Belgium Protest 8340725 16.12.2022 Demonstrators take part in a protest against high energy prices, inflation and govern
Belgium Protest 8340725 16.12.2022 Demonstrators take part in a protest against high energy prices, inflation and

How Europe can rein in rampant fossil capital

Frank Vanaerschot

While the EU talks about just transition and energy autonomy, we are paying the price for the political choice to put energy supply in the hands of privatised energy multinationals and their financiers. The amount of money these companies invest in the energy transition are a fraction of the exorbitant profits from high energy prices they pay to their shareholders. The EU put the climate transition central in its strategy and policy agenda with the European Green Deal and the Recovery Fund. However, these investment plans rely on using public money to protect the business model and profits of these energy companies. Meanwhile the invasion of Ukraine resulted in an uncoordinated overreaction to build new gas infrastructure and now there is a risk of yet more European public money being allocated in an asocial and undemocratic way if the EU enters a green industrial subsidies race to the bottom in its’ response to the new US’ climate legislation.

A socially just ecological transformation would require more democratic planning and a large public investment programme which lets citizens benefit from the fruits of public investments. One way out can be found in a new form of cooperation between central banks and public investment banks which have a clear mandate to finance a socially just transition.

Energy prices have gone through the roof. The European public is becoming collectively poorer. In a recent EU survey, over half of families said they were struggling to make ends meet.[1] We may have been able to fill the gas reserves for this winter, but Europe’s energy crisis will remain for the coming years. Given the immediate need to heat our homes, it is tempting to think we cannot tackle the climate crisis now.

Yet Europe’s energy crisis and the climate crisis are connected. European taxpayers are paying the price for the political choice to put energy supply in the hands of privatised energy multinationals and their financiers. European decision makers also designed the European Green Deal to give these companies and investors a central role and use public money to protect their business model. This has brought the mechanism of collectivisation of risks and privatisation of profits to the sphere of the climate transition. Moreover, judging from what we can tell on the current use of the recovery funds, it also coincides with undemocratic planning and a misallocation of resources at the height of the energy crisis.

The International Energy Agency announced in 2021 that we cannot extract new fossil fuels from the beginning of 2022 if we are to meet climate targets[2], and academic research shows that we cannot fully exploit existing coal mines or oil and gas fields.[3] In other words, investing in new fossil infrastructure is a dead end.

The energy industry is ignoring this deadline and continues to invest heavily in fossil fuels while banks and investors fund the fossil fuel profit machine despite their ‘green talk’. But the underlying problem is that the much needed fast transition to renewable energy is incompatible with the first goal of the owners of most big energy companies, that is short term profits. This becomes very clear if we look at what the six largest European oil and gas companies are doing with the excess profits they made this year: they invest less than a third in green technologies in 2022 then the amount they paid out as dividends to shareholders in the first six months of the year.[4]

Energy companies also want to pump more fossil fuels now that prices are high, but are asking for financial backing from the public to do so. They know there is a huge risk they will not recoup the full cost of these operations, as this new infrastructure will have to be shut down again soon in order to even remotely meet climate targets.

In December a final agreement was struck on REPower EU, a plan to replace Russian gas. It reorients money coming from different EU instruments, mainly the unused loans from the Recovery fund. The Commission framed REPowerEU as a plan to accelerate the energy transition and renewables or the renovation of buildings are still part of the plan.

However, while developing REPowerEU, Commission President Ursula von der Leyen sought advice from the oil majors.[5] These companies have every interest in keeping the fossil tap running at maximum speed, even though now is precisely the time to slow it down as much as possible. This is reflected in the final agreement which allows loans to gas infrastructure, and oil infrastructure in three member states. And interestingly enough, the deadline for these European public fossil investments is 2026, the date by which all the new proposed LNG import infrastructure is supposed to be online.[6]

If Europe goes along with this, public money will be used to guarantee the profits of energy companies that invest in new fossil infrastructure. In order to deal with the energy emergency without falling into this trap, we need democratic control over our energy supply and its financing.

$2 billion a day on fossil fuels

Even though we ‘ll be focusing more on European public finance, it is important to understand where the money from banks in the private sector is flowing. The more money they invest in fossil fuels, the more difficult it becomes to speed up the transition.

