Worries over ‘fresh money’ as EU cooks up energy transition fund

Polish Prime Minister Mateusz Morawiecki (C) attends his meeting with miners at the Staszic coal mine during the ruling Law and Justice party's election campaign in Katowice, Poland, 11 October 2019. [EPA-EFE/Andrzej Grygiel]

Eastern European countries, backed by trade unions, are putting pressure on EU leaders to come up with “fresh money” to support the energy transition in coal-dependent regions as part of a Green Deal due to be unveiled this week.

As the European Commission prepares to outline its Green Deal on Wednesday (11 December), worries are being expressed that one of the key elements of the proposal, the Just Transition Mechanism, may end up being a mere rebranding of existing EU expenditure.

Funds allocated under the new EU scheme “should be ‘fresh money’ and not come from reallocation” of existing funds, said Emil Wojtowicz, Vice-President for Finance at PGE, a state-owned utility which is the largest electricity producer in Poland.

Wind Europe, a trade association, also called for “fresh EU money,” saying the new fund “needs to be considerably higher” than the €5 billion initially envisaged by the European Parliament.

According to Wind Europe, the new EU fund should prioritise highly carbon-intensive regions, notably those heavily reliant on coal mining, it said in a joint statement with power industry association Eurelectric, and other trade groups in the electricity sector.

“How to finance the energy transition, bringing on board all citizens, is the most important issue for us,” said Jerzy Buzek, a former Polish prime minister turned EU lawmaker, who spoke at a EURACTIV event last week.

Buzek led the Parliament’s calls last year to set up a Just Transition Fund, a proposal that was later endorsed by Ursula von der Leyen, the Commission’s new president.

But the amount of money initially envisaged under the fund – €4.8 billion – is now largely insufficient in view of the EU’s increased climate ambitions, the Polish MEP argued.

“Let us go further. It’s not enough,” Buzek told participants at the event, organised with the support of PGE.

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New objectives, new tools

When she took office earlier this month, von der Leyen pledged to make Europe “the first climate neutral continent in the world” by 2050. That implies revising the EU’s climate target for 2030 – from a 40% reduction in greenhouse gas emissions to a 50-55% cut by the end of the next decade, she said.

“€5 billion is nothing,” Buzek insisted, adding a “€30-40 billion” figure would be more appropriate to help European regions that are most heavily impacted by industrial change. “We are in a quite different situation,” he added, saying the Just Transition Fund was initially conceived at a time when the EU was aiming for a 40% cut in emissions by 2030.

The former Polish PM drew attention to the ‘Yellow Vests’ protests in France, which were sparked by a 10 euro cent increase in fuel prices, and strikes over rising electricity prices that toppled the Bulgarian government years before.

“I would like to have all the citizens on board,” Buzek said, warning about the social dimension of the energy transition.

Clean energy transition ‘is a social policy issue’, Poles insist

The social policy dimension was largely overlooked when the European Union decided energy and climate change objectives for 2030, Poles have warned, calling on policymakers to endorse a “just transition fund” to support the country’s coal phase-out.

The Just Transition Fund is a central element of the EU’s effort to win over Poland, Hungary and the Czech Republic, the last remaining EU countries opposed to the 2050 climate neutrality target.

At the last EU summit in October, Warsaw asked for “significantly larger” amounts of funding under the EU’s next long-term budget before it could sign up to the 2050 goal.

However, a detailed proposal on the new fund will not be unveiled until January, after another summit this week where the three countries will come under pressure to rally the 2050 objective.

Poland wants fresh EU money to back climate neutrality goal

Achieving climate neutrality requires “significantly larger” amounts of funding than what is currently on offer in the EU’s long-term budget proposal for 2021-2027, Warsaw said in a memo circulated ahead of an EU leaders’ summit opening today.

A three-digit fund?

Kadri Simson, the EU’s new energy Commissioner, assured national ministers last week that the new EU fund will have “sufficient firepower” to convince the last three remaining EU holdouts. She did not give a figure, however.

Frans Timmermans, the Commission vice-president in charge of the Green Deal, later indicated that the upcoming Just Transition Mechanism could be “in the three-digit area”, suggesting the figure could reach €100 billion at least.

Speaking at last week’s EURACTIV event, a senior EU official in charge of regional policy gave more details, suggesting the scope of the new-look EU fund could be broadened to cover more industries than energy.

“Probably the challenge doesn’t stop with coal-producing regions. There are other regions, which can be heavily dependent on big industrial plants,” said Marc Lemaître, director-general for regional and urban policy at the Commission.

“The social impact of our climate policy probably does not limit itself to the energy sector,” Lemaître said, suggesting the new Just Transition Mechanism will “go beyond” coal to address industrial transitions in areas like cement or fertilisers.

That point was echoed by Luc Triangle of Industriall Europe, a trade association. Speaking at the event, he said the transition to a green economy had triggered industrial transformation in a wide range of industries, including steel, cement, paper, fertilisers and chemicals.

“We don’t need more ‘Yellow Vests’ on the streets,” Triangle said, warning 6 million overall were under threat from the transition to a zero-emission economy.

