The Just Transition Mechanism Supports Regions in Transition in Europe

Coauthored by Deniz Tüzün and Emma Krause

The phaseout of coal and carbon-intensive infrastructure and technologies offers the European Union (EU) regions most affected by the energy transition an opportunity to reimagine and implement a new socioeconomic future. As part of the European Green Deal, the European Commission established the Just Transition Mechanism (JTM) to help ensure that the transition toward a climate-neutral economy happens in a fair way, leaving no one behind. The JTM enables just transition regions—those most affected by the energy transition and whose economies are dependent on fossil fuels, particularly coal mining and carbon-intensive regions—to take a big step toward a green, digital, and inclusive economy by supporting reskilling and upskilling, providing access to secure and clean energy, creating investment opportunities for small and medium-sized enterprises (SMEs), and promoting innovation-based technologies.

The energy transition is radically changing the economic and social structure of these regions, creating significant investment needs to restructure and accelerate new socioeconomic opportunities. To respond to these needs and facilitate regions’ transition activities, the JTM’s three pillars offer financial support in various forms through grants, private investment, and loans. Collectively, these funding sources are expected to mobilize approximately €55 billion ($60 billion) during the 2021-2027 budget period, primarily directed toward the regions most heavily affected by the energy transition, with the aim of mitigating its socioeconomic impact.

How Regions Can Access Funding from the Just Transition Mechanism

To access the various funding schemes offered through the JTM, EU member states must submit Territorial Just Transition Plans (TJTPs). An essential part of any TJTP is a description of the expected transition process in the member state and a demonstration of negative impacts resulting from this transition in the selected territories—particularly impacts related to the expected adaptation of workers and potential job losses in industries tied to fossil fuel production and consumption, the need for new economic development opportunities, and the transformation of industrial facilities with the highest greenhouse gas emissions intensity. To date, the European Commission has approved 70 TJTPs covering 96 territories.

The Three Funding Pillars of the Just Transition Mechanism

The three pillars of the JTM offer a variety of funding schemes to respond to a broad range of needs in the affected territories.

Overview of the Just Transition Mechanism

Source: Guidehouse; information from the European Commission

1.  Just Transition Fund (JTF): The JTF seeks to empower regions and their citizens to address the social, economic, environmental, and employment repercussions of the energy transition. The fund provides grants to eligible JTF regions (see map below) with an approved TJTP to support economic development activities, reskilling and upskilling initiatives, and repurposing of fossil fuel land and production sites. Specific initiatives can include (but are not limited to) investments in SMEs, the creation of new firms, research and innovation, environmental rehabilitation, clean energy projects, worker reskilling and upskilling, and job search assistance. Support for investments related to fossil fuels is excluded. The JTF is governed by the Just Transition Fund regulation.

Just Transition Fund Territories

Source: European Commission

2.  InvestEU Just Transition Scheme: This dedicated scheme is implemented across the four policy windows of the InvestEU Programme, which supports sustainable investment, innovation, and job creation in Europe. The aim is to trigger more than €372 billion ($412 billion) in private investments in high priority EU policy areas. This means InvestEU can support investments in a wider range of projects than other JTM pillars, such as those related to energy and transportation infrastructure (including gas infrastructure and district heating), decarbonization, economic diversification, and social infrastructure. The InvestEU just transition scheme is available to JTF territories as well as regions not located in those territories, provided that the projects contribute to meeting the development needs stemming from the energy transition in those territories, as set out in the relevant TJTP.

3.  Public Sector Loan Facility (PSLF): The PSLF supports public service projects in line with the priorities outlined in a region’s TJTP. The PSLF is a blending instrument combining €1.5 billion ($1.7 billion) in grants from the EU budget and €10 billion ($11 billion) in loans from the European Investment Bank (EIB). Grants will always be equal to 15% or 25% of the loan amount, depending on whether the project is located in a less developed region, as defined by the EU. The aim is to mobilize additional public investments of between €25 billion ($28 billion) and €30 billion ($33 billion) through national grants, loans, and other resources in the most affected EU regions. The PSLF is exclusively available to public bodies or private bodies with a public service mission to facilitate the financing of projects that do not generate sufficient revenue streams to cover their investment costs. The projects funded by the PSLF have a focus on reskilling and upskilling, the circular economy, digitalization, green mobility, and green energy. The PSLF is governed by the public sector loan facility regulation.

Additional Just Transition Resources

The European Commission offers just transition regions comprehensive support in transforming their economies. Through the Just Transition Platform, regions can receive technical assistance in implementing their TJTPs with the JTP Groundwork program, contact just transition experts and engage in regional exchange via the JTPeers Exchange program, and access the just transition knowledge repository. Guidehouse and its partners implement and support these programs and help regions leverage their funding under the JTM and operationalize their just transitions.