The world’s 60 largest banks have been investing $2 billion dollars a day in fossil fuels since 2016. $742 billion in 2021, only slightly down from the record $830 billion spent in 2019. These banks also invested $185 billion in the 100 energy companies most committed to extracting new fossil fuels.[7] To respect the red lines drawn by the International Energy Agency (IEA), this had to drop to zero this year. Regulation restricting the financing of fossil fuels by immediately banning any funding of new exploitation of reserves is the only way to achieve this.

New gas investments are an anchor around our necks

Since the beginning of the Ukraine-Russia War, the European political debate has been unable to distinguish between measures absolutely necessary to have enough gas without the lights going out and getting hold of any amount of gas available on the market at whatever price and building whatever gas infrastructure imaginable.

This has resulted in an uncoordinated overreaction to build new LNG import infrastructure between now and 2026 that would cost at least 7 billion euro. If all announced projects are built, that would amount to an extra gas import capacity that is 20 percent higher than the quantity of gas the EU imported from Russia in 2021. Half of this proposed capacity would come from infrastructure in Germany, 15 percent from projects in Italy. 8 projects representing 20 percent of this extra capacity are already operating or under construction.[8] A leaked report shows the German financial and environmental ministries are aware of the huge overcapacity in gas in Germany and elsewhere in Europe.[9]

These project proposals threaten to derail EU climate goals while doing little to address the energy crisis, as most of the LNG contracts secured by EU buyers so far are set to start from 2026 and continue for 15 to 20 years.

These contracts start so late because there will be very little extra LNG export capacity coming online in the rest of the world in the coming years. That is why the IEA warned in early November that Europe does indeed risk a gas shortfall in the summer 2023, and called for “urgent action from governments” to structurally reduce gas demand through improvements in energy efficiency and the accelerated deployment of renewables and heat pumps.[10]

This is why REPowerEU’s championing of new public investments in gas is disastrous. The original plan had the goal to cut gas use in Europe by 30 percent by 2030. But by making the gas infrastructure eligible for receiving EU funds, the European Union has turned Repower EU into a very expensive energy and climate own-goal.

Not only is public money itself going in the wrong direction. Companies and private investors know that investing in new gas infrastructure and fields is risky: they need to be operational for much longer than what is compatible with climate targets for investors to make a profit. To secure their revenues, they seek political guarantees – mostly in the form of public investments that assume the main risks. But it is clear that new public investments in gas are a huge waste of public money as they guarantee the profits of companies and banks to build infrastructure that is diametrically opposed to what is needed for the climate. This doesn’t help to solve the energy crisis; on the contrary, it were renewables that helped Europeans avoid even higher energy prices in 2022.[11]

There is no going back to normal

How can we get out of this mess? We are in a perfect storm of war, inflation, economic instability, and a ticking climate clock. Despite the severity of these interacting crises, current national and European policy makers are unwilling to accept there is no going ‘back to normal’ and instead prioritise real solutions for these problems. The traditional way of letting the market solve problems has caused too much damage and cannot help us. We need a drastic change of course.

During the corona crisis, we saw which economic activities are essential and which are not. We must do so again to address the climate emergency, and organise a democratic discussion about what activities to limit – with a focus on fossil fuels.

We must dare to look at more possibilities to scale up renewable energy and to make energy savings.

Making every building energy efficient is also a matter of political choice. Germany for example has the potential to limit gas consumption in the buildings sector to a third of where it is today. This requires funding, training and regulation, but the plans announced by the German government so far leave much of this potential untapped.[12]

Germany and Spain had interesting initiatives to make public transport cheap last summer. We should go all out on this and massively invest in public transport and shared mobility. We have to make choices about which industrial activities that consume a lot of energy have a critical importance and for which there is no place in a sustainable economy.[13]

Beyond the European Green Deal

For more than a decade, governments have intervened on a large scale to solve economic crises. Yet, they have done so by using huge amounts of public money to bail out banks and companies while the rest of the society foots the bill. Massive public intervention will continue to be necessary. The real question is how to use public money so all of society can reap the benefits. To do this, we need a large public investment programme that goes beyond current plans like the European Green Deal (EGD) or the recovery fund.

