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Better use should be made of EU funds for a green recovery: views from an NGO network

In the 2014–2020 EU budget framework, Regional Development Fund and Cohesion Fund expenditure — over 30% of total spending — offers ample possibilities for investments in climate change action, for instance action on a transition to clean energy. While we see, on the one hand, that many climate policy needs have been identified, one can also see a relatively low level of allocation in several Member States relating to these funds. Markus Trilling, Finance and Subsidies Policy Coordinator at Climate Action Network (CAN) Europe — an NGO coalition with over 170 member organisations in Europe — provides insights into the research results published in April 2020 by CAN Europe regarding EU Member States’ utilisation of the potential of regional funds for energy transition purposes. He concludes that the way to a climate neutral and just recovery requires all Member States to increase their clean energy spending and put climate neutrality at the heart of the EU funds’ spending plans.

By Markus Trilling, Climate Action Network Europe

Combining Covid 19 economic recovery packages with the EU’s long-term targets

The Covid-19 crisis is not only strongly impacting people’s lives, it is also leading to an unprecedented economic shock which might impact the EU for years ahead. ‘Economic recovery’-packages will tap into the public purse to stimulate investments. These investment need to achieve the EU’s 2030 climate and energy targets, estimated by the European Commission at an additional €260 billion, and also finance the long-term transition to climate neutrality as set down in the European Green Deal. Greater investments in clean energy infrastructure are needed not only to ensure a sustainable and green economic recovery, but also to shape the EU’s long-term pathway to achieving the Paris Agreement’s objective of limiting the global temperature increase to 1.5˚C.

Box 1 — Climate Action Network (CAN) Europe

CAN Europe is a coalition of European NGOs fighting climate change and promoting the development of sustainable climate and energy policies. CAN Europe has over 170 member organisations active in 38 European countries, all together representing over 1.500 NGOs and more than 40 million citizens.

CAN Europe aims to influence the design and development of effective climate change policy in Europe, both at the level of the European Union as well as in its Member States and in the European countries outside the EU.

The European Commission has recognised this need and intends to use at least 25% of the next EU budget (2021–2027) to support this transition, building further on the requirement for Member States to spend 20% of the current EU budget (2014–2020) on climate action. However, a recent report, Funding Climate And Energy Transition in the EU: The Untapped Potential of Regional Funds, published by Climate Action Network (CAN) Europe, shows that in the current EU budget period Member States are using only an average of 9.7% of EU regional development funds to finance clean energy infrastructure, leaving the transformational potential of the EU budget largely untapped.

With case studies from Estonia, Croatia, Czechia, France, Poland, Portugal, Slovenia and Spain, the report underlines the gaps and opportunities at national level, and calls upon all Member States to make clean energy investments a priority for the next EU budget 2021–2027 to ensure a just and climate neutral recovery and to comply with their international commitments under the Paris Agreement.

EU funds’ climate action potential largely untapped

The EU’s Cohesion Policy funding, made up of the European Regional Development Fund (ERDF), the Cohesion Fund (CF) and the European Social Fund (ESF), is the main source of funding for public infrastructure investments in many European regions. Member States can choose from a large menu of eligible measures when they decide on projects and investments that will be financed by the EU funds. These measures can vary according to the development priorities and financing needs of Member States. Small and Medium Sized Enterprises (SMEs), Research and Innovation, Information and Communication Technology (ICT); investments in transport, environmental protection, energy infrastructure and social inclusion and quality employment are only some of the categories that can be financed with the Cohesion Policy funds.

The EU’s Cohesion Policy, which is enshrined in the EU treaties, aims to promote economic, social and territorial cohesion within the EU. Its contribution and role in catalysing the just transition of our economies towards climate neutrality, while creating jobs and promoting sustainable development, is of crucial importance, in particular in the ‘less developed regions’ in Central, Eastern and Southern Europe, where public infrastructure investments depend substantially on EU funds.

The 2015 Paris Agreement, the proposed European Green Deal and the EU leaders’ agreement on achieving climate neutrality, all point to the need for a rapid transformation of our society. The ERDF and CF could be impactful tools to deliver on these commitments by financing measures that contribute to more ambitious action at national level, in particular in the short term, while catalysing the transition towards climate neutral, 100% renewable and fully energy-efficient economies which do without fossil fuels.

However, the current potential of EU funds to boost the clean energy transition remains largely untapped. Only an average of 9.7% of the ERDF and CF during the 2014 -2020 period is allocated to energy efficiency, renewable energy and SMART grids, electricity transmission, storage and related infrastructure, and to research and innovation for climate action. In some Member States, EU funds are still used to finance fossil gas.

Bulgaria, Italy, Portugal, Croatia, Greece, Slovakia, Poland, Romania, Cyprus and Malta spend less than 10% of current EU funds to finance clean energy infrastructure. Poland, the biggest recipient of EU funds in nominal terms, has spent only 7.7% of its EU regional funding on clean energy infrastructure, making the country, together with Portugal (7.7%) the EU’s fourth-worst spender after Slovakia (6.6%), Bulgaria (6.7%) and Croatia (7%).

