Green transformation and digitalization in Europe: Dual challenges and opportunities

To this end, the EU has carefully formulated the European Digital Strategy, which sets out a series of specific and forward-looking goals in a clear and detailed way. For example, by 2030, all businesses in the EU should have successfully completed their digital transformation without obstacles, and more than 75% of them should have widespread and efficient use of cloud computing and AI technologies. In addition, all EU households will be fully covered by 5G networks to promote the development of smart cities.

In addition, EU member states are also actively launching national investment plans to spare no effort to accelerate the development of the digital economy. Germany has decided to invest 5 billion euros in in-depth research and development of AI technology, demonstrating its firm determination to cutting-edge technology. France has invested 54 billion euros to develop quantum computing, green technology, and artificial intelligence, demonstrating its ambition in the field of science and technology. Italy and Spain have set up digital funds to support small and medium-sized enterprises to upgrade their technology and actively encourage banks to provide low-interest loans to create favorable conditions for the development of the digital economy and provide strong support.

By comprehensively promoting the European Green Agreement and the European Digital Strategy, the EU has successfully established an innovative development model driven by environmental protection and science and technology and made great efforts to achieve coordinated progress between green transformation and digitalization. In the current increasingly fierce competition of global digital, under the big background of the EU, they hope to effectively deal with all kinds of severe challenges, firmly grasp the precious opportunities, and accelerate the pace towards a sustainable and advanced technology of the bright future.

 In Europe, the synergy between green transformation and digitalization is no longer just a strategic goal but has demonstrated a strong potential to reinforce each other in many key areas. First, intelligent manufacturing has played a vital role in significantly improving energy efficiency and significantly reducing resource waste. Taking Germany’s Industry 4.0 strategy as an example, it actively introduces industrial Internet, advanced artificial intelligence, comprehensive big data analysis, and other means to deeply optimize the production process and finally succeeds in reducing the energy consumption of the manufacturing industry significantly, by about 20%.

Digital technology has greatly improved the efficiency and stability of green energy power generation. Smart grid ingeniously combines the Internet of Things (IoT) and AI technology, can carry on the real-time and accurate scheduling of energy, a move that makes it easier for Europe to improve the efficiency of electric power distribution, about 25%. In addition, Europe has made major breakthroughs in energy storage technology, which effectively solves the intermittent problem of renewable energy. Switzerland’s pumped hydro system, for example, provides stable regulation of electricity, significantly reducing the volatility of wind and solar power generation. Hydrogen energy storage projects in Germany, using renewable energy to electrolyze water to produce hydrogen, they have successfully achieved long-term storage, providing a round-the-clock supplement to wind and solar power, greatly ensuring the stability of energy supply.

Digitalization is also playing a huge role in the field of green transportation. Intelligent transportation systems (ITS) organically combine advanced technologies such as big data, AI, and the Internet of Things to scientifically optimize traffic flow, effectively reduce traffic congestion, and significantly improve traffic efficiency. Through the extensive popularization of digital charging facilities, Norway has strongly promoted the transformation of 80% of the new cars sold in the country to pure electric vehicles, making it the country with the highest penetration rate of electric vehicles in the world. France and Germany are speeding up the process of the application of automatic driving technology. According to projections, by 2030, the wide application of automatic driving technology will be able to reduce more than 15% of the overall energy consumption, which will significantly reduce carbon emissions. These specific examples clearly show that the deep integration of green transformation and digitalization can not only effectively promote the upgrading and optimization of a single industry but also promote Europe to make great strides towards sustainable development at the macro level.

Although Europe has indeed made remarkable achievements in green transformation and digitalization, two key areas crucial to future development, through unremitting efforts and continuous investment, it cannot be ignored that it still faces a series of extremely severe and intractable challenges. These challenges have focused on technological innovation, capital investment, talent shortage, and policy coordination of the four key aspects. If timely and effective targeted measures are not taken to deal with and solve these challenges, it is not only likely to limit the further development of Europe in these fields to a large extent, but also very likely to make Europe gradually fall behind in the fierce global competition pattern, thus further widening the gap with the United States, China, and other countries that are leading in the development of related fields.

