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The Just Transition Mechanism is a policy framework developed by the European Union (EU) as part of the European Green Deal investment plan to ensure a just transition into a low-carbon economy.

Definition
The primary objective of the Just Transition Mechanism is to mitigate the worst socio-economic effects of the transition into a climate neutral economy, which can prove difficult for regions highly dependent on carbon-intensive industries. These areas usually count with lower GDP rates than the European average as well as certain degree of economic stagnation which makes them ever more vulnerable to the worst effects of the energy transition. This is particularly the case for coal-dependent communities, which lack employment opportunities beyond the sector.

For that purpose, the Just Transition Mechanism provides funds and strategic support to those regions highly dependent on carbon intensive industries - such as coal, lignite, oil shale and peat production facilities -, making special emphasis in the promotion of social cohesion policies, employment generation and economic diversification.

Background
The establishment of the Just Transition Mechanism coincides with the EU’s growing concerns with climate change and its effects on society, the economy and the living standards of the population.

In 2016, Édouard Martin, member of the European Parliament for the Socialists and Democrats, proposed an amendment to the European Union Emission Trading System to include the concept of Just Transition. According to Mr. Martin’s proposal, 2% of the ETS revenue would be employed to fund worker reskill programs in the face of the green transition. The proposal failed due to lack of support from the European Commission and the Council of the European Union.

In 2017, the Commission launched the Coal Regions in Transition (CRIT) platform, designed to facilitate the energy transition of coal mining areas. In 2018, Jerzy Buzek, former Polish Prime Minister and member of the European People’s Party Group at the European parliament, tabled a proposal for the creation of a “Just Energy Transition Fund”. This initiative consisted of a €4.8 billion fund aimed at supporting the energy transition of coal mining areas. This proposal never materialized into law due to the Commission's reluctance to impose further constraints ono the EU budget.

The Just Transition Fund was launched in 2021, as part of the Next Generation EU program. Regardless, it experienced several hurdles during its implementation. Inititally, Eastern Member States proposed delaying implementation of the EU's green agenda to focus instead onthe economic repercussions of the Covid‐19 pandemic. Additionally, the deadlock at the Next Generation EU negotiations further complicated the fund's deployment. One of the main points of contention during the negotiation was the opposition of the Frugal Four to the issuing of so called "coronabonds" and grants; preferring the use of loans instead.

A tentative agreement was reached in the Council on July 17, 2020. Regardless, some issues still persisted. The Frugal Four demanded to link the access to the recovery funds to the establishment of a conditionality clause regarding the promotion of rule of law, fiscal discipline, and the achievement sustainable development goals. This drove them to clash with countries such as Hungary and Poland, who proceeded to veto the post‐pandemic recovery programme and the EU Multiannual Financial Framework, hijacking in the process the approval of the necessary funds to pursue the EU’s climate objectives. In the context of the Just Transition Fund, the Frugal Four pushed for the establishment of monitoring and reporting mechanisms to ensure a transparent use of these funds; questioning the readiness of Eastern and Southern European countries to comply with EU standards. This was translated into policy by linking access to the Just Transition Fund to two key conditions: Member States' adherencethe to the EU’s 2050 climate objectives and the Commission's approval of Territorial Just Transition Plans submitted by the Member States.

Another point of contention was the discrepancies between Western and Eastern Member States regarding the framing of the EU’s climate-neutrality objectives. A group of countries including Sweden, Austria, Luxembourg, Denmark and Spain wanted to apply the climate neutrality target to each Member State individually and not just to the EU as a whole. Meanwhile Eastern European countries favoured a less ambitious framing that would take into consideration the national circumstances of each Member State, their degree of technological development and their respective capacity to implement the Union’s 2030 and 2050 climate objectives.

In January 2020, the Commission tabled its initial proposal for the Just Transition Fund, consisting of a €7.5 billion budget line. In May of the same year, the Commission tabled yet another proposal, increasing Just Transitions Fund budget from €7.5 billion to €40 billion. The initial size of the Just Transition Fund raised some doubts about its capacity to address the objectives of the just transition. However, the final sum was set to €17.5 billion in 2021, mainly due to the Frugal Four’s opposition to increasing their contributions to the EU budget.

Structure
The Just Transition Mechanism comprises €55 billion, to be invested over the 2021-2027 period. It is organized around three different budget lines, namely the Just Transition Fund (JTF), Invest EU and the Public Sector Loan Facility.

The Just Transition Fund
The Just Transition Fund counts €20.28 billion in grants for the period 2021-2017. This sum will be invested in the regions and territories most affected by the transition into a climate-neutral economy. For that purpose, the EU has mobilized €20.28 billion in current prices. To be precise, the Just Transition Fund comprises €9248 million from the EU’s financial programme, €10872.9 million from Next Generation EU funds, and €167.7 million stemming from other countries and entities’ contributions.

Access to the fund is conditional to the adoption of the European Union’s 2050 climate objectives and the Commission's approval of the individual Territorial Just Transition Plans drafted by the Member States. Each Territorial Just Transition Plan will detail the national strategies for transitioning into a more sustainable economy, identifying the regions and communities most affected by the phase out of high-carbon industries. These plans include measures for economic diversification, job creation, retraining programs for workers, infrastructure development for clean energy, and other projects that will facilitate the transition to a greener economy.

The InvestEU Just Transition Scheme
Through the InvestEU Just Transition Scheme, the European Investment Bank (EIB) will provide technical support and budgetary guarantees to incentivize investment in those areas that will bear the brunt of the green transition. It is expected to mobilize €15 billion in mostly private sector investments. These funds will be directed towards the development of sustainable energy infrastructures, transport, small business and education programs; targeting the territories identified in the Territorial Just Transition Plans prepared by the Member States.

The Public Sector Loan Facility
The Public Sector Loan Facility is the third pillar of the Just Transition Mechanism. It involves a sum comprising €1.5 billion in grants, financed by the EU budget, and €10 billion in loans, from the European Investment Bank, mobilizing €18.5 billion of public investment. These funds aim to incentivize investment and economic growth in those areas most concerned by the green transition. These loans and grants are only accessible by legal entities established under the public or private law regimes of the different Member States; on the condition that their investment projects contribute to addressing the social, economic and environmental challenges deriving from the implementation of the Union’s 2030 climate and energy targets.