Publication: February 2020
Short link to this post: http://bit.ly/2Hs0fjw
Authors: BRUEGEL – Aliénor Cameron, Grégory Claeys, Catarina Mideos & Simone Tagliapietra
Soon after unveiling the overall roadmap for its flagship European Green Deal initiative, the European Commission published its first concrete proposal on 14 January 2020, on how to establish a Just Transition Mechanism (European Commission, 2020a, 2020b and 2020c). The objective of this initiative is to provide support to territories facing serious socio-economic challenges arising from the transition towards climate-neutrality.
To reach the €100 billion of Just Transition Mechanism financing (for the period 2021-2027) promised by European Commission President Von der Leyen, the initiative relies on three main pillars (European Commission, 2020a):
- The creation of a Just Transition Fund (JTF): the Commission wants to add €7.5 billion of ‘fresh money’ to the total amount proposed in 2018 for the 2021-2027 Multiannual Financial Framework (MFF). This is supposed to trigger between €30 billion and €50 billion of additional funding for the regions most affected by the transition
- The use of a portion of the InvestEU financing devoted to climate to mobilise a total of €45 billion of investment in ‘Just Transition’ projects between 2021 and 2027.
- The creation a public sector loan facility at the European Investment Bank partly guaranteed by the EU budget, to mobilise between €25 billion to €30 billion of additional public investments in 2021-2027.
At the time of writing, details on the second and third pillars of the Just Transition Mechanism are scarce, as the legislative proposals focus exclusively on how to establish a Just Transition Fund (European Commission, 2020b) and on how to include it in the EU cohesion policy framework (European Commission, 2020c).
Concerning the InvestEU pillar, the Commission’s communication explicitly mentioned that the negotiations between the European Council and the Parliament on InvestEU, which led to an agreement in April 2019, will not be re-opened. This means that the Commission intends to set aside a portion of the financing devoted to InvestEU climate and environment-related investments for ‘just transition’ labelled projects. This represents a share of the provisioning of around €1.8 billion of the EU budget guarantee for the InvestEU programme, to reach €45 billion of investment in ‘Just Transition’ projects between 2021 and 2027.
As far as the public sector loan facility pillar is concerned, the only detail provided for the moment is that the EU budget will contribute with a guarantee of €1.5 billion for the EIB. But the current proposal does not explain where this money will come from or what EU programme will have to be scaled back to create this new guarantee. In addition, such a tool might not be that useful at a time when EU countries can finance themselves very easily in the market at very attractive (and in some cases even negative) rates.
This briefing, prepared by Bruegel on the request of the EP Committee for the Regional Development, therefore focuses on the most concrete elements of the Commission’s proposals: the Just Transition Fund regulation proposal that lays down its objective and geographical coverage; the methodology for the allocation of resources and the content of the territorial just transition plans required to underpin the programming, and the targeted amendments of the Common Prevision Regulation (CPR) proposal, which will incorporate the JTF into the overall EU cohesion policy framework (in addition to the ERDF, ESF+, etc.).
Highlights of the European Commission’s proposal
Objectives of the Just Transition Fund
The fund’s stated objective is to “alleviate the impact of the transition by financing the diversification and modernisation of the local economy and by mitigating the negative repercussions on employment”. In practice, in order to support territories facing serious socio-economic challenges arising from the transition towards climate neutrality, the Just Transition Fund will primarily provide grants to finance three types of project: 1) social support, 2) economic revitalisation, and 3) land restoration.
Size and origin of the JTF funds
The Commission’s proposal foresees that the JTF will rely on €7.5 billion of ‘fresh money’ that is supposed to come on top of the Commission’s MFF proposal from May 2018 (European Commission, 2018). The initial €7.5 billion from the Just Transition Fund is expected to be complemented by transfers of funds from other EU programmes and by national co-financing.
To unlock €1 from the JTF, EU countries will have to re-allocate a minimum of €1.5 and a maximum of €3 from their ERDF or ESF+ envelopes to JTF projects (with a limit of 20 percent in each case), and they will also have to directly co-finance projects according to cohesion rules. That is why the Commission foresees that the overall financing capacity of the JTF will be between €30 and €50 billion.
