COMMISSION STAFF WORKING DOCUMENT Accompanying the document Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on the public sector loan facility under the Just Transition Mechanism

EN EN
EUROPEAN
COMMISSION
Brussels, 28.5.2020
SWD(2020) 92 final
COMMISSION STAFF WORKING DOCUMENT
Accompanying the document
Proposal for a
REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL
on the public sector loan facility under the Just Transition Mechanism
{COM(2020) 453 final}
Europaudvalget 2020
KOM (2020) 0453
Offentligt
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INTRODUCTION
This analytical document accompanies the legislative proposal for a public sector loan
facility, which constitutes the third pillar of the Just Transition Mechanism.
It aims to provide the rationale and policy objectives that underpin this legislative proposal,
as well as the envisaged implementation mechanisms to attain its objectives. It provides
criteria for assessing the performance of the instrument as well as for its evaluation.
I. CONTEXT AND RATIONALE FOR THE LEGISLATIVE PROPOSAL
On 11 December 2019, the Commission adopted a Communication on the European Green
Deal1
, drawing its roadmap towards a new growth policy for Europe, based on ambitious
climate and environmental objectives.
This transition towards a sustainable and climate-neutral economy will nonetheless represent
a significant challenge for some territories. It will require a fundamental structural change in
their economies, changes in their business models and new skills for their labour force. In
several instances, those changes are already at work. The most vulnerable regions and
territories are those most affected by the transition given their dependence on fossil fuels,
including coal, peat and oil shale or greenhouse gas-intensive industrial processes, and among
those in particular the regions and territories with less resources to deal with the economic
and social costs of that transition.
Some key economic sectors are or will be declining; those where reduction in economic
output and employment levels will be inevitable and irreversible given the high greenhouse-
gas emission levels, in particular economic activities based on the production and use of
fossil fuels, in particular coal, lignite, peat and oil shale. Other areas of economic activity will
be transforming; these are sectors where, in spite of currently high greenhouse-gas emission
levels, economically efficient alternative technologies for carbon-intensive processes exist or
can be found in order to sustain economic output and employment.
Coal infrastructure currently is present in 108 European regions (defined at NUTS3 level).
Close to 237 000 people are employed in coal-related activities, whereas almost 10 000
people are employed in peat extraction activities and around 6 000 in the oil shale industry.
Numerous additional indirect jobs also depend on the fossil fuel value chain and the
greenhouse gas-intensive industrial processes. Without the necessary accompanying
measures, there are limited chances for a just and socially sustainable transition to happen in
these territories given the socio-economic costs involved.
On 26 February 2020, the Commission published Country Reports for all 27 Member States
setting out its analysis regarding the territories that are expected to be the most negatively
impacted by transition. The high level of potential job losses was a major factor in identifying
these territories, together with the high level greenhouse-gas emission levels.
II. OBJECTIVES PURSUED BY THE LEGISLATIVE PROPOSAL
In order to address the specific challenges encountered by the most vulnerable territories, the
Commission has proposed, through its Communication on the European Green Deal
Investment Plan2
, a Just Transition Mechanism. It aims at providing targeted support to
1
COM(2019) 640 final.
2
COM(2020) 21 final.
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generate the necessary investments in these territories, in order to alleviate the corresponding
economic and social costs. The Just Transition Mechanism consists of three pillars:
1. a Just Transition Fund,
2. a dedicated just transition scheme under the InvestEU programme, and
3. a public sector loan facility in order to leverage additional public investments.
The proposal for establishing the Just Transition Fund was adopted by the Commission on 14
January 20203
. It sets up the content, scope and rules applicable for the implementation of the
Fund.
In particular, it requires Member States to submit territorial just transition plans, which are
instrumental to the programming and implementation of the Fund. The plans need to set out
the key steps and timeline for the transition process, identify the territories most negatively
affected by the transition towards climate-neutral economy and the envisaged types of
operations for each territory concerned that contribute to a successful transition. They also
need to identify synergies and complementarities between the three pillars of the Just
Transition Mechanism, as well as with other Union programmes.
The proposal for a Just Transition Fund also includes, in its Annex I, a methodology for
calculating the national allocations under this Fund. The Fund will have an allocation of EUR
7.5 billion over and above of the Commission’s MFF proposal, to be matched with additional
resources from the ERDF and the ESF. It is expected to mobilise investments worth EUR 30-
50 billion (taking into account national co-financing and mandatory transfers from the ERDF
and the ESF+).
