Blog entry

Budapest airport torments neighbours as expansion project evades environmental checks

When designed in the 1930s the airport was located merely 16 kilometres from the centre of Budapest to ease the access. In 2019 it served a record 15 million passengers and its expansion assumed an increase in passenger turnover to 21 million.

A plane lands or takes off approximately every four minutes or even more frequently right above the neighbouring households’ roofs. And for the million people living around it – including families with children whose houses had been built decades before works to expand the airport even started – life has become unbearable.

A new analysis by Bankwatch and MTVSZ reveals the extent of air pollution the airport is responsible for and the toll it has been taking on local residents. The levels of micro-dust pollution in the radius of 9 kilometers around the airport is 4 to 13 times the average level. During our field visit to the area, home to half a million people, citizens or relatives of those with pulmonary fibrosis or brain cancer reported that they have often been told by physicians that their disease was largely attributable to kerosene or noise pollution, even if not confirmed in writing.

Noise is even more unbearable. During the day, noise levels exceed those recommended by the World Health Organisation and those allowed by the EU’s Noise Directive. Inhabitants living in close vicinity of the airport are simply unable to have conversations outdoors.

The airport has also been granted permission to operate during the night. Six landings or takeoffs between 00.00 and 05.00 are allowed. Local residents also reported that regulations on flight paths and aircraft altitude over inhabited areas are often violated.

The Hungarian Ombudsman for Future Generations has also alerted the Hungarian government in February 2019 that the excessively busy air traffic during the night (exceeding the planned number) means that the right of affected citizens to a healthy environment is being violated. Vulnerable groups and those with financial difficulties are not able to easily adapt to or move away from an environment that threatens their well-being.

It might be hard to believe but despite these significant environmental and social impacts, widespread public dissatisfaction and frequent complaints sent to Hungarian authorities, the project to expand the airport has never been subject to any environmental or social impact assessment.

The developer, Budapest Airport ZRT, has managed to circumvent both EU environmental legislation and the EIB’s standards by obtaining exemptions from requirements to comply with the local spatial plan and for an environmental impact assessment. Somehow, the EIB’s social and environmental due diligence for the project did not spot any adverse social impacts. The glaring non-compliance with the EU’s environmental impact assessment regulations and the EU Noise Directive has also been ignored by the Bank. And in 2018, the EIB awarded the project a EUR 200 million loan, with the only positive economic and social impact being a job creation potential. The EIB loan was also guaranteed by the European Fund for Strategic Investments.

This case demonstrates that the EIB doesn’t have in place the environmental, social and human rights standards and due diligence procedures needed to ensure that all the projects it supports comply with EU law and the EIB’s own policies.

The EIB often argues that projects in the EU must comply with national law and thus automatically with EU directives and regulations. But reality is different. The ongoing review of the EIB’s Environmental and Social Sustainability Framework must address these shortcomings to ensure these projects are serving people and the environment, not compromise them.

On the other hand, basic mobility rights do not mean ‘fly as we please and dump the external costs on locals’, and mobility must not overrule the fundamental human right to a healthy environment and local living/livelihood. The COVID-19 pandemic provided an outstanding opportunity to rethink our approach to globalisation, including foreign trade and long-distance travel, and to find alternatives. Returning to the old ‘normal’ is just not an option, and this is our shared responsibility.

The Western Balkans Green Agenda Action Plan: Quantity over quality

Hidden among debates about EU enlargement and the role of the EU’s enlargement Commissioner, an Action Plan on the Green Agenda for the Western Balkans was quietly agreed on at this week’s EU-Western Balkans Summit in Slovenia.

Just a week ago it was far from clear whether it would be approved at all. Despite the Regional Cooperation Council (RCC) having had nearly a year since the Sofia Declaration to prepare the Plan, the draft document was completed only two weeks ago, giving little time for agreement. Presumably the EUR 9 billion in grants which the EU is promising the region helped to oil the wheels.

