Eighteenth Report of Session 2019–21 Contents

2Climate Change: Just Transition4

These EU documents are politically important because:

  • they concern an issue of political interest — the cost of cutting climate emissions equitably — which the UK is planning to address domestically.

Action

  • Report to the House.
  • Draw to the attention of the Business, Energy and Industrial Strategy Committee.

Overview

2.1Following the EU’s decision to aim for climate neutrality by 2050 the European Commission proposed a new funding mechanism to address inequalities arising from the required climate transition across the EU. This forms part of the European Green Deal policy agenda.

2.2This ‘Just Transition Mechanism’ will target financial resources to the most affected regions and sectors, in particular those with a high degree of dependency on fossil fuels or greenhouse gas intensive processes (notably coal-related activities, peat extraction and oil shale).

2.3The Just Transition Fund is one of three elements of the Just Transition Mechanism. When it was first proposed in January 2020, the Commission earmarked €7.5bn (£6.84bn) for the Fund (i.e. additional capital beyond that set out in earlier proposals for the 2021–27 MFF), but an increase to €17.5bn (£15.97bn) has since been agreed.5 The increase will come from borrowing on capital markets as agreed by the European Council as part of the EU’s recovery plan (on which we have reported separately). Member States will match each Euro allocated via the Fund with between €1.5 (£1.37) and €3 (£2.74) from the European Regional Development Fund and European Social Fund. This will be further supported by national co-financing under existing cohesion policy rules.

2.4The allocation of grants under the Just Transition Fund will focus particularly on the re-skilling and inclusion of workers in regions which host greenhouse gas-intensive industries, in addition to regions with a high proportion of workers employed in coal, lignite, oil shale and peat production. Financial distribution at the Member State level will reflect the capacity of Member States to cope with the transition to climate neutrality, taking into account the level of reliance on greenhouse gas-intensive industry, social challenges of job losses, regional and national levels of economic development, and investment capacity. Access to the Just Transition Fund will be limited to 50% of national allocation for Member States that have not yet committed to implement the objective of achieving a climate-neutral EU by 2050, in line with the objectives of the Paris Agreement, with the other 50% being made available upon acceptance of such a commitment.

2.5Another element of the Just Transition Mechanism is the public sector loan facility, designed to support public investments through preferential lending conditions. The Commission proposed that the facility consist of a grant, provided from the EU budget, and a loan component, provided by a finance partner. The European Investment Bank (EIB) will be the lead finance partner, while also allowing for the possibility to cooperate with other finance partners over time.

2.6The aim of the facility is to support public sector entities with resources needed to address the social, economic and environmental challenges resulting from climate transition and in doing so complement the other elements of the Just Transition Mechanism. It will support a wider range of investments, with a broader geographical spread, than the Just Transition Fund. The facility will also complement the other element (InvestEU) — which aims to bolster private investment and support public investment that is financially viable — by supporting public investments that generate insufficient revenue and could not be financed without a grant component to a loan. We have reported separately on InvestEU.

2.7The Parliamentary Under-Secretary of State (Lord Callanan) observes that, since the Just Transition Fund concerns EU policy following the UK’s withdrawal, there are no direct implications for the UK, reflecting the position of his predecessor (Lord Duncan) in his earlier Explanatory Memorandum (EM). Similarly, the Chief Secretary to the Treasury (Rt Hon. Steve Barclay MP) says in his EM that the UK will not be participating in the public sector loan facility and recalls that the UK is no longer a member of the EIB. The Government nevertheless notes the Commission’s commitment to ensuring that the climate transition supports those most affected. For the UK, the Government envisages a similar combination of public and privately leveraged finance.

Action

2.8We report the documents to the House as politically important because they concern an issue of political interest — the cost of cutting climate emissions equitably — which the UK is planning to address domestically. The Just Transition Fund itself will not directly affect the United Kingdom.

2.9We also draw these proposals to the attention of the Business, Energy and Industrial Strategy Committee. We require no further information from the Government on any of these documents.


4 (a) Proposal for a Regulation establishing the Just Transition Fund, (b) Amended proposal for a Regulation laying down common provisions on the European Structural and Investment Funds, (c) Amended Proposal for a Regulation establishing the Just Transition Fund (d) Proposal for a Regulation on the public sector loan facility under the Just Transition Mechanism; EU document references: (a) 5256/20 + ADD 1, COM(20) 22 (b) 5259/20, + ADD 1, COM(20) 23, (c) 8386/20 + ADD 1, COM(20) 460, (d) 8412/20 + ADDs 1–2, COM(20) 453; Legal base: (a) Article 174(1) TFEU, QMV (b) Article 175 TFEU, QMV (c) Articles 174, 175 and 322 TFEU, QMV (d) Articles 175 and 322 TFEU, QMV; ordinary legislative procedure; Departments: Business, Energy and Industrial Strategy and HM Treasury (document (d)); Devolved Administrations: Consulted; ESC number: (a) 41035 (b) 41036 (c) 41304 (d) 41306.

5 European Council Conclusions, 17–21 July 2020.




Published: 29 July 2020