From Regulatory Power to Catalytic Power Europe: The role of blended finance in EU external climate and energy action

In the existing literature, the influence of the European Union in global affairs has been debated in partially overlapping strands of literature on the EU as a “normative power”, “regulatory” and “market power”. They have in common that they identify the diffusion of its norms and standards as the main vehicle through which the EU’s power has been articulated internationally, whether advertently or inadvertently. More recently, Goldthau and Sitter (2019) have pointed out how the EU has begun to employ its internal rule-making capacity selectively, in an effort to achieve targeted foreign policy aims. In this article, we argue that the evolving nature of European power is not limited to this new application of its regulatory capacities. We propose that the EU has also added new “catalytic” capacities in the realm of financing and network-building, which it is deploying to influence foreign partners and enhance the effectiveness of its international cooperation. Specifically, it focuses on the growing role of blended finance as a “catalytic” tool for delivering financial assistance in the field of climate and energy. The paper illustrates how the design, governance and implementation of this portfolio of relatively novel financial instruments seeks to enhance the impact of EU financial assistance. This includes not only its financial leverage effect, but the increased influence the EU seeks to exert on other financial partners and recipients by way of increased multi-partner cooperation. The paper closes with a preliminary assessment of key strengths and weaknesses of the tool in realizing these aims and proposes a number of avenues for additional research on the topic.