The Defence-Economy Paradox: Why Decarbonisation Has Become Defence Strategy

This blog is the second in the SIP blog series, a set of blogs shared among the partners of the Sustainable Innovation Pathways project. This cross-border, collaborative effort brings together foresight, financial forecasting and technology readiness levels to understand where companies, industries, and countries can best decarbonise.

In the first blog in this series about our Sustainable Investment Pathways (SIP) initiative, we argued that net zero has moved from being an ethical horizon to a navigation problem under pressure. In a polynodal world of fragmented power, dealing with climate change through decarbonisation survives because it delivers hard advantages: stronger economies, more secure energy systems, and greater resilience.

This second piece follows that logic into Europe’s security space. Defence, industrial policy, and energy security now dominate the political agenda. At first glance, that looks like bad news for climate ambition. In reality, something more interesting is happening: decarbonisation is quietly being absorbed into defence strategy.

Europe’s turn to a defence-economy mindset

European governments are re-arming at a speed not seen since the end of the Cold War. NATO now expects all 32 allies to meet or exceed the long-standing 2% of GDP defence target in 2025, compared with only three in 2014. At the 2025 Hague summit, allies went further, making a “5% commitment” to invest 5% of GDP annually by 2035 in core defence requirements and wider defence- and security-related spending, with at least 3.5% reserved for core military capability.

This is the beginning of a structural shift. NATO and market analysts alike treat European defence spending as being at the start of a long upward trajectory, driven by insecurity resulting from Russia’s invasion of Ukraine and the desire to reduce dependence on US protection.

At the same time, the invasion of Ukraine triggered a profound energy shock. The EU’s REPowerEU plan, launched in 2022, aimed to end dependence on Russian fossil fuels “well before 2030” by saving energy, diversifying supply, and accelerating clean energy. Three years on, the Commission judges that the EU is “on good track to completely get rid of Russian fossil fuels while continuing to pursue the green transition”.

The International Energy Agency’s World Energy Outlook 2025 is explicit: energy has become ‘a core issue of economic and national security’ and sits ‘at the heart of today’s geopolitical tensions’. Its companion World Energy Investment 2025 report shows capital following that logic: of the USD 3.3 trillion invested in energy in 2025, about USD 2.2 trillion goes to renewables, nuclear, grids, storage, efficiency and electrification – twice the USD 1.1 trillion going to oil, gas and coal.

This is what a defence focus looks like in practice: higher defence budgets, more active industrial policy, and energy treated as a strategic vulnerability rather than a neutral input.

Fossil dependence as strategic liability

Russia’s invasion of Ukraine made a simple point brutally clear: fossil dependence can be weaponised. Gas pipelines, oil flows and LNG cargoes became instruments of pressure. In response, the EU began to change the structure of its energy system.

According to the Commission’s 2025 stock-take, almost half of EU electricity now comes from renewables (47%), with installed wind and solar capacity up 58% between 2021 and 2024, saving roughly 38 bcm of gas over three years. The “EU action on the energy crisis” summary highlights that Europe has produced more electricity from wind and solar than from gas for the first time ever, while cutting gas consumption by around 18%.

This change was not caused by climate policy on its own. It is part of a wider reframing of what national security looks like. Imported hydrocarbons are reclassified from “cheap baseload” to dangerous exposure to hostile leverage and price shocks. Volatile fossil prices are recognised as threats to social stability, public finances, and industrial planning. And fossil-heavy systems are seen as an Achilles’ heel for deterrence: too easy to disrupt, too hard to insure against.

By contrast, renewables, electrification and hydrogen begin to look like instruments of autonomy. Solar, wind and storage can be built on domestic soil; once installed, they reduce exposure to foreign suppliers and volatile fuels. Power systems with high shares of renewables and flexibility offer more predictable operating costs once capital is sunk. And green hydrogen and synthetic fuels have the potential to replace imported fossil fuels with clean, domestically generated ones, in hard-to-abate sectors.

The International Energy Agency’s World Energy Outlook 2025 makes the same point in technocratic language: energy security has become a “core issue of economic and national security”.

