Industrial Exposure and the Politics of Decarbonization: Rethinking Growth Model Restructuring in the Energy Transition

This paper develops a conceptual framework and empirical analysis to explore how European growth models are restructuring in response to the energy shock triggered by Russia’s invasion of Ukraine and the accelerating pressures of the energy transition. It examines the distributive effects of climate and energy policies on industries that underpin national growth regimes, categorising them into four types: fossil, green, decarbonisable (transitioning), and bystander industries. By decomposing growth regimes at the industry level, the study identifies the exposure, vulnerabilities, and opportunities for different growth models to decarbonise and restructure. It highlights the pivotal roles of industry-specific transition costs, energy dependencies, and energy security considerations in shaping the politics of decarbonisation and growth model transformation. The empirical analysis combines panel data regressions with fixed effects and a comparative case study design. Panel regressions draw on Eurostat structural data, trade input-output tables, and energy statistics to examine the relationship between industry characteristics—such as energy intensity, transition costs, and renewable energy potential—and national policy responses, including energy-intensive industry subsidies, state aid preferences, and renewable energy support. Fixed effects models address unobserved heterogeneity across countries and industries, isolating within-unit variation to identify causal relationships. Interaction terms further assess how macro-financial capacity and welfare-state institutions mediate the effects of industry-level dynamics on policy outcomes. The comparative case study design focuses on Germany, Sweden, Poland, Lithuania, Czechia and Estonia, representing diverse growth models, institutional settings, and decarbonisation strategies. These include export-led manufacturing models with energy-intensive cores (Germany, Lithuania); more balanced models with both energy-intensive and clean tech exports (Sweden, Poland); and an export-led, service-based growth model (Estonia). The case studies analyse how industry characteristics, interest group coalitions, and institutional frameworks shape national responses, contextualising the quantitative findings. Structured comparisons highlight themes such as the political alignment of decarbonisable industries and growth model-specific strategies to manage transition costs. Findings reveal stark variation in how growth models respond to energy shocks and transition pressures - strongly driven by variation in industry specific transition costs that allow market driven decarbonization in Sweden, Lithuania and Estonia. In contrast Czechia, Germany and Poland face higher transition costs – necessitating greater intervention. Germany, with its strong base of clean and decarbonisable industries, advocates for EU state aid relaxation and green industrial policies to offset high transition costs. Sweden, despite its significant clean tech and decarbonisable industries, resists industrial policies, relying instead on abundant renewable energy and cheap electricity to reindustrialise strategic energy-intensive industries. Poland and Lithuania, both export-led economies, pursue distinct strategies: Poland has shifted from subsidising energy-intensive industries (2019) to shielding consumers via electricity sector interventions, indicating a shift towards a more balanced growth model while Lithuania and Czechia continue subsidising energy-intensive industries to support manufacturing-led growth but push for stricter EU-level state aid rules to circumvent domestic stalemates. Estonia, a service-driven economy, unexpectedly subsidises energy-intensive industries and leverages renewable energy to reindustrialise in high-value-added sectors, diversifying its service-led growth model under the umbrella of national security.