European Green Deal - What is the Just Transition Mechanism?
By Dr. Romain Mauger
Source: the author.
1.
Introduction
On 11 December
2019, the new European Commission presided by Ursula Von der Leyen presented
the European Green Deal. The aim for the EU is to become climate-neutral by
2050 and this will require massive investments. The financial part of this
Green Deal is the European
Green Deal Investment Plan (EGDIP), revealed on 14 January 2020. This
programme should mobilise “at least €1 trillion of sustainable investments” until
2030. The graph below shows the split in terms of origin of the money for
such investments with half of it to come directly from the EU budget, over a
quarter from public and private investments guaranteed by InvestEU, over a 10%
from national co-financing, a reduced part from the EU ETS and, in the middle
of this vast sum of money, the Just Transition Mechanism (JTM).
Source: The
European Green Deal Investment Plan and Just Transition Mechanism explained,
EC, Brussels, 14 January 2020, p. 1.
2. The Just Transition Mechanism
a.
Aim
The JTM aims for
“a fair and just green transition […] to support workers and citizens of the
regions most impacted by the transition.” To do so, this mechanism will
mobilise at
least €100 billion in investments over the period 2021-2027 (p.1). In a
nutshell, the European Commission acknowledges that the transition towards a
climate-neutral economy will have economic and social impacts, especially on
regions that rely on fossil fuels extraction and treatment (e.g. refineries) or
on highly carbon-intensive industries (such as cement plants or smelters).
These regions will or strongly risk to lose at some point their industries and
the workers their jobs. The JTM endeavours to smoothen these socio-economic
turbulences and to “leave no one behind”, which is the motto used by the Sustainable
Development Goals (SDGs) as well.
b.
3 pillars
As the graph
below shows, the JTM is actually composed of 3 pillars: The Just Transition
Fund (JTF), the Just Transition Scheme (JTS) and the Public sector loan
facility.
-
The JTF composes the 1st
pillar. The fund will be allocated with €7.5 Bn, but for each € of investment
from this fund, EU Member States have to add contributions. In total, it is
expected to lead to €30 to 50 Bn of investments. This fund will directly
allocate money, typically as grants. On 14 January 2020, a proposal of
regulation establishing the Just Transition Fund was published, detailing the
rules that should apply to it.
-
The JTS composes the 2nd
pillar. The scheme is part of the InvestEU programme and should attract private
investments for up to €45 Bn by providing an EU budget guarantee. These
investments will have to go into the just transition.
- The Public sector loan facility
composes the 3rd pillar. The facility consists of concessional loans
to the public sector and should trigger between €25 and 30 Bn of investments.
It will rely on €1.5 Bn from the EU budget and on a European Investment Bank lending
of €10 Bn. A legislative proposal will be presented in March 2020 to officially
set it up.
c.
Range of projects
For each pillar,
the range of projects that can be financed varies.
Concerning the
JTF, recital 5 of the proposed regulation on this instrument states that actions
supported by the JTF should directly contribute 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. This is
further detailed in article 4 (2) of the same document which provides that the
JTF shall exclusively support a limited list of activities. These include
economic diversification by investments in small and medium-sized enterprises
(SMEs), in new firms, in research and innovation, in decontamination of sites,
in the circular economy or on workers training and in job-seeking assistance.
The focus is therefore mostly, as expected, on socio-economic development or
alleviation. However, the energy aspect is not excluded, as JTF’s investments
can also be channelled towards the deployment of technologies and
infrastructures for affordable clean energy, greenhouse gas emission (GHG)
reduction, energy efficiency and renewable energy sources. Interestingly enough,
article 5 of the proposed regulation sets a list of activities the JTF shall
not support and it includes the decommissioning or construction of nuclear
power stations. It remains to be seen if this provision will make it to the
final version.
Concerning the
JTS, investments can be guaranteed if they help the affected regions to “find
new sources of growth”, and this could include projects
for decarbonisation, economic diversification of the regions, energy, transport
and social infrastructure (p. 4), which is a very broad scope.
Finally, the
logic of the public sector loan facility is to lend money to local authorities
in order to finance “projects
which do not generate revenue and would otherwise not get financed”(p. 6).
Typically, infrastructures would fit within this range, with examples such as energy
and transport infrastructure, district heating networks, and renovation or
insulation of buildings.
d.
