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EP and Member States agree to cut funding for fossil fuels under the Just Transition Fund

The European Parliament and the Council reached a provisional agreement on setting up the Just Transition Fund favouring more alignment of the European budget with the Paris Agreement. Investments in fossil fuels will not receive funding under the Just Transition Fund. However, gas projects that meet the taxonomy criteria of do no significant harm could still access funding from the regional development fund until 2025.

The exclusion of fossil fuels from EU funding has been on the table of European lawmakers for a long time. The transition from fossil fuels to cleaner energy sources is a cornerstone of the European Green Deal. The Just Transition Fund (JTF) is one of the EU’s key tools to reduce the socio-economic costs for those communities and regions that are less equipped to meet the challenges of this transition.

The European Commission initially proposed a fund size of 40 billion euros in May, however, the European leaders slashed it to 17.5 billion euros under an EU budget deal in July.

Apart from the size of the fund, there is also much debate about how to spend this money. In September the European Parliament voted in favour of financing gas projects through the mechanism, even though EU member states’ already managed to reach consensus to exclude fossil fuels from the Just Transition Fund.

The EU institutions seem to reach conclusion now as the provisional agreement set out that fossil fuels will not be supported by the JTF.

“The European Parliament gave a strong political signal: the social, economic and environmental impact of the energy transition in the most affected regions must be addressed,” said Rapporteur Manolis Kefalogiannis (EPP). “We took a pragmatic approach that will allow us to move into a new green era without leaving anyone behind.”

Gas projects may benefit from funding under strict conditions

The JTF won’t finance production, processing, transport, distribution, storage or combustion of fossil fuels, neither the decommissioning nor construction of nuclear power stations, however, gas projects may receive funding from the new European Regional Development Fund (ERDF) if they are in line with the principle of do no significant harm of the EU Taxonomy, meaning that emissions must be lower than 270gCO2e/KWh.

GHG Emissions Intensities of Selected Power Generation Technologies Source: WWF (2018)

Funding for gas projects will be limited to regions heavily dependent on coal to allow a smoother transition and can cover a maximum of 1.5 per cent of the national envelope allocated within the framework of the ERDF for coal-dependent countries such as Poland, Romania and other Eastern European countries. The funding can no longer be claimed after 2025.

“Under these conditions, we are only talking about a few gas projects likely to be financed in about fifteen regions, out of 280 in Europe, which falls into the category highly dependent on coal,” wrote Pascal Canfin, President of the Committee on the Environment, Public Health and Food Safety.

“It is a major decision which confirms the credibility of Europe to become the first climate-neutral continent by 2050 at the latest while finding the path that supports brings together all countries and regions,” he added.

The Parliament and the Council are now expected to endorse the content of the agreement. The final text is expected to come our early next year.

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