Funding the Just Transition Fund: additional money is needed

DISCLAIMER: All opinions in this column reflect the views of the author(s), not of EURACTIV Media network.

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The proposed Just Transition Fund is a step in the right direction. However, several important issues have to be amended. [Shutterstock]

This article is part of our special report Europe’s new Climate Law: Leaving no-one behind?.

Negotiations on the post-2020 EU budget are currently very high on EU’s political agenda especially in the context of financing increased climate targets. The European Commission estimates that achieving these targets by 2030 will require yearly investments of EUR 180 billion throughout the European Union. In Poland alone the costs of achieving net-zero emissions economy by 2050 require the power sector to invest between EUR 179-206 billion.

To achieve the climate change target in a fairer way, the European Commission proposed a Just Transition Mechanism and a Just Transition Fund (JTF). The Fund, equipped with EUR 7,5 billion, should support the territories most affected by the transition towards a climate neutral economy. It is a step in the right direction, but still there are several points which should be taken into account and improved to make the Fund fit for purpose, and to really make a difference.

First, any EU fund used for the JTF should be additional “fresh money” and should not come from the reallocation of EU funds from other resources under the next EU budget – like the European Regional Development Fund, the Cohesion Fund or the European Social Fund Plus. This would result in a decrease of these funds for Member States and other social groups, which may need them. Additionally, the Fund should be increased to EUR 20 billion. The proposed amount of EUR 7,5 billion is largely insufficient to bridge the investment gap in Member States heavily reliant on coal and with a GDP per capita below EU’s average. An increased financing for JTF should also go hand in hand with a higher cap per Member State, which today is limited to EUR 2 billion.

Second, the artificially introduced cap means that Poland receives only 27% of the fund’s total. Instead, its share should be far bigger given that half of all EU coal related jobs are located there. The methodology for calculating the allocation from the JTF to Member States should put more emphasisis on coal- and lignite-related jobs. The weight for this criterion should be increased so as to allow for the identification of regions with the biggest financial needs resulting from phasing out of coal-based activities. These are the regions which face the most demanding task of transformation. At least 80% of the JTF’s resources should be dedicated for these regions, which means that the list of regions eligible for funding from the JTF should be narrowed down.

Third, the JTF should especially support investments in Renewable Energy Sources, which play an important role in the energy transition. However these technologies are still capital-intensive and require significant capital investments, which, especially in case of Member States with a GDP per capita below EU’s average, is a significant challenge. Therefore, the possibility of supporting RES investments in power generation companies in largest need of transformation should be reflected accordingly in the JTF regulation.

Fourth, the aid intensity rules for the JTF should be aligned with those adopted by the European Investment Bank in its Energy Transition Package (ETP) so as to make the JTF more effective and consistent with the EU acquis. Therefore, the aid intensity level from the JTF should be equal to a maximum financing level of 75% used under the ETP.

Fifth, preparation and coordination of territorial just transition plans, as envisaged by the JTF regulation, should be done at a central level, as this seems to be a more rational solution than preparing these plans at a regional level. Without a coordination at central level it might be very difficult to ensure that the prepared just transition territorial plans will be in line with the commitments made under the National Climate and Energy Plans. Thus, the JTF regulation should foresee a more centralised approach for the preparation of the territorial just transition plans, and require the preparation of such plans at the central level.

PGE is ready to actively contribute to EU climate ambitions by investing heavily in low-carbon power generation technologies as evidenced by our investment plans. However, we will need adequate support in the process.

The proposed Just Transition Fund is a step in the right direction. However, for it to become an effective and significant tool in helping to ease the additional investment burden of the energy transition towards a climate neutral economy, several important issues have to be amended. This is to ensure a more fair distribution of costs between Member States, which can enable most affected power companies to modernise the generation fleet without having a negative impact on electricity bills.

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