European Union: Financing the Green Transition

In December last year, the European Commission proposed a Green Deal.

The European Union is committed to becoming the first climate-neutral bloc in the world by 2050. This requires significant investment from both the EU and the national public sector as well as the private sector to finance the Green Deal. According to the European Commission, the European Green Deal Investment Plan would mobilize public investment and help to unlock private funds through EU financial instruments, notably InvestEU, which would lead to at least one trillion Euro (1,000,000,000,000,000,000 Euro) of investments.

While all Member States, regions and sectors would need to contribute to the transition, the scale of the challenge were not the same. Some regions will be particularly affected and will undergo a profound economic and social transformation, the commission stated. The Just Transition Mechanism will provide tailored financial and practical support to help workers and generate the necessary investments in those areas.

The European Green Deal Investment Plan
The European Green Deal Investment Plan is to create an enabling framework to facilitate and stimulate the public and private investments needed for the transition to a climate-neutral, green, competitive and inclusive economy. Complementing other initiatives announced under the Green Deal, the Plan is based on three dimensions:

Financing: mobilizing at least one trillion Euro of sustainable investments over the next decade. A greater share of spending on climate and environmental action from the EU budget than ever before will crowd in private funding, with a key role to be played by the European Investment Bank.
Enabling: providing incentives to unlock and redirect public and private investment. The EU will provide tools for investors by putting sustainable capital at the heart of the financial system and will facilitate sustainable investment by public authorities, by encouraging green budgeting and procurement, and by designing ways to facilitate procedures to approve State Aid for just transition regions.
Practical support: the Commission will provide support to public authorities and project promoters in planning, designing and executing sustainable projects.

The Just Transition Mechanism
The Just Transition Mechanism (JTM) is a key tool to ensure that the transition towards a climate-neutral economy happens fairly, leaving no one behind. While all regions will require funding and the European Green Deal Investment Plan caters for that, the Mechanism provides targeted support to help mobilize at least 100 billion Euro (100,000,000,000 Euro) over the period 2021-2027 in the most affected regions, to alleviate the socio-economic impact of the transition. The Mechanism is intended to create the necessary investment to help workers and communities which rely on the fossil fuel value chain. It will come in addition to the substantial contribution of the EU’s budget through all instruments directly relevant to the transition, the Commission informed.

As reported, the Just Transition Mechanism will consist of three main sources of financing:

A Just Transition Fund, which will receive 7.5 billion Euro of fresh EU funds, coming on top of the Commission’s proposal for the next long-term EU budget. To tap into their share of the Fund, Member States will, in dialogue with the Commission, have to identify the eligible territories through dedicated territorial just transition plans. They will also have to commit to match each Euro from the Just Transition Fund with money from the European Regional Development Fund and the European Social Fund Plus and provide additional national resources. Taken together, this will provide between 30 and 50 billion Euro of funding, which will mobilize even more investments. “The Fund will primarily provide grants to regions,” the European Commission emphasized. “It will, for example, support workers to develop skills and competences for the job market of the future and help SMEs, start-ups and incubators to create new economic opportunities in these regions. It will also support investments in the clean energy transition, for example in energy efficiency.”
A dedicated just transition scheme under InvestEU to mobilize up to 45 billion Euro of investments. It will seek to attract private investments, including in sustainable energy and transport that benefit those regions and help their economies find new sources of growth.
A public sector loan facility with the European Investment Bank backed by the EU budget to mobilize between 25 and 30 billion Euro of investments. It will be used for loans to the public sector, for instance for investments in district heating networks and renovation of buildings.

The Just Transition Mechanism is about more than funding: Relying on a Just Transition Platform, the Commission will be providing technical assistance to Member States and investors and make sure the affected communities, local authorities, social partners and non-governmental organizations are involved, the Commission underlined. “The Just Transition Mechanism will include a strong governance framework centered on territorial just transition plans.”

Background
In December 2019, the European Commission presented the Green Deal. In January this year, the European Parliament voted to support the European Green Deal but wishes higher ambitions. Its members want the upcoming Climate Law to include higher targets for the EU’s 2030 goal of emissions reductions (55 percent in 2030 compared to 1990, instead of “at least 50 percent towards 55 percent”, as proposed by the Commission). “The EU should adopt these targets well in advance of the UN climate change conference in November, MEPs say. They also want an interim target for 2040 to ensure the EU is on track to reach climate neutrality in 2050”, the Parliament informed in a press release.

(GR12020, Page 10, Photo: Alain Audet / Pixabay)