But the late and rushed drafting of the Plan affected its quality. It covers at least 58 measures that would truly bring positive change in the region if implemented. But there are too many ambiguities to ensure that this will happen.

On 30 September, 18 civil society organisations including Bankwatch sent a letter to the RCC and DG NEAR calling for major improvements. For example, clear deadlines are needed. Setting up an Action Plan with ‘Indicative timeframes’ is setting it up for failure, especially when some of the tasks are so poorly defined.

What, for example, does ‘Increase the uptake of Best Available Techniques in accordance with the Industrial Emissions Directive’ by – indicatively – 2030 mean? Transposing the Directive? Applying it to new installations? To existing installations? Ambiguity will inevitably become an excuse for inaction.

And it needs to be clear what will happen if countries do not implement the plan. The European Commission has to hold governments accountable, but there are no plans for this to happen within the Green Agenda – Ministers will instead assess their own progress at regular meetings.

We also asked for requirements for the countries to ensure civil society participation at the national level, not only the regional level, as this would clearly have a greater impact on the day-to-day implementation of the Green Agenda.

Unsurprisingly given the hurry before the Summit, the final version of the Plan barely changed compared to the draft. And where it did, in some places it got worse.

For example, an ‘indicative timeframe’ of 2025 for phasing out coal subsidies is now ‘ongoing’.

And desperately needed air quality strategies will indicatively be ‘developed and implemented’ by 2030, but now with a note added that implementation will be ‘beyond 2030’. What does that mean? People choking on the region’s notorious pollution need to wait nine more years even for a plan?

Such poor formulations could easily have been prevented by a proper consultation process. The Plan actually claims that there was an ‘extensive consultation process’ and that it was “developed following a bottom-up approach that involved authorities from the Western Balkans (WB) economies, relevant regional organisations active in the policy areas covered by the GAWB [Green Agenda for the Western Balkans], international financial institutions (IFIs), civil society organisations (CSOs), and other partners.”

This is far from the truth, at least with regard to environmental civil society organisations.

‘Bottom-up’ implies that input was collected before drafting and that various actors were consulted on successive drafts. But what happened in reality was that after taking nearly a year to draft the Action Plan – and providing no information about it in the meantime – the RCC allowed just one week for civil society organisations to comment on the draft.

It is galling to see such a token effort described as an ‘extensive consultation process’. If the European Commission and RCC are serious about encouraging public participation in decision-making in the region, they need to lead by example.

Civil society organisations know well what is needed in the region and have much to offer in terms of knowledge and suggestions. But we need adequate time to read, comment, coordinate and agree on draft documents.

This is already the second time we have seen inaction for months, a lack of consultation with civil society on draft documents, and then a last-minute rush – the same happened with the Commission’s Guidelines for the Implementation of the Green Agenda for the Western Balkans last year. Once can be a mistake, but twice is starting to become a habit.

The stakes are high and we have no time to lose. We will do our best to advance the goals of the Green Agenda, but we can only be effective if we are informed and consulted on time. Since the regional Action Plan is so unclear, involvement of civil society on the national level will now be even more crucial to define clear steps and timelines.

At the same time, the European Commission needs to stop outsourcing the process and show real leadership to make it a reality, including by conditioning pre-accession funds on real progress by the countries.

Federation of Bosnia and Herzegovina: Renewables incentives chaos finally confirmed by auditors

Kordići small hydropower plant. Photo: Robert Oroz

It was a long time in the making. An audit of the financial statements of the Federation’s Operator for Renewable Energy Sources and Efficient Cogeneration (Operator za OIEEK) was originally planned in 2018. In the end, an audit spanning 2019 and 2020 was only completed in September 2021.

In 2018, the auditor was unable to obtain the relevant documentation and the Auditor General ended up suspending the audit.

In March 2019, the FBIH government ordered the Financial Police to examine the Operator’s files and to report back within a month. Only extracts from the police report were published, but they appeared to establish several instances of problematic conduct.