Deep Oak: defence-economy politics, persistent transition

In our baseline scenarios, drawn from the European Commission SAFIRE model, this environment corresponds to World in Oak: protectionism predominant, great-power rivalry revived, institutions under strain, and “might is right” increasingly governing how borders, trade and resources are handled. The SAFIRE scenarios were written in 2021, so at SAMI, we are engaged in a rolling update of World in Oak, which we call Deep Oak. Within SIP, Deep Oak is the intensified version of the SAFIRE World in Oak: populist politics entrenched, institutional erosion deeper, and defence-economy logics more pervasive.

Deep Oak is not a single political state. It is an envelope of conditions:

• Populist or nationalist governments vary in how hostile they are to “green” rhetoric. Some pursue overt fossil-first policies; others quietly double down on green industrial policy under the banner of jobs, sovereignty and security.

• In many cases, noisy politics coexist with strong private-sector decarbonisation driven by investors, supply chains and long-term power purchase agreements.

For SIP, the common features are these:

• Climate policy weakens as a flagship cause: carbon prices soften, CBAM-type instruments are diluted or contested, and multilateral climate diplomacy loses salience, but

• Economic drivers of decarbonisation persist: sunk investments in renewables, grids, EV platforms and low-carbon industry; steep cost declines in clean technologies; and the purchasing power of sectors (data, AI, advanced manufacturing) that need large volumes of cheap, stable power.

In Deep Oak, mitigation outcomes are partial and uneven, but they do not collapse. Decarbonisation becomes a by-product of security and industrial economics, not a primary political goal.

How SIP turns defence-economy politics into numbers

The Sustainable Investment Pathways project’s role is to translate this messy Deep Oak world into constraints and parameters for investment pathways.

On the policy side, the framework assumes that:

• Effective carbon prices are lower and less credible than in cooperative futures, but not zero.

• Large, policy-heavy infrastructure (hydrogen backbones, extensive CCUS networks) is harder to deliver under populist and defence-economy politics.

• Selective trade measures, industrial subsidies and public procurement are used to favour domestic cleantech and strategic sectors rather than to pursue least-cost abatement.

On the economic side, SIP takes seriously what the IEA’s World Energy Investment 2025 shows in numbers: global energy investment in 2025 is set to reach USD 3.3 trillion, of which roughly USD 2.2 trillion goes to renewables, nuclear, grids, storage, low-emissions fuels, efficiency and electrification – twice the USD 1.1 trillion going to oil, gas and coal.

That capital pattern is exactly what Deep Oak describes: politics are fragmented, but money is already flowing into assets that serve both climate and security.

Technically, SIP uses these assumptions to adjust:

• Effective carbon prices and their credibility;

• Innovation speeds for key technologies (faster where defence and industrial policy create dual-use demand);

• Learning rates for renewables, storage and grids;

• Leakage risks and the relative strength of corporate versus public governance.

The result is not an idealised “green rearmament” plan but a set of defence-economy-compatible pathways: sequences of investments that deliver acceptable security and emissions outcomes under the constraints of Deep Oak, rather than in spite of them.

The secure economy is the decarbonised economy

Seen from this angle, the defence-economy paradox resolves itself. Higher defence spending and populist politics undoubtedly create risks for climate policy. They squeeze budgets, weaken multilateralism and make long-term planning harder.

But the strategic logic is unforgiving:

• Economies built on imported fossil fuels are easily coerced.

• Energy-price volatility is now a structural security risk, not an unfortunate side-effect.

• Industrial bases that miss the cleantech wave will depend on others for the technologies that matter.

In the 21st century, the secure economy is the decarbonised economy. Climate and defence are no longer separable domains. They have converged into a single strategy of resilience, enacted under the harsher conditions of Deep Oak rather than the cooperative optimism of Paris.

SIP’s task is to give that convergence structure: to show, in numbers rather than slogans, how states and firms can treat decarbonisation as part of their defence and security posture, especially when politics are noisy, populist and constrained.

In the next blog, we turn explicitly to populism: how a populist age weakens climate policy, and why, even then, the economics of the transition make a full reversal harder than it looks.

Written by Jonathan Blanchard Smith, SAMI Director

The views expressed are those of the author(s) and not necessarily of SAMI Consulting.

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