Table 1 shows the minimum and maximum amounts of ERDF/ESF+ funds (in values and as a percentage of the total) that will be transferred to the JTF according to the Commission’s proposal.
Table 1 also gives each country’s share of the JTF allocation and of the total of ERDF and ESF+ funds. Because of the difference in allocation methods (discussed below), the destination of the funds is quite different. Assuming that at the end of the MFF negotiations, the money for the JTF will not really be additional but taken from other cohesion policy funds (which is quite probable, as the discussion in the next section suggests), this would translate into a partial reallocation of €7.5 billion from some countries (mainly Italy, Spain, Portugal, and Hungary) to others (mainly Poland, Germany, Czechia and Bulgaria).
Geographical scope of the JTF and allocation to member states
The money will be available to all EU countries. The Commission’s proposal (annex 1 of European Commission, 2020b) provides a formula to determine how the funds will be distributed geographically, depending on the following factors, weighted as described:
- The carbon intensity of a country’s NUTS2 regions (weighting 49 percent);
- Employment in mining of coal and lignite (weighting 25 percent);
- Employment in industry (weighting 25 percent);
- Production of peat (weighting 0.95 percent);
- Production of oil shale (weighting 0.05 percent).
Countries can be allocated a maximum of €2 billion; any amount exceeding this would be redistributed proportionally to the allocations of all other member states. The regulation also requires the allocation to represent at least €6 per capita (based on the entire population of a member state) over the entire period in each member state. Column 1 of table 1 gives the allocation of the JTF to member states according to this methodology, and column 7 gives the proportion of the total allocation attributed to each country.
Eligible projects to be financed by the JTF
The regulation proposal provides details about the types of projects on which the money will be spent. Some of it will be used to invest in private projects and in particular in SMEs, but member states will also be able to use the funds to invest in human capital. The JTF will support a total of 11 types of activities which can be regrouped (apart from activity (k) ie technical assistance) into three broad categories:
- Economic revitalisation: (a) productive investments in SMEs, including start-ups, leading to economic diversification and reconversion; (b) investments in the creation of new firms, including through business incubators and consulting services; (c) investments in research and innovation activities and fostering the transfer of advanced technologies; (d) investments in the deployment of technology and infrastructures for affordable clean energy, in greenhouse gas emission reduction, energy efficiency and renewable energy; (e) investments in digitalisation and digital connectivity; (g) investments in enhancing the circular economy, including through waste prevention, reduction, resource efficiency, reuse, repair and recycling;
- Social support: (h) upskilling and reskilling of workers; (i) job-search assistance to jobseekers; (j) active inclusion of jobseekers;
- Land restoration: (f) investments in regeneration and decontamination of sites, land restoration and repurposing projects.
 The regulation also explicitly disallows the JTF from financing the following activities: (a) the decommissioning or the construction of nuclear power stations, (b) the manufacturing, processing and marketing of tobacco and tobacco products, (c) undertakings in difficulty, (d) investment related to the production, processing, distribution, storage or combustion of fossil fuels, and (e) investment in broadband infrastructure in areas in which there are at least two broadband networks of equivalent category.
 Enterprises other than SMEs can also access funding from the JTF, on the condition that this is approved by the Commission as part of a country’s territorial just transition plan.
Governance and conditions to access the Just Transition Fund
- A timeline of key transition steps at national level;
- A justification for identifying the territories most negatively affected by the transition – these territories can be considered at any level, including NUTS3;
- An assessment of the challenges faced by these territories (estimated job losses, development needs and objectives);
- A description of the expected contribution of the JTF to address these challenges;
- An assessment of the consistency of JTF support with national transition plans;
- A description of the governance set-up for implementation, monitoring and evaluation;
- A description of operations envisaged;
- Where support will be provided to non-SMEs, a list of all the operations and companies that will be included, along with a justification for their inclusion;
- A justification of support provided for investment aimed at achieving reductions in greenhouse gas emissions from particular activities;
- Synergies with other EU programmes and pillars of the Just Transition Mechanism, to address identified development needs.
