Europe faces an energy transition and an economic decline—and is fumbling both

The decline, as historian Adam Tooze noted in Foreign Policy, means the European economy, even including the U.K., is shrinking compared to the U.S.

It wasn’t always so. For most of the post-war era, the two were roughly the same size, with Europe often ahead in purchasing power. But since the financial crisis, and especially since COVID and Russia’s war on Ukraine, the gap has widened in favor of the U.S. The U.S. economy is now 50% larger than the EU without the U.K., economists Jeremy Shapiro and Jana Puglierin noted last month. The reasons are plenty; among them, the U.S. has more and cheaper energy supplies, a younger population, and a more powerful military.

The transition, of course, is all about decarbonizing the economy. From a U.S. perspective, Europe may have looked like it was ahead in greening its economy, having adopted more aggressive climate goals earlier than the U.S. The latest example is the adoption of the European Sustainability Reporting Standards (ESRS) for companies, approved just yesterday by the European Commission. They follow the decision to phase out new fossil fuel combustion engines by 2035 and the early adoption of the Paris Climate Accord.

But below the surface, the transition, too, is sputtering. Germany, known for its engineering and innovation, but also for its love of cars, is backtracking on the EU’s internal combustion targets following popular discontent. France, of course, had its yellow vests movement, which was all about preserving its petrol car culture, and the aforementioned ESRS was watered down at the last minute. Those setbacks, plus the incentives laid out in President Joe Biden’s Inflation Reduction Act and other climate-friendly laws mean that the U.S. may have an edge on this front too.

Still, don’t expect any major news on the transition and decline in the coming weeks. It’s August, thus vacation time in Europe, yet even Europe’s holidays are in a moment of flux. Europeans are now traveling less to the hot south of the continent and more to the cooler north due to global warming. It’s a trend that the European Commission expects to continue with potentially great economic losses for Spain, Italy, Greece and Portugal.

More news below.

Peter Vanham
peter.vanham@fortune.com
@petervanham

TOP NEWS

China drones

China will limit the overseas sale of some drones and drone-related equipment, citing the risk of commercial products being converted to military use. Both Russia and Ukraine are using Chinese drones, like those made by DJI, in their armed conflict. Beijing and Washington are also turning to export controls in an escalating battle over strategic technologies. Financial Times

Lithium boom

The boom in electric vehicles is pushing oil and gas companies to expand into a new business: Lithium extraction. Oil and gas company Exxon Mobil is currently exploring supplying the key battery material to automakers like Tesla and Ford, and battery makers like Samsung. Car companies are worried about a battery bottleneck, with one research firm estimating that almost 60 new mines and plants are needed to meet growing demand. Bloomberg

Not-so-blue skies

Twitter-like social media platform Bluesky is dealing with the repercussions of its first real crisis since launching its beta earlier this year. The company was mostly silent for over a week after users discovered that usernames could include racial slurs, leading investors to complain to CEO Jay Graber that she was “confirming people’s worst fears.” In an interview with Fortune, Graber says Bluesky is still grappling with its newfound size and success. Fortune

AROUND THE WATERCOOLER

Beer drinkers did not appreciate Heineken trying to pass higher costs onto them—and it has had a sobering effect on profits by Prarthana Prakash

Coinbase boss Brian Armstrong: SEC suggested change that would have triggered the end of the crypto industry in America by Chloe Taylor

Neither Gen Z nor older workers know how to act in the office. Bosses have a solution: Etiquette class by Jane Thier

These 21 private equity power players are shaping the $8 trillion industry as a new guard emerges by Luisa Beltran

Governments are questioning Elon Musk’s Starlink power, but are too scared to openly criticize him by David Meyer

Companies are ‘diversity ditching,’ which could have long-term consequences on employee retention by Paige McGlauflin and Joseph Abrams

This edition was CEO Daily was curated by Nicholas Gordon.