EU’s proposed social climate fund comes under fire from all sides

“Financing direct income support to households via the EU budget is not the right way forward. We must work out alternative ways of addressing potential negative social impacts on the extension of carbon pricing and for accelerating the transition,” said Terhi Lehtonen, Finnish environment minister [European Union]

At a meeting in Brussels on Monday (20 December), EU environment ministers criticised the European Commission’s proposal for a social climate fund that would support vulnerable households through the energy transition. Their motives, however, diverged widely.

The new fund aims to shield vulnerable consumers from the impact of the proposed carbon market for road transport and heating fuels. It is due to come into force in 2025, one year before the new carbon pricing scheme becomes effective.

But while EU environment ministers emphasised the need to protect the most vulnerable households, it was clear that the proposal is unpalatable for them.

According to EU ministers, the fund is either too small to support the most vulnerable households or is simply unnecessary and would require an undesirable reopening of Europe’s already-agreed seven-year budget for 2021-2027, the Multi-Annual Financial Framework (MFF).

Fiscal conservatives hit back

The social climate fund has ruffled feathers, particularly in fiscally conservative countries that would prefer shielding citizens with other sources of money, like revenues from the Emissions Trading Scheme (ETS), the EU’s carbon market.

At the meeting of EU environment ministers, Danish representative Per Fabricius Andersen questioned whether the social climate fund is even needed at all.

“Strengthening and expanding emissions trading will make significant additional revenue available to member states that they can use to address potential social impacts. Therefore, we are sceptical on whether there is a need to establish a new social climate fund,” he said.

That view was echoed by Swedish minister Anders Grönvall, who does not believe “there is a need for [a] further budgetary mechanism”.

Ministers are also concerned about the way the European Commission plans to launch the fund. In order to ensure money is available before the new carbon prices hits households, the EU executive needs to reopen the already negotiated seven-year budget, some warned.

In its July proposal for a social climate fund, the Commission said it would “propose a targeted amendment of the Regulation for the multiannual financial framework for the years 2021 to 2027 to accommodate an additional Union spending of an amount of €23.7 billion for the period 2025-2027”.

But Finnish environment minister Terhi Lehtonen was highly critical of this, saying: “We are concerned about [the social climate fund’s] size and about opening the MFF deal”. Instead, she said “we can all make better use of the already agreed EU funds,” without reopening the MFF.

The deal on the EU’s seven-year budget, described as “historic” by some when it was struck in December 2020, was a difficult and carefully balanced agreement, which Finland would rather not reopen, a Finnish diplomatic source told EURACTIV.

The source added that there is already sufficient EU funding for climate investments provided in the €1.8 trillion seven-year budget and EU recovery fund.

“Financing direct income support to households via the EU budget is not the right way forward,” Lehtonen told fellow ministers. “We must work out alternative ways of addressing potential negative social impacts on the extension of carbon pricing and for accelerating the transition,” she said.

Europe’s social climate fund too small to make a difference, critics say

The European Commission proposed a “social climate fund” to protect vulnerable people from changes brought by the energy transition. Still, it is not fit for purpose, according to researchers and policymakers in the European Parliament.

More money needed

But other EU ministers criticised the social climate fund proposal for the opposite reason. The Czech Republic, Lithuania, Cyprus, Greece and Malta all complained that there is simply not enough money available to mitigate the negative impacts of imposing a carbon price on transport and heating fuels.

“The proposal seems to be difficult from the point of view of the administration and we are not convinced that it is able to sufficiently mitigate the risk,” said Czech environment minister Anna Hubáčková.

Poland went even further, calling for the European Commission to sever the social climate fund from the widely-criticised ETS for buildings and road transport.

The creation of the social climate fund should “not be conditional [on] the final decision to establish a new ETS for the transport and building sector,” said Anna Moskwa, the Polish minister for climate and environment.

“Due to rising energy prices and the need to counteract the worsening of the energy poverty, the work on the social climate fund should be authorised in the coming months,” she said.

But EU climate chief Frans Timmermans insisted that the two proposals are inseparable.

“No ETS, no social climate funds, so then we will have to look for other ways to help our citizens,” he warned ministers earlier this year.

EU countries slam new carbon market plans as energy prices soar

The European Commission’s plan to introduce a separate carbon market for road transport and the building sector, alongside the EU’s existing Emissions Trading Scheme (ETS), was widely criticised by EU environment ministers at their meeting last week.

“Own resources” for the EU budget

Countries like Poland could face another issue – they risk losing out on the money altogether.

Earlier this year, the European Commission warned Warsaw it would lose its share of EU recovery money if it does not ensure the independence of its judiciary, which will have to oversee how the money is spent.

The conflict around the social climate fund is also tied to a wider debate around EU money and an upcoming proposal to provide direct sources of income for the EU budget – the so-called own resources proposal.

EU countries are bracing for the own resources proposal, due on Wednesday (22 December), because it could see the European Commission snatch away some of their revenues coming from the ETS.

Without the own resources proposal or the amendment to the seven-year budget, it is unclear to EU countries how the money for the social climate fund will be sourced and how it will fit into the wider framework of EU budgeting.

As Latvian minister, Artūrs Toms Plešs, said, “The publication of those proposals will give us a possibility to finalise Latvia’s position on the establishment of the social climate fund, and ETS expanding to buildings and road transport.”

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[Edited by Frédéric Simon]

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