man-
aging, and planning g eening- ela ed decline as o ms o he in-
c emen al coping o policy- make s wi h he ac ha g eening
policies aim o ansi ion complex socie ies, a he han sys ems
o economic s ocks, lows, and p ice signals. In a p ocess em-
iniscen o Polanyi's(2001, 88) ake on 19 h- cen u y B i ish so-
cial e o ms, policy- make s can be hough o “disco e socie y”
h ough p oblems o social esis ance o (g een) socio- economic
change. The p ocess o ins i u ional laye ing we desc ibe in ou
case s udy below ep esen s a sequence o piecemeal a emp s
o es ablish socio- economic and poli ical oom o maneu e in
o de o deca bonize.
T ansi ion measu es a ge ing decline o en o e lap wi h he
policies desc ibed in he li e a u e on he in es men , de isking,
and en ep eneu ial s a e, bu ha e dis inc poli ical- economic
logics. In e ms o social coali ions, as compa ed o no ions o he
g een en ep eneu ial o inno a ion s a e, a decommissioning
s a e aims a p o iding socie al legi imacy o s uc u al change,
a he han a he de elopmen o new echnologies o he g ow h
o g een p o i s—and he eby he c ea ion o “winning coali ions”
( o a simila ake on indus ial policy, see Ka zens ein1985). In

387
his sense, he decommissioning s a e we a e desc ibing is “pick-
ing lose s,” a he han “winne s.” As compa ed o he de isking
s a e, a decommissioning s a e becomes adminis a i ely ac i e
in egional and sec o al es uc u ing, a he han h ough inan-
cial incen i es. And as compa ed o he in es men s a e, policies
aimed a decline ha e dis inc compensa o y and es uc u ing
logics and in ol e di ec go e nmen planning.
In he ollowing sec ion, we build on his no ion o decline as a
ansi ion challenge by showing how he Eu opean egula o y
app oach o clima e policy has been inc emen ally pe o a ed
by measu es o g een es uc u ing. Impo an examples a e
ans e s o declining egions and a planning epe oi e a ge -
ing speci ic egions and indus ies, de eloping oadmaps o
esou ce and wo k o ce shi s, and es ablishing local expe ise
in he managemen o g een ansi ions. As we show in he ol-
lowing sec ion, iscal and adminis a i e capaci y o decom-
missioning, as i has eme ged since he mid- 2010s, has been
ins umen al in e o ming he EU's emissions ading sys em
and has become a key pa o he bloc's clima e policy oolki .
3 | Case Selec ion: The EU as a G een S a e
Si ua ing he EU in he uni e se o 21s - cen u y g eening s a es
is no s aigh o wa d. I equi es si ua ing he EU in bo h he
clima e policy and he indus ial policy uni e ses o cases. In he
ea ly 2010s, he Eu opean Union would undoub edly ha e qual-
i ied as one o he “mos ad anced cases” o clima e mi iga ion
policy due o ea ly pa icipa ion in ansna ional clima e acco ds
and a emp s o implemen an emission ading scheme. I would
hence cons i u e a p ima y a ge o s udy he la e- s age poli ical
economy o g een ansi ions. By he mid- 2020s, he bloc's slow
and oubled esponse o U.S. and Chinese g een indus ial policies
appea s o make i mo e o a lagga d. We con end, howe e , ha
he EU's unique posi ion in olling ou he “s icks” in conjunc ion
wi h he “ca o s” o clima e change mi iga ion policy has gi en
ise o ano he se o policies aimed a managing he decline o e-
gions and sec o s o a ca bon- based economy. Ac oss he wo ld,
we inc easingly see ha he poli ical iabili y o clima e policies
depends on he s a e capaci y o manage he poli ics o g een an-
si ions. He e, he ea ly Eu opean expe ience is a guably impo an
o he ansi ions s a es elsewhe e ace in he u u e.
The p oblems o si ua ing he EU as a clima e policy- make a e
compounded by i s dis inc ole in economic and indus ial policy.
The analysis o he EU as a s a e- like s uc u e has ecen ly gi en
ise o deba es in poli ical science (Kelemen and McNama a2022).
