EU experts are considering two main mechanisms for financing a fair energy transition, one of them being the issuance of long-term bonds through the European Central Bank for 20 and 30 years and the second being the introduction of a special carbon tax imposed on third-country goods at the EU external borders (carbon border tax).
The European Commission has also gathered all other available sources of funding for Just Transition Mechanism as part of a comprehensive European Green Deal Investment Plan. Vice President Frans Timmermans will lead the European Commission’s policy on fair energy transition, and it will be based on three principles:
a coordinated EU policy on mobilization of public and private investment, where the European Investment Bank will play a key role as an institution providing special loans to EU Member States;
creating a regulatory framework for the financial system, where investment in sustainable development will have the greatest support and promoting the development of private “green” investments and credit programs;
improving the regulatory framework for budget process and public procurement in order to prioritize sustainable development, in particular, the most vulnerable regions within the energy transition.
The EU is also committed to assisting public authorities in planning and implementing sustainable development projects, especially for the regions most in need of economic and social change.
The Just Transition Mechanism will consist of three main sources of funding:
1. The just transition fund, to which the European Commission proposes to allocate EUR 7.5 billion under the EU 2021-2027 budget and which is planned to be used for grant support of EU member states.
To receive assistance, the authorities concerned must prepare “just energy transition plans for vulnerable areas”, and combine the Fund’s financial resources with those of the European Regional Development Fund and the European Social Fund Plus, and provide co-financing from local budgets.
The European Commission estimates the total financial support through such an integrated approach at the level of EUR 30-50 billion. Grant funds will be mainly used for professional retraining of employees, as well as support of small and medium-sized businesses, startups and business incubators in the most vulnerable regions.
2. A separate scheme for financing just energy transition under the InvestEU Programme (a new comprehensive EU investment support program) is expected to form a target investment package of about EUR 45 billion. This scheme will mainly focus on financing sustainable energy and sustainable transport projects for vulnerable regions.
3. Credit package for the public sector from the European Investment Bank. The EU budget will provide financial support to the EIB in order to mobilize EUR 25-30 billion of investment, the main focus of which will be municipal district heating systems and building reconstruction. This initiative will require a separate legislative initiative from the European Commission, which is planned to be submitted to the European Parliament by the end of the first quarter of 2020.
The plans of the European Commission were met with restraint by the representatives of environmental organizations. Based on an analysis of statements by experts from Greenpeace and the World Wildlife Fund (WWF), the European Commission welcomed individual EU member states and refused to set clear timeframes and indicators for measuring the results of energy transition of the most vulnerable regions (Poland, the Czech Republic).
A separate debate is unfolding around Germany, where a federal government-approved plan to finance the decommissioning and closure of lignite quarries violates commitments on timing and reductions in greenhouse gas emissions. At the same time, Germany remains one of the main contenders for EU financial assistance under Just Energy Transition. The corresponding needs could amount to several tens of billions of euros, which will significantly reduce the support of other countries in Central and South-Eastern Europe.
Images of op.europa.eu, ceep.be.