The government even temporarily banned the Operator from making payments to renewables producers in March 2019, a situation which appears to have lasted for several months, as the Director sent a letter in June 2019 pleading for a resolution of the situation.

In its October 2020 progress report for Bosnia and Herzegovina, the European Commission warned that: ‘There are serious concerns related to the work of the Operator for Renewable Energy Sources in the Federation of Bosnia and Herzegovina. Responsible authorities should undertake meaningful measures to ensure prudent management and prevent any misuse of available funds.’

In December 2020, a new Director was finally appointed, but only because the former Director’s mandate had expired. In March 2021 local media noted that there had been no improvements in the Operator’s information disclosure on which producers were benefiting from the feed-in tariff scheme – a situation which continues until this day. Anonymous employees have also recently confirmed to the Balkan Investigative Reporting Network that the situation has not improved since the new Director took over.

Countless breaches of the renewable energy legislation

The audit confirmed many things we already knew, for example that the Operator has consistently failed to publish updated information on which producers have obtained the right to feed-in tariffs and how much of the available quota remained for specific technologies. No comprehensive project register is available on the Operator’s website and even in the offline version, not all projects are included.

Because of this, it was not visible to the public that requests for the right to obtain feed-in tariffs were not always handled in the order in which they were submitted, nor were companies invited in writing to rectify any omissions in their requests as required by law. The auditor found examples of requests for feed-in tariffs being approved despite failure to submit some of the legally required documentation, but did not name the producers in question.

By the end of 2020, more solar capacity had been awarded the right to feed-in tariffs than was allowed by the Renewable Energy Action Plan of FBIH, because the Operator failed to follow the rules on allocation of available capacity.

As well as mis-handling the incentives system itself, the audit report contains a litany of misdeeds related to the management of the Operator, including failures in financial management, the employment of 20 people without advertising the positions, failure to adopt and publish a procurement plan, failure to carry out tenders in line with the law, and failure to submit information on tenders to the Public Procurement Agency.

But as the audit also points out, the Operator is not the only problem. The Federal Ministry for Energy, Mining and Industry and the Federal Energy Regulatory Commission (FERK) also failed to ensure that the Law on Renewable Energy Sources and Efficient Cogeneration was being implemented and that the body set up by the Law was functioning properly.

Both have recently defended themselves: FERK says that it regularly reported to various bodies and that it did not cancel the Operator’s licence because this would have put the whole renewable energy incentives scheme into jeopardy, while the Ministry claims it consistently monitored the Operator’s work by requesting information and requesting follow-up actions based on its reports.

This might be true, but around two years passed between the Operator failing to provide documentation to auditors and the Director being replaced. This strongly suggests that neither FERK nor the Ministry really pulled out all the stops to stem the waste of public money.

37 recommendations

The audit office provides the Operator with 37 recommendations such as setting up an internal financial monitoring and auditing system, complying with the law when taking on new employees, and publishing the full register of producers eligible for feed-in tariffs. Although no new incentives could be awarded after the end of 2020 according to the Law, the recommendations are still highly relevant because some of the producers will be receiving feed-in tariffs for almost 12 more years.

The Federation of BIH is also unique in the region in having a scandalous system whereby so-called ‘qualified producers’ have the right to have their electricity purchased at a price 20 per cent higher than market price even after their feed-in tariff contracts have expired. Until this is changed, even those qualified producers who did not manage to get feed-in tariffs, or those whose 12-year power purchase agreements have expired, will be receiving payments from the Operator. So even if it did not invent this system, the least the Operator can do is to inform the public who is getting such unwarranted payments.

In addition, the Federation is due to adopt a long-delayed new Law on Renewable Energy, in which the Operator may still play a role in allocating feed-in tariffs for the smallest new plants.

Is no-one accountable?