Pa icula ly in iscal and adminis a i e e ms, he EU emains
uniquely weak gi en he b ead h o i s policy manda es.
Fu he mo e, he bloc ep esen s a majo excep ion in indus ial
policy e ms in ha i o mally abandoned e ical indus ial
policies as dis o iona y o he Single Ma ke du ing he 1990s
(Thomas2000). Ne e heless, he bloc has had ex ensi e policy
expe ience wi h declining indus ies and egional es uc u ing
and hence wi h indus ial policies seeking o manage he eallo-
ca ion o esou ces (Wa louze 2019).
While he EU can hence ha dly be seen as “ ep esen a i e” o
g een s a es a ound he wo ld, i s policies espond o s uc u al
p oblems o g een ansi ions acing poli ies all a ound he wo ld.
In his p oblem- cen e ed sense, we discuss he EU as an illus a-
i e case o a egula o y s a e eso ing o mo e in e en ionis ,
g anula oolki s o phase ou he ca bon economy. The sys ema ic
con ibu ion o his a icle is o documen and si ua e he ise o
policies aimed a g een s uc u al change. Me hodologically, hen,
i p o ides a “ o ma ion s o y” (Hi schman and Reed2014)—an
accoun o he eme gence o a policy epe oi e—o wha we a gue
is a dis inc i e se o ins umen s aimed a managing decline. Ou
da a consis s o p ima y ma e ial om hea ings, public consul a-
ions, speeches, and epo s published by DG REFORM and o he
pa s o he Eu opean Union. Ou econs uc ion o he ea lie
phases in he ETS d aws om seconda y li e a u e and selec ed
Commission- le el policy documen s.
4 | Planning Like a Regula o y S a e: The Case o
he ETS Re o m
Since he mid- 2010s, he EU's clima e policies ha e inc easingly
s ayed away om a p edominan ly egula o y app oach and
adop ed indus ial and egional policy epe oi es. Many o he
EU's ea lie clima e policies aimed o single ma ke - wide ha -
moniza ion and he p imacy o ho izon al, egula o y policy in-
s umen s. The c ucial ins umen wi h which he Union sough
o ha monize g een ene gy ansi ion e o s ac oss he con i-
nen was (and is) he Eu opean Union ETS—a cap- and- ade
sys em o mally de ised in 2003 and ope a ional since 2005.
This sec ion aces how he poli ical- economic logic behind he
push o egula o y ha moniza ion h ough he ETS an in o
poli ical oadblocks. O e ime, he ocus on egula o y p ice-
shi ing h ough he ETS has g adually been complemen ed by
mo e in e en ionis g een policy ini ia i es. These ha e pa -
ially been desc ibed as he ise o a g een in es men , de isking,
and inno a ion s a e. Wha ge s o e looked in such accoun s a e
e o s deploying signi ican adminis a i e and iscal acili ies
o dissocia e Eu opean socie ies om ca bon- in ensi e eco-
nomic ac i i ies. This sec ion desc ibes he impo ance o capac-
i y building o manage decline as a c i ical building block o he
EU's ansi ion go e nance. To illus a e he inc emen al na u e
o policy change, ou analysis is s uc u ed in a ch onological
way, documen ing he g adual laye ing o p og ams on o he
o iginal egula o y egime.
4.1 | The ETS and he Regula o y S a e in
Eu opean Clima e Policy
The dominance o he egula o y s a e in EU clima e ac ion
es s on h ee pilla s: he Eu opean Commission's long- s anding
conce n abou cos e iciency and ha moniza ion in he en i-
onmen al ield, he complex and ex ensi e sys em o Eu opean
emissions ading, and he bloc's legacy o olling back membe
s a e in e e ence in he ene gy sec o . We p o ide a e y cu so y
accoun o he ideas ied o he ETS o lay he g oundwo k o
si ua ing he no el cha ac e is ics o he EU's ecen ansi ion
policies.
The Eu opean Union has been a key ac o in in e na ional ini ia-
i es o mi iga e clima e change (Bäcks and and Elgs öm2013).