In the aspect of technological innovation, Europe still faces many urgent problems to be solved. For example, core technologies are largely dependent on external forces, there are many difficulties in implementing industrial applications, and there are obvious shortcomings in infrastructure construction. Taking renewable energy as an example, the high cost of energy storage has become a huge obstacle for wind and solar energy to replace traditional fossil energy on a large scale. At present, the cost of lithium-ion battery storage is still as high as $137/KWH, and although it has fallen by 85% in the past decade, it is still not economically competitive with traditional energy sources. In addition, although hydrogen energy storage technology in Germany is widely regarded as the keyway and important means of future energy storage, the cost of hydrogen production is still as high as 5-6 euros/kg, far exceeding the cost of fossil fuels, which undoubtedly greatly affects its promotion and popularization in practical applications.

In the field of digital infrastructure, the development of AI computing power and 5G shows a clear unbalanced situation. Due to the relatively lagging development of high-performance computing (HPC), the application efficiency of AI enabling manufacturing in Europe is much lower than that in the United States and China. In addition, the coverage rate of 5G networks has reached 80% in Western Europe, but it is still less than 50% in Eastern and Southern Europe. This huge gap seriously affects the development and progress of intelligent transportation, telemedicine, and many other industries that rely on high-speed networks.

Funding is also a major challenge for Europe. Despite the launch of the EU Recovery Fund and the huge investment of 750 billion euros, it is still difficult for these funds to fill the huge investment gap in the face of huge demand. For example, in the wind and solar industries, the investment gap is as high as 500 billion euros, while in the AI field, the financing is only 22 billion dollars, which is only one-third of the amount in the United States. In addition, increasing fiscal pressures on governments have made it difficult for some member states to maintain sustained and consistent investment in supporting green and digital infrastructure.

In the crucial area of policy coordination, European countries have shown a highly significant imbalance in the pace of advancing green and digital policies. For instance, some Western European countries have already set clear and forward-looking carbon neutrality targets and are implementing a series of related measures with firm determination and proactive actions. This remains a challenge for the whole of Europe, particularly as Eastern countries such as Poland and the Czech Republic remain highly dependent on fossil fuels like coal. Diversified economic sanctions and issues such as the Carbon Border Adjustment Mechanism (CBAM) and digital tax have also sparked a series of frictions and disputes in international trade. These measures not only hinder international cooperation in key areas such as sustainable growth and digital exchange but also contribute to the growing trend of tax policies becoming a focal point of global disputes. The widespread opposition to carbon tax policies within the EU, coupled with ongoing climate ambitions, has been fueled by the complexities of bilateral relations. This has led countries like India and China to strongly oppose such taxes, viewing them as threats to their economic competitiveness and costly, unviable trade barriers they are unprepared to meet. Meanwhile, US-EU disputes over the implementation of digital taxes are not only persisting but intensifying, reflecting deeper structural contradictions between the two sides regarding global trade rules and technological sovereignty. To ensure that the green transition and digital strategies can proceed smoothly and efficiently, Europe needs to take a series of precise and effective measures. These include significantly increasing investment in cutting-edge technologies such as AI, 5G, and hydrogen energy, actively introducing more attractive and competitive talent visa policies to attract global high-end talents, further strengthening international policy coordination, and continuously optimizing the rules and systems of carbon border adjustment mechanisms and digital taxes. Only by taking these systematic and deep adjustment measures can Europe seize the initiative in the fierce global competition in green and digital economies.
Facing numerous severe and complex challenges, Europe’s green transition and digitalization process is not only a significant and far-reaching transformation but also brings unprecedented precious opportunities for its economic and social development. These two transitions are like powerful engines, driving the emergence of new growth points with strong momentum. In the energy sector, hydrogen energy has huge development potential and is expected to completely reshape the current energy landscape; in manufacturing, intelligent manufacturing has significantly enhanced productivity through the organic integration of advanced technologies; green finance plays a guiding role, promoting capital to flow continuously into sustainable development projects; and the rise of digital payments has accelerated the realization of seamless transactions. The rapid rise of these emerging industries will undoubtedly become a key driving force for economic growth. According to relevant predictions, by 2030, the output value of the green economy will successfully exceed 4 trillion euros, accounting for more than 10% of GDP. The wide application of digitalization in various fields is profoundly and comprehensively enhancing the productivity and competitiveness of European enterprises. For example, the Danish company Vestas has successfully improved energy efficiency by optimizing wind power generation with artificial intelligence technology, setting an innovative and exemplary model for the entire renewable energy sector.