As it happens, between October 2019 and March 2021, Operator employees filed three criminal proceedings against the former Director to the Herzegovina-Neretva Canton Prosecutor. These have reportedly been joined into one file and sent to the Federal Financial Police for review. But the Police say they have submitted their findings to the Prosecutor already. But even if the Prosecutor finally opens a case, this leaves numerous questions unanswered.

For example, if feed-in tariffs were approved for producers that had not submitted the required documentation, what will be done about it?

And if the Ministry and FERK are failing to keep the Operator under control, what will be the consequences for them?

The audit report does not answer these questions. Civil society and the media will have to keep pushing for answers and finally hold the institutions accountable for this gross mis-use of public money.

This publication was produced in collaboration with EuroNatur and RiverWatch in the frame of the Save the Blue Heart of Europe campaign, with financial support from MAVA Foundation.

A third of European Investment Bank lending evades environmental and social rules

The EIB’s financial intermediaries take various forms, including private equity funds, investment funds, commercial banks and state-owned development banks. These help the EIB to reach smaller clients than it would otherwise be able to finance.

The EIB’s global lending via intermediaries amounted to EUR 22.6 billion in 2020. In the EU, credit lines accounted for over one-third of the Bank’s operations in the same year. In addition, the European Investment Fund, a risk finance facility which is a part of the EIB Group, reached almost EUR 13 billion in financing entirely directed through financial intermediaries.

Yet despite years of civil society organisations and the European Parliament raising the alarm, the public has little idea of what happens to this money and whether it is effectively used.

Financial intermediary projects – far from small and harmless

There is a common perception that sub-projects financed via intermediaries are small projects with low risks. But the examples we have uncovered so far show that such projects come in all different shapes and sizes with all sorts of impacts.

For example, small hydropower plants have wrought immense damage across southeast Europe. The EIB has financed more than 27 such plants through financial intermediaries since 2010. These include Ilovac in Croatia, via the Croatian Bank for Reconstruction and Development (HBOR) and the operation of the Blagoevgradska Bistritsa cascade in Bulgaria via Allianz BG.

However, the exact number and many of the names of the plants remain unknown due to the Bank’s refusal to systematically disclose information about sub-projects funded via intermediaries. For example, information from the Serbian pledge registry shows that the EIB also financed the Beli Kamen and Komalj plants in the Zlatibor Nature Park, Serbia, via Credit Agricole Srbija, but the Bank did not respond when we sent information about the case and asked about its involvement earlier this year.

Small hydropower projects are often built in remote and unspoilt mountainous areas of southeast Europe, frequently without carrying out environmental impact assessments and often resulting in entire stretches of rivers and streams drying out for much of the year. Monitoring and enforcement is almost impossible due to the remote locations and the fact that project developers are often well-connected businesses who are usually not touched by law enforcement agencies.

In addition, private equity funds financed by the EIB can invest in companies of any size, including those with serious environmental and social impacts. For example, in October 2019 the EIB confirmed that it had decided not to go ahead with direct financing for the 340,000 tonnes per year Vinča municipal waste incinerator in Serbia, after its own due diligence confirmed that the project would likely interfere with Serbia’s ability to meet EU circular economy targets for recycling. The EIB’s decision was welcomed by civil society organisations, but it turned out that the EIB-financed Marguerite II Fund has remained a shareholder in the project company despite the EIB pulling out. The case clearly shows how little influence the EIB has over its intermediaries’ investments in reality.

The EIB’s current approach

The EIB’s current 2009 Environmental and Social Statement makes relatively clear the requirements for financial intermediaries to adhere to EU law as well as national law and the EIB’s Standards. But the Bank usually delegates environmental and social checks on intermediated investments to the intermediaries themselves, as well as project monitoring. The idea is that the EIB assesses the intermediaries’ capacity to do so before providing them with loans or equity.

But the cases mentioned above show this does not work in practice: at least some intermediaries do not have capacity for or interest in undertaking thorough due diligence. Indeed, as long as the intermediary gets its loan back, the public does not know about its involvement in the project, and local law enforcement institutions do not do their work adequately, there is no real incentive to undertake detailed environmental and social checks or projects monitoring, as there is little financial or reputational risk for the intermediary.

