The European Green Deal: EC reveals plans for financing the green transition
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Putting meat onto the bones
On 14th January, the newly-appointed President of the European Commission (EC), Ursula von der Leyen, unveiled plans to make the European Union (EU) the first climate-neutral bloc in the world by 2050. This will require significant investment from both the EU and the national public sector, as well as the private sector. The European Green Deal’s investment plan – the Sustainable Europe Investment Plan – will mobilise public investment and help to unlock private funds through EU financial instruments, notably InvestEU, which would lead to at least €1 trillion of investments.
While all Member States, regions and sectors will need to contribute to this transition, the scale of the challenge is not the same in each – some regions will be particularly affected and will undergo a profound economic and social transformation. The Just Transition Mechanism will provide tailored financial and practical support to help workers and generate the necessary investments in those areas.
“People are at the core of the European Green Deal, our vision to make Europe climate-neutral by 2050,” said von der Leyen at the launch of the plan. “The transformation ahead of us is unprecedented and it will only work if it is just – and if it works for all. We will support our people and our regions that need to make bigger efforts in this transformation, to make sure that we leave no one behind. The Green Deal comes with important investment needs, which we will turn into investment opportunities. The plan that we present today, to mobilise at least €1 trillion, will show the direction and unleash a green investment wave.”
Executive Vice-President for the European Green Deal, Frans Timmermans, added: “The necessary transition towards climate-neutrality is going to improve people’s well-being and make Europe more competitive. But it will require more efforts from citizens, sectors and regions that rely more on fossil fuels than others. The Just Transition Mechanism will help support those most affected by making investments more attractive and proposing a package of financial and practical support worth at least €100 billion. This is our pledge of solidarity and fairness.”
The European Green Deal, unveiled by the EC on 11th December 2019, highlighted that reaching the bloc’s current 2030 climate and energy targets will require additional investments of around €260 billion a year by 2030.
Unlocking investment – the Sustainable Europe Investment Plan (SEIP)
SEIP is intended to mobilise EU funding and 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 key ‘dimensions’:
Financing: mobilising at least €1 trillion 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 (EIB).
Enabling: providing incentives to unlock and redirect public and private investment. The EU will provide tools for investors by putting sustainable finance 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 EC will provide support to public authorities and project promoters in planning, designing and executing sustainable projects.
Creating a level playing field – the Just Transition Mechanism (JTM)
JTM is intended to be a key tool to ensure that the transition towards a climate-neutral economy happens in a fair way, leaving no one behind. While all regions will require funding (and SEIP caters for that), JTM provides targeted support to help mobilise at least €100 billion over the period 2021-27 in the most affected regions, to alleviate the socio-economic impact of the transition. JTM will 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.
JTM will consist of three main sources of financing:
A Just Transition Fund (JTF), which will receive €7.5 billion of fresh EU funds, coming on top of the EC’s proposal for the next long-term EU budget. In order to tap into their share of the Fund, Member States will, in dialogue with the EC, have to identify the eligible territories through dedicated ‘territorial just transition plans’. They will also have to commit to match each euro from the JTF with money from the European Regional Development Fund (ERDF) and the European Social Fund Plus (ESFP), and provide additional national resources. Taken together, this will provide between €30 and €50 billion of funding, which will mobilise even more investments. JTF will primarily provide grants to regions. 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 mobilise up to €45 billion of investments. This scheme 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 EIB, backed by the EU budget, to mobilise between €25 and €30 billion of investments. This facility will be used for loans to the public sector, for instance for investments in district heating networks and renovation of buildings. The EC will come forward with a legislative proposal to set this up in March 2020.
JTM is about more than funding: relying on a Just Transition Platform, the EC will be providing technical assistance to Member States and investors and make sure the affected communities, local authorities, social partners and non-governmental organisations are involved. JTM will include a strong governance framework centred on the territorial just transition plans.
Getting traction and monitoring progress
Clearly, the success of SEIP will depend on the engagement of all the various actors involved. It is vital that Member States and the European Parliament work to maintain the high ambition of the EC proposal during the negotiations on the upcoming financial framework. A swift adoption of the proposal for a JTF Regulation will also be crucial.
The EC intends to closely monitor and evaluate the progress on this transition path. As part of these efforts, every year the EC will hold a ‘Sustainable Investment Summit’, involving all relevant stakeholders, and it has stated its commitment to continue to work on promoting and financing the transition. The EC is inviting the investment community to make full use of the enabling regulatory conditions and ever-growing needs for sustainable investments, and authorities to take an active role in identifying and promoting such investments.
Finding out more…
More information on the European Green Deal’s SEIP and JTM can be found in a memo and a factsheet published by the EC.