Council reaches unprecedented agreement on next EU budget and recovery plan, but how good is it for energy and climate?

It was hardly 5:30 AM on 21 July when President of the Council Charles Michel simply tweeted “Deal!”. After 4 long days -and nights- of negotiations, EU leaders from the 27 Member States unanimously adopted a general compromise both on the post-Covid-19 European recovery plan (2021-2023) and on the general EU budget for 7 years (2021-2027). Commission President Ursula von der Leyen commented that it was a “historic” moment: “Nowhere else in the world could 27 different countries even discuss financing their recovery and future together. We did it over one long weekend. At this very fragile moment in history, being in Europe is the best place to be.”

Council’s position for the Recovery Instrument and its impact on budget lines for the energy transition

As originally proposed by the European Commission, the Recovery envelope, titled “NextGenerationEU”, will amount to 750 billion euros in 3 years (2021-2023) and will be raised by the Commission on financial markets thanks to its excellent AAA rating – this is unprecedented and caused many difficulties for some Member States. Indeed, major changes in the original proposal have been decided to reach this agreement, changes that President of the European Commission Ursula von der Leyen called “regrettable” during the press conference.

In this proposal, the Recovery envelope will consist of:

  • 390 billion euros in subsidies (while the Commission originally proposed 500 billion euros). These grants will be split between Member States according to the extent of the crisis at the national level. 
  • 360 billion euros in repayable loans (while the Commission originally proposed 250 billion euros), in order to satisfy the so-called ‘frugal’ countries (the Netherlands, Denmark, Sweden, Austria), supported by Finland, which were all in favour of a drastic reduction in the ‘subsidies’ dimension of the European recovery plan.

Because of the reduction in the subsidies’ share, several instruments, including the ones which are meant to tackle the clean energy and climate agendas have been dramatically reduced, in particular:

  • InvestEU totals 5.6 billion euros in the Council’s compromise, while the Commission had proposed 30.3 billion. This is very worrying for electrical contractors and for the construction sector as a whole because the Commission is considering financing part of the Renovation Wave from this fund. With an envelope divided by 5, it is to be feared that the European ambitions for renovation as well as for the other policies financed in this framework, will be revised sharply downwards;
  • the Just Transition Fund totals 10 billion euros in the Council’s compromise, while it was supposed to reach 30 billion at the beginning of the negotiation. This is a negative sign for the fight against climate change and to foster a Green Recovery based on energy transition and re-skilling. Nonetheless, let’s not forget that this new Fund, which had been defined before the Covid crisis, was then only endowed with 7.5 billion, so it is still increased compared to its very first version;
  • the new “Strategic Investment Facility” proposed by the Commission has totally disappeared. According to Energy Commissioner Kadri Simson, it was supposed to generate private investments in the renewable energy sector, for energy storage technologies as well as for the clean hydrogen strategy.

Interestingly, Member States agreed to maintain the requirement of a 30% target for climate spending both in the multi-annual financial budget and in the recovery instrument. This will have to be clearly echoed in all national recovery plans.

What’s next?

The Council’s compromise is not enough to close the budget deal: it must now be negotiated with the European Parliament. The latter has veto power over the EU budget – and national parliaments have to sign off on the guarantees given to the EU budget in order for the Commission to raise money on the financial markets for the recovery envelope.

Since the Council’s press conference, the agreement has attracted criticism both from the European Parliament (including its President) and from civil society. Beyond the issue of funding, several NGOs, including Greenpeace, highlighted the lack of binding provisions.

In a resolution adopted on the 23th of July, the EU Parliament welcomed EU leaders’ successful efforts to find a compromise but they deplored the “massive cuts to the grant components” and expressed that they were “prepared to withhold their consent” for the long-term EU budget (2021-2027) until a satisfactory agreement is reached between EU institutions. They know that such a threat could however lead to delays in the adoption of the budgets and jeopardise the crisis management.

The inter-institutional negotiations (“trilogues”) will start in August, with the objective to find an agreement as soon as possible and before the beginning of 2021, so that funding and schemes are not delayed.

When a final compromise will be found on the NextGenerationEU instrument for recovery, each Member State will have to present a “Recovery & Resilience national plan for 2021-2023” to the European Commission.

Submission of the national plans is expected by the end of the year. In order for countries to tap into funding, Member States will have to present a plan on reforms based on the European semester recommendations, which will have to be assessed by the Commission, then approved by the Council by qualified majority.

Julie Beaufils, EuropeOn’s General Secretary