While Europe has successfully embarked on green transformation and digitalization, it is facing a growing set of challenges in an increasingly competitive global landscape. With countries responding to the challenge by doubling down on securing strategic resources and steeling market influence, Europe faces growing pressure to hold onto its economic and technological positions. Yet technological bottlenecks are persistent, and uneven policy application and fragmented regulation continue to impede the swift industrial development of Europe. To achieve long-term leadership in the global green and digital economy, Europe needs an integrated and proactive strategy that combines technological sovereignty, regional policy coordination and international cooperation.

The increasingly intense competition among global powers the U.S. and China requires Europe to be sensitive to its relations with each. It still dominates in artificial intelligence, cloud computing and semiconductor technology, and it wields influence through global supply chains. At the same time, China has established itself as a leader in electric vehicles, battery technology and solar power, changing the global clean energy landscape. Conclusion: Strengthening Technological Autonomy at Home and Selective Partnerships Abroad will be crucial for Europe to strengthen its strategic position. opportunities of developing China-Eu cooperation on renewable energy. Europe should scale up joint research programs in solar, wind and hydrogen storage to accelerate innovations and drive down costs while heavily regulating industry. Cooperation in these fields can facilitate technology sharing, boost industrial synergy, and foster global sustainable development. Europe needs to diversify its supply chains, so that it does not become over-dependent on any one external partner but rather ensures its economic vitality and energy security allows for long-term resilience.

Second, it is crucial to bolster transatlantic collaboration on technology governance. The EU and US should cooperate on common global standards for AI ethics, cyber security and the deployment of green technologies. Uniform regulations could help promote responsible technology adoption across the world and enhance market transparency.

Third, Europe needs to double down on its global carbon market leadership. Given the EU’s head start on green finance, it can champion a global carbon price, inducing convergence toward a unified global system of international carbon pricing. Well-designed carbon pricing will keep European industry competitive globally while reinforcing the global response to climate change.

Digital and green industries must converge to drive Europe’s next chapter in economic growth. The green economy is expected to generate an output value of more than 4 trillion euros before 2030, representing more than 10% of the EU defense agencies’ GDP. This transformation must be maximized by putting the digitalization of industries, sustainable finance and smart infrastructure at the forefront of the European policy agenda.

In smart manufacturing and Industry 4.0, the convergence of automation, IT, and AI-driven analytics is predicted to enhance output efficiency by 40% and reduce power consumption by 30%. These innovations will improve the flexibility of European industry, making supply chains more resilient, optimizing resource utilization, and ensuring long-term global competitiveness.

Regarding green finance and digital payments, a digital euro will simplify cross-border transactions, enhance financial transparency, and accelerate investment in green projects. This will reinforce Europe’s leading role on the world stage in sustainable finance, channeling capital into decarbonization innovation.

By 2035, technologies such as autonomous cars, hydrogen-powered rail services, and AI-driven logistics systems could dramatically transform Europe’s transport infrastructure. These innovations will enhance mobility efficiency while significantly reducing carbon emissions, ushering in a seamlessly connected and sustainable transport environment.

Europe stands at a historic crossroads in its green and digital transition. To maintain its global leadership, technological innovation must be fast-tracked, with coordinated and deepened policies to strengthen international cooperation. The path forward requires substantial investment in artificial intelligence, semiconductors, and renewable energy, alongside targeted regulatory reforms to ensure equitable and sustainable growth.

If implemented effectively, these strategies will not only consolidate Europe’s competitive advantage on the global stage but also establish the continent as a benchmark for a sustainable digital future. Over the coming decades, these efforts will transform the EU’s economic landscape, driving a new model of value creation and advancing green and digital innovation while shaping the global agenda.

By Qingning Zhao