Forging a Green Future – The European “Green Deal Investment Plan” and “Just Transition Mechanism”

On 14 January 2020 the European Commission (the EC) presented its Green Deal Investment Plan (the “Investment Plan”) to the public.  The Investment Plan is a key element of the EU Green Deal strategy to deliver a carbon neutral Europe by 2050.  Moving to a lower pollution, carbon neutral environment will require significant investment expenditure on the part of the EU, the member states, the public sector and, private investment.  The Investment Plan is intended to mobilise public investment and stimulate private investment via EU financial instruments of which the most notable is InvestEU.   The Investment Plan is expected to result in a minimum of €1 trillion of investments over the next decade.

The transition proposed by the Green Deal is unprecedented and to be successful it must have the support of all regions at both governmental and citizen levels.  The EU has recognised that the required economic and social changes will be greatest in regions and business sectors which currently rely the most heavily on fossil fuels.  Consequently, it intends to provide additional support in these areas to ensure that, as stated by EC President Ursula von Leyen, “…we leave no one behind”.   A key part of this strategy will be the parallel implementation of the “Just Transition Mechanism” alongside of the Investment Plan.

The Investment Plan

The Investment Plan is designed to complement other initiatives announced under the Green Deal and rests on three core pillars.  These are as follows:

  1. The intention is to mobilize a minimum of €1 trillion of sustainable investment by 2030.  Core to this is allocating a greater share of the EU budget than ever before to spending on climate and environmental actions in order to ‘crowd in’ private funding.  The European Investment Bank (the EIB) will be instrumental in implementing this strategy.
  2. Specific incentives will be introduced to redirect public and private investment towards sustainable investments.  The EU will put sustainable finance at the heart of the financial system.  It will encourage green budgeting and procurement in order to facilitate sustainable investment by the public sector.  It will also develop procedures to approve State Aid for ‘just transition’ regions.
  3. Support from the EC will be given to the public sector and, to project promoters to assist in the assessment, planning, design and execution of sustainable projects.

 

The Just Transition Mechanism (the JTM)

The JTM is an essential tool within the Green Deal.  The Investment Plan caters for the fact that all regions in the EU will require funding in order to move to a carbon neutral position.  The JTM, however, is intended to alleviate the socio-economic impact in regions and sectors that are currently heavily dependent on fossil fuels. The JTM will be used to provide targeted support to mobilise a minimum of €100 billion over the period 2021-2027 to help workers and communities which are reliant on the fossil fuel value chain.  This will be in addition to the contribution of the EU budget through all instruments directly relevant to the Green Deal.

A key element of the support to be offered under the JTM is financial.  The JTM will incorporate three principal finance sources.  These are:

  1. A Just Transition Fund (the Fund). This will consist of €5 billion of fresh EU Funds to be mainly used to provide grants to regions.  Member states wishing to utilise the Fund will need to identify the territories eligible to help. They will also have to commit to providing matching funding from the European Regional Development Fund and the European Social Fund and, to the allocation of additional national resources.  In total this should result in €30-50 billion of funding. It is anticipated that the fund will be used to support ventures such as supporting workers to develop skills for the future ‘green’ job market, helping enterprises create new regional economic opportunities and, supporting investment in clean energy projects.
  2. A Just Transition Scheme under InvestEU. This is a scheme directed at mobilising up to €45 billion of private investment.  Such investment will be focused in areas such as sustainable energy and transport in the targeted regions.
  3. An EIB public sector loan facility which is underwritten by the EU. The EC is aiming to put forward an associated legislative proposal to establish this facility by March 2020.  It envisages that the scheme will mobilise €25-30 billion of investment into ‘green’ infrastructure projects such as district heating networks and building renovations.

Importantly, however, the JTM will be providing technical support alongside financial aid.  It will also ensure that relevant stakeholders such as affected communities, local NGOs, local authorities etc are involved in investment planning.  The JTM will operate within a strong governance framework.

Conclusions

Realizing the goals of the Green Deal will necessitate a revolution in the daily lives of European citizens and, in the way that the economy as a whole operates and is structured.  The changes envisaged have the potential to cause economic distress and possible social unrest in the areas which will be the most affected by them, namely those regions and industries which are most dependent on fossil fuels.  The fact that the JTM has been instigated and that the EC has placed great emphasis on its importance indicates that EC clearly recognizes the problems ahead.   Structural change has, however, happened within Europe before, and the EC has clearly looked to and drawn on the example of its predecessor organisation, the European Coal and Steel Community (the ECSC) for a blueprint on how it can be managed peacefully.  The ECSC paid half the occupational redeployment costs of those workers who lost their jobs as coal and steel facilities began to close down across Europe.  Combined with regional redevelopment aid the ECSC successfully spent around €150 million creating 100,000 jobs, a third of which were for unemployed coal and steel workers. The JTM might be seen as the EU adopting a similar strategy on a larger scale.

 

For more information please speak with your usual contact at Elias Neocleous & Co LLC.