The Just Transition Fund: European grants to address the socio-economic disruption caused by environmental transition.
The Just Transition Fund (JTF) has recently been introduced into the European funds to address the socio-economic disruption caused by the environmental transition. This innovation leads to an examination of its objectives, its functioning, as well as the criticisms levelled at it.
Context of the appearance of the Just Transition Fund
In order to improve the well-being and health of citizens, the European Commission has adopted the Green Deal for the EU, which aims to make Europe the first greenhouse gas neutral continent by 2050.
Achieving this goal requires the disappearance and transformation of certain industries and activities that are high emitters of greenhouse gases, although in some cases they form an important part of the economy of several European regions. By 2030, more than 150,000 jobs are likely to be lost in this sector, and while all European regions will be affected by these changes, some will be disrupted. This is particularly the case for Polish and German regions, which are the largest employers in coal and lignite mining.
The environmental transition can therefore be synonymous with socio-economic upheaval. Aware of this reality, the Green Deal strategy is based on a green and just transition “where no one is left behind“. To this end, the European Commission sets up a new tool mobilising up to 55 billion euro over the period 2021-2027: the Just Transition Mechanism (JTM), of which one of the 3 pillars is the Just Transition Fund (JTF).
The Just Transition Fund, a new feature of the European funds
Objectives of the JTF
Discussed since December 2019 and established by a regulation in June 2021, the JTF is a financial instrument under the cohesion policy. Its objective is twofold:
- To support the economic diversification of the territories most affected by the climate transition
- To support the retraining and active inclusion of their workers and job seekers
To achieve this, the fund has a budget of 17.5 billion euro for the period 2021-2027, of which 10 billion euro comes from the European recovery plan. To benefit from these funds, investments in the following activities and themes must be supported
- Renewable energy and energy efficiency in buildings
- Renovation and modernisation of district heating networks
- Clean mobility
- SMEs and the creation of new businesses that diversify the economy of a territory
- Retraining of workers and inclusion of job seekers
- Digital economy
- Circular economy, including waste management
Functioning of the JTF
The breakdown of the fund is based on a territorial approach to prevent the growth of disparities, investing in areas that need to transform or phase out highly polluting industries such as those based on the production or use of coal, lignite, peat and oil shale.
The funds are allocated on the basis of territorial just transition plans, drawn up by the Member States in collaboration with local and regional authorities. The aim is to identify the most affected territories and their investment needs. These plans must be validated by the European Commission.
Finally, the JTF subsidises projects according to the category of the region where the projects are located. For the least developed regions, the co-financing ceiling is 85%, for the regions in transition it is 70%, and for the most developed regions it is 50%.
Where do we stand?
In addition to the validation of the territorial just transition plans, the European Commission established during the 2020 European Semester the list of territories that will be eligible for this fund from the outset. In total, more than 90 regions or territories are already concerned among the 27 Member States. As an indication, Germany has the largest number of eligible territories (18), followed by Poland (9) and Spain (8).
This list of eligible territories is likely to be extended thanks to the territorial just transition plans. The example of France is significant since its number of eligible territories could increase from 2 (Nord and Bouches-du-Rhône) to 10 (Pas-de-Calais, Seine Maritime, Moselle, Meurthe-et-Moselle, Haut-Rhin, Loire-Atlantique, Isère and Rhône).
JTF: A promising fund ?
lIMITES OF THE JUST TRANSITION FUND
Although it is too early to have an overview of the concrete effects of this fund, it has been the subject of certain criticisms that allow us to question its effectiveness. Two main limitations have been identified: an insufficient budget, and a problem of coherence. According to some trade unions, think tanks and NGOs, there is a discrepancy between the fund’s budget and the investment needs related to the just transition. Its budget seems all the more insufficient as it was initially supposed to be endowed with 40 billion euro, and has therefore been divided by more than half.
The second main criticism concerns the consistency of the fund’s scope. A vote in the European Parliament that allowed the use of the JTF to finance gas projects was strongly contested as it contradicted the principle that all investments in fossil fuel activities should be excluded from the fund. The list of territories covered is also sometimes contested as it depends on political trade-offs that have identified specific challenges for fossil fuel dependent regions, thus excluding other regions from this just transition. However, other sectors will have to undergo a profound transformation, such as the metallurgy, agriculture and electricity industries.
How can these weaknesses be overcome?
After an eventful development, the fund is finally not open to gas projects, and for the sake of consistency, Member States that have not committed to implementing the objective of achieving a climate-neutral Union will only receive 50% of the annual allocations.
To compensate for the limited budget, a green rewarding mechanism is foreseen from 2024 onwards (provided that the JTF resources have increased after 31 December 2024). Member States that succeed in reducing greenhouse gas emissions from their industrial installations will receive more funds.
To achieve the expected effects, it is also necessary to call on complementary sources of other EU funding: ERDF and ESF+ of course, but also the Connecting Europe Facility, LIFE, Digital Europe, InvestEU, Horizon Europe, the Coal and Steel Research Fund, the Innovation Fund and the EU ETS Modernisation Fund. Finally, the intrinsic weakness of the budget is partly circumvented by a certain flexibility which allows the JTF budget to be reinforced by additional funding from the ERDF and ESF+.
The coming months and years will provide further evidence of whether this new Just Transition Fund is successful in meeting its objectives.