Wednesday

30th Sep 2020

Commission's €1 trillion bet on green deal financing

  • The long-awaited Just Transition Mechanism will help member states move away from coal and fossil fuels - although gas will still be permitted, nuclear will not be financed (Photo: European Parliament)

The European Commission unveiled on Tuesday (14 January) its one trillion euro investment plan to put Europe on track to reach the 2050 emissions-neutrality goal, while also helping coal-producing regions to move away from fossil fuels.

The EU aims to mobilise that investment, of public and private money, over the next 10 years to finance the "new growth strategy" of the EU commission - the European Green Deal - and meet the climate objectives.

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However, the commission also estimates that an extra €260bn in investment will be needed per year just to reach the current 2030 goal - namely, a 50 to 55 percent emission-cut (higher than the 40 percent previously envisaged).

In December last year, all member states agreed to green their economies over the next 30 years to tackle the effects of climate change, but Poland held out, wanting to see financial initiatives.

Besides Poland, the regions with the highest number of jobs in the coal sector (mines and power plants) are located in Bulgaria, Czech Republic, Germany, Greece, and Romania, according to figures from the European Parliament.

The long-awaited Just Transition Mechanism (JTM) will be a part of the Sustainable Europe Investment Plan, which will cover the social dimension of the Green Deal, supporting fossil fuel-dependent regions - especially those depending on coal, lignite, peat or oil shale.

To a significant degree the JTM will work mostly as cohesion policy, since it will require (territorial) plans to be developed and approved by the commission, and national co-financing.

"The JTM will focus on three dimensions: economic diversification, re-skilling and environmental transition," senior commission sources told journalists on Monday.

A portion of the budget for cohesion policy will be transferred to the JTM - a plan that has recently received strong criticism from the Committee of the Regions and some member states.

However, according to the commission sources, "it is wrong to understand the transfer as a loss for cohesion policy".

The JTM will lean on three pillars: a Just Transition Fund, the Invest EU program and loans from the European Investment Bank (EIB).

€7.5bn 'fresh money'?

The Just Transition Fund will comprise €7.5bn of "fresh money" from the upcoming EU long-term budget to support projects that are low-carbon and climate-resilient, including re-skilling programmes for miners, jobs in new economic sectors and energy-efficient housing.

This fund, which aims to then generate between €30bn to €50bn over the next seven years, explicitly excludes any support for fossil fuels.

However, the ongoing negotiations on the Multiannual Financial Framework (MFF) might not give the green light to the numbers presented by the commission, since this will require member states to raise their national contributions.

"Everyone wants climate-neutrality by 2050, but the budget must support this transition," senior commission sources said.

"The Just Transition Fund resources [7.5bn] should be for all member states because all of them will face challenges, but we want to make sure that there is a concentration [of resources] in those places where is more needed," they added.

Other critics consider the amount estimated by the EU commission as "a drop in the ocean" for what many regions in Europe might need for the transition towards clean energy.

However, according to the commission sources, "this is an offer for the private sector to invest" in sustainability and attract private money with public seed funding.

The second major contribution to the JTM would come from Invest EU, the programme formerly known as the Juncker Plan, which aims to mobilise up to €45bn in investments.

'Yes' to gas, 'no' to nuclear

However, the Invest EU scheme does also leave the door open for the financing of gas infrastructure.

Finally, the EIB will work closely with the commission to mobilise between €25bn to €30bn additional investment for the JTM.

"By 2025, at least half of [EIB] financing will be dedicated to climate action projects - double what it is today," said the European Commission vice president Valdis Dombrovskis last week.

Additionally, transition fund money will not finance the construction of nuclear plants.

February check-ups

The commission wants to provide member states with an assessment every February to let them know which regions and areas could fall under the JTM.

Their analysis will be based on the 'European Semester' process and cycle, which provides an annual big picture perspective on economic policies.

After that, member states will be required to draw up "just transition plans", which need to be consistent with the EU's climate goals and the National Energy and Climate Plans (NECPs), to receive funding to support fossil-fuel dependent regions.

However, the national energy plans of especially central and eastern Europe have been criticised for lacking ambition or having insufficient provisions to reach the 2050 emissions-neutrality goal.

Member states will receive technical support from the commission to make sure that the plans are ready for their examination and approval.

Additionally, the commission wants state-aid guidelines to be revised by 2021 "to reflect the policy objectives of the European Green Deal, supporting a cost-effective transition to climate neutrality by 2050".

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