A he same ime, bloc- wide policies o mee in e na ional
388 Regula ion & Go e nance, 2025
commi men s seemed o many yea s o ail. The Eu opean
Commission had been pushing o a Eu opean ca bon ax since he
ea ly 1990s (called an “ene gy ax” in 1997). Besides he goals o
expanding he EU's each in en i onmen al and iscal e ms, he
ea ly p oposals o a ca bon ax we e mo i a ed by he idea o es ab-
lishing “e icien ” and “cohe en ” ins umen s o comba clima e
change ( an Eijnd ho en2011). His o iog aphies o he 1990s push
o Eu opean ca bon axes sha e he assessmen ha he p oposal
ailed poli ically due o business lobbying and ese a ions among
membe s a es (Newell and Pa e son1998; Skjae se h1994).
No wi hs anding he de ea o ax- based p oposals, he conce ns
abou e iciency and ha moniza ion s ongly shaped u u e pol-
icy ounds in he clima e ield. The majo ollow- up p ojec o he
Eu opean ca bon ax was he Eu opean sys em o emissions ad-
ing. In he EU con ex , emissions ading go i s i s men ion in a
1992 epo on en i onmen al deg ada ion, which iden i ied i as a
line o ac ion o “[i]n oduce [c]a bon emission ading pe mi s o
se up a global ma ke ” (Eu opean Commission1992).
Commission suppo o he ins umen picked up in he la e
1990s, o iginally as an escape ou e om ca bon ax p oposals
(D ege 2014, 30; Skjae se h and We es ad2016). C ucial o ou
case s udy, emissions ading p o ed highly complemen a y o
he EU's ocus on “ho izon al” and “non- dis o iona y” policies,
in which clima e change mi iga ion would no open he doo o
enewed disc e iona y membe s a e in e e ence wi h he Single
Ma ke . As desc ibed in a Commission g een pape in 2000:
… a cohe en and coo dina ed amewo k o
implemen ing emissions ading co e ing all Membe
S a es would p o ide he bes gua an ee o a smoo h
unc ioning in e nal emissions ma ke as compa ed
o a se o uncoo dina ed na ional emissions ading
schemes … [A] Communi y app oach is necessa y o
ensu e compe i ion is no dis o ed wi hin he in e nal
ma ke … [while i ] should also be ensu ed ha Membe
S a e ini ia i es do no also c ea e undue ba ie s o he
eedom o es ablishmen wi hin he in e nal ma ke
(Eu opean Commission2000, 4–5).
Since i s ini ia ion in 2005, he Eu opean Union ETS has g own
in o he global on - unne expe imen wi h cap- and- ade o
comba clima e change, and i emains one o he wo ld's la ges
a i icial ma ke s o ading igh s o pollu e. As an e ol ing
policy, he ETS has been de ised in mul iple “phases” h ough
which he EU has ied o expand, adjus , and eo ien he e-
gime o e ime. We discuss majo miles ones o ETS de el-
opmen o demons a e how esis ance o he adminis a i e
p icing o emissions c ea ed he poli ical space o expe imen s
wi h e ical policies and he c ea i e epu posing o exis ing
ins i u ions o managing decline.
4.2 | The Regula o y Spi i and he Ini ia ion
o he ETS
Phase 1 o he ETS, om 2005 o 2007, has been called he pilo
o expe imen al phase. The ETS was he i s majo EU- led
in e en ion in Eu opean ene gy sys ems a e he coo dina ed
de egula ion o he elec ici y and gas sec o s ha began in 1996.
A c ucial s a ing poin o unde s anding he spi i o he ETS
as an ene gy policy is he libe aliza ion p ocess. Indeed, libe -
aliza ion and eme ging cen alized emissions alloca ion ha e
been discussed as he majo successi e landma ks o Eu opean
s a e- building in he ene gy domain (Jegen and Mé and2014).
