Financing the European Green Deal
A guide to making EU climate funds work for the people
Updated September 2020
Background
The European Union wants to be a global leader in the fight against the climate crisis. One important way that it shapes the policies and processes of its Member States is through the money it offers. Yet to have an impact, these funds must be thoughtfully used and streamed in the right direction.
Yet due to growing socio-political challenges, communities who want to participate in these policies and processes and protect citizens’ right to live in a healthy environment are finding it increasingly difficult to do so.
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 new EU budget
The European Union has its own long-term budget, accounting for around EUR 180 billion every year. This budget 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 500 million citizens and 27 countries, covering eight different priorities, from economic development to agricultural policy to security and defence. Thirty per cent of the EU budget will 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. The size of the cohesion policy envelope, which is instrumental for many countries in central, southern and eastern Europe, is particularly contentious. The COVID-19 crisis and the related measures to stimulate the European economy further influenced these discussions, as well as the current energy crisis.
Types of EU funds
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) and the Cohesion Fund, for which a certain threshold of green investments is required (respectively 30 per cent and 37 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.
Distribution per country
Bulgaria, through national programmes, benefits from EUR 11.3 billion of cohesion policy funding under the ‘investment in jobs and growth’ goal with funding from the European Regional Development Fund, the European Social Fund Plus, the Cohesion Fund and the Just Transition Fund.
The Czech Republic, through national programmes, benefits from EUR 21 billion of cohesion policy funding under the ‘investment in jobs and growth’ goal with funding from the European Regional Development Fund, the European Social Fund Plus, the Cohesion Fund and the Just Transition Fund.
Estonia, through one national programme, benefits from EUR 3.6 billion of cohesion policy funding under the ‘investment in jobs and growth’ goal with funding from the European Regional Development Fund, the European Social Fund Plus, the Cohesion Fund and the Just Transition Fund.
Hungary, through national programmes, benefits from EUR 22.5 billion of cohesion policy funding under the ‘investment in jobs and growth’ goal with funding from the European Regional Development Fund, the European Social Fund Plus, the Cohesion Fund and the Just Transition Fund. Hungary’s partnership agreement was finally adopted on 22 December 2022, but the transfer of the funds (which total EUR 6.3 billion, or 55 per cent of three operational programmes*) is suspended until Hungary meets the EU’s enabling conditions and requirements.
Source: *https://telex.hu/english/2022/12/22/approval-of-eu-funds
Latvia, through one national programme, benefits from EUR 4.8 billion of cohesion policy funding under the ‘investment in jobs and growth’ goal with funding from the European Regional Development Fund, the European Social Fund Plus, the Cohesion Fund and the Just Transition Fund.
Poland, through national and regional programmes, benefits from EUR 78.3 billion of cohesion policy funding under the ‘investment in jobs and growth’ goal with funding from the European Regional Development Fund, the European Social Fund Plus, the Cohesion Fund and the Just Transition Fund.
Romania, through national and regional programmes, benefits from EUR 32 billion of cohesion policy funding under the ‘investment in jobs and growth’ goal with funding from the European Regional Development Fund, the European Social Fund Plus, the Cohesion Fund and the Just Transition Fund.
Slovakia, through national and regional programmes, benefits from EUR 13.1 billion of cohesion policy funding under the ‘investment in jobs and growth’ goal with funding from the European Regional Development Fund, the European Social Fund Plus, the Cohesion Fund and the Just Transition Fund.
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 will assess whether the Member State has fulfilled specific milestones and targets related to implementing their plan.
To finance the RRF, the EU will borrow 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.
GDP: EUR 61.24 billion
RRP allocation as share of GDP: 9.23%
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%
New challenges – REPowerEU
The Recovery and Resilience Facility 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 are encouraged to make use of the unrequested loans from the RRF, and new sources will be made available through the EU Emission Trading Scheme by frontloading allowances and tapping the Innovation Fund. This comes in addition to the many reforms and investments already in the recovery plans.
Delivering REpowerEU targets implies substantial additional investment needs notably for renewables roll-out, energy efficiency and savings measures, as well as a significant frontloading and acceleration of already planned investments. It also means avoiding short-term solutions that will further lock Europe into fossil fuels. For that, Member States will have to make important investment decisions. However, even prior to the war, there was a severe investment gap for delivering EU energy transition and climate targets by 2030.
On top of this pre-existing investment gap, the European Commission estimates that delivering REPowerEU targets implies an additional investment need of EUR 210 billion across the European Union until 2027. This is significantly less than the combined public and private investment need of EUR 2.4 trillion over the same period to reach a 55 per cent emissions reduction target by 2030.
To bridge this gap, Member States will be able to request more money by submitting dedicated REPowerEU chapters to the European Commission by the summer of 2023.
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.
