We need a “clean” Modernization Fund

The Green Tank together with 18 environmental organizations and think tanks wrote a letter to the EU-27 Environment Ministers ahead of the 28 June 2022 meeting on the revision of key climate files under the “fit for 55” legislative package, including the crucial revision of the EU Emissions Trading System (ETS) Directive.

The letter draws the attention on the future uses of the Modernisation Fund in the context of the EU ETS revision. The beneficiaries of this fund, whose total size is €67 billion at current carbon prices, are the 12 lower income Member States, including Greece, which is set to receive 20 million allowances (around €1.6 billion).

According to the leaked draft general approach, the Council is proposing to keep the doors of the ETS Modernisation Fund open to fossil gas investments and lock the lower income Member States to polluting and expensive fossil fuels for decades to come. This is in stark contrast to the urgent need for the EU to become independent from fossil fuels, fossil gas in particular, as dictated not only by EU’s climate policy but also by the current energy and geopolitical crisis.

More specifically, even though the Council’s draft general approach claims that “the Modernization Fund should be aligned with the most recent climate objectives of the Union … and eliminating the support to any investments related to fossil fuels”, the specific text on the uses of the Modernization Fund provides a wide set of exceptions that would allow beneficiaries to use the Modernization Fund to fund fossil gas projects, under the so-called “non-priority” category if investments which may receive up to 20% of the Fund.

Contrary to this position, both the European Commission and the European Parliament clearly support the full exclusion of investments in all fossil fuels from the Modernization Fund, while the REPowerEU plan aims at cutting EU’s fossil gas use by 64% in 2030 compared to 2020 levels.

The Council’s draft position is therefore in complete contradiction with both the positions of the European Parliament and the European Commission, and the new EU strategy to drastically reduce dependence on fossil gas by 2030. To make things even worse, it attempts to do so at the expense of the 12 financially weaker Member States.

On these grounds the letter calls the EU-27 Environment Ministers to adopt a position aligned with that of the European Parliament, and in particular:

– Disallow any use of the Modernization Fund for any fossil fuel project.

– Channel 100% of the Modernization Fund to priority projects which means in practice deleting the “grey” non-priority section of the Fund. This is the only way to assure that resources will be used solely on investments that are much needed or the modernization of energy systems without wasting valuable funds on fossil fuels.

A “clean” Modernization Fund will strengthen the just energy transition in lower-income Member States such as Bulgaria, Greece, Slovakia, or Croatia and will help fill the investment gaps to reach the European 2030 climate targets.

 “By allowing the funding of investments in fossil gas through the Modernization Fund, the Council will not only harm the climate but will also go against the EU’s new REPowerEU goal of massively decreasing the dependence on fossil gas in 2030 by 64% compared to 2020, a huge ramp up in fossil gas cuts compared to the corresponding fitfor55 goal. The European Parliament made the right choice by shutting the door of the Modernization Fund to investments in fossil fuels altogether and demanding that 100% of the Fund is used in priority projects aimed at modernizing the energy systems of lower income Member States via truly sustainable investments which respect the Do No Significant Harm principle. We urge the Council to follow suit and avoid a disastrous choice for the climate and EU citizens”, said Nikos Mantzaris, senior policy analyst at the Green Tank.

The letter is available here.