S ill in he 1990s, ene gy gene a ion and dis ibu ion we e among
he majo ields o s a e in e en ion and non- ma ke coo dina-
ion in EU membe s a es. Na ional and egional monopolies,
ex ensi e s a e owne ship, deeply in e wo en c oss- owne ship
ac oss he sec o , and ou ine in e es - g oup ba gaining we e he
no m ac oss much o he con inen (Ma lá y1997). His o ical ac-
coun s o ene gy ma ke libe aliza ion ha e usually po ayed i
as he esul o membe - s a e ba gaining—pa icula ly be ween
F ance, Ge many, and he Uni ed Kingdom (Ma lá y 1997;
McGowan1993). As illus a ed by Eising and Jabko(2001), EU
elec ici y ma ke libe aliza ion was embedded in a la ge no ma-
i e shi ac oss he con inen , which ede ined common no ions
o good go e nance owa d ansna ional ma ke o ganiza ion
and ho izon al indus ial policy. This did no ule ou a emp s by
membe s a es and dominan i ms o use de egula o y ools as a
basis o hidden indus ial policy measu es, pa icula ly h ough
na ional champion policies and o ms o o mal p i a iza ion
wi h con inued s a e in luence (Bul one2019). No wi hs anding
such hidden de ia ions, public u ili y no ions o ene gy p o i-
sion, as well as he ple ho a o adi ional membe s a e in e en-
ions in he sec o , we e ede ined as “ba ie s” o a single ma ke
o ene gy enabled by ansna ional egula o y amewo ks. As
in o he domains, Eu opean s a e- building in he ene gy sec o
had a dominan “nega i e” il (Scha p 1999), in ha i consis ed
o he ins i u ionaliza ion o egula o y powe s wi h he explici
pu pose o olling back membe s a e in e e ence in ene gy.
This il has also in luenced he EU's policy s yles in he clima e
a ena. The bloc's ansla ion o in e na ional clima e acco ds
in o EU di ec i es (such as he Kyo o 2020 goals in o Di ec i e
2001/77/EC) exp essly le space o membe s a es o imple-
men hei own ins umen s in pu sui o deca bonizing he
ene gy sec o . The Eu opean inno a ion o neo- de elopmen al
s a e in suppo o g een ene gy echnologies had o yea s been
g owing in pa allel o he ETS as he cen alized egula o y
ool. “27 Membe S a es ope a e 27 di e en na ional suppo
schemes,” a 2008 summa y epo s a ed, aising conce ns o e
po en ial ma ke agmen a ion and ine iciencies (Eu opean
Commission2008). While accep ing in p inciple membe s a es'
pu sui o g een echnology de elopmen , he Commission o
yea s exp essed conce ns ha decen alized subsidy schemes
o enewable ene gy sou ces could shield sec ions o Eu opean
elec ici y p oduc ion and use om ma ke mechanisms and
he eby unde mine he single ma ke (Lei en and Reime 2018).
Aligning wi h he spi i o he 1990s plans o he ins i u ional-
iza ion o a single ma ke o ene gy, selec i e bene i s o enew-
able sou ces, o example, we e ou inely amed as “dis o ions”
in Eu opean public policy deba es (Gawel and S unz 2014;
Lehmann and Gawel2014). Accompanying a 2008 push o ex-
pand “ma ke - based ins umen s” o u he en i onmen al pol-
icy domains, he Commission s essed hei wo- sided bene i s
o egula o y s a ehood:
389
“[b]esides hei me i s in helping achie ing speci ic
policy goals, he EU has used ma ke - based
ins umen s o a oid dis o ions wi hin he in e nal
ma ke caused by di e ing app oaches in indi idual
Membe S a es, o ensu e ha a simila bu den alls
on he same sec o ac oss he EU and o o e come
po en ial ad e se compe i i eness e ec s wi hin he
EU”
(Eu opean Commission2007, 3–4).
While he e has a guably been u he accommoda ion wi h e-
ga d o membe s a e g eening schemes h oughou he yea s,
DG Compe i ion and DG Ene gy con inued o ad oca e ha
membe s a es limi e ical policies in a o o EU- wide ca bon
p icing (good insigh in o he spi i o egula o y conce n wi h
decen alized g eening policy epe oi es can be ound in he
2014 Commission s a e aid guidelines o g een ene gy suppo ,
2014/C 200/01).