“If we don’t manage it well, it can be a very socially-disruptive transition,” he warned, saying “far more money” was needed to address the social consequences of the green transition.

EU member states appear reluctant to dig into their pockets, however. Last week, the Finnish presidency of the EU circulated a compromise on the EU’s draft budget for 2021-2027, suggesting only small adjustments to EU expenditure over the next seven-year period.

That proposal was criticised by von der Leyen, who voiced concern “about the severe cuts” to the Commission’s budget proposal.

“I want to discuss this with my peers in the European Council next week,” she said referring to budget talks at the summit taking place in Brussels on 12-13 December.

Von der Leyen criticises Finnish presidency’s EU budget proposal

The new European Commission President, Ursula von der Leyen, did not mince her words at her first press conference on Wednesday (4 December), criticising a recent proposal of the Finnish EU Presidency for the bloc’s 2021-2027 budget and voicing concern “about the severe cuts in the proposal”.

Germany is one of the EU countries most staunchly opposed to raising its contribution to the EU budget. Together with Finland and the Netherlands, Berlin has suggested capping national contributions to 1% of Gross National Income, well below the Commission’s 1.11% proposal.

“We have the challenge of explaining this to the German taxpayer,” said Norbert Schultes, head of economic affairs and energy at the German Permanent Representation to the EU in Brussels.

“We must be very careful about how we use the money we have – this is my main message,” he told participants at the EURACTIV event last week.

Schultes acknowledged that the coal phase-out will be “a huge effort – even in Germany,” where a special commission painfully decided earlier this year to ditch coal by 2038. A decision on how to finance the transition in affected regions is still being discussed, he said. “And in Poland, it’s going to be even harder,” Schultes admitted.

But he insisted that most of the money to finance the transition “will come from private investments,” not from the public purse. “Without private investment, we will not succeed,” he insisted.

Conditionality

While the amount of funding available under the EU budget is the chief concern for Poles, Czechs and Hungarians, it is not the only one. Whether the funds available will be allocated at all is another source of worry.

According to PGE, a minimum of 80% of the new fund should be made available to coal regions facing the biggest transition difficulties.

However, these monies could be blocked due to concerns over the rule of law in key beneficiary countries like Poland and Hungary. Warsaw is currently facing an infringement procedure under so-called “Article 7” of the EU treaty because of persistent threats to the independence of judges.

And under the current budget proposal, EU regional funds would only be offered to countries that meet their clean energy targets for 2020, a condition that would bar Poland from receiving any EU support.

“Conditionality will certainly be a very important consideration in the whole Commission proposal,” admitted Marc Lemaître, the EU official. “If one sets up a just transition fund, one should also be sure that the transition progresses, otherwise it’s a bit problematic,” he said at the EURACTIV event.

“To us it is very clear that the concentration will be very important,” Lemaître added, saying the new fund “cannot be ‘saupoudrage’” – a French term to mean a dilution of money over multiple beneficiaries.

Money for what?

Another concern relates to areas covered by the new Just Transition Mechanism. According to PGE, the money should not only go to retraining workers laid off as a result of coal plant closures – it should also help finance the large capital expenditure needed to build new power plants.

Poland is betting big on offshore wind to help the country wean itself off coal. But even as it steps up renewable energy plans, Warsaw is also pushing hard for new gas and nuclear plants to fill the power capacity gap left by coal plant closures.

Poland firms up gas, nuclear plans to fill green power gap

Replacing Poland’s obsolete coal power fleet is a top political priority for the country, both for environmental and energy security reasons. But even as it steps up renewable energy plans, Warsaw is also pushing hard for new gas and nuclear plants to fill in the gap.

However, EU finance available to support new gas plants may soon be drying up. Last month, the European Investment Bank decided to phase-out funding for power plants running on fossil gas.

“They say no lending for the gas sector. Well, that’s a horrifying decision,” Buzek said.

“I must tell you very honestly: I don’t need a climate bank,” the veteran Polish MEP said. “I need an energy transition fund to do everything possible to go smoothly through the energy transition.”

Meanwhile, some environmentalists have downplayed expectations about the upcoming Just Transition Mechanism.

“Countries with a high use of coal in their energy mix undoubtedly face a major challenge in achieving zero emissions by 2050. And the creation of a Just Transition fund will undoubtedly help them overcome the difficulties of becoming climate neutral,” says climate think tank E3G.

“At the same time however, expectations for what this fund can deliver should be tamed. Whether €5 billion or €35 billion, the new fund alone is unlikely to be enough to pay for the energy transition of Europe’s remaining coal countries,” it said, pointing to the rapid fall in decarbonisation technologies that will ease the transition.

[Edited by Sam Morgan]

Is the EU Just Transition Fund all for naught?

Whether €5 billion or €35 billion, the EU’s upcoming Just Transition Fund alone is unlikely to be enough to pay for the energy transition of Europe’s remaining coal countries. Nor is it necessary, argue Pieter de Pous and Rebekka Popp.

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