The Member States who spend least on clean energy investments are also the ones that are the main beneficiaries of EU funds. The reluctance of several Southern and Eastern European countries to fully use the potential of EU funding for their energy transition stands in stark contrast to these countries’ claims that the high costs of the transition prevents them from committing to higher EU climate targets. A low level of allocation to clean energy makes the claims for more financial support less valid.

Bulgaria, Greece, Lithuania, Latvia, Poland and Romania have allocated €940 million from the EU budget to support fossil gas infrastructure. However, fossil fuel subsidies hinder the transition to climate neutrality. They undermine short and long-term climate action as they distort markets and dis-incentivise investments in renewable energy and energy efficiency. Another problem related to the use of regional funds is the relatively high share for biomass within the overall renewable energy investment areas, where sustainability considerations are not guaranteed, and other options such as wind or solar seemed to be neglected.

In some countries the administrative complexity, the lack of long-term planning and delays in the implementation of EU funds hinders the smooth rollout of clean energy projects. For instance, in Croatia calls for applications for promoting energy efficiency, renewable energy, climate change adaptation and climate risk management were delayed up to 3 years. The consequence of the delay is an extremely low absorption of funding, which made unfavourable reallocations necessary, undermining climate action objectives.

EU funds’ priorities must shift to implement the European Green Deal and support green recovery

While struggling to address the acute economic fallout of the Covid-19 pandemic, Member States are advised to accelerate their longer-term investment planning, while integrating the need to transition towards climate neutrality. The upcoming ‘EU funds programming,’ i.e. the drafting of spending plans for national and regional EU funds for the period 2021–2027, is an opportunity not to be missed in this regard.

Given the urgency of avoiding the climate change crisis, future recovery measures, and in particular the next EU budget, will need to support more ambitious climate action. To do so, the EU needs to strengthen rather than weaken its regulatory framework. This will include, as provided for in the European Green Deal, a rapid increase in the 2030 climate target, up to 65% if the EU is serious about contributing to achieving the 1.5°C objective, and clear long-term planning to achieve climate neutrality well before mid-century. Meeting the Paris Agreement’s objective requires the deep decarbonisation of all sectors of the economy and will require a substantial amount of private and public funding.

Member States, national and regional authorities, while currently taking urgent short-term measures to prevent the complete collapse of the economy, will soon pick up their planning — programming — of spending priorities for EU funds for the 2021–2027 EU budget cycle. This process started already last year. However, now they will look at EU funds in the context of economic recovery imperatives.

In order to ensure those long-term investments contribute to the just transition and help create economic resilience, the current funding pattern has to change. In order to tap fully into the transformational potential of EU funds and to deliver on climate action and economic recovery, it is important to orient regional funds to the full decarbonisation of housing, transport, energy, public infrastructure, Small and Medium Enterprises (SMEs), catalysing the just transition away from fossil fuels.

The EU’s Cohesion Policy funding makes up around one third of the entire EU budget. With other ‘system relevant’ sectors such as agriculture, depending on the EU’s purse, the entire EU budget thus should become a ‘Just Transition Fund for climate, environment and economic recovery.’ The Commission and Member States must focus on the transition towards climate neutrality in all relevant sectors by earmarking 40% of the EU budget for a green and just transition and excluding all fossil fuel subsidies. All expenditure from the EU budget has to be in line with the objectives of the Paris Agreement. For this to happen it is important to align EU funding plans, such as operational programmes or Common Agricultural Policy strategic plans, with long-term climate objectives and ensure that climate neutrality objectives are at the heart of all regional and sectoral spending plans.

The Commission’s proposal on the Just Transition Fund embraces the concept of climate neutrality by requiring the elaboration of ‘Territorial Just Transition Plans’ which should describe in detail the steps needed to guide the transition to low-carbon economies and to achieve climate neutrality. This approach should be applied to all relevant regional and sectoral operational programmes. As a consequence, EU funds should visibly increase the ambition of the National Energy and Climate Plans (NECPs), enabling the financing of measures needed to implement higher climate and energy targets in line with climate neutrality trajectories.

EU funds could facilitate long-term capital and infrastructure investments, boosting the transition towards climate neutrality in all sectors of the economy while reviving the economy from the current shock. However, this economic recovery can be green, only if Member States put the transition to climate neutrality in the focus, rather than do business as usual and aggravate the climate crisis. At the end of the day, the EU’s action and investments in the next 10 years will decide whether it can successfully tackle both the climate and economic crises.

This article was first published on the 2/2020 issue of the ECA Journal. The contents of the interviews and the articles are the sole responsibility of the interviewees and authors and do not necessarily reflect the opinion of the European Court of Auditors.

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