Europe’s energy crisis could be its climate tech breakthrough

Key takeaways

• Europe is paying the price for its energy dependence. Relying on expensive imported fossil fuels has made Europe vulnerable to global price swings. This is more than a short-term problem. It puts jobs, industry and long-term competitiveness at risk.
• Clean, local energy is Europe’s best economic strategy. Renewables like solar, wind and batteries are now cheaper, more scalable and more secure than fossil fuels. Building them at scale and expanding the grid increases energy independence while lowering costs for businesses and households.
• Beyond deploying renewables, Europe needs to scale its climate breakthroughs. From research labs to startups, the continent is full of innovation. But without more financing, stronger demand and a true single market, too many solutions are commercialized elsewhere and the economic value is lost.
• Policy is finally starting to match the ambition. The new Clean Industrial Deal is a step toward aligning Europe’s climate goals with industrial competitiveness, offering tools to reduce energy costs, speed up permitting, grow demand for EU-made technologies and support the companies building Europe’s energy future.
• This is Europe’s window to get back in the lead. The urgency is clear, the tools are coming into place and the momentum is growing. If Europe acts with speed, it can build a cleaner economy that is more competitive and more secure.

The competitiveness challenge

Europe’s energy prices are higher than in most other industrialized economies. The numbers don’t lie. In 2024, EU gas wholesale prices were nearly 5 times higher than in the U.S. and industrial electricity prices were roughly 2.5 times those in America. This obviously presents competitiveness challenges. It hurts European industry, threatens jobs and makes European products more expensive globally.

One major reason for this price disparity comes from Europe’s reliance on imported fossil fuels. Which is a problem since, in Europe, gas-fired power plants (still) often set the price for all electricity.

We are now importing 54% of our energy, which is a record high. For natural gas, we are even importing around 90% from outside the EU. A large part (~30%) is imported as liquified natural gas (LNG) at high prices from the US and elsewhere since Europe reduced imports of Russian natural gas. To become less reliant on these expensive imports, which often have a big impact on electricity prices, Europe critically needs more domestic energy production - which is poised to be clean.

How decarbonization and climate technologies can turn the tide

These energy prices and the volatile geopolitical environment present an opportunity to accelerate the energy transition in Europe. Renewables aren’t just cleaner, they’re also cheaper and provide energy security as they are localizing energy supply.

Solar, wind and batteries are now so affordable that, in some regions, building and running new renewable plants costs less than just running existing fossil fuel plants. Solar panel costs have halved since early 2023, and battery storage costs had a similar decline in 2024 alone. And they are expected to fall further in 2025. Meanwhile, fossil fuel costs haven’t decreased in decades. They’re stuck and are not enjoying the cost learning curves of manufactured technologies.

Clean, domestically produced energy is thus key to cost reduction and resilience. And Europe has strong renewable potential. Not just how much power it can generate but also how that power can move across the continent. One of its biggest advantages is the potential for a fully connected electricity grid and shared markets, linking sunny regions like Spain with windy ones like Denmark, and making it possible to trade clean power across borders when and where it is needed.

The case for decarbonizing Europe is clear. But there's a second question. Next to rapidly rolling out mature climate technologies, which of the next generation of climate technologies can Europe win in, driving our future prosperity?

Europe’s innovation potential

Europe has solid strengths: one of the world’s most highly skilled workforces, supported by strong education systems, research centers that collaborate effectively with private companies and a robust healthcare infrastructure. All of which fuels innovation and resilience.

As proof: European countries account for nearly 27% of global climate tech patents filed between 2017 and 2021. That puts the continent even ahead of innovation powerhouses like Japan (21%), the US (20%) and China (15%)!

But despite these strengths, historically, Europe has not been great at commercializing these innovative climate technologies. Other geographies have become leading manufacturers of technologies that were invented in Europe, and startups often go to the US to scale. This commercialization gap costs us jobs, economic growth, and strategic autonomy.

