Progress with EU recovery fund hampered by fossil fuels investments and threats to nature

Genuine efforts by Member States to direct spending from the EUR 672 billion Recovery and Resilience Facility towards climate action are being undermined by investments that are likely to harm the environment and climate, finds a new report by CAN Europe and CEE Bankwatch Network.

The report looks at ten plans submitted by Czechia, Estonia, Hungary, Italy, Latvia, Portugal, Romania, Slovakia, Slovenia and Spain to the European Commission and approved by the Council to access funds from the facility. 

The facility is designed to help Member States recover from the pandemic and to fund a green recovery, requiring that at least 37 per cent of a country’s investments address the climate emergency. It also requires all reforms and investments included in national recovery plans not to harm environmental goals. 

However, several countries have prioritised measures such as investments in fossil gas boilers over renewable energy sources. For example, Italy, Czechia and Slovakia all plan to fund fossil gas boilers as part of broader measures for building renovation and heating, running the risk of extensive lock-in in gas infrastructure that contradicts EU climate objectives. In Romania, the recovery plan includes building a fossil gas distribution system in the Oltenia coal region, which was accepted simply because the pipeline will be used in part to transport hydrogen. 

Fossil fuels have cropped up in several plans in the form of financial support for hydrogen, which is worrying given that it is not always guaranteed that only renewables-based hydrogen will be used. While the development of renewables-based hydrogen is necessary for sectors that are difficult to electrify, a number of recovery plans dedicate important resources to hydrogen without maximising first the potential of renewable energy and energy efficiency investments.   

Other Member States have included investments that could severely harm Europe’s natural environment and hamper the bloc’s drive towards the aims of the Biodiversity Strategy 2030. In Latvia, for example, 29 irrigation projects are planned that would irrevocably alter local ecosystems, and Slovenia has proposed a hydropower plant suspected to be the Mokrice one on the Sava river, a Natura 2000 protected area. The Estonia’s recovery plan includes support for the main terminal in Tallinn of the Rail Baltic project, which itself is planned to be built through forests and wetlands of high conservation value, including Natura 2000 areas. 

At the same time, the report does find that in some key areas, Member States have committed to important reforms and investments for climate mitigation. For instance, changes to national legislation in Italy, Romania and Spain aim to expand renewable energy sources, and Portugal, Slovenia and Latvia include reforms for improving their public transportation systems.  

Isabelle Brachet, EU Fiscal Reform Policy Coordinator for CAN Europe, said, “We urge Member States and the European Commission to ensure a genuine green recovery throughout the implementation of the recovery plans and other EU funds. At the very minimum this requires increasing the share of climate positive investments while fully respecting the ‘do no significant harm’ principle. Indeed, it is critical to realise that the recovery plans’ investments earmarked for the green transition often pale in comparison to the green investment needs of Member States.”

Christophe Jost, Senior EU Policy Officer for CEE Bankwatch Network, said, “When people are involved in planning, the results speak for themselves: more acceptance and ownership of the plans and a greater chance that harmful and wasteful spending is avoided. The Commission and Member States must ensure proper public monitoring of the recovery spending as the funds start to flow.” 

Romania should focus on increasing the penetration of wind and solar energy

Romania’s final recovery and resilience plan contains 171 measures divided between 64 reforms and 107 investments and is structured around six pillars and 15 components. The financial allocation amounts to approximately EUR 29.2 billion, out of which EUR 14.2 billion are grants and EUR 14.9 billion loans under the Recovery and Resilience Facility. The measures supporting climate action account for 41 per cent of the plan’s total allocation, while 20.5 per cent of the financial resources are allocated for the digital transition.

According to the Green Recovery Tracker, which uses a more stringent climate tagging methodology than the European Commission, the version of the plan published in March 2021 achieved a green spending share of 24 per cent, below the EU’s 37 per cent benchmark. In addition, 12.8 per cent of all funds would have a negative impact, while 35 per cent may have a positive or negative impact on the green transition depending on how relevant measures will be implemented.

The total financial allocations for the Green transition pillar amount to approximately EUR 15.3 billion, out of which EUR 7.6 billion will go to measures for the Sustainable transport component (the largest share of financial resources), followed by the Renovation wave component (energy efficiency). The budget for the Decarbonisation of the energy sector totals EUR 1.6 billion. Water and waste management measures total EUR 2.7 billion in loans, and the Forests and biodiversity protection component receives the smallest amount, totalling EUR 1.17 billion.
The Green transition pillar includes some important measures to accelerate the decarbonisation process, including: phasing out coal power production by 2032, financial and legislative support for increasing renewables penetration, financial incentives for storage infrastructure, and investments for improving the energy efficiency of public and private buildings. Although 41 per cent of the plan’s expenditures are related to the green transition, a considerable proportion of the recovery plan’s investments goes to fossil gas projects, including infrastructure related to gas-based generation, distribution and transport. In addition, some of the recovery measures focus on developing hydrogen as a means for decarbonising the energy sector, despite the technical and economic feasibility of the technology remaining questionable. The hydrogen component has been added to fossil gas projects only ensure that these projects meet the RRF’s environmental requirements (the ‘do no significant harm’ principle).
Fossil gas and hydrogen distribution network
This investment consists of building a fossil gas distribution system in the Oltenia region which will be ready to carry at least 20 per cent renewable hydrogen by 2026 and 100 per cent renewable hydrogen in 2030. This investment is proposed as an alternative to the region’s heating mix, currently based on biomass and coal. It includes as sub-investments 100 megawatts (MW) in electrolysers that will produce approximately 10,000 tonnes of hydrogen by 2025. Using hydrogen for heating homes is one of the most inefficient, expensive and unsustainable heating methods. Decarbonising the heating sector in a region already affected by the use of fossil fuels should have been undertaken by: improving the energy efficiency of buildings, electrifying heating systems from renewable energy sources and promoting decentralised renewable energy communities. Unlike hydrogen, these measures can be implemented immediately to reduce carbon emissions. It also remains unclear whether the recovery plan includes financial incentives for individual residential hydrogen boilers and
the necessary infrastructure in buildings, or whether these costs are expected to be partly borne by consumers themselves.

Installation of at least 300 MW gas-fired cogeneration or com–bined heat and power (CHP) enabled for the use of renewables and low-carbon gases
This investment is proposed as a way to mitigate the challenges of transitioning away from coal-fired heat and electricity production, but this will be done by switching from coal to fossil gas, perpetuating carbon lock-in.
Instead, Romania should focus on increasing the penetration of wind and solar energy, in combination with power-to-heat and power-to-mobility solutions. 17 Indeed, these solutions can decarbonise both the thermal energy sector as well as a considerable part of the transport sector. They would also contribute to the reduction of carbon emissions at a faster rate, six to nine times more efficiently than investments in hydrogen and fossil gas power plants.

Key investments not included

The final Romanian recovery plan fails to put forward concrete investments in offshore wind, the only variable baseload power generation technology. The only measure proposed vis-à-vis offshore wind is to establish a legislative framework for the development of the sector, but without prioritising concrete projects or investments in research and innovation. The recovery plan instead favours the implementation of fossil-gas- based energy projects or other technologies whose economic and technical feasibility remains unproven.

Apart from some measures dedicated to the prosumers sector, the plan does not include any specific measures for the promotion of renewable energy communities.

The report is available here.