Another oil and gas crisis, another embarrassing reminder at how behind Europe remains in strategic decarbonization. With the continued closure of the Strait of Hormuz amid the Third Gulf War, like clockwork, Europe finds itself in its second major energy crisis in four years as nearly 20 percent of the world’s oil and natural gas supply runs through the Strait. With the price of Brent Crude fluctuating between approximately $90–$120 and the European Central Bank’s warning that inflation could go above its projections, it came as no surprise when International Energy Agency chief Faith Birol warned that the current energy crunch is already worse “than the ones in 1973, 1979, and 2022 together.”
Worse, Europe could have avoided much of this energy shock had it stuck to fully implementing the ambitious Green Deal programme and the REPowerEU strategic decarbonization plan, with the European Union drafting the latter in response to Russia’s invasion of Ukraine. Instead, most European states merely swapped their reliance on Russian oil and gas to Norwegian, Kazakhstani, and US oil and Qatari gas. Meanwhile, the European Commission cut back on clean energy legislation, effectively slowing climate action while giving in to the demands of the fossil fuels and auto industry lobbies. This decline in decarbonization momentum means that European states will implement measures to keep fuel prices down that would collectively amount to a staggering €9 billion in costs, which is already on top of another €24 billion just from the rising fossil fuel import costs.
These actions will offer some short to mid-term respite, but they will only treat the symptoms of this crisis, not the disease that caused it. In recognition of this reality, the European Commission finally announced the AccelerateEU plan, which lays out a roadmap for greater clean energy uptake and electrification. This is welcome, but to fully address the structural issues at the core of the crisis, European states must establish the European Climate Mechanism (ECM) as a body that would work with or in place of the forthcoming EU industrial decarbonization bank, and in close coordination with the EU Energy Union Task Force, which works to harmonize European energy policy.
Inspired by the Bruegel think tank’s European Defence Mechanism concept, the ECM would be an EU-adjacent supranational institution that would facilitate the planning, procurement, and collective ownership of clean energy technologies and critical minerals. The primary goal of the ECM would be to pool members’ capital, implement joint public-private investment strategies, and oversee a common market for renewable energy technologies, which would enhance regional cooperation, lower unit costs, and strengthen European competitiveness against Chinese imports, which carry potential security risks.
One major advantage the ECM offers is its financing model. Time and again, European states have failed to close climate financing gaps, which have emerged partially due to the a lack of coordination among national climate financing plans. In contrast, the ECM would take on the upfront costs of clean energy funding by borrowing on capital markets and pooling ECM members’ capital contributions. This would not only rally Europe’s ESG investor base, which is already drifting away from ESG investments in the United States due to anti-ESG stances of the second Trump administration, but also keep such climate financing off of ECM members’ national debt, as these initial costs would be listed on the ECM’s balance sheet instead. The latter will be especially important given how fiscal headroom is already under heavy pressure from the current energy crisis.
The ECM’s other primary strength lies in how it can unify Europe’s fragmented energy landscape, specifically by enabling the collective ownership of strategic renewable energy assets, develop collective bargaining power for ECM members in securing critical minerals, and establishing a common renewable energy technology market. The siloed nature of European energy infrastructure has remained a significant hurdle in aligning European decarbonization strategies, especially between EU and non-EU member states. Thus, in tandem with the Energy Union Task Force, the ECM can help bridge such gaps because of its status as an EU-adjacent body rather than one available exclusively to EU members.
Moreover, European states would mutually benefit from combining their bargaining power through the ECM to secure critical minerals for resources (such as lithium, nickel, cobalt, and others) and to prevent competition between themselves over these materials. The ECM would build upon existing plans to establish an EU Critical Raw Materials Centre in this regard, which is intended to aggregate EU demand, joint purchasing, and offtake agreements for critical minerals.
A common clean energy technologies market would likewise stimulate economies of scale and match energy planning and investment decisions, better realizing the European Union’s own Clean Energy Investment Strategy and creating more momentum for the wider AccelerateEU plan. It would furthermore give European manufacturers more of an advantage in competing against the already-dominant position of Chinese suppliers, which already stand to gain even more with the ongoing fossil fuels shock despite the security risks that any reliance on Chinese suppliers may entail.
With that said, establishing such a mechanism will not be straightforward. Negotiations must address the thorny questions of governance, budgetary commitments, asset ownership, and distribution of funds, even with the inertia that might be generated from implementing the AccelerateEU Plan. Nevertheless, the Third Gulf War has reinforced how Europe’s energy security and climate ambitions should be in lockstep. By championing the European Climate Mechanism, Europe can use this crisis as the catalyst to build itself a genuinely sovereign, resilient, and sustainable energy future.