Just Transition Mechanism
The Just Transition Mechanism is a policy framework developed by the European Union as part of the European Green Deal investment plan to ensure a just transition into a low-carbon economy.
The primary objective of the Just Transition Mechanism is to mitigate the worst socio-economic effects of the transition into a climate neutral economy, which can prove difficult for regions highly dependent on carbon-intensive industries. These areas usually count with lower GDP rates than the European average as well as certain degree of economic stagnation which makes them ever more vulnerable to the worst effects of the energy transition. This is particularly the case for coal mining communities, which lack employment opportunities beyond the sector.
For that purpose, the Just Transition Mechanism will help to mobilise at least €100 billion over the period 2021–2027, to be invested in regions highly dependent on carbon intensive industries – such as coal, lignite, oil shale and peat production facilities – making special emphasis in the promotion of social cohesion policies, employment generation and economic diversification.
Background
The establishment of the Just Transition Mechanism coincides with the EU's growing concerns with climate change and its effects on society, the economy and the living standards of the population.In 2016, Édouard Martin, member of the European Parliament for the Socialists and Democrats, proposed an amendment to the European Union Emission Trading System to include the concept of Just Transition. According to Mr. Martin's proposal, 2% of the ETS revenue would be employed to fund worker reskill programs in the face of the green transition. The proposal failed due to lack of support from the European Commission and the Council of the European Union.
In 2017, the commission launched the Coal Regions in Transition platform, designed to facilitate the energy transition of coal mining areas. In 2018, Jerzy Buzek, former Polish Prime Minister and member of the European People's Party Group at the European parliament, tabled a proposal for the creation of a "Just Energy Transition Fund". This initiative consisted of a €4.8 billion fund aimed at supporting the energy transition of coal mining areas. This proposal never materialized into law due to the commission's reluctance to impose further constraints ono the EU budget.
The Just Transition Fund was launched in 2021, as part of the Next Generation EU program. Regardless, it experienced several hurdles during its implementation. Initially, Eastern Member States proposed delaying implementation of the EU's green agenda to focus instead on the economic repercussions of the COVID-19 pandemic. Additionally, the deadlock at the Next Generation EU negotiations further complicated the fund's deployment. One of the main points of contention during the negotiation was the opposition of the Frugal Four to the issuing of so-called "corona bonds" and grants; preferring the use of loans instead.
A tentative agreement was reached in the Council on July 17, 2020. Regardless, some issues still persisted. The Frugal Four demanded to link the access to the recovery funds to the establishment of a conditionality clause regarding the promotion of rule of law, fiscal discipline, and the achievement sustainable development goals. This drove them to clash with countries such as Hungary and Poland, who proceeded to veto the post‐pandemic recovery programme and the EU Multiannual Financial Framework, hijacking in the process the approval of the necessary funds to pursue the EU's climate objectives. In the context of the Just Transition Fund, the Frugal Four pushed for the establishment of monitoring and reporting mechanisms to ensure a transparent use of these funds; questioning the readiness of Eastern and Southern European countries to comply with EU standards. This was translated into policy by linking access to the Just Transition Fund to two key conditions: Member States' adherencethe to the EU's 2050 climate objectives and the commission's approval of Territorial Just Transition Plans submitted by the Member States.
Another point of contention was the discrepancies between Western and Eastern Member States regarding the framing of the EU's climate-neutrality objectives. A group of countries including Sweden, Austria, Luxembourg, Denmark and Spain wanted to apply the climate neutrality target to each Member State individually and not just to the EU as a whole. Meanwhile, Eastern European countries favoured a less ambitious framing that would take into consideration the national circumstances of each Member State, their degree of technological development and their respective capacity to implement the Union's 2030 and 2050 climate objectives.
In January 2020, the Commission tabled its initial proposal for the Just Transition Fund, consisting of a €7.5 billion budget line. In May of the same year, the Commission tabled yet another proposal, increasing Just Transitions Fund budget from €7.5 billion to €40 billion. The initial size of the Just Transition Fund raised some doubts about its capacity to address the objectives of the just transition. However, the final sum was set to €17.5 billion in 2021, mainly due to the Frugal Four's opposition to increasing their contributions to the EU budget.
Structure
The Just Transition Mechanism comprises €55 billion, to be invested over the 2021–2027 period. It is organized around three different budget lines, namely the Just Transition Fund, Invest EU and the Public Sector Loan Facility.The Just Transition Fund
The Just Transition Fund counts €20.28 billion in grants for the period 2021–2017. This sum will be invested in the regions and territories most affected by the transition into a climate-neutral economy. For that purpose, the EU has mobilized €20.28 billion in current prices. To be precise, the Just Transition Fund comprises €9248 million from the EU's financial programme, €10872.9 million from Next Generation EU funds, and €167.7 million stemming from other countries and entities' contributions.Access to the fund is conditional to the adoption of the European Union's 2050 climate objectives and the commission's approval of the individual Territorial Just Transition Plans drafted by the Member States through the European Semester Framework. Each Territorial Just Transition Plan will detail the national strategies for transitioning into a more sustainable economy, identifying the regions and communities most affected by the phase out of high-carbon industries. These plans include measures for economic diversification, job creation, retraining programs for workers, infrastructure development for clean energy, and other projects that will facilitate the transition to a greener economy.
