Fossil fuels axed from EU’s just transition fund, but loophole remains for gas

All fossil fuel funding will be cut from the just transition fund, with regional development fund cash only going to fossil gas under strict conditions [Benita Welter / Pixabay]

The European Parliament reached a provisional agreement with EU member states on Wednesday (9 December), which sees fossil fuels axed from the EU’s just transition fund but finding their way back into EU regional development funding until 2025.

The decision came after tense negotiations – what one source described as a “rollercoaster” – which came to a head on two key issues: the inclusion of fossil gas and including climate conditionality in eligibility for funds.

In March 2019, Parliament voted to exclude fossil gas from the European regional development fund, but included it by a narrow margin in the just transition fund in September 2020.

Meanwhile, EU member states in the Council of Ministers agreed to exclude fossil gas from the JTF in June, but introduced a 1% allowance for it in the regional development fund.

The German Presidency of the EU compromised by putting the two funds together as a package, with fossil gas only receiving money from the regional development fund – and under strict conditionality.

Coal and oil will not receive any funding and decommissioning or constructing nuclear power stations will not be supported by the just transition fund.

“This agreement brings Europe up to the climate ambitions of its ‘Green Pact’, in line with the Paris Agreement. The exclusion of gas and all fossil fuels is a real victory which will guarantee virtuous investments from an ecological point of view,” said Younous Omarjee, President of the Regional Development Commission.

“The regulations that we have finalised over the last two weeks for cohesion policy, more than €400 billion, make it the keystone of the Green New Deal. It was an intense battle that we can be proud of,” he added.

However, the decision was put at risk on Wednesday when MEPs from coal-reliant countries tried to go back on the deal and include fossil fuels in the just transition fund, according to sources familiar with the negotiations.

The Commission also had to create a new draft on district heating after an attempt to circumvent the gas ban with an exception for low-carbon district heating.

The Commission reworded this to only include district heating from renewable sources, but with not conditions on sustainability, leaving the door open for unsustainable biomass, said a source familiar with the text.

Another point of contention in the negotiations was around climate conditionality, a proposal put forward by the Parliament and agreed in principle by the Council.

It would mean funding is linked to member states committing formally to the EU’s 2050 net zero target, with only 50% of national allocation available for countries not committed to implement carbon-neutrality.

“The European Parliament gave a strong political signal: the social, economic and environmental impact of the energy transition in the most affected regions must be addressed. We took a pragmatic approach that will allow us to move into a new green era without leaving anyone behind,” said Manolis Kefalogiannis, the rapporteur from the centre-right European People’s Party (EPP).

The just transition fund, worth €17.5 billion, acts to reduce the social impact and support regions in the transition towards climate neutrality by 2050.

Micro-enterprises, universities and public research institutions will now qualify for funding, with finance also available for renewable energy, energy storage technologies, energy efficiency and renewables-based district heating and smart and sustainable local mobility.

Gas funding allowed under strict conditions

Under the new regional development fund, money is still available for gas, but must meet the taxonomy criteria of do no significant harm, which stipulates that emissions must be lower than 270gCO2e/KWh.

Funding will be focused on coal-reliant regions and cut off after 2025.

Under the previous regional development fund, member states were able to use finance to fossil gas investments.

A study in April found €940 million from the regional development fund and Cohesion Fund  went to support fossil fuel infrastructure in Bulgaria, Greece, Lithuania, Latvia, Poland and Romania.

Funding will now be much more limited.

Only 1% of the total €200 billion will be eligible to support fossil fuels and caps proposed by  the Parliament’s centrist Renew Europe group last week will mean different levels of funding are available according to country’s reliance on fossil fuel consumption and gross national income per capita.

“It is a major decision which confirms the credibility of Europe to become the first climate neutral continent by 2050 at the latest, while finding the path which takes all the countries and territories,” said Pascal Canfin, who published a description of the trilogue.

The European Commission sees gas as a transition fuel, which can help countries like Poland phase out coal more quickly.

However, environmentalists say gas should not be part of the green transition, and warned that including them in the regional development fund risks creating stranding assets.

Parliament and Council are now expected to endorse the content of the agreement with the final test expected early next year.

[Edited by Frédéric Simon]

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