The Just Transition Fund focuses on economic diversification and revitalisation measures for
the impacted territories along with support for their workers. The scope of intervention and
its geographical scope are limited to allow for concentrating support, consistently with its
political objective.
Given the transition challenge territories and regions face, additional investments will,
however, be necessary. In particular, the broader development needs, stemming from the
transition process and detailed in the territorial just transition plans will need to be addressed.
This may involve a wider scope for investments and a wider geographical area for
implementation but still with the aim of benefitting the territories most exposed, as identified
in the territorial just transition plans.
In particular, new economic activities and the local economy should be promoted to replace
activities that need to be phased out given their harmful effects on climate and environment.
The second and third pillars of the Just Transition Mechanism aim at providing additional
support to these territories. The wider range of investments both from a sectoral and,
potentially, geographical perspective, will reinforce the effectiveness of support under the
Just Transition Fund and maximise the effect of those investments including through the
additional resources leveraged. The adoption of the territorial just transition plans will
provide access to additional support under the second and third pillars for the territories
concerned.
The just transition scheme under InvestEU will target economically viable projects, promoted
mostly by private beneficiaries. It is expected to crowd in private investments through
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COM(2020) 22 final.
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guarantee mechanisms which would offer risk coverage and leverage investments supporting
transition territories.
However, major public investments will also be needed to accompany the transition that most
affected territories face. Those development needs should, in principle, be satisfied by the
public sector or actors with a public service mission. However, public project promoters may
not have easy access to financing and may not be bankable, especially where their projects do
not generate a sufficient stream of own revenues. It is key that additional resources are made
available to them in conditions that make those essential investments possible.
The third pillar of the Just Transition Mechanism therefore aims at providing additional
resources for these public sector projects in view of addressing the social, economic and
environmental challenges resulting from the climate transition. The support is taking in this
regard the form of a public sector loan facility, combining grant support from the EU budget
with loan support from the European Investment Bank. To that end, a cooperation framework
will be put forward, providing for a just distribution of these additionally available resources
for public sector projects with insufficient market revenue streams.
The objective of the legislative proposal is therefore to provide public sector projects,
targeted funding resources to implement measures in order to facilitate the transition to a
climate-neutral economy and benefitting the just transition territories.
While aspiring for supporting the best quality projects, this instrument should also ensure that
the distribution of resources remains fair and just across all territories and Member States of
the EU in order to provide for a level playing field for all public sector projects. It is also
necessary that public sector projects in less developed territories with a lower capacity of
financing receive additional support to increase chances for receiving support from the public
sector loan facility.
III. MECHANISMS PROPOSED TO MEET THE OBJECTIVES
The legislative proposal provides for a set of forceful measures in a comprehensive
framework to enable the instrument to meet the above-described objectives.
First, it ensures a fair and balanced access to the public sector loan facility across the 27
Member States:
 Until 31 December 2024, calls for projects will be launched based on earmarked
national allocations. These will be calculated pursuant to the relative national shares
as a result of the allocation methodology provided for in Annex I of the proposed Just
Transition Fund Regulation. This will ensure a fair chance for all Member States that
their concerned territories effectively benefit from these resources once their
territorial just transition plans are adopted by the Commission in the programme
providing Just Transition Fund support.
 From 2025 onwards, calls will be launched on a competitive basis without further
earmarked allocations. However, both the Commission and the European Investment
Bank will ensure fair access to the public sector loan facility across all Member
States, taking into account the need to ensure predictability of investment and the
promotion of regional convergence.
 The EU grant rate, calculated on the basis of the amount of the loan provided by the
European Investment Bank or another finance partner, will be modulated with regard
to the level of development of the concerned regions. The maximum ceiling is
increased in this regard by 5 percentage points for projects located in less developed
regions, taking into account their lower investment capacity.
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Secondly, it ensures fair access to the public sector loan facility to all public sector entities,
irrespective of their size as borrower:
 For smaller scale projects, typically promoted by smaller municipalities, loan schemes
may be implemented – enabling support where the relatively small size of projects
could otherwise prevent individual project-based lending by the European Investment
Bank (due to its lending policy). Financing Agreements, therefore, could be put in
place with public intermediaries in view of reaching out to smaller public sector
projects and entities.
 Advisory support will be channeled through the advisory hub set-up under the
InvestEU programme to support project preparation and implementation, in view of
supporting notably public project promoters with weaker administrative capacities.