Why is this the case? Fragmented markets across EU member states with complex regulations for start-ups and scale-ups and less risk capital flowing in than in the US or China. This makes it harder for European innovators to bring climate tech solutions to market at speed and scale.

Despite these challenges, some companies are successfully scaling in Europe. Aira is rolling out heat pump manufacturing and installation across Europe. Aerones is designing and building robots in Riga to inspect and maintain wind turbines. Swedish company Flower is helping balance the European grid through battery storage and optimization. (By the way, all three companies are in our portfolio.)

With a better regulatory context, many more companies will be able to succeed, increasing Europe's security, prosperity and independence.

Inside Europe’s action plan

In response to global challenges, Europe has announced the Clean Industrial Deal to “turn decarbonization into a driver of growth for European industries.”  This policy package aims to lower energy prices and support both heavy industry decarbonization (steel, cement, chemicals, etc.) and European climate technology industries (from batteries and renewables to hydrogen and advanced nuclear).

Essentially, it seeks to turn industrial decarbonization into a driver of economic growth and ensure that the transition to net zero also builds domestic capacity and jobs. The Deal includes several important elements worth highlighting:

• New funding mechanisms to finance the industrial transition. Through programs like the Industrial Decarbonization Bank and the Innovation Fund, more public and private financial resources will be directed toward clean technology development and scaling.
• Demand incentives to grow the market for clean EU solutions. The Deal aims to create demand for EU-made clean technologies with domestic manufacturing targets and "buy European" procurement requirements.
• Streamlined permitting processes to enable faster deployment and lower energy costs.  The Deal pushes to simplify and accelerate permitting procedures for clean tech installations, meaning projects like renewables, grid expansion and geothermal energy will be fast-tracked.
• Circular economy strategies to secure materials and enhance recycling capabilities. The plan emphasizes reducing dependence on imported raw materials through recycling initiatives and developing secure supply chains for critical resources.

Beyond government policy, grassroots initiatives are emerging to boost Europe's climate tech ecosystem. For example, the EU-Inc (backed by over 500 founders, investors, and ecosystem players) advocating for a single pan-European startup entity. This would address the current fragmented regulatory landscape that forces European startups to navigate different rules in each country, often hitting growth ceilings in their home markets. By creating a unified legal framework across the EU, climate tech companies developing solutions like battery technologies or energy management systems could immediately access a market of 450 million people, raise capital, hire talent, and establish operations anywhere in the EU without creating separate legal entities or facing regulatory barriers. This would be a promising step toward a more unified and competitive European climate tech system.

Turning crisis into opportunity

Europe has faced energy crises before. History teaches us something important about energy transitions. The oil crisis of 1973-1993 triggered a major energy transition, driven not by climate concerns, but by high prices and security anxieties.

As the Carlyle Group notes in the New Joule Order: "Fossil fuels are attractive as they can be traded. If trade is under threat, then so are fossil fuels. Non-fossil fuels are generally not traded and hence are local."

This insight captures the heart of Europe's opportunity today. When geopolitical tensions drive up costs and threaten energy security, the value proposition of local, renewable resources becomes compelling for reasons beyond sustainability. The vulnerability created by import dependence becomes a powerful motivator for change.

On top of that, Europe's robust innovation ecosystem is a foundation to build upon. Closing the commercialization gap means transforming inventions into industries that create jobs, growth, and energy security simultaneously. And the harmonized approach emerging through new policy frameworks offers a path to scale these innovations faster.

There is serious momentum for change, and Europe is laying the groundwork to come out of this stronger, cleaner, and more competitive. Now is the time to build.

‍

Footnote

At Carbon Equity, we feel the urgency for Europe to seize this moment to create a stronger environment for climate tech startups to thrive. For that reason, we are actively advocating for better policies through different channels. Amongst other things, we’re doing this is by becoming founding members of Cleantech for Benelux; a non-profit building coalitions to improve the financial and policy landscape for cutting-edge climate technologies. We can't say much more right now but if you want to learn more, we recommend you follow this LinkedIn page.