The European Commission has also established a mechanism to assist the transition of regions that will be more profoundly impacted by the 2050 carbon-neutrality target.
On 11 December 2019, the European Union announced that it would enshrine into legislation its goal to achieve carbon neutrality by 2050 (see “EU Commission Formally Announces European Green Deal”). The European Green Deal Investment Plan serves as the European Commission’s (Commission’s) primary vehicle through which funding commitments will be made by seeking to mobilise €1 trillion of public sector and private sector investments. The Commission has also established the Just Transition Mechanism (JTM) to assist those regions that will be more profoundly impacted by the economic and social transformation envisaged.
Dimensions of the Plan
The European Green Deal Investment Plan is based on three “dimensions”:
- Financing: The Commission seeks to mobilise €1 trillion of sustainable investments over the next decade. It is also anticipated that the EU will devote a greater proportion of its budget to climate and environmental action, which would further encourage private funding.
- Enabling: The Commission seeks to put “sustainable finance at the heart of the financial system” and believes that incentives will facilitate public and private investment in sustainable investment. In particular, the Commission will look to encourage green budgeting and procurement and design procedures that enable the approval of State Aid for just transition regions.
- Practical support: The Commission will look to provide support to public bodies and promoters in the planning, design, and execution of sustainable projects.
The Commission also aims to ensure that the transition to a climate-neutral economy occurs in a fair manner. As such, the Commission will establish the JTM as a tool to ensure it is “leaving no one behind”. While the European Green Deal Investment Plan facilitates funding across all regions, the JTM will mobilise €100 billion between 2021 and 2027, to help alleviate the socio-economic impact of the transition on the most affected regions (in particular, those workers and communities that rely on the fossil fuel value chain).
The JTM’s three main sources of funding are:
- A Just Transition Fund (JTF): The JTF will receive €7.5 billon of fresh EU funds. Member States will receive access to these funds if they can identify eligible territories through dedicated just transition plans. The JTF will primarily operate through grants to regions. Member States will have to match each euro that the JTF provides through funding from the European Regional Development Fund and the European Social Fund Plus, in addition to providing national resources.
- A dedicated just transition scheme: This scheme will seek to mobilise €45 billion in private investments in sustainable energy and transportation.
- A public sector loan facility: This loan facility from the European Investment Bank aims to mobilise €25-€30 billion in investments. It is envisaged that the facility will be used for public sector loans to facilitate investments in district heating networks and building renovations.
The Commission is anticipated to monitor the deployment of these funds and their contribution to transitioning to a carbon-neutral economy. As part of this effort, the Commission will hold an annual Sustainable Investment Summit.
Latham & Watkins will continue to monitor developments in this area.
This blog post was prepared with the assistance of James Bee in the London office of Latham & Watkins.