Moreover, the legislative proposal remains flexible through envisaging a large sectoral
coverage, which corresponds to the lending policy of the European Investment Bank or other
future financing partners as well as the objectives of the Just transition Mechanism defined in
the European Green Deal Investment Plan. This wide scope of intervention will ensure that
the public sector loan facility can address, in essence, all development needs identified in the
territorial just transition plans. Investments to be supported may include energy and transport
infrastructure, district heating networks, public transport, energy efficiency measures
including renovation of buildings, as well as social infrastructure or environmental
investments such as those supporting the transition towards the circular economy and land
restoration and decontamination – always for the benefit of the just transition territories as
identified in the just transition plans.
Prioritisation criteria will be further developed in the Commission’s work programme where
priority areas could be identified, for example through favouring investments which
contribute directly to the climate transition – for instance, in energy efficiency or sustainable
energy sources. The selection and award criteria to be included in the calls can further
reinforce and operationalise these priorities. These mechanisms will ensure that the public
sector projects selected represent the best value for money and that an appropriate mechanism
is elaborated in order to ensure the ranking of project applications where demand exceeds the
available (national) allocations.
Additionally, the application and other administrative processes for applicants and
beneficiaries have been largely simplified through providing for a one-stop shop approach. A
single application process and subsequent coordinated handling between the Commission and
the European Investment Bank should lead to minimising the administrative cost and burden
for applicants and beneficiaries.
IV. MONITORING THE ACHIEVEMENTS
In line with the current requirements of Better Regulation and the Inter-institutional
Agreement on Better Law-Making, the proposed legislation includes specific monitoring and
evaluation provisions aiming at verifying that the specific objectives of the public sector loan
facility are achieved.
The public sector loan facility aims at supporting public investments benefiting the territories
most negatively impacted by the transition towards climate neutrality. The type of
investments supported will vary across territories, depending on the specific development
needs to be met as defined in the territorial just transition plans. Therefore, sectoral result
indicators cannot be established in advance and may be difficult to monitor even
subsequently. Instead, the success of the public sector loan facility will be measured in the
light of its capacity to support public investments and their contribution to the transition
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process in the context of the above-mentioned territories, irrespectively of the sectors at
stake. However, the evaluations to be carried out will take into account the sectoral split of
the interventions and will also be assessed against the context of the territorial just transition
plans. Evaluations (cf. below) are better placed to mesure the success of the instrument in this
regard given the longer time horizon giving a better perspective for measuring impacts and
results the instrument will bring about.
The geographical location of the investments will also be monitored. As the public sector
loan facility is designed, with the recourse to national allocations for the calls launched until
31 December 2024, to be fairly accessible to all eligible territories, such achievement should
also be reported.
Specific performance monitoring indicators are therefore envisaged with a view to reporting
the results of the public sector loan facility, on the following elements:
 Financial execution, through the volume of grants and loans granted. It will be used in
particular to monitor the implementation pace and detect possible implementation
shortcomings
 Overall investment mobilised, broken down by sectors in view of identifying the key
objectives pursued by projects supported in the context of promoting a climate-neutral
economy
 Beneficiaries supported, including information on the territorial coverage. Such
information will be used to monitor, in particular, the fairness of the territorial
coverage:
o until December 2024, for territories located within the Member State;
o beyond this date, distribution of support within and between Member States.
These performance monitoring indicators may be further adjusted to provide more accurate
information based on experience with implementation after the first calls.
Monitoring and reporting provisions will be included:
 In the administrative agreements to be signed with the European Investment Bank and
possible future other financing partners. Beneficiaries will need to report both to the
Commission and the European Investment Bank, pursuant to their own procedures.
However, for simplification purposes and to avoid unnecessary administrative burden
for beneficiaries, the requested data have been largely harmonised.
 In the grant agreement signed with the beneficiaries. For loan schemes, the
obligations of the intermediary will be detailed as regards the data to be collected
from final recipients (and to be processed subsequently).
In addition, evaluations will be carried out to feed into the decision-making process.
In particular, an interim review of the public sector loan facility will be performed by 30 June
2025, when sufficient information is expected to be available about the implementation of the
public sector loan facility.
The evaluation will need to demonstrate in particular how Union support will have
contributed in addressing the needs of territories implementing territorial just transition plans.
In addition, a final evaluation report on the results and long-term impact of the programme
will be issued at the end of the implementation period, not later than December 2031.