To summa ize, co e pa s o Eu opean s a e- building in he
ene gy a ena we e based on he pa adigm o single ma ke -
enabling egula o y ha moniza ion and, abo e all, on he idea o
cen ally o ches a ed p ice- shi ing. Eu opean g een echnol-
ogy policies— he Eu opean g een inno a ion s a e—g ew in a
agmen ed ashion in membe s a es. F om he pe spec i e o
he Eu opean egula o y s a e, e ical policy measu es, such
as g een echnology policies, public owne ship, sec o al subsi-
diza ion, egional policies, and indus ial a ge ing, we e o en
ea ed as empo a y ma e s o membe s a es and po en ial ob-
s acles o a unc ioning single ma ke as well as o cos - e ec i e
clima e policy.
4.3 | G adualism, Leakage, and O e alloca ion
As a “single ma ke - compa ible” app oach o Eu opean g een-
ing policies, he ETS was mean o achie e compliance wi h
ansna ional g eenhouse gas educ ion commi men s by ais-
ing he cos o ca bon h oughou he EU. While he ETS would
in heo y b ing immedia e cos p essu e o he EU's ca bon
economy, phases 1 and 2 o he egime we e kep decidedly un-
encompassing. The ETS adi ionally excluded impo an sec-
o s such as a ia ion, issued ex ensi e ee emission allowances
based on his o ical le els o pollu ion (and hence his o ical le els
o echnology), and was o a long ime e y slow in making good
on he “cap aspec ” o cap- and- ade sys ems (Skjae se h and
We es ad2016). A imes, he “economic g ow h- compa ible”
implemen a ion o he ETS was dec ied as a o m o hidden in-
dus ial policy, pa icula ly o ene gy- in ensi e sec o s. A a
minimum, he ETS's ea ly e olu ion was cha ac e ized by high
le els o g adualism in ha i had a ce ain sec o al o poli ical-
economic logic o only inc emen ally including socie al emi e s
deemed poli ically mo e di icul o deca bonize (Geno ese and
T inne eim2018). A simila g adualis logic appea ed in 2008
s ipula ions ha g an ed ee allowances o he powe sec o s
o 10 eas e n Eu opean membe s a es o emi ing acili ies
ini ia ed be o e 2009 (Mülle and Slominski2013, 1436). In a
simila ein, he Commission esponded o conce ns abou “ca -
bon leakage” in globally compe i i e ma ke s as a jus i ica ion
o he o e alloca ion o allowances in he la e 2000s (Rehn
2008). Based on ex ensi e s akeholde consul a ions, he ETS
has spa ed sec o s “deemed o be exposed o a signi ican isk o
ca bon leakage” om ha ing o pu chase emissions allowances
since 2009 (Eu opean Commission2009). The associa ed lis o
shel e ed sec o s has been amended mul iple imes since 2009
and s ill comp ises 63 indus ies o he pe iod o 2021–2030.
By some es ima es, he o e alloca ion o EU allowances o in-
dus y be ween 2008 and 2020 amoun ed o a ound 1.1 billion
allowances, ep esen ing a po en ial ans e o up o a ound €90
billion a cu en ETS p ices (Pelle in- Ca lin e al.2022). While
hese and o he ea ly pe o a ions o he ETS as a egula o y
ool implied a ce ain sec o al logic, we would cau ion agains
unde s anding hem as e ical ins umen s in he ea ly ETS.
They ep esen ed “common s a egies o g and a he ing, pos -
poned implemen a ion, and phased o g adua ed implemen a-
ion” isible in all kinds o policy ields o appease policy lose s
(T ebilcock2014, 156). The p ocess o laye ing o e ical epe -
oi es we aim o highligh by con as consis s o ac i e ansi-
ion wo k in losing egions and sec o s.
