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High time for making the EU energy transition more inclusive and focusing more on social imbalances. What is the new idea for establishing Just Energy Transition Fund, JET Fund, about? Why it is worth considering by policy-makers? How is it different from other instruments mitigating adverse effects of the energy transition? – writes Jerzy Dudek, Fellow at the Polish Economic Institute.
What is JET Fund (Just Energy Transition Fund)?
Generally speaking, it is an attempt to improve the approach towards the EU energy transition. Instead of focusing only on setting a carbon price and leaving the rest to private decisions, it aims at taking greater account of increasing social inequalities, related to the transition. JET Fund is an idea for a new EU financial instrument. It would support countries and regions finding the energy transition to climate neutrality challenging for reasons like high dependence on fossil fuels, limited access to capital or adverse social effects (eg increase of inequalities and energy poverty).
Why focusing on social inequalities?
Energy transition to climate neutral economy will be very costly. It means both an increase in energy prices and growing social costs related to technological changes. Importantly, costs are not evenly distributed leading to increasing social inequalities. For instance, the share of energy costs in the budget of the poorest European households increased from 6 percent up to 9 percent in 2000-2014, according to the European Commission. At the same time, the share of energy costs in the budget of average European households also grew, but only by 1 pp. – from 5 percent up to 6 percent (see more, J. Dudek, P. Szlagowski, What next with the energy policy of the European Union?, Polish Economic Institute, 2019). Without broad social support, energy transition will not succeed. The example of the French yellow vests movement (gilets jaunes), spurred by the increase in fuel taxation, should be a lesson for the future.
What is JET Fund aiming for specifically?
First, the Fund would promote inclusive energy transition by allowing to benefit from this process those that, on the one hand, are affected by the costs of energy transition, and, on the other hand, have limited access to capital. Second, it would prevent excessive economic inequalities and energy poverty. Third, it would support the local use of modern energy technologies. Fourth, it would contribute to the increase of energy efficiency. Finally, it would finance development of new, low-carbon industries.
In what way would these goals be implemented?
JET Fund would target primarily households, local communities, and small and medium-sized enterprises. For example, this could be done through instruments supporting investment financing such as preferential loans, direct payments or guarantees. Additionally, the Fund could promote developing models of cooperation with enterprises and financial institutions. As for the form of JET Fund, it would be modeled on structural or quasi-structural funds (Cohesion Fund). Crucially, the Fund would be allocated additional resources to already existing instruments and funds dedicated to them.
What is the difference between JET Fund and other instruments mitigating adverse effects of decarbonization, such as Modernization Fund?
JET Fund should focus on financing small projects located close to citizens, which the Modernization Fund deals with only marginally (as its main objective is modernization of the energy and industrial infrastructure). Thus, the JET Fund should be a complementary mechanism. Recently, some of the elements that were originally included in the rejected Energy Transition Fund were included in the framework of the Modernization Fund. It is worth noting, however, that the nature of this idea was different. It focused on the inhabitants of coal regions and was to serve the retraining of employees in the coal mining sector. JET Fund, on the other hand, is to have a wide range of beneficiaries and focus on counteracting the growth of social inequalities.