A complaint by Bankwatch to the EIB’s Complaint Mechanism in 2019 on the Bank’s blanket refusal to disclose a list of intermediated hydropower sub-projects in southeastern Europe resulted in a finding that the Bank must check on a case-by-case basis whether it can disclose sub-project information rather than assuming it cannot.

In 2019, the EIB adopted Environmental, Climate and Social Guidelines on Hydropower Development (Hydropower Guidelines), which clarifies how to apply the Environmental and Social Standards specifically to hydropower. The Guidelines contain very useful sections and requirements such as the referral of hydropower projects financed via financial intermediaries to the EIB for due diligence, public disclosure of hydropower projects by the financial intermediary, and the importance of a strategic approach to hydropower (i.e. that the impacts should be assessed first at the level of the river basin and only later at the project level).

The Hydropower Guidelines are a very welcome step forward. However, they need to be embedded in the EIB’s Environmental and Social Policy or Standards, in order to be binding on the EIB and its intermediaries. They also only relate to hydropower, not other sectors, so equivalent cross-sectoral rules need to be introduced.

The EIB’s draft new Policy and Financial Intermediaries standard

In June 2021 the EIB published a new draft Environmental and Social Policy and 11 Standards which clients have to follow. For the first time, the Standards will include one specifically on Financial Intermediaries.

The draft Policy is much less clear than the existing Statement on the need for projects to be in line with EU law – and mentions EU law only in passing. The draft Financial Intermediary Standard clarifies that sub-projects in the EU, EFTA, candidate and potential candidate countries have to be in line with EU law, but for those in other countries it only mentions ‘applicable national legislation and the relevant EIB Environmental and Social Standards.’ A financial intermediary needs to be able to clearly tell how to apply EU law, but will not be able to do so from this short summary.

The draft Standard also still delegates responsibility to the EIB’s intermediary clients to screen and carry out due diligence on sub-projects, as well as monitoring the projects. There are two problems with this. First, unlike in the Hydropower Guidelines, there is no obligation for the intermediary to refer any projects (for example projects which would or may require an environmental impact assessment in the EU) to the EIB for due diligence and monitoring.

This would be alright if all projects which are likely to have significant social or environmental effects were excluded from intermediary lending, but the second issue is that they are not: the ‘regularly amended’ EIB list of excluded projects dates from 2013, and does not even exclude projects with high CO2 emissions, in line with the EIB’s Energy Lending Policy. The list should have been updated as part of the Environmental and Social Policy and Standards revision, but has not been.

So intermediaries may (point 14 of the draft Standard) refer high risk sub-projects to the EIB but are given no instructions on what sub-projects are considered high risk. The standard leaves it entirely to the discretion of the FI to decide which sub-projects it will consider as having potential significant environmental and social impacts and risks which should be reported to the EIB and it also leaves it entirely to the discretion of the EIB to require the FI to report such risks to the Bank.

There is also no requirement for intermediaries to publish information about the sub-projects they are financing. Point 7 of the draft Financial Intermediary Standards requires them to comply with ‘sustainability disclosure requirements under national and EU legislation which is applicable to their activities’ if in the EU or EFTA, and if in the rest of the world, to comply with national legislation and public information on its policies and procedures for assessing and managing the environmental and social impacts and risks of sub-projects.

This is a red herring. National and EU legislation does not usually have any provisions requiring commercial banks – and often also national promotional banks – to disclose their sub-projects and beneficiaries. So requiring them to comply with such legislation is of no help in improving transparency. Similarly, for the rest of the world, a bank’s ‘due diligence policies and procedures’ are of little interest without seeing which projects they are applied to in reality and how.

