EU unveils multi-billion euro plan to support regional energy transition

The European Commission has announced a €100 billion investment plan to help European regions and industry move beyond fossil fuels.

A new EU funding scheme promises to allocate up to €100 billion to regions and sectors across Europe that rely heavily on fossil fuels, particularly coal, peat and shale oil.

Announced today as part of the European Commission’s Sustainable Investment Plan, the so-called Just Transition Mechanism (JTM) was set up to help Europe reach carbon neutrality by 2050. Over the next 10 years, the Sustainable Investment Plan aims to raise a total €1 trillion to support the energy transition across Europe.

In the short and medium term, the €100 billion would be used to provide support to areas and industries that face socio-economic challenges. The plan aims to boost public and private investments in low and zero carbon sectors and create new jobs in regions potentially affected by job losses.

The JTM comprises three different funding streams, which together are meant to raise €100 billion:

  • The Just Transition Fund (JTF). In a move that has already divided EU countries, the Commission has announced €7.5 billion in new money coming from national contributions. The additional money will be part of a €30-50 billion to be agreed in the upcoming EU budget for 2021-2027, which is currently still being discussed.
  • InvestEU. Private investments under a European Investment Bank (EIB) scheme should raise €30 billion and €40 billion.
  • A new public loan facility of up to €10 billion, also managed by the EIB.
Campaigners in coal-heavy Anargyroi, a village in Greece, demand a just and fair transition beyond coal

Funding will be conditional on the level of climate ambition detailed by governments, the institutions warned. Before granting the money, the Commission will review national and regional just transition plans set out to help coal-heavy territories reduce emissions gradually and eventually phase out fossil fuels.

Support must be consistent with National Energy and Climate Plans (NECPs) and the EU’s plans for carbon neutrality, the EU executive said.

Both the European Parliament and the Council, made up of the 27 member states, will discuss and vote on the detail of the plan in the coming months.

NGOs are happy, but…

Green groups have welcomed the news that the EU wants to support workers and their communities in the energy transition.

The conditionality of the fund should pave the way for higher climate targets, CAN Europe’s Director Wendel Trio said in a statement. For the money to become available, governments will have to improve their national and climate plans. This means EU institutions and governments need to increase the current emissions reduction target from 40% to 65% by 2030 – a move that would align EU policy with the Paris Agreement, Wendel said.

However, CAN Europe and other groups including the European Environmental Bureau (EEB) and CEE Bankwatch voiced concerns that the just transition plans do not explicitly require the exclusion of investments in new fossil fuel infrastructure, particularly gas pipelines, which risks locking in future emissions.

“We can’t afford the money from the Mechanism ending up in the wrong pockets,” said Raphael Hanteaux, a policy officer with CEE Bankwatch.

While praising the decision to support local communities, the EEB pointed out that more investments will be needed to complete the energy transition.

 “There is no space for funding fossil fuels anymore, nor infrastructure that lock in future emission. Every euro cent should be shifted to climate neutral and just solutions”

Patrick ten Brink, EU policy director at the EEB

According to a study carried out in 2018 by the European Commission, the overall amount of money needed in Europe for a full climate transition is over €1.1 trillion per year. Should these numbers add up, this means Europe would still be far short of what’s required for a complete transition.

More money on the way

As part of separate negotiations, EU governments are also currently discussing whether to continue financing fossil fuel projects under the next EU budget. Funded mostly by member state contributions and import duties, the budget allocates funds to specific areas such as agriculture, transport, and industry for a seven-year period.

Like EIB funding, the EU budget – also known as the EU’s ‘Multiannual Financial Framework’ (MFF) – contributes to translating policy objectives into action and helps set priorities and conditions of EU funding. None of the money invested by the EIB comes from the EU budget.

Whether Europe will be able to finance its transition to a carbon neutral economy will depend on the amount of money and spending priorities set within the EU budget as well as the Just Transition Mechanism, national budgets, and private investments, ten Brink said.

A lot will also depend on whether environmentally harmful subsidies are reformed – e.g. from reforming on-budget fuel subsidies to removing excise tax exemptions for aviation and maritime fuels.