Funding the just transition to a net zero economy in Europe: opportunities in the next EU budget

Funding the just transition to a net zero economy in Europe: opportunities in the next EU budget

Europe’s transition to a net zero carbon society implies a wide range of changes throughout its economy. New industries develop, creating new jobs requiring new skills and whole new sectors of activities.

While this shift is primarily an economic opportunity, such deep changes will also have social consequences that need to be addressed. Supporting regions, communities and workers adaptation to these changes and making sure they are implemented in a socially fair way will require carefully targeted financial resources.

The next European Multi-Annual Financial Framework (MFF) – with its proposed envelope of €1.279 trillion – has the means to underpin Europe’s support to help achieve a just transition to a net zero carbon economy. A number of the proposed EU budget instruments include supporting a “just transition” within their scope. Yet these instruments remain fragmented, and Europe is at risk of missing an opportunity to implement a more cohesive strategy for enabling a just transition to a zero-carbon economy.

This report aims to assess the Commission’s recently released sectoral proposals for the next 2021-2027 MFF. It explores the contribution of several instruments – Cohesion Policy Funds, European Social Fund Plus, InvestEU, Horizon Europe and European Globalisation Adjustment Fund – to the just transition agenda. It also identifies options for EU policy-makers to better align funds with this agenda.

Table 1 below provides an overall verdict on how each fund fares in the promotion of a just transition to a net zero economy. It is contextualised with an overview of each fund’s size and relevance for the just transition agenda together with its current alignment with this agenda.

As well as improving individual funding instruments, responding to the challenge of a just transition to a zero carbon economy requires a more cohesive European strategy on just transition. Current approaches remain fragmented and this creates a risk of misalignment and wasted effort.

Instead, an integrated EU funding strategy on just transition should reflect a number of cross-cutting principles.

Firstly, the budget should create sustainable opportunities for workers and the economy of affected regions that work in synergy with national and EU strategies for the transition to net zero emissions. The budget instruments can reflect this by:

  • Encouraging the uptake of green development models by making sure budgetary instruments include measures that will spur the low carbon transition in affected regions with the view of creating sustainable economic opportunities. So far, only some funds, like the Cohesion Policy Funds, have made such a step by making the transition a policy objective or linking funds disbursement to the adoption of National Energy and Climate Plans. Most other budgetary instruments have yet to grasp the opportunity to fund such measures.
  • Including at least a 30% share of spending that will contribute to achieving EU climate and energy objectives throughout EU budget instruments, in line with the European Parliament’s position. Climate mainstreaming as labelled by the European Commission is essential to achieve the scale of investments that will create large scale changes and opportunities. To be effective this must be combined with a clear methodology that not only defines the nature of climate spending but that can reliably track them.
  • Complementing nationally or regionally-devised strategies for a fair and green transition. To maximise their impact but also increase the efficiency of EU spending, the funds would serve to finance such existing strategies for a fair and green transition. EU budget funds can then be used in a targeted way to match the needs of each region, which can vary greatly. Supporting mechanisms outside the budget like the Coal Regions in Transition Platform also play an important role in helping member states to elaborate development strategies and match the needs created by their transition to opportunities in the budget.

Secondly, the budget must be designed so that opportunities created by the transition to a net zero emissions economy reliably benefit affected regions and stakeholders. Making sure workers, industries and regions benefit from just transition measures does not simply encourage ownership but also maximises the impact of EU spending. This can be promoted through:

  • Designing existing capacity-building mechanisms within the budget to provide support for the net zero transition. Examples include technical assistance provisions under Cohesion policy funds or InvestEU’s Advisory Hub.
  • Providing more direct access to EU budget to regions and local stakeholders such as cities, as they are well-placed to carry local development strategies in line with the transition to a low carbon economy. They also have the expertise to identify the type of support needed at local level to best support workers, communities and industries.
  • Offering education and reskilling opportunities for future-proof employment prospects. Funds like the European Social Fund Plus (ESF+) and Cohesion Policy Funds can address the reskilling of workers but also provide education opportunities matching local development needs for young people in regions dependent on high carbon industries. This would require direct access to funds for regions and local stakeholders who often are best placed to provide relevant support.
  • Enshrining consistent respect of the rule of law across EU budget instruments to guarantee funds will reach workers, regions, communities and will not be diverted in a fraudulent way. This not only increases benefits for workers and communities but also makes for more efficient EU spending.

Finally, the budget must help ensure a reduced social impact from the shift away from unsustainable fossil fuel-based activities on affected regions and workers. Changing the industrial development model has disruptive effects, but these impacts can be mitigated by:

  • Putting in place social safeguards to shield workers from the immediate effects of the transition to a green economy. Funds like the ESF+ and the European Globalisation Adjustment Fund (EGF) need to be designed to address the social consequences of the transition. This requires offering clear support to workers with labour market measures tailored to their needs in terms of job-seeking allowance, financial support or training. These often represent immediate support that cannot replace national social security measures for longer-term solutions.
  • Encouraging the use of consultative decision-making processes involving trade union representatives, local authorities and businesses. This is essential to successfully address the needs of workers and communities and ensure buy-in for the transition.
  • Stopping support to all fossil fuel investments to ensure the timely decarbonisation of the economy and greater coherence with the promotion of the transition to net zero emissions across the budget. This needs to be effective across all EU budget instruments, which is not currently the case as only the Cohesion Policy Funds proposal has such an exclusion clause.
  • Climate-proofing the budget to ensure no backdoor support to projects which undermine EU climate objectives. Clear and consistent climate-proofing criteria need to be defined to ensure that beyond fossil fuel investments, the budget offers a transparent and predictable understanding of climate compatible investments.

You can read the full report, Funding the just transition to a net zero economy in Europe: opportunities in the next EU budget, here.


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