Energy transition in the European Union (EU) and its Member States involves questions of federalism, which are subject to various perspectives. The distribution of powers cannot be properly understood using classical legal methodology alone because Articles 192 to 194 of the Treaty on the Functioning of the European Union (TFEU) contain too many ambiguous political compromises. On the one hand, Article 192(1) TFEU (on the environment) and Article 194(1) and (2)(1) TFEU (on energy) enable EU legislation on energy transition through the ordinary legislative procedure, including majority voting in the European Parliament and the Council. On the other hand, there are significant textual limits for EU action in neighbouring provisions with a ‘sovereignty exception’ for the Member States in both Article 192(2) and Article 194(2)(2) TFEU. This article argues that, in the light of the Paris Agreement, the allocation of competences between the EU and its Member States should, in case of doubt, be understood in such a way that effective climate protection becomes possible. Because under Article 191(1) TFEU the EU is to promote measures at the international level to combat climate change, such an international law-friendly interpretation is part of a legitimate teleological approach. Economic theories of federalism and innovation research in the social sciences help us to understand which aspects of economic or innovation theory can promote effectiveness in this respect. It is necessary to interpret the distribution of competences in a dynamic way, thereby slightly shifting the limits of interpretation.