Recognising the ongoing controversy around hydropower, in 2019, the EIB’s Hydropower Guidelines made a step forward on this issue, stating that: ‘Where the EIB is providing financing to an FI, the FI will disclose the list of hydropower projects it is financing on its website.’ Yet the new draft FI Standard makes no reference to intermediaries having to disclose any specific information about sub-projects.

All of this puts the EIB out of step with its peers, who have undertaken considerable improvements in their financial intermediary policies in recent years.

The EIB’s peers move ahead

The International Finance Corporation (IFC), the Asian Infrastructure Investment Bank (AIIB) and European Bank for Reconstruction and Development (EBRD) have all committed to improve disclosure for financial intermediary loans in higher-risk sectors, while the Green Climate Fund is the clear leader in this field and requires the disclosure of all sub-projects. The World Bank has also already for years required disclosure for higher risk projects before sub-projects are signed.

The definition of higher risk sectors requiring disclosure and additional due diligence by the multilateral bank lender varies, but the EBRD’s definition includes all Category A projects – those which are always subject to Environmental and Social Impact Assessment (and are listed in the EBRD’s Environmental and Social Policy) – plus a list of project types which might not always be subject to a full environmental assessment procedure, but are nevertheless defined by the EBRD Policy as high-risk, e.g. activities that occur within or have the potential to adversely affect an area that is legally protected.

The EBRD has re-introduced an obligation for intermediaries to notify the bank when considering any high-risk projects listed on this ‘referral list’, at which point the EBRD then becomes involved in the due diligence process.

The China-led Asian Infrastructure Investment Bank has also recently revised its Environmental and Social Framework to include increased AIIB staff responsibility for monitoring and supervision of what it calls ‘Higher Risk Activities’ funded via FIs. There is also a new requirement for AIIB to have prior approval of high-risk sub-projects, and environmental information on Category A sub-projects must be disclosed before approval, and on all other higher-risk sub-projects within a year of financing.

The Green Climate Fund, whose investments are all carried out through intermediaries, has a different approach, having different accreditation levels for different entities, enabling some to finance more risky investments than others, depending on their capacity to assess and manage the risks. Even in this case, the Fund reviews the sub-project categorisation awarded by the accredited entities for specific sub-projects before they are approved.

The tables below show how the EIB’s draft Standard performs in comparison with selected other international financing institutions.

* If the World Bank does not think the FI has capacity, the Bank will review high risk projects itself and demand prior approval.

* The EBRD and AIIB’s recourse mechanisms can only carry out compliance reviews on the banks’ compliance with their standards, which may limit the scope of their treatment of cases involving financial intermediaries.

What now for the EIB?

The EIB’s draft Policy and Financial Intermediary Standard need a significant overhaul before being approved. The EU’s house bank must stop hiding around one-third of its lending and must take responsibility for its environmental and social impacts.

The Bank should follow the IFC’s example and stop providing general-purpose loans to intermediary clients ¹. It should ring-fence intermediated investments in a legally enforceable way to support specific low-risk projects that truly advance EU policy goals.

The Policy and Financial Intermediary Standard need to clarify that all EIB-financed operations must comply with EU law, the EIB’s Environmental and Social Standards and all EIB sectoral policies. The Bank’s 2013 exclusion list must be updated to at least mirror this: For example, intermediaries must not finance any unabated fossil fuels, as required in the 2019 Energy Lending Policy.

The EIB needs to introduce a referral list in its Financial Intermediary Standard, defining higher-risk sub-project types that need to be referred to the Bank for due diligence and monitoring. This should include sub-projects with social impacts, those which may need an environmental impact assessment, and those which impact areas of high biodiversity value. The EIB also needs to commit to carry out site visits and engage with affected communities in such cases, and to be involved in any monitoring and corrective action. This must also be clearly stated in loan contracts.

But real improvements in the environmental and social performance of the EIB’s intermediated investments are only likely with increased transparency so the public can bring forward any concerns in a timely manner. EIB clients and the Bank itself must be required to publish information at the very least on sub-projects which are likely to have significant social or environmental effects before they are approved for financing.