The current EGD is largely based on using public money to attract private investors (big banks and investment funds) to scale up investments. This public money comes from the European budget, the budgets of member states and public banks such as the European Investment Bank (EIB) at European level. But instead of  governments and public banks working together to realise a just transition, the result is a flow of public money to secure the profits of private investors.[14]

The green deal promise was kept alive in the recovery fund, which was launched in 2020 to help EU member states recover from the economic impact of the pandemic. More than a third of the projects in the national recovery plans have to aim at the protection of the environment or tackling climate change.

For the first time the EU jointly borrowed money on financial markets and created Next Generation EU, mainly consisting of a fund of more than 700 billion euro from which each member state received a part consisting of grants and loans to stimulate its economy.[15] But beneath the threshold for climate or digitalisation, this seemingly gigantic investment plan is much less carefully planned.

There was no collective process including workers or civil society, nor a strategic plan focusing on economic activities that we all of a sudden recognised as being essential in the middle of the pandemic. The strategy to attract private investors is less explicit in the recovery fund, but the results may be similar. Big corporate interests were often best placed to get projects approved and get access to huge amounts of grants and loans.[16]

This lack of planning is not only related to the preference for market based solutions. The underlying reason for creation of the recovery plan was to prevent the disintegration of the Eurozone or the single market in the middle of the first wave of the pandemic. It wasn’t the health, social or economical catastrophe hitting especially hard for example Italy or Spain in the spring of 2020 that convinced Germany to agree to jointly borrow money. The German constitutional court tipped the scales when it undermined the legality of the quantitative easing programme, the lifeline of the eurozone since the euro crisis, in early May 2020.[17]

It is part of the EU mythology that the Union is forged in times of crisis. Unfortunately, this makes for bad planning and ineffective policies to structurally deal with the crises society faces. And we’re already entering the next phase. EU leaders are now alarmed by the American Inflation Reduction Act which gives big subsidies and tax cuts for companies to do green projects. The European Commission is pleading for new joint EU borrowing to subsidize companies to keep their business in Europe. Member states argue whether this should be done with new or existing money. But the underlying danger is we risk diverting huge amounts of public money that could tackle people’s needs much more effectively – if it wasn’t used for plugging the giant holes in a failing market, but part of a social, ecological and economic transformative plan.[18]

Public finance putting private profits over public good

What currently happens in these European processes is a nationalisation of risks or potential losses and a privatisation of profits. This is particularly important to keep in mind when financing the transition. Indeed, the consulting firm McKinsey, in a study on the investments needed for the climate transition for the European Commission, estimated that less than half of the investments needed for the climate transition in Europe are commercially viable.[19]

Public banks know about the gap in commercial viability. In a G20 webinar, EIB President Werner Hoyer stated that the bank’s aim “is to bring something that attracts and crowds in other market participants. (…) We know that if we are not making projects more attractive for private investors to come onboard, we are not doing something right. Nowhere is this more important than in climate finance”.[20]

This dogma is rife throughout the EIB. Since 2020, the bank has lent more than €7 billion for non-fossil projects to fossil fuel polluters such as ENI and Total.[21] And in November the EIB launched an initiative to support REPower EU, in which it will increase investments in renewables and other non-fossil projects. Yet at the same time, the bank also decided to lower the climate criteria and increase the amount of support it gives for energy companies proposing these projects.[22] These billions in European public money guarantee the profits of companies that tap new oil and gas fields and pay out unseen dividends while people in Europe are impoverished by sky-rocketing energy prices.

A risk related to the derisking strategy is that despite public money being available to makes projects more profitable, the private sector nevertheless does not come up with the necessary funds to make sure needed investments happen. There seems to be cause for concern. A key instrument for the financing of the EGD, Invest EU, is the successor of the Juncker Plan. According to the European Court of Auditors, the Commission and the EIB may have overestimated how much private investments they were able to attract.[23]

A real transformation

If tackling inequality is our main goal in the financing of an ecological transition, we have to focus on how to mobilise public resources differently. Taxing the (excess) profits of companies and wealthy people is essential, but not enough. Central banks must also step in. Today they are in a deadlock – inflation has risen and they are raising interest rates in an attempt to counter this. But raising interest rates makes it more expensive for governments to borrow money for the green transition or any other much-needed investments.

