At a meeting in Brussels on Monday (20 December), EU environment ministers criticized the European Commission's proposal for a social climate fund that would support poorest households during the energy transition. However, their motives are very varied.
The new fund aims to protect the poorest consumers from the impact of the carbon market proposed for the road transport sector and heating fuels. It is expected to come into force in 2025, one year before the new carbon pricing system comes into effect.
However, if European environment ministers have insisted on the need to protect the most vulnerable households, it is clear that the proposal is not acceptable to them.
Indeed, they believe that the planned fund is either too small to support the most vulnerable households, or simply unnecessary and that it would require an undesirable reopening of the multiannual financial framework (MFF), the European budget already agreed for the period 2021-2027.
Fiscal conservatives fight back
The social fund for the climate has raised eyebrows, particularly in fiscally conservative Member States which would prefer to protect citizens via other sources of funding, such as the proceeds from the emissions trading system (ETS or ETS according to the English acronym), the EU carbon market.
At the meeting of EU environment ministers, Danish representative Per Fabricius Andersen questioned whether the social climate fund was really necessary.
“Strengthening and expanding the emissions trading system will make significant additional revenues available to Member States, which they can use to address potential social impacts. Therefore, we are skeptical about the need for a new social climate fund,” he said.
Swedish Minister Anders Grönvall echoed this opinion, believing that there is no need to set up a new budgetary instrument.
Ministers also expressed concern about how the European Commission plans to launch the fund. Some have warned that in order to make sure the money is available before the new carbon price trickles down to households, the EU executive will have to reopen the already negotiated seven-year budget.
In its July proposal for a social fund for the climate, the Commission said it would "propose a targeted amendment to the regulation on the multiannual financial framework for the period 2021-2027 to allow for additional Union spending of up to of 23.7 billion euros for the period 2025-2027".
Finnish Environment Minister Terhi Lehtonen was very critical of this. “We are concerned about the size [of the social climate fund] and the reopening of the MFF agreement,” she said. She then explained that, instead, “all member states could make better use of EU funds already approved” without reopening the MFF.
The agreement on the seven-year EU budget, described by some as “historic” when it was reached in December 2020, is a delicate and well-balanced agreement, and Finland would prefer not to reopen this file. A Finnish diplomatic source told EURACTIV.
The source also added that there are already enough European funds for climate investments foreseen in the seven-year €1.8 trillion budget and the European Recovery Fund.
“Funding direct income support for households via the EU budget is not the right solution,” Terhi Lehtonen explained to his fellow ministers. “We need to find other ways to deal with the possible negative social impacts of extending carbon pricing and accelerating the transition,” she added.
More resources are needed
At the same time, other European ministers criticized the proposed social climate fund for a completely different reason. The Czech Republic, Lithuania, Cyprus, Greece and Malta have complained that there are simply not enough financial means available to be able to mitigate the negative effects of imposing a carbon price in the transport sector and heating fuels.
“The proposal seems difficult to materialize from the point of view of its administration and we are not convinced that it is able to sufficiently mitigate the risk,” said Czech Environment Minister Anna Hubáčková.
Poland went even further by asking the European Commission to separate the social fund for the climate from the emissions trading system for buildings and road transport, a system widely criticized.
The creation of the social climate fund "should not be conditional on the final decision to establish a new emissions trading system for the transport and buildings sector", explained Anna Moskwa, Polish Minister for Climate and Environment.
“Due to rising energy prices and the need to address worsening energy poverty, the social climate fund is expected to be launched in the coming months,” she added.
However, EU climate chief Frans Timmermans insisted the two proposals are inseparable.
“No emissions trading system, no climate social fund, so we will have to look for other ways to help our citizens,” he told ministers earlier this year.
"Own resources" for the Union's budget
Member states like Poland might face another problem: the risk of not receiving any money at all.
Earlier this year, the European Commission warned Poland that it would lose its share of European recovery funds if it did not guarantee the independence of its judiciary, which will be responsible for overseeing how these funds are expenses.
The conflict over the social climate fund is also rooted in a wider debate over EU resources and a future proposal to provide direct sources of revenue for the EU budget, i.e. say own resources.
EU member states are preparing for this own resources proposal to be presented on Wednesday 22 December, as it could allow the European Commission to take part of the revenue from the emissions trading system away from them .
In the absence of the own resources proposal or the amendment to the seven-year budget, Member States do not know how the money for the social climate fund will be obtained and how it will fit into the wider framework of the Union budget.
As Latvian Minister Artūrs Toms Plešs said, “disclosure of these proposals will give us the opportunity to finalize Latvia's position on the creation of the social climate fund and the extension of the ETS to buildings and the sector. road transport”.
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