Long before the official presentation of the European Green Deal, eyebrows were raised as to the funding of the mammoth project. On 14 January 2020 the Commission presented the financial plan for the green transition to MEPs, including an investment plan for a sustainable Europe and a mechanism for a just transition.
Everybody was aware of the fact that Europe’s green and socially sustainable transition would be an expensive undertaking. Nevertheless, the sum of 1 trillion Euro for planned private and public investments sounds gigantic, even for a period of ten years. In its financial plans for the European Green Deal, the Commission focusses on several components: apart from an investment plan for a sustainable Europe, a just transition mechanism shall ensure that everybody benefits from the green transition.
The investment plan for a sustainable Europe
The investment plan for a sustainable Europe, also known as the European Green Deal Investment Plan, is the overarching structure of the financial plan. It serves as a framework to facilitate public and private investments. The target is the mobilisation of 1 trillion euro for the period 2021-2027, whereby 400 billion euro of the EU budget will be allocated to climate-friendly causes. The rest shall be mobilised by multipliers such as the European Investment Bank and the investment programme InvestEU. The plan aims to put the European financial structure on green feet, thereby creating incentives for a green reorientation of public and private investments.
The Just Transition Mechanism
In order to achieve a socially sustainable green transition (just transition), leaving no one behind, 100 billion euro will be mobilised within the scope of the Just Transition Mechanism. Especially the new Just Transition Fund shall receive 7.5 billion “fresh” money, i.e. money from the EU budget, which in turn shall generate 30 to 50 billion Euro investments over the next seven years. Each euro allocated from the Just Transition Fund must be co-financed by means from the Cohesion Fund, the European Social Fund and by money of the Member States. The second pillar of the mechanism consists of the investment programme InvestEU that shall - thanks to a transitional arrangement - add further 45 billion guarantees. Ultimately, the Investment Bank shall offset investments of about 25 to 30 billion euro. In concrete terms, this money will benefit regions, which depend on fossil fuels and which need extra support for achieving a transition towards a green economy. The money shall be invested in re- and upskilling workers for green jobs as well as in the energy-efficient restoration of buildings or in combatting energy poverty. The use of these funds will not be bound to the condition of a fixed time coal phase-out. However, it is prohibited to use them for nuclear power.
Member States must cooperate
From a political point of view, the financing of the European Green Deals appears to remain a tightrope act; after all it depends on the financial contributions of the Member States. To which extent all 27 members will divide the bill fairly among themselves remains to be seen, given that Poland had already made it clear in December that it rejects binding climate targets at European level. As feared, already allocated money will be used: the Cohesion Fund as well as the European Social Fund shall contribute within the scope of the next EU budget. The negotiations on the Multiannual financial framework, which already prove to be difficult and lengthy without even without financing the European Green Deal, are now being severely tested. The weakness of the Commission’s financial plan obviously lies in planned investments, i.e. money, which has yet to be generated and therefore is not yet available. Hence, intensive negotiations with the Member States over the next weeks and months are already on the cards.
Especially the comparably small and the only real existing sum of 7.5 billion euro of the Just Transition Fund, deemed a drop in the ocean, has attracted much criticism. From the AK’s point of view, a plastic tax, income from trading with emission certificates and the Common Consolidated Corporation Tax would be good and realisable options to generate climate-friendly own resources.