The InvestEU Just Transition Scheme
Through the InvestEU Just Transition Scheme, the European Investment Bank will provide technical support and budgetary guarantees to incentivize investment in those areas that will bear the brunt of the green transition. It is expected to mobilize €15 billion in mostly private sector investments. These funds will be directed towards the development of sustainable energy infrastructures, transport, small business and education programs; targeting the territories identified in the Territorial Just Transition Plans prepared by the Member States.The Public Sector Loan Facility
The Public Sector Loan Facility is the third pillar of the Just Transition Mechanism. It involves a sum comprising €1.5 billion in grants, financed by the EU budget, and €10 billion in loans, from the European Investment Bank, mobilizing €18.5 billion of public investment. These funds aim to incentivize investment and economic growth in those areas most concerned by the green transition. These loans and grants are only accessible by legal entities established under the public or private law regimes of the different Member States; on the condition that their investment projects contribute to addressing the social, economic and environmental challenges deriving from the implementation of the Union's 2030 climate and energy targets.Criticisms
The "Equity Illusion"
In Sarkki et al., the study discusses the paradox of the "equity illusion" in the context of the Just Transition Mechanism. It emphasizes the importance of placing marginalized groups at the center of discussions, particularly in connection to social rights policies. The main criticism being made is that affirmative action policies, including the European Green Deal and the Just Transition Mechanism, may serve the interests of policymakers and existing industrial concerns rather than promoting societal transformation. Some critics view these initiatives as potential "greenwashing" that prioritizes industrial interests over a just transition.A study on the TJTP process in Sweden revealed the existence of a risk of sidelining already marginalized actors in favor of industrial interests. The results of the study suggest the Just Transition Mechanism, and the Just Transition Fund in particular, may focus too heavily on compensating the industry for the losses it may incur as a result of the energy transition, potentially overlooking broader societal issues. In a study by Alexandris Polomarkakis, it was discovered that market-driven objectives often overshadow social considerations.
Another aspect of the policy that is being scrutinized by scholars is the disproportionate focus of the policy on the technical and technological aspects, at the expanse of the potential social impacts of the transition. This criticism is also in line with CEE Bankwatch Network – a network of environmental NGOs operating Central and Eastern Europe -, which argues these plans do not reflect the potential needs of the regions in question.
Lack of funding, allocation and eligibility criteria
Recent research has highlighted the lack of sufficient funding for the Just Transition Fund in order to meet the EU's 2030 and 2050 climate goals. Critics believe that the 17.5 billion euros of the Just Transition Fund and the overall 55 billion euros comprising the Just Transition Mechanism are inadequate to cover the social costs associated with the transition toward climate neutrality. The Bankwatch Network argues that the Just Transition Fund is minuscule- between 1% and 3%- to effectively support the transition of these regions. The primary beneficiaries are anticipated to be Germany, Poland, and Romania, while Estonia, Bulgaria, and the Czech Republic will experience the highest aid intensity per capita. The skeptical viewpoint presented by Theisen suggests that the Just Transition Fund may serve as a tool for the European Commission to secure political support from Eastern member states for the EU's Climate Law and 2050 carbon neutrality.Criticisms also involve the allocation of the funds and the eligibility criteria set by the commission. The commission's approach relies on two criteria: the carbon intensity of a country's "NUTS 2" regions, which measures greenhouse gas emissions using "NUTS 2" data, as well as data related to employment and production in industrial sectors. However, concerns have been raised about the instability and high correlation of the data. The point made by scholars is that "NUTS 3" areas that are significant contributors to carbon emissions and require financial support during the energy transition may face exclusion from their otherwise intended Just Transition Fund allocations. When applying the Just Transition Fund criteria to pinpoint regions with 'high carbon intensity' at both the "NUTS 2" and "NUTS 3" levels, studies found that 40 percent of the "NUTS 3" regions identified as having high carbon intensity were not part of the "NUTS 2" regions identified with the same characteristics. The current calculation by the Commission overlooks certain highly carbon intensive "NUTS 3" regions because they fall within a "NUTS 2" region not considered highly carbon intensive. This implies that the allocation methodology may unfairly disadvantage certain countries, resulting in them receiving less funding than they require.
Another criticism made in the literature is that the major challenge in achieving a just transition to a low-carbon economy lies in the current financial support for fossil fuels. Critics argue that establishing just transition funds will inadvertently lead to the indefinite subsidizing of the fossil fuel industry. To address this issue and effectively achieve the EU's Energy & Climate 2030 and 2050 targets, experts call for a proactive policy overhaul and a re-allocation of finances to ensure a just transition to a low-carbon economy, emphasizing the need to shift away from supporting traditional energy sources and towards embracing a just transition that prioritizes renewable energy.