EU climate fund bankrolling dirty energy expansion

Yesterday, 24 June, in its latest disbursement round, the Modernisation Fund approved nearly EUR 600 million for waste incineration projects in Poland that undermine climate action and Europe’s shift to a circular economy. 

Designed to support energy transition primarily in central and eastern Europe, the Modernisation Fund is intended to channel revenues from the EU’s carbon market, one of Europe’s top climate mitigation instruments, into investments in sustainable energy infrastructure.  

Yet, by repeatedly allocating this public money to waste incineration and fossil gas projects, governments effectively subvert the EU’s efforts to tackle the climate crisis, reduce waste and improve recycling. Expanding the combustion of garbage might generate energy, but it also requires the addition of fossil gas or diesel to improve combustion and produces toxic waste materials that require expensive, specialised disposal. 

Following yesterday’s disbursement decision, gas-fired power plants in the Czech Republic and two fossil gas pipelines in Romania will also receive a total of EUR 23.4 million via the Modernisation Fund. In addition, Slovakia has been allocated EUR 15 million that might be used to develop gas power plants. 

According to Bankwatch estimates, as of the end of 2023, the Modernisation Fund has already enabled fossil gas infrastructure and a raft of unsustainable energy projects totalling at least EUR 1.5 billion. In other words, during its first three years of operation, over 10 per cent of the Modernisation Fund’s investments went to fossil gas projects. 

In Romania alone, more than half a billion euro from the Modernisation Fund has been spent on fossil gas pipelines and gas-fired power plants, a report released by Bankwatch in April showed [1]. The Romanian gas grid operator Transgaz had previously been lobbying the European Investment Bank (EIB) and the European Commission for Modernisation Fund money for multiple gas projects. One of them, a pipeline intended to feed the Islanita and Turceni power plants, which had already been backed by the Fund, was awarded an additional EUR 8 million in yesterday’s disbursement. The very same project was rejected for financing in the previous disbursement round in December 2023. 

Although the EIB-managed Fund is expressly intended to help countries slash greenhouse gas emissions from their energy sectors, the methodology behind the assessments of candidate projects does not even mandate a minimum reduction in the level of emissions. 

Bankwatch and other groups have long been calling for the Modernisation Fund to end its support for fossil fuels, among other things, by revising the EU’s Emissions Trading System Directive, which guides the fund’s investments. Yesterday’s disbursement, the first since a new version of the Directive went into force, has seen financing for fossil gas dramatically shrink. But it is too early to call this a trend. Rather, the institutions governing the Modernisation Fund – its Investment Committee, the EIB and the European Commission – need to ensure that no more public money is spent on false solutions and that the Fund is fully dedicated to stepping up Europe’s energy transition. 

Morgan Henley, district heating campaigner with CEE Bankwatch Network, says:
‘This latest disbursement of the Modernisation Fund unfortunately again proves that it is not fit for purpose. While the bulk of investments is positive, tens of millions in EU public money are being wasted on fossil gas. Far from modernising national energy systems as intended, it is only entrenching the reliance on fossil fuels, particularly for district heating.’ 

Krzysztof Mrozek, head of the EU Funds for Climate Programme at Polish Green Network, says:
‘Much of the new investment schemes approved for Modernisation Fund financing in Poland are meant to support what’s needed to catalyse the energy transition, such as energy communities and powering district heating systems with renewables. But once again the Modernisation Fund is keeping Poland hostage to false solutions – one being waste incinerators. In this disbursement cycle, over half a billion euro will be wasted on waste. This is nine times the amount requested by the Polish authorities this year for energy communities.’ 

Raluca Petcu, fossil gas campaigner with Bankwatch Romania, says:
‘While most of the financing is important for the transformation of the Romanian power system, questionable projects are still being approved that will only deepen Romania’s long-term dependence on fossil gas. The financing of the gas pipeline for Turceni and Ișanlița, which is in reality two separate projects, comes after the Modernisation Fund already backed the two new gas power plants with EUR 420 million in 2022. Instead of supporting residential energy efficiency and the development of energy communities, which are non-existent in Romania, the national government is determined to pump billions in public money into fossil gas that will jeopardise our future.’ 

Notes to editors: 

[1] The Modernisation Fund: An open door for fossil gas in Romania https://bankwatch.org/publication/the-modernisation-fund-an-open-door-for-fossil-gas-in-romania 

For additional information, please contact: 

Morgan Henley
District heating campaigner, CEE Bankwatch Network
morgan.henley@bankwatch.org
+420 605 798 716 

Raluca Petcu
Fossil gas campaigner, Bankwatch Romania
raluca.petcu@bankwatch.org
+40 770 209 187 

Krzysztof Mrozek
Head of the EU Funds for Climate Programme, Polish Green Network
krzysztof.mrozek@bankwatch.org
+48 501 793 296