One way out can be found in a new form of cooperation between central banks and public investment banks which have a clear mandate to finance a socially just transition. We should no longer inject the money created by central banks into financial markets as has been done on a massive scale over the last 15 years. The European Central Bank’s balance sheet is seven times bigger than before the 2008 financial crisis, and now stands at more than €8 trillion.[24]

Just a fraction of this money could support a wave of projects without feeding public money to energy multinationals and investors to satisfy their profit hunger. For instance, if the ECB would buy bonds from the EIB and national public investment banks on a large enough scale, these public investment banks would have considerably more resources to finance less profitable projects on a large scale without private investors.

The EIB and national investment banks would also need to shift the focus of its climate strategy and support projects and public services which give the public more autonomy and democratic control over our energy system.[25] 

We may feel overpowered by big companies, banks or investment funds. But it is important to keep in mind that they would not survive one month without huge amounts of public money guaranteeing their profits in a world that is becoming increasingly more complex, also for them. We have to realise their increasing need for our public money is a huge potential lever in our hands. If we appropriate the question of how we should use that money, not only do we change the power relations, we will gain control over our future.

About the author

Frank Vanaerschot is Director of Counter Balance, a European network of NGOs and watchdog seeking to use European public finance to create socially and environmentally sustainable and equitable societies worldwide. He has over a decade of experience researching, campaigning and advocating for economic justice. Frank has previously campaigned for a green, democratic financial sector with the Belgian NGO FairFin.

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[1] Eurofound (2022) Energy poverty looms as cost of living increases: the data behind the difficulties.

[2] IEA (2021) Net zero by 2050: a road map for the global energy sector.

[3] Kelly Trout, Gegg Muttitt ea (2022) Existing fossil fuel extraction would warm the world beyond 1.5 degrees.

[4] Recommon (2022) 75 billion excess profits for European oil giants.

[5] Ursula Von der Leyen (Twitter) (2022) A real EU approach to buying and storing gas is key to make prices go down.

[6] Bankwatch (2022) REPowerEU deal is a blow to a more climate oriented energy policy in Central and Eastern Europe.

[7] Urgewald, Rainforest Action Network ea (2022) Banking on climate chaos: the fossil fuel finance report 2022.

[8] Global Energy Monitor (2022) When is enough enough? The state of play with Europe’s new LNG terminal projects in response to the energy crisis.

[9] Malte Kreutzfeldt (Twitter) (2022) Exklusiv: in internes Dokument aus dem

@BMWK zeigt…

[10] Global Energy Monitor (2022) When is enough enough? The state of play with Europe’s new LNG terminal projects in response to the energy crisis.

[11]E3G (2022) Record growth in renewables avoids the EU €11 billion in gas costs during war.

[12] E3G (2022) Germany can save billions with sustainable alternatives to LNG.

[13] Fairfin (2022) Winter is coming, plastic has to go.

[14] Counter Balance (2021) The European green deal: reclaiming public investments for a real socio-ecological transformation.

[15] European Commission (2022) Recovery plan for Europe. 


Observatory for debt and globalisation (2021) Guide to next generation EU: doing harm more than good. /

PVDA (2021) België: een herstelplan dat vooral de multinationals een duwtje wil geven. https://www.pvda.b/belgi_een_herstelplan_dat_vooral_de_multinationals_een_duwtje_wil_geven /

Eva Pastorelli and Anelia Stefanova (2023) Italian recovery plan: a short sighted plan guiding the future

[17] Financial Times (2020) The chain of events that led to Germany’s change over Europe’s recovery fund.

[18] Politico (2022) Brussels braces for row over new EU funding to thwart US subsidies.

[19] McKinsey (2020) How the European Union could achieve net-zero emissions at net-zero cost.

[20] EIB (2021) EIB President highlights importance of public-private infrastructure investment to accelerate sustainable recovery at G20 meeting.

[21] Counter Balance (2022) EU bank hands out billions to companies complicit in burning fossil fuels.

[22] Counter Balance (2022) EIB backtracks on path to become climate bank.

[23] Counter Balance (2019) Not worth celebrating yet?

[24] ECB (2022) Annual consolidated balance sheet of the Eurosystem.

[25] Counter Balance (2021) The European green deal: reclaiming public investments for a real socio-ecological transformation.