1. Former IFC CEO Philippe Le Houérou in Opinion: A new IFC vision for greening banks in emerging markets, Devex, 8 October 2018: “…we have eliminated our general-purpose loans to any financial intermediaries; we now ring-fence about 95 percent of our lending to financial intermediaries…”.

This publication was produced in collaboration with EuroNatur in the framework of the joint research and advocacy work on hydropower finance and subsidies.

How to monitor the spending of the EUR 672 billion recovery fund

So far, the process of drafting national recovery plans has been far from transparent. Many plans have been decided behind closed doors and few public consultations took place despite being a legal requirement. Even now, the exact content of some of the plans that are currently awaiting approval is unknown. This lack of transparency therefore raises questions over how the spending of EUR 672 billion will be properly monitored to ensure the funds full compliance with the set objectives, in particular the 37 per cent climate earmarking, as well as the EU’s environmental legislation. One of the monitoring tools the European Commission is preparing is a recovery and resilience scoreboard, which will measure the progress of implementation of national recovery plans by a set of indicators. However, in its proposed form, the scoreboard shows a limited number of indicators, in particular for measuring progress towards climate and biodiversity targets. This calls into question the effectiveness of the scoreboard, and opens the door for the misuse of funds and greenwashing.

One of the key ways to ensure the disbursement of the recovery funds is properly monitored and in line with the fund’s strategic objectives is to involve civil society during the implementation process.

The drafting of the recovery plans has already shown that Member States who made the most progress towards the aims of the European Green Deal were those that consulted and engaged with environmental organisations and the broader public. Some Member States are claiming their good will in involving stakeholders for the recovery fund implementation, but more has to be done to see real evidence of changing the approach. Poland for example, under pressure from civil society organisations for transparency in the whole process, decided to establish a monitoring committee that will also include members of civil society, however its specific composition and function remain hazy. The Slovak authorities also foresee the creation of a dedicated body advising the government on the implementation of the plan but it is not clear yet how partners like civil society organisations will be involved. To ensure real participation of stakeholders and civil society in particular, these committees should not be formal instances but have specific and transparent rules and an advisory role for an efficient implementation of the recovery plans. Such efforts would be highly beneficial in other Member States. For example, the Commission has recently suspended the assessment of the Hungarian plan and requested more robust anti-corruption measures from the Hungarian government. While this is welcomed, it also shows that proper monitoring of plans, which had already difficulties reaching requirements during the planning process, is crucial in the implementation stage. Never before will such large amounts of EU funds be spent so quickly. Without adequate monitoring in place, the once in a lifetime opportunity that we are now presented with to deliver a green transition may be wasted. Experience has already shown that Member States can all too easily follow the business as usual paths that led us to today climate and environmental crisis.

The beginning of the end – coal phase out in Romania

But as the country moves to end its dependence on what was once called ‘the black gold,’ decision makers need to avoid some serious pitfalls. Chiefly, Romania’s departure from coal must happen more quickly and it should be replaced by renewables, not fossil gas. Decision makers also have to ensure that this transition is done in a fair and inclusive way, that this historical shift leaves no one behind. At long last, the Romanian Government announced in June that it will phase out coal by 2032. But questions abound. The National Recovery and Resilience Plan, which stipulated this date, states that a timeline for the process will be developed by the end of 2022, and that a coal commission will be established. Yet it gives no details such as when the commission will be set up, what its responsibilities will be and who will be its members. The plan also doesn’t clearly specify whether the phase-out refers to all coal or only hard coal. In response to a request for information from Bankwatch Romania on the type of coal that will be phased out, the Ministry of Energy simply cited the importance of energy security for Romania. Bankwatch Romania wants to support the safe closure of plants and mines, with the fewest negative economic and social impacts possible. This is why we think it is important to know where we stand now. In order to better understand the impact of coal in Romania, we have compiled a report about all the coal assets in the country.

