Research Report
A Study on Legislation related to the EU Just Transition Fund
Ⅰ. Background and Purpose
▶ Necessity of research
○ Continued domestic and international demand for funds for the continuous and substantial realization of a just transition in the carbon-neutral process
- In the course of implementing the Carbon Neutrality Act, Korea is also continuously requested to expand its financial resources to implement a fund strategy to cope with climate change and to bring about a just transition
- It is still necessary to answer the questions about who and how to share the burdens or responsibility of financial resources to respond to structural changes in industries and employment in specific regions
○ In the process of legislation to achieve the climate goal, the EU first established the system for the Just Transition Fund and enacted regulations of the Fund
- A Just Transition Fund Regulation is proposed first but enacted with European Climate Law
- The legal system to achieve the climate goal will be implemented in practice when the legal and institutional foundation for financing, such as a fund strategy, is first established
▶ Objectives of the research
○ Objectives of the research
- Understand the EU's Just Transition Fund-related implementation system, analyze Just Transition Fund-related regulations, and find key characteristics
- Seek legal and institutional measures and standards required for the regional transition expected to bring about in the process of implementing carbon neutrality in Korea
Ⅱ. Main Content
▶ Analysis of the implementation system of the EU Just Transition
○ Just Transition Mechanism
- The Just Transition Mechanism is a system that the EU is pushing to cover the economic and social costs of coal and carbon-intensive regions, which are the most vulnerable to transition in building the EU's climate-neutral economy
- Just Transition Fund is a funding system to support regions that will be adversely affected by the transition to climate neutrality
- The EU Investment Plan (InvestEU) will mobilize sustainable investments in regions most affected by the transition challenge and will attract a wider range of investments
- Public sector loan facilities are interest rate subsidies or investment grants that combine EU budget subsidies with loans from the European Investment Bank with the European Investment Bank (EIB) involