Central Europe Energy Partners’ position paper on Just Energy Transition

The process of decarbonisation of the European economy will be highly complicated and very costly. It encompasses many dimensions of business activities, including also, a not less important, social dimension. To achieve carbon neutrality by 2050 as envisaged in the EU Long-Term Climate Strategy, comprehensive structural changes encompassing both the energy sector and the socio-economic situation of coal and energy-intensive regions, particularly in Central and South-Eastern Europe, must be properly addressed in the EU Multiannual Financial Framework 2021-2027.

The transition towards low-carbon economy inevitably requires massive investments in technologies capable of delivering the pledged GHG reduction targets. Decarbonisation of the energy sector entails the development of new low-carbon capacities and a thorough modernisation of the electricity systems, comprising adding new transmission lines and developing electricity storage. Considering the proposed timeline for the transition and the implied costs, different starting points of the member states should be taken into account, this being predominantly determined by the varying shares of fossil fuels within their electricity generation portfolio. Fossil fuels remain an important source of power generation in Central and Eastern Europe region, whereas it has a significantly lower share in the western and northern part of the Union. This automatically translates in higher costs for decarbonisation of the energy systems and industrial sector. In Poland, the estimated needed capital would be 80 billion EUR until 2030 and 115-160 billion EUR until 2050[1]. This poses a significant investment challenge for energy companies. The deployment of new technologies also requires public funding and incentives to support the delivery of new technologies.

Phase out of coal will result in the loss of directly and indirectly related jobs. Coal is mined in 41 regions in 12 EU countries. Overall, in the EU, 237.000 jobs are directly related to the coal sector. In addition, 215.000 jobs are indirectly related. Many of these regions are located in Central and South-Eastern Europe (Poland, Slovakia, the Czech Republic, Romania and Bulgaria), regions with significantly lower GDP per capita in comparison to the EU average. Decommissioning of coal power plants and closure of coal mines would lead to accumulated loss of up to 77.000 workplaces until 2025 and 160.000 until 2030. Only in Silesia, Poland, there are 80.000 coal-related jobs which could be cut off by 50% by 2030, i.e. 40.000[2].

Meanwhile, the expected rise of fuel or electricity prices, triggered by stringent climate policy, would also affect the social perception of the transition. It might generate social unrest which will hinder more ambitious climate policy. Therefore, a shift from high-carbon to low-carbon economy must be accompanied by social policy measures. Also, not less important, is the need of pursuing the dialogue with society, finding public acceptance and use the right communication tools to explain to the citizens the consequences of the climate commitments.

A responsible approach to energy transition also requires designing measures within industrial policy supporting competitiveness and adjustment of the European energy-intensive industry. The energy transition is to be implemented in a highly competitive international environment where jobs offshoring and carbon leakage are real problems. These must be addressed by combining political and economic tools, including an appropriate trade policy. While providing strong signals, EU ETS results in increased electricity prices, which affect business operations of energy-intensive companies, further deteriorating the competitiveness of the EU industry.

To fulfil a just energy transition, CEEP calls for:

  • Ambitious MFF for 2021-2027 supporting clean energy transition

The EU budget being an unparalleled investment tool, can facilitate the achievement of low-carbon economy and fight climate change. Therefore, we call for the firm funding of the energy transition and climate objectives in the upcoming Multiannual Financial Framework 2021-2027. Different financial mechanisms, such as Connecting Europe Facility (CEF) for the development of energy infrastructure, or Horizon program, concerning research and development, are making a real difference on the ground, supporting energy transition.

  • Support for ‘Coal Regions in Transition’ by establishing a Just Energy Transition Fund

Coal Regions in Transition is a platform for cooperation of coal-dependent regions. Decarbonisation seriously affects the economy of the particular regions and requires socio-economic measures. Capital from the Just Energy Transition Fund should be used for the creation of new jobs, especially in the circular economy, for employees who are employed in coal-related jobs and who, due to the energy transition, are threatened with loss of jobs. This should include possible retraining, reskilling and upskilling. These funds should also allow for the support of energy transition away from carbon-intensive electricity production by modernisation of the power sector towards less carbon-intensive energy generation and by supporting innovations in the power sector.  In particular, the Just Energy Transition Fund should support investments in new generation capacities from low-carbon energy sources. This would allow for the replacement of the existing generation infrastructure with new less emitting conventional sources and RES. Therefore, we call for further strengthening of this initiative by providing it with financial resources through the ‘Just Energy Transition Fund’, as endorsed by the European Parliament.

  • More flexibility concerning the use of Cohesion Fund (CF) and European Regional Development Fund (ERDF) for the financing of low-carbon projects

ERDF and CF are important sources of levelling the differences in the development of the EU regions, particularly in Central and South-Eastern Europe. They can play a major role in financing transition towards a low-carbon economy by providing additional funding for new investments. Low-carbon generation capacity, such as gas-fired power plants, particularly CHP, should be considered as eligible investments for funding from ERDF and CF. They provide substantial contribution to the transition towards cleaner future to a low-carbon economy, in countries which solid fossil fuels remain a dominant energy generation source and facilitate the introduction of renewable energy sources. They can also play an important role in providing security of supply for the EU as a whole.

  • Well-designed funding mechanisms in the fourth phase of the EU ETS

Funding mechanisms within the fourth phase of the EU ETS, particularly Modernisation and Innovation Funds have the potential to contribute to the transformation of the energy systems in Central and South-Eastern Europe. To achieve such, their design shall be simple on the one hand and flexible on the other hand. Too long and complicated bureaucratic procedures would disincentivise the companies to use the funds for low-carbon investments.  The key issue at this moment is to adopt its functioning rules in the way which would allow to benefit from it in the most cost-effective way.

We consider that the member states should be given the broad margin of discretion in selecting the eligible projects, which are failing within the scope of the simplified decision-making path. Therefore, it should be ensured that the huge RES investments (such as the offshore wind farms) would be supported by the Modernisation Fund up to the all eligible costs. Small-scale investments may not give as significant environmental benefits as the large RES projects.

[1] Source: Polish Electricity Association (PKEE) report “The contribution of the Polish energy sector to the implementation of global climate policy”, December 2018.

[2] Source: JRC report “EU coal regions: opportunities and challenges ahead”, 2018.