Why we need an earlier phase-out

IPCC scientists say the entire European continent should give up coal by 2030 in order to meet the climate goals of the Paris Agreement, the most important of which is to limit global warming to 1.5°C. We are close to missing this target, according to the first chapter of the recently published IPCC 6 report. This is why we call for a coal phase-out in Romania by 2030. Coal is the fuel that emits the most carbon dioxide and is the largest pollutant nationally and globally. In total, in 2019, Romanian coal-fired power plants were responsible for 35 per cent of the emissions from all industries. In addition, coal combustion emits pollutants such as sulfur dioxide (SO2), nitrogen oxides (NOx), and fine particles (PM). These are associated with a number of health and environmental problems, including an increased incidence of asthma and bronchitis and acid rain. According to 2016 data, coal-fired power plants in Romania are believed to be behind around 500 premature deaths annually and over 11,000 cases of respiratory diseases. So, stricter emissions limits, and, ultimately, giving up coal, would save lives. Starting this week, industrial combustion plants are required to comply with new EU emissions standards under the Industrial Emissions Directive. Only two coal units in Romania will remain non-compliant, as Oltenia Energy Complex already announced it is working to upgrade its coal-fired installations. But the two other units – one unit at the CET Govora power plant and another at CET Iași II – will have to face penalties or shut down.

Ensure a just transition

The closure of Romania’s most polluting power plant was good news, but this was done in a chaotic way, without plans for retraining workers. The 700 employees were only offered compensatory payments or early retirement. Such an approach did little to help their reintegration into the labor market, as many were left without a primary source of income. And it’s not looking better for employees at the units of Ișalnița and Turceni power plants, slated to be closed by end of the year. The plans foresee laying off 700 employees, of which 480 will receive a monthly supplemental income, and no opportunity for retraining. Romania’s coal sector currently employs a total of 16,000 workers, and the just transition plans now under consideration should provide alternatives for all of them. The Territorial Just Transition Plans (TJTPs) of both coal regions – Hunedoara and Gorj – mention the need for reskilling programmes, but until now very little has been done to implement them. There is no concrete plan for what these reskilling schemes will look like, and they will not be here soon, as authorities expect the TJTPs to be approved only at the beginning of 2022.

Fossil gas – a threat for climate and the economy

More or less, all eight coal plants in Romania are expected to be switched to fossil gas. Oltenia Energy Complex plans to switch Turceni and Ișalnița by 2026. The Energy Strategy also mentions Craiova II, which will be outsourced to the local administration, but there is no timeline. There is also no plan for Rovinari, as it is foreseen to operate well beyond 2030. The plans of another utility, Hunedoara Energy Complex, are particularly blurry. Both the Mintia and Paroșeni power plants are expected to switch from coal to fossil gas according to the company’s transition plan as well as the national Energy Strategy and state officials’ declarations. But, so far, no concrete steps have been taken and no timeline has been made publicly available. Local authorities in Iași also said the local power plant might switch to a mix of gas and renewables, with the help of European funds. Yet, this is the wrong direction. Replacing so many coal plants with fossil gas is at odds with tackling the climate crisis and is also an economic risk. Methane releases, either accidental or planned, have repeatedly shown to be outweighing any climate advantage fossil gas has on coal. Besides, to reach net zero emissions by 2050, gas plants also need to be phased out by 2040. Instead of wasting public funds on decommissioning units built 10 years earlier, investments need to be directed to renewable energy sources. It is still unclear how the Romanian government will handle the coal phase-out. Just before we finished writing the report, news reports suggested that CE Oltenia will shut down nine of its 12 units and keep the rest for balancing. But one thing is certain: in order to plan for a real decarbonisation of the economy, it is important that all relevant actors participate in the decision-making process around the coal phase-out law. Bankwatch Romania will support the involvement of the local community to make sure the best solutions available are taken into consideration and offset the previous damage coal has caused.

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