Pa icula ly in he yea s a e he Global Financial C isis and he
Eu ozone c isis, he ETS slid in o a deep c isis. Ini ial o e allo-
ca ion pai ed wi h he dec ease in demand o emission allow-
ances due o he ecession led o a collapse in p ices o emission
allowances (see Figu e1). The esul was ha he Commission
ea ed ha he logic o p ice- shi ing o accele a e g een an-
si ions was inc easingly unde mined, as ca bon p ices a he
u n o he decade we e no “pain ul” enough o incen i ize
ealloca ion:
he low- ca bon ans o ma ion and inno a ion
e ec has been comp omised. New bu no ye ully
comme cial echnologies … a e no p og essing owa d
he ma ke as an icipa ed o may equi e mo e di ec
suppo , jus as budge a y cons ain s make his mo e
di icul o go e nmen s o p o ide. By dep essing
he ca bon p ice, he all in emissions in he ETS has
pa adoxically inc eased he isk o Eu ope ge ing
locked in o oo high- ca bon in es men s. This is
pa icula ly inoppo une conside ing he size o he
capi al s ock s ill o be eplaced his decade
(Eu opean Commission2012, 5–6).
FIGURE 1 | The de elopmen o EU ETS spo ma ke p ices,
2005–2021. Sou ce: In e na ional Ca bon Ac ion Pa ne ship (2023).
390 Regula ion & Go e nance, 2025
While mos o he EU's policy ini ia i es a he ime con inued
o ad oca e he a che ing up o ca bon p ices and expansion
o excluded sec o s, a emp s o e i e he ETS me massi e
poli ical esis ance in he a e ma h o he c ises and aus e -
i y measu es a e 2008. Obse e s epea edly p onounced
he ETS dead when a Commission p oposal o empo a ily
educe he numbe o allowances ailed o pass he Eu opean
Pa liamen in ea ly 2013, no e en eaching he Council o
delibe a ion (We es ad2014). A i s lowes le el, he p ice o
emission allowances hi €2.50. I was a guably his s a e o
blocked e o m, coupled wi h a changing in e na ional en i-
onmen , ha g adually ga e way o mo e e ical ansi ion
policy epe oi es—Eu opean ansi ion policies aimed a he
es uc u ing o speci ic egions and economic sec o s—as
well as an inc emen al igh ening o he ETS.
4.4 | Pos - 2014: ETS Re o m and he Poli ical
P oblem o Decline
This sec ion aces he de elopmen o EU clima e policy
om he s asis a ound 2014 h ough he c ea ion o he Jus
T ansi ion Fund and DG REFORM, illus a ing how he EU
has inc emen ally laye ed new policy ins umen s and adminis-
a i e capaci ies on o i s exis ing egula o y amewo k o deal
wi h he managemen o declining indus ies and he phase- ou
o ossil uels.
The 2014 Eu opean Council conclusions on he 2030 clima e and
ene gy policy amewo k se he poli ical guidelines o he en-
suing ETS e o m. While ea i ming he cen ali y o he ETS as
he p ima y ins umen o educing g eenhouse gas emissions,
he Eu opean Council also laid he g oundwo k o new mech-
anisms ha would la e e ol e in o mo e in e en ionis and
sec o al policies (Eu opean Council2014, 1–3). The Eu opean
Council conclusions ou lined h ee key elemen s ha would
shape u u e policy de elopmen s: A Ma ke S abili y Rese e
(MSR) as sugges ed a ew mon hs ea lie by he Commission o
educe he su plus o emission allowances; a new und aimed
a upg ading ene gy sys ems in lowe - income membe s a es
using ETS e enues; and an expansion o he use o ETS e e-
nue ocused on suppo ing inno a i e low- ca bon echnologies
h ough p ojec - based inancing.
Building upon he Eu opean Council's amewo k, he Ma ke
S abili y Rese e (MSR) was in oduced as a mechanism o ad-
d ess he longs anding issue o allowance su plus in he ETS.
The MSR was ini ially p oposed in 2014 and nego ia ed o e
he ollowing yea s, wi h he legal basis es ablished in 2015.
