Financing the European Green Deal
A guide to making EU climate funds work for the people
Updated January 2024
Background
The European Union wants to be a global leader in the fight against the climate crisis. One important way to help Member States shape and implement the policies at national level is through the money it offers. Yet to have an impact, these funds must be thoughtfully used and streamed in the right direction.
Due to growing socio-political challenges such as the war in Ukraine, inflation and energy insecurity, it is becoming increasingly difficult for communities to participate in these processes to protect the right of citizens to live in a healthy environment.
We work to ensure that EU money addresses the climate and energy crises while also doing no harm to people and nature by involving the public in the design and spending of EU investments. Bankwatch campaigners closely follow the spending of EU funds in eight countries (Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Poland, Romania, and Slovakia).
This webpage explains the types of EU funds, their purpose and their benefits. It can help anyone interested in having a say in how EU funds are spent for the climate understand how such funds are planned, implemented and monitored.
The EU budget
The European Union has its own long-term budget, which is negotiated every seven years and is called the Multiannual Financial Framework, or MFF. The current MFF is established for the 2021-2027 programming period, and it amounts to EUR 2.018 trillion.
Even though this might seem like a lot of money, the MFF supports 450 million citizens and 27 countries, covering eight different priorities, from economic development to agricultural policy to security and defense. Thirty per cent of the whole EU budget must be spent to fight climate change.
Each Member State contributes to the EU budget in proportion to its gross national income (GNI). This proportion is subject to heated debate: some countries don’t want to provide more than one per cent of their GNI, whereas others want the collective contribution to be even higher.
Types of EU funds and programmes
Cohesion policy funds
European Structural and Investment Funds, also known as cohesion policy funds, represent a major opportunity for Member States to invest in projects in line with the EU’s priorities. In some countries, these funds represent a significant share of public investments and can go a long way towards helping them reach their sustainability goals. For the 2021-2027 programming period, cohesion policy funds amount to a total of EUR 392 billion and are distributed among several funds, including the European Regional Development Funds (ERDF), the Cohesion Fund and the Just Transition Fund, for which a certain threshold of green investments is required (respectively 30 per cent,37 per cent and 100 per cent). They can therefore play a central role in supporting the energy transformation in central and eastern Europe.
These funds feed operational programmes managed by national authorities and can be either thematic (e.g. for the energy transition) or regional. Although national managing authorities were supposed to begin implementing the programmes in 2021, the process has been considerably delayed. This is primarily because Member States have instead devoted time and effort to planning and implementing projects financed by the Recovery and Resilience Facility (RRF) (the EU’s response to the COVID-19 pandemic). Now, most programmes will be approved by the end of 2022. Some countries have already begun to implement the programmes, and calls for proposals are already open.
You can read CEE Bankwatch Network’s analyses of draft 2021-2027 operational programmes in Member States from central and eastern Europe here. These include recommendations for increasing the programmes’ climate and environmental contributions.
Recovery funds
The Recovery and Resilience Facility (RRF) will finance reforms and investments to help Member States rebound from the COVID-19 pandemic and pursue a green transition until 2026. In order to receive funding, each Member State was required to submit a national plan for approval in which it committed to implementing specific reforms and investments, with at least 37 per cent of the funds earmarked for climate action. Nothing in the plans should harm the environment.
These national plans, also known as recovery and resilience plans, outline how they will invest recovery funds. Moreover, before any disbursements from the RRF can flow, the Commission assesses whether the Member State has fulfilled specific milestones and targets related to implementing their plan.
To finance the RRF, the EU is borrowing from international capital markets. Repayment will take place over a long-term period, until 2058. This was to avoid placing immediate pressure on Member States’ national finances and enable them to focus their efforts on the recovery.
The RRF is also at the heart of the REPowerEU plan, the European Commission’s response to the socio-economic hardships and global energy market disruption caused by Russia’s invasion of Ukraine. On 18 May 2022, the Commission proposed amending the RRF Regulation to integrate dedicated REPowerEU chapters in Member States’ existing recovery and resilience plans. To fund these chapters, Member States were encouraged to make use of the unrequested loans from the RRF. This comes in addition to the many reforms and investments already in the recovery plans.
GDP: EUR 61.24 billion
RRP allocation as share of GDP: 8.28%
GDP: EUR 225.56 billion
RRP allocation as share of GDP: 2.95%
GDP: EUR 28.11 billion
RRP allocation as share of GDP: 3.16%
GDP: EUR 146.09 billion
RRP allocation as share of GDP: 4.65%
In January 2023, the Hungarian government announced that it will request RRF loans from the EU, not just grants (originally, it sought EUR 9.4 billion in loans, but no updated amount has been made public). The adopted national recovery and resilience plan only includes projects that would receive grants via the RRF (‘reforms and investments’), but the grant funding is still fully suspended due to an outstanding conflict on the rule of law.
GDP: EUR 30.42 billion
RRP allocation as share of GDP: 5.56%
GDP: EUR 533.60 billion
RRP allocation as share of GDP: 6.18%
GDP: EUR 223.00 billion
RRP allocation as share of GDP: 12.15%
GDP: EUR 93.90 billion
RRP allocation as share of GDP: 6.52%
This database was established to gather beneficial and harmful investments, measures and support schemes funded through various European Union funding instruments. The database, which will be regularly updated, currently includes around 70 examples from Italy and eight central and eastern European countries: Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Poland, Romania and Slovakia.
To provide a better overview of the positive measures, projects and support schemes financed by different EU funds, we have grouped them into several categories.
Energy poverty refers to a situation where people are unable to access essential energy services and products required to heat their homes. In recent years, energy poverty has been acknowledged as a significant challenge across the European Union. Policymakers are implementing various measures to address the issue, including financial support for vulnerable consumers or improving energy efficiency and integrating renewable energy sources in building renovations.
Energy efficiency aims to reduce the amount of energy consumed while accomplishing the same task, thereby eliminating energy waste. Inefficient use of energy is one of the main challenges to the green transition. Countries can implement several measures to enhance energy efficiency, such as the use of renewable energy sources for cooling and heating, replacing inefficient or polluting heating systems, and implementing building envelopes or green roofs. At the EU level, energy efficiency is regulated by the Energy Efficiency Directive, which has been recently revised.
An energy community refers to a group of citizens cooperating on an energy transition project. The most common model involves citizens collectively owning renewable energy systems, such as wind turbines and solar photovoltaics. Energy communities can engage in a range of activities, from renewable energy production and energy efficiency to building renovation and electric vehicle sharing. Energy communities have been legally recognised at the EU level since the introduction of the Clean Energy for All Europeans package in 2019. To be legally defined as an energy community, a group must meet specific criteria, including those regarding ownership, governance principles and the non-commercial purpose of the community.
In May 2020, EU leaders committed to an ambitious Biodiversity Strategy for 2030, outlining the urgent need to address biodiversity loss and the deteriorating health of nature. The EU aims to allocate 7.5 per cent of the EU budget to biodiversity actions by 2024, and 10 per cent by 2026. Investments such as expanding and enhancing the management of Natura 2000 sites and restoring quintessential habitats play a crucial role in achieving the strategy's goals, while also helping to tackle climate change. Funding for biodiversity will also be crucial to implementing the recently agreed Nature Restoration Law.
The investment decisions that are made now will shape the direction of the EU’s energy transformation and will significantly impact the lives of European citizens. Member States must make the right choices and adopt policies that are in line with the objectives of the European Green Deal to achieve climate neutrality by 2050.