Assessment of the proposal and recommended amendments
Scope of the potential amendments to the regulation
To enhance the Commission’s proposal, the European Parliament could amend the following parameters of the JTF:
- Its objectives (article 2);
- Its size (article 3);
- The scope of projects financed (article 4) or excluded (article 5);
- Its geographical scope and the allocation methodology (article 3 and annex 1);
- Its governance structure and the conditions attached to access to the programme, ie the territorial plans and the criteria for approval by the European Commission (article 7);
- The transfers from the ESF+ and the ERDF (article 6 and article 21a of the amended CPR).
The following sections describe in detail how each of these parameters could potentially be amended, especially bearing in mind the mechanisms through which the JTF interacts with existing cohesion policy.
The main objectives and overall design of the Just Transition Fund
Size and potential impact of the Just Transition Fund
Before discussing if the JTF is big enough, it is worth considering whether the €7.5 billion proposed really constitutes ‘fresh money’, as claimed by the Commission. In our view, it is naïve, or even misleading, to claim that the funds devoted to the JTF will be additional to the EU budget, given that the first stage of the MFF negotiations is focused on agreeing on an overall headline number. This means that once an agreement is finally reached, the JTF will fall under this aggregate number and therefore the amount devoted to the JTF will mechanically reduce the funds devoted to other programmes. It will thus be important to check what other programmes will be affected, and if they would not have performed a similar role to the JFT. In such cases, the JTF would just amount to the renaming of pre-existing cohesion policies and its additional impact would be nil for the societal, economic and industrial situation of EU regions.
More generally, the proposal by the Finnish EU presidency (Council of the EU, 2019) mentioned an overall level of commitments for the EU budget representing 1.07 percent of EU GNI – ie €1087 billion (in 2018 prices) – for the period 2021-2027. Given that the Commission’s original proposal included a ceiling equal to 1.11 percent of EU GNI – ie €1135 billion – and that the Parliament originally proposed 1.30 percent – ie €1324 billion – this means that the proposal for the MFF currently under discussion in the Council is €48 billion below the original Commission’s proposal and €237 billion below the Parliament’s. So whether the €7.5 billion constitutes fresh money appears very much irrelevant.
On the size of the JTF, one key element to note is that we could not find any justification for the €7.5 billion mentioned in the Commission’s proposal: there is no estimation of the needs of a Just Transition Fund based on its envisaged operations. In addition, although at first glance the headline number appears higher than the €4.8 billion requested originally by the Parliament (European Parliament, 2018), the intended scope of the JTF in the Commission proposal is much broader and includes missions other than just social support for workers who lose their jobs as a result of the transition.
Whether the amount is sufficient or not is a question that cannot be answered before determining first what its exact scope should be.
Scope of the Just Transition Fund
Geographical scope of the JTF and allocation method
Governance: monitoring of spending by the Commission
Given the pre-allocation of funds, we believe that, at minimum, the conditionality should be strong enough to ensure that the funds are well used in order to achieve the objectives of the JTF. The Commission has proposed to unlock the funds on the basis of its approval of the so-called ‘territorial just transition plans’, which need to include, in particular, “a description of the Member State’s commitment as regards the transition process consistent with their National Energy and Climate Plans and the EU objective of climate neutrality by 2050”. Two important issues need to be discussed in that regard.
First, while it is certainly good – from a policy consistency perspective – to link the territorial just transition plans to National Energy and Climate Plans, it must be noted that the JTF cannot realistically be seen as leverage to push countries towards decarbonisation. The primary target of the JTF should be, in our view, to support workers who will lose their jobs as a result of the decarbonisation process. This, by itself, should help the transition by making necessary, but intrusive, climate policies socially, and thus politically, acceptable
As a result of this, it might be more useful to structure the governance of the JTF on a ‘mission oriented’, or project-based approach. This is the case with other EU programmes, including Horizon Europe and the LIFE Programme, and with the EGF (as we have noted). Evaluating individual projects with well-defined transparent criteria might enable better control of the use of the JTF funds by the Commission than an evaluation on the basis of the territorial just transition plans. As the experience of the European Semester suggests, these types of broad recommendation are barely implemented by EU countries (Efstathiou and Wolff, 2018).
Fund transfers from ERDF and ESF+ to the JTF
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