Geographical boundaries
The projects to
be financed by the JTM will not be located everywhere as the purpose of this
mechanism is to relieve the most affected regions inside of each Member State.
To identify these regions, the European Commission proposes to the Member
States to adopt territorial just transition plans.
Article 7 of the
proposed regulation on JTF sets the legal regime for these plans. They should
be prepared “together with the relevant authorities of the territories
concerned”, meaning that the local authorities will have a say and that it will
not only be a state-crafted plan. The identified territories shall be those
most negatively affected based on the economic and social impacts resulting
from the transition, in particular with regard to expected job losses in fossil
fuel production and use and the transformation needs of the production
processes of industrial facilities with the highest greenhouse gas intensity.
These plans must contain some specific elements such as the type of operations
to be financed or a description of the transition process at national and at
local level towards climate neutrality which has to be on par with the Member
State’s National Energy and Climate Plan (NECP), a key element of the 2030 GHG
reduction targets for the EU as part of the Clean Energy Package. This point
means that if a Member State does not seriously aim to reach climate neutrality
by 2050, its plan will not be validated by the Commission and therefore no
project will be financed by any of the JTM’s 3 pillars as this is prerequisite.
Poland, which should by far be the first beneficiary of the JTM according to the the
Commission’s calculations, will therefore have to revise its climate ambitions
upward to access the money set aside for it.
In a nutshell,
these plans are drafted by the Member States with their local authorities,
validated by the Commission and the JTF can only finance projects inside of the
most affected regions which have a valid plan. The investments under pillars 2
and 3 can take place either in the identified regions with an approved plan or
in projects located elsewhere but directly benefiting those regions. The
geographical scope is therefore larger for pillars 2 and 3.
e.
Beyond money: technical
assistance
The JTM, according
to the Commission itself, is not
only about money (p. 5). Actually, the Commission intends to provide
technical support to the Member States in order to prepare their territorial
plans and to implement them. In this regard, as stated by recital 14 of the
proposed regulation on JTF, “the Commission should set up a Just Transition
Platform […] to enable bilateral and multilateral exchanges of experience on
lessons learnt and best practices across all affected sectors.” The aim is
apparently also to generate
a pipeline of projects for the most affected regions (p. 3), building on
what is being done in other regions which would have similar characteristics.
The Commission is also committed to “make
it easier to invest in the transition by making sure that the regulatory
framework provides the right incentives“ p. 5). This is further developed
in the proposed regulation for the JTF, where it is stated that sectoral state
aid rules could be eased to finance projects
complying with the just transition goals in the most affected regions (p.
2).
3. Critical appraisal
Despite the very
positive development of an EU legal framework for identifying the transition’s
most affected regions, planning and financing actions and projects, some
critics can be formulated.
The main critic actually
concerns the restrictive interpretation of the concept of just transition that
the European Commission is promoting while it is gaining momentum among
academics and NGOs. In the political discourse, the vocabulary tends to be very
inclusive, with the goal of “letting no one behind”, the consideration of the “most
vulnerable” and “most exposed to the harmful effects of climate change and
environmental degradation“ (p. 1 and 11), the
notions of solidarity,
fairness and justice that are used, and the overall focus on people and
citizens. However, in reality, when analysing the proposed legislation, the
main focus is clearly placed on workers and jobless citizens, rather than the
people. As well, as explained in this note, the solidarity under the JTM will
only take place within the identified regions, while there are plenty of
justice issues in the energy transition to climate neutrality in all regions of
the EU and over the globe. The fact that for example the territorial just
transition plans are being redacted by Member States and the local authorities
but without requiring the involvement of
the local inhabitants underlines this restricted vision of a just transition.
4. Conclusion
The development
by the European Commission of a dedicated legal framework for a just transition
and its commitment to provide support for the regions which will be the most
severely impacted by the transition to a climate neutral economy is to be
applauded. This is absolutely needed and Ursula von der Leyen is right when she
says that this transition “will only
work if it is just - and if it works for all.” However, there seems to
be a gap between the discourses on the JTM and the reality of the proposal. If
the latter mobilises sizable sums of money and sets criteria to plan its use as
efficiently as possible in the most affected regions, the former could have
created expectations for a legal framework toward an all-encompassing just
transition which will not materialise.
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