Howe e , a signi ican e o m o he MSR was adop ed in ea ly
2018 and o mally app o ed la e ha yea . The MSR began op-
e a ing in Janua y 2019, wi h i s key ea u es undamen ally al-
e ing he na u e o he cap- and- ade sys em by endogenizing
he emissions cap (Beck and K use- Ande sen 2020). P io o
his e o m, he EU ETS ope a ed wi h a ixed, poli ically de e -
mined cap on emissions. The MSR changed his by making he
cap esponsi e o ma ke condi ions, speci ically he allowance
su plus. Unde he new sys em, when he allowance su plus ex-
ceeds 833 million, a pe cen age o allowances a e abso bed in o
he MSR, e ec i ely educing he a ailable supply. Con e sely,
i he su plus alls below 400 million, allowances a e eleased
om he MSR. This dynamic adjus men mechanism aims o
s abilize allowance p ices and imp o e he sys em's esilience
o supply and demand imbalances. C ucially, he 2018 e o m
in oduced a cap on he MSR i sel , s ipula ing ha om 2023
onwa d, any allowances in he MSR exceeding he p e ious
yea 's auc ion olume would be pe manen ly e oked. This en-
dogenized he cap and e ec i ely se e ed he link be ween pol-
icy in e en ions and he numbe o allowances.
The consequence was ha h ough hese in e en ions he ETS
ac ually s a ed o bi e (see Figu e1). As a esul , he p oblem
was no longe ha he ETS did no wo k, bu a he ha i p om-
ised o wo k, p omp ing ac i i y o ac i ely plan ansi ions. The
legisla i e p ocess a ound he ETS e o m, un olding since 2014,
e eals a wo- aced na u e. On he one hand, he Mode nisa ion
and Inno a ion Funds ep esen ed ini ial s eps owa d mo e
g anula in e en ions in speci ic sec o s and egions, mo ing
beyond he egula o y logic o he ETS.
F om 2010, he ETS included a small p og am called NER 300,
which epu posed a mino sha e o he e enues om allow-
ances auc ioned o und demons a ion p ojec s o low- ca bon
echnologies. Du ing wo selec ion s ages, NER 300 unded 39
p ojec s wi h a o al o €2.1 billion (Ma can onini e al.2017).
The Inno a ion Fund was mean o signi ican ly scale up his
model by p o iding g ea e unding and by p opaga ing he
use o mo e di e se inancing ins umen s. I signi ied a spi i
ha de ia ed om he egula o y ision unde lying he single
Eu opean p ice o ca bon. In he la e , inc eased cos s o
ca bon would— h ough ma ke - led adjus men —induce low-
ca bon inno a ion and he ealloca ion o esou ces. In he
ealm o he Inno a ion Fund, by con as , Eu opean ins i u-
ions would (di ec ly o indi ec ly) und g een indus ial ac i i-
ies in membe s a es on a p ojec basis.
The inal implemen a ion o bo h unds was subjec o in ense
poli ical nego ia ion. The deba e abou he Mode nisa ion Fund,
a ge ed a poo e eas e n Eu opean membe s a es, cen e ed
on he ques ion o o wha ex en unds would be allowed o be
spen on coal powe plan s and gas gene a o s. The inal ag ee-
men con ained language limi ing he und's pu pose o he
mode niza ion o ene gy sys ems and p ecluding p ima y gen-
e a o s om bu ning solid ossil uels—wi h limi ed ca e- ou s
o low- income membe s a es (We es ad and Je nake 2019).
Bo h unds we e subjec o consul a ions wi h business sec o s,
expe s, and o he socie al g oups. The summa y epo on he
ini ial 2017 expe hea ings in p epa a ion o he Inno a ion
Fund hin ed a he p oblems o business eluc ance o shoulde
he isks o g een echnology de elopmen highligh ed in he
li e a u e on he g een de isking s a e: g oups pleaded o he
unds o be used o inance and insu e isky en u es (Clima e
S a egy and Pa ne s2017, 16).
The Inno a ion and he Mode nisa ion Funds ha e massi ely
expanded in size and sophis ica ion since hei ini ia ion—no
leas due o he e i ed ETS ac ually laying open a sou ce o
quasi- iscal space. The Inno a ion Fund's ne asse s g ew om
€1.33 billion (50 million allowances) a he end o 2020 o €4.14
billion ( h ough an addi ional 40 million allowances) by he end
o 2021 and €5.43 billion ( h ough an addi ional 15 million al-
lowances) by mid- 2022 (Eu opean Commission2022a). Recen
397
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