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(Bloomberg) — The world’s most ambitious climate plan has become a major political liability.

Public support for the European Union’s Green Deal, aimed at eliminating carbon emissions by 2050, is under threat as an energy crisis hits voters’ wallets. A flood of incentives for clean technologies unleashed by the US and China has also stoked concerns that Europe’s sticks-over-carrots approach will make it less competitive.

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The extent of the damage will be made clear when citizens vote in parliamentary elections from June 6 to June 9. In their campaigns, leading mainstream candidates have shifted from framing the climate action as a way for Europe to lead globally to focusing on how they’ll protect domestic industries and limit the cost to households. Meanwhile, discontent over everything from boiler bans to sustainable farming directives has helped climate-skeptic right-wing parties gain support.

“Many people feel the democratic parties have failed to find credible solutions to their daily problems and they view the climate transition as a financial burden at a time when their finances are already stretched,” said Dirk Messner, president of Germany’s Environment Agency. “They turn to populists out of protest.”

While polls show that a coalition of mainstream parties is forecast to retain a majority in the EU Parliament for its next five-year term, the gravity is shifting to the right. Far-right groups are set to increase their number of seats, even if their rise has lost some steam in recent weeks.

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In a survey by the Institute for European Environmental Policy released in May, 67% of experts saw the elections negatively impacting the implementation of climate reforms. While the majority believed the Green Deal’s objectives would be turned into approved legislation, they also expected that to happen in a weakened or more constrained form.

Funding Hurdles

The challenge for the next European Commission, which will be formed after the vote, and the 27 member states, will be to find more funding for the Green Deal even as other pressures mount. Many member states want to boost defense spending amid a worsening geopolitical environment following Russia’s invasion of Ukraine.

It’s a dilemma with no easy solution. Economic growth is sluggish, inflation is sticky and government budgets are strained just as the EU approaches the hardest stretch of its net-zero campaign. The bloc had barely started including the agriculture sector in its green regulations when it was forced to soften the policies after farmers blocked highways and dumped manure in the streets.

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In 2027, it’s set to launch a new carbon market to cut pollution from heating and road transport fuels — a move that will impact consumers. By 2035, all new passenger cars will need to be emissions-free, effectively putting an end to the internal combustion engine.

“There’s a perfect storm brewing,” said Simone Tagliapietra, senior researcher at the Bruegel think tank in Brussels. Those measures will hit consumers just as the EU reduces green grants, he said. “That will only help the far-right parties’ narrative of putting the blame on Brussels.“

The backlash has overshadowed the achievements of the Green Deal. The EU managed to overcome national differences and adopt a massive package of measures to reach a tougher emissions reduction goal of least 55% by 2030 from 1990 levels. Pollution dropped 32.5% from 1990 to 2022, even as the economy grew by 67%. Even so, the bloc will need to accelerate its deployment of renewable energy, climate-friendly infrastructure and clean technologies to meet its targets.

By the EU’s own estimates, the continent needs to invest about €1.5 trillion per year in its energy and transport systems to reach net zero, with the bulk coming from private finance. That’s a surge from the €863 billion it spent on decarbonizing the sectors each year between 2011 and 2020. But the current biggest public source of funding for the green transition — a post-pandemic €750 billion recovery program — is nearing its end and nations are split over new potential financing tools, including issuing joint debt.

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“The elections will be a reality check for the Green Deal,” said Ingo Ramming, head of carbon markets at Banco Bilbao Vizcaya Argentaria SA in Madrid. The policies were born during a “Goldilocks economy” but now there’s “higher interest rates and energy prices,” he said, “and the realization that industrial decarbonization will require a lot of money.”

Implementation Challenge

The Green Deal was premised on being able to build momentum through carefully planned policies that take effect over the coming decades. A poor showing at this election and wrong choices over the next five years could set the bloc back for more than just one election cycle, according to Poland’s deputy climate minister Krzysztof Bolesta.

“There’s a lot of measures we need to implement,” he said. “This implementation needs to be such that the politicians doing the job can be re-elected to continue the transformation.”

Part of the original bargain with voters was that the EU would fill a Social Climate Fund with proceeds from its new carbon market to help shield the most vulnerable companies and citizens from the costs of the green transition. It’s expected to bring in at least €86 billion from 2026 to 2032. Larger companies can also tap a separate Innovation Fund, currently valued at €40 billion.

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None of that has been enough to allay concerns from leaders who are facing backlash from their constituents.

Still shaken by the Yellow Vest protests in 2018, French President Emmanuel Macron’s administration sees energy prices as an explosive topic and mitigating the financial burden of more green measures as a terrifying issue, according to two government officials. In Germany, a proposal led by economy and climate minister Robert Habeck to ban new fossil-fuel boilers backfired badly, forcing him to admit he had gone too far.

Climate Risks

Reversing course isn’t an option for Europe, which is warming faster than any other region. The continent experienced its largest wildfire on record last year, as well as one of its costliest-ever floods, according to scientists at the Copernicus Climate Change Service and World Meteorological Organization.

“As we enter the implementation phase of the green deal it’s fair to look into the competitiveness issue and face it, provided that this is not used as an argument for delaying the transition” said Chiara Di Mambro, head of decarbonization policy at the Italian climate change think tank Ecco.

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But analysts and government officials say there’s a real risk that member states will implement agreed-upon measures too slowly and some governments may seize on a right-ward tilt in the new parliament to water down existing regulations, such as the new carbon market or car emissions rules. The latter has a review clause in 2026 that may pave the way for opponents to seek delays in phasing out the combustion engine.

The more hostile political environment also puts a question mark over a new interim target that’s been floated by the commission — cutting emissions 90% by 2040, which would put the EU back on track to meet its 2050 net-zero goal. It needs support from member states and the new European Parliament to become binding.

The Green Deal’s success relies on member states making hard choices and it’s worrying that politicians are shying away from the issue, said Eleonore Caroit, vice president of the French National Assembly’s foreign affairs committee and a member of Macron’s Renaissance party.

The Green Deal “is one of the most ambitious and impactful pieces of legislation passed by the EU Parliament in decades,” she said. It “must remain a top priority.”

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