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What the next EU budget will bring for the local energy transition

By David Donnerer on 31 May 2018

In the beginning of May, the EU Commission unveiled its EU budget proposal for the period 2021-2027. It is a critical budget for the bloc, as it has to solve the daunting task of filling the financial hole left by the departing UK. Despite the difficult odds, the EU executive managed to table a balanced budget that will deliver more funds for the local energy transition.

“A Modern Budget for a Union that Protects, Empowers and Defends” – this is how EU budget commissioner Guenther Oettinger chose to brand the first EU budget after Brexit. Published on the 2nd of May, the Commission’s proposal defines the big spending priorities for the next decade. Much has changed compared to previous periods: former budget pillars are being cut in size, while fresh funds become available for new challenges the Union is facing. Where does funding for the local energy transition fit into all this? Energy Cities has analyzed the Commission’s proposal and breaks down the major changes the next EU budget has in store.

The key pillars of the Commission’s budget proposal

  • Despite the UK leaving, the EU budget stays roughly the same size, representing with EUR 1,24 trillion more than 1% of the EU’s gross national income. New own resources (e.g. national tax on non-recycled plastic packaging waste, 20% of revenues from EU Emission Trading System redirected to the budget) plug the gap.
  • As the budget’s branding “an EU that protects, empowers and defends” makes it clear, the areas security, defense and migration become new major EU spending priorities. In return, the two biggest budget chunks, agriculture (minus 7%) and Cohesion policy (minus 5%), have to face cuts.
  • A new rule of law provision: if the rule of law is threatened in a Member State, the EU Commission can cut off funding from the EU budget as a response. Clearly pinpointed at troublemakers like Poland and Hungary in this regard, this new mechanism would not affect “individual beneficiaries of EU funds”.
  • The Commission and Member States take on more control in managing the EU budget: e.g. a new “InvestEU” fund will anchor all centrally managed financial instruments inside the EU in a single, streamlined structure. National promotional banks get a bigger role in managing “InvestEU” funds, to the detriment of the European Investment Bank.
  • Throughout the EU budget, funding for climate action increases from 20% in the previous period to now 25% in the next one. Concretely, this means that an extra EUR 16 billion will become available each year between 2021-2027 to fund climate and energy measures.

What’s in it for the local energy transition?

  • The successor programme for Horizon 2020, Horizon Europe, is set to receive more funding, as its volume increases from EUR 80 billion (size of Horizon 2020) to now roughly EUR 100 billion. The lion’s share of that increase is bound to go to energy and climate action priorities.
  • Moreover, the EU LIFE programme is increased by 60% and will have about EUR 5 billion at its disposal. While most of the additional money will go to fund LIFE’s environment and biodiversity stream, a slight increase could happen in the climate pillar of LIFE.
  • The Connecting Europe Facility will see its funding doubled, and most importantly, will now also focus on financing cross-border renewable energy projects.
  • Although Cohesion policy will see cuts, one of its 5 key objective areas will channels funds for a “clean and fair energy transition” to local and regional authorities.

What are the next steps for the EU budget proposal?

The proposition tabled by the EU Commission on 2nd of May is only the first step in the decision-making process for the next EU budget. By mid-June, the EU executive will reveal precisely how the funds will be spent under each of the priorities and programmes (e.g. how Horizon Europe will fund energy efficiency, storage, renewables and other relevant areas for the local energy transition). After that, the 27 EU Member States through the Council and the EU Parliament will dissect the Commission’s text and propose their amendments. Heated national debates on the future EU budget are already ongoing and will certainly intensify after the summer.

What’s next from Energy Cities on the EU budget?

In our next What’s EUp in mid-June, we will decipher the complete Commission budget proposal and how it will channel EU funds for the local energy transition. Furthermore, we will outline the remaining issues to be negotiated on the next EU budget, and how Energy Cities’ members can influence the process in key EU Member States. So stay tuned, the debate on the coming EU budget has only begun!

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