Additional EU investment needs in the transformation 3 ADDITIONAL EU INVESTMENT NEEDS IN THE TRANSFORMATION The investment needs for the socio-ecological trans­formation of the European economy are enormous and well documented. In order to reach the goal of cli­mate neutrality by 2050 extra investments in the amount of 2 to 6 per cent of EU economic output will be required annually. In its impact assessment of the Fit for 55 package the European Commission itself calculated the needed an­nual extra investment at around 2 per cent of EU econom­ic output in order to reach the climate goals by 2030. In the European Commission’s Strategic Foresight Report of 2023 these additional investment needs, including the Net Zero Industry Act, up to 2030 were updated to 620 billion euros a year, around 3.9 per cent of EU economic output. Wildau­er and Leitch(2022) argue, however, that the Commis­sion’s impact assessment underestimates the required in­vestments because its analysis does not adequately reflect the needs of the building sector and research and develop­ment are not included. According to them the additional annual investment needs are around 6 per cent of EU eco­nomic output. According to the Institute for Climate Eco­nomics the investment gap in the building, transport and energy sectors alone by 2030 are over 400 billion euros a year(or 2.6 per cent of EU economic output). The most comprehensive sectoral report by the Institut Rousseau es­timates the additional investment needs at 360 billion eu­ros a year until 2050(just under 2.3 per cent of EU eco­nomic output), although on the assumption that previous private and public investments in climate-damaging prod­ucts and sectors(such as combustion engines, fossil fuels, chemical agricultural inputs or the construction of motor­ways and airports) will be redirected to climate-friendly in­vestments. If this does not happen(or portions of this ex­penditure are considered still necessary), the required extra investments to decarbonise the EU economy will be corre­spondingly higher. A large portion of these investments will have to come from corporations, but public sector invest­ments will also be central, especially for decarboni­sation. The role and proportion of necessary public and private investments in the context of the socio-ecological transformation will vary considerably from sector to sector and from Member State to Member State. Private invest­ments have a particular role to play in industry and energy. In this case the public authorities largely have a supportive and incentivising function. The transformation of industry towards a CO 2 -free economy is constrained by the fact that the new technologies and production processes or the switch from fossil fuels to green energy are still not com­petitive. For a transitional period, then, the state will have to provide a compensation mechanism in the case of in­vestments in sustainable technologies for climate neutral production processes. Carbon Contracts for Difference are well suited for this purpose and have been welcomed by business(Sustainable Finance Advisory Committee 2023). Other forms of subsidy have also become important instru­ments of transformation financing in industry in recent years. An expansion of public investments is key in infra­structure, by contrast(which is essential for the energy and transport sectors, for example). Here the state, through in­vestments in maintenance and expansion for infrastruc­ture, directly creates the basis for decarbonisation of the economy. When it comes to further training and qualifica­tions improved funding of state employment agencies and state support schemes is also crucial. Existing studies suggest that the state will have to provide between 25 and 50 per cent of the financing needed to close green investment gaps(see Heim­berger 2023). The data confirm that on average the pub­lic authorities, especially with regard to buildings, transport and agriculture, will play a key role in financing the trans­formation(see Figure 2). The Institut Rousseau recently es­timated that for further decarbonisation in the EU total ad­ditional public investment of 260 billion euros a year will be required by 2030(1.6 per cent of EU economic output), just under 60 per cent of total additional investments in the most important sectors(see Figure 1). Another reference point is provided by the precursor to today’s InvestEU fund, the so-called European Fund for Strategic Investments(the ‘Juncker Plan’), just under 40 per cent of which is supposed to be spent on climate investments: EIB borrowing on the basis of an EU budget guarantee(Griffith-Jones 2021) was used to stimulate private investment with an average pub­lic share of around 28 per cent between 2014 and 2021 (European Commission 2022). Given that large parts of this went to digital transformation and business innovation it can be assumed that here a smaller public share was need­ed than for the(remaining) difficult to finance parts of the socio-ecological transformation. These orders of magni­tude are clearly enormous and are on top of existing invest­ment gaps: in Germany, according to a recently published 7