Energy mix by type vs. GDP per capital (US$)

GDPs per capita in the region are among the lowest in Europe but most in need of funds for energy transition

MNCs should review long-term scenario planning to account for sudden shifts in ESG agenda and prepare for reduced intra-national cohesion with the EU, which will likely spill out of ESG-related policymaking, particularly through the current economic headwinds of sluggish growth and inflation, which are hitting Central European nations the hardest in Europe.

A failure to adhere to EU targets, which are enshrined in law, would risk access to wider funding, such as the Recovery and Resilience Facility, which has allocated EUR 71.6 billion to Central European countries. MNCs’ long-term outlook should factor in this rising risk to the base-case scenario, with fiscal spending and government infrastructure outside of energy transition projects having to be tapered dramatically if targets are to be met. Reduced intra-nation policy cohesion may further upset supply chains and trade, particularly if energy and/or manufacturing regulation shifts further to favor “cleanly” manufactured products.


  • Poland challenged EU climate laws in the EU’s Court of Justice in May, with Prime Minister Mateusz Morawiecki vowing to do “anything” to win against the EU’s ban on petrol and diesel engines, due to come into force in 2035.
  • Germany blocked the final approval of EU legislation to ban combustion engine–powered vehicles by 2035 in March, attempting to strong arm the European Commission into allowing combustion engine cars to be sold past 2035 if running on Carbon Neutral Fuels, in a move to protect its flagship industry.
  • Poland ignored the suspension of state-owned Turów coal mine in June, despite breaching EU environmental regulations, which were previously breached in 2021 and fined EUR 68.5 million by the European Court of Justice. PM Morawiecki signaled he would continue to ignore EU calls for closure of the mine, stating that “no court will dictate to us what energy security means,” and doubling down on the mine’s operation until 2044.
  • In June, the EU failed to agree on energy subsidies for coal power plants past 2025, with concerns raised about energy blackouts if the subsidy ends

Our View

As the deadlines loom for EU nations to achieve reduction targets in fossil fuels and CO2 emissions, a growing policy divide emerges between Central and Western European economies. This divergence not only jeopardizes the progress of the EU’s energy transition but also undermines the broader influence of the EU. The clash between these regions has resulted in a structural imbalance as policymakers confront the challenges of implementing green transition policies. In Central European markets, we anticipate that green transition initiatives  will likely be increasingly questioned and viewed as an unaffordable luxury, particularly given the prevailing economic headwinds in the medium term.

Central European nations are going to increasingly represent a challenge for the EU in implementing its green energy agenda.  Energy consumption disproportionately relies on fossil fuels across Central Europe, with fossil fuels accounting for 74% of energy mix in 2022, compared to the EU average of 38.6%.

This represents the first obstacle: excluding Austria and Germany, Central European economies are among the poorest in the EU.

For example, Poland, which relies on coal for 70% of its energy, would need to invest EUR 135 billion into its green transition to meet EU emission reduction targets of -50% by 2030, equivalent to 20% of 2022 GDP. This would primarily have to be funded by Poland’s already-stretched budget, with limited assistance from the EU, which only allocated EUR 87 billion annually until 2027 across the whole block. A total outlay of an estimated EUR 1 trillion per year will be required across the EU to meet 2030 targets, representing 6% of the EU’s 2022 GDP.

In March, Germany, which had been at the forefront of climate action, sparked controversy by backtracking on the phase-out target for combustion engines by 2035, opting to allow engines running on e-fuels. Germany’s self-protective measures for its primary sector could be risky, as it has now set a precedent for voting against economically damaging yet climate-friendly agendas.

This comes amid a political shift in Central Europe, with upcoming elections in Slovakia and Poland expected to wave Eurosceptic parties into office, mirrored by polls in Slovenia and Romania, which show recent and dramatic increases in support for Eurosceptic parties that largely posture themselves against green policies. Poland’s PIS government, likely to win re-election in October, has a history of enmity and has consistently vetoed climate policy proposals. Hungary’s PM Viktor Orbán has publicly regarded EU climate change plans as a “utopian fantasy.”

These factors combined leave little room for climate targets to be realistically met across Central Europe. The EU is thus facing a potentially existential dilemma: relax its world-leading climate ambitions, risking undermining its own progress and setting a precedent that could lead other nations to adopt a more relaxed stance, or force regulation and subsequent detrimental economic impacts on Central Europe, likely to stoke existing Euroscepticism further.

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