The European Union managed to overcome fierce disputes with Poland, Hungary and some other member countries on the conditions for using green recovery funds. The European Council adopted a seven-year budget and a EUR 750 billion fund for the economy’s sustainable recovery from the coronavirus pandemic at its summit in Brussels and gave the green light for establishing mechanisms to finance the European Green Deal.

Von der Leyen: The European Green Deal will be our growth strategy

“This has underlined indeed Europe’s capacity to act in the face of the worst crisis the EU has ever faced… The launch of NextGenerationEU is also a key component of our climate ambition. Now, that we have secured the funding, we have the means for our actions,” said European Commission President Ursula von der Leyen, pictured left with European Council President Charles Michel and German Chancellor Angela Merkel.

The head of the EU’s executive arm said the European Parliament should approve the budget, officially called multiannual financial framework, as soon as possible and called on member states to ratify it swiftly.

“All EU countries should benefit from the transition – with economic growth, a cleaner environment, and healthier citizens. The European Green Deal will be our growth strategy,” Von der Leyen stated.

At least 30% of package is earmarked for climate action

EU leaders voted for a EUR 1.07 trillion regular budget for 2021 to 2027 and approved the launch of NextGenerationEU, an additional recovery instrument worth EUR 750 billion. The European Council said at least 30% of total expenditure would be directed to climate action.

One of the key points is a binding target to reduce greenhouse gas emissions by at least 55% in the next decade from the level registered for 1990 so that the EU could become climate neutral by 2050 in line with the objectives of the 2015 Paris Agreement. The decision needs to be included in the upcoming European Climate Law.

The EU intends to expand the Emissions Trading System and roll out a CO2 tax on foreign goods and services

The European Commission is tasked with strengthening the Emissions Trading System (ETS) while having in mind the concerns about how the burden and revenue are distributed, particularly with regard to energy poverty. The statement adds it should propose a carbon border adjustment mechanism, effectively a tax on carbon dioxide, to ensure the environmental integrity of EU policies and avoid carbon leakage in a way compatible with the rules of the World Trade Organization.

The CO2 tax on foreign goods and services is planned to be used to partly finance the NextGenerationEU or NGEU package.

Just Transition Fund

The European Green Deal initiative is aimed at establishing a Just Transition Mechanism. The EUR 17.5 billion Just Transition Fund is its core element for mitigating the social impact of greening the economy in regions dependent on coal or otherwise affected by the energy transition.

The main EU institutions agreed to extend the scope of the proposed fund to micro-enterprises, universities and public research institutions, digital innovation and activities in the areas of education and social inclusion. Other projects eligible for the grants are renewable energy and energy storage technologies, investments in energy efficiency and heat production for renewables-based district heating, smart and sustainable local mobility.

Nuclear power and fossil fuel projects aren’t eligible for the Just Transition Fund

EU leaders said the Just Transition Fund won’t be used for the decommissioning or construction of nuclear power stations, activities linked to tobacco products and investment related to the production, processing, transport, distribution, storage or combustion of fossil fuels.

At the initiative of the European Parliament, a Green Rewarding Mechanism will be introduced if JTF is increased after 2024. The additional resources should be distributed among member states, with those that succeed in reducing greenhouse gas emitted by their industrial facilities receiving more funding.

No room for fossil gas after 2025

Member states were urged to focus their just transition plans on supporting outermost regions and islands and earmark specific amounts from their national allocations. The Just Transition Fund is set to consist of EUR 7.5 billion from the budget and EUR 10 billion from NGEU.

After Poland, Hungary, the Czech Republic, Slovakia, Bulgaria and Romania demanded “technology neutrality” to accept the increased ambitions for 2030 regarding greenhouse gases, the European Council said member countries would be able to decide on their energy mix  “including transitional technologies such as gas.” However, such projects can be run mostly in coal-reliant areas, emissions must be low and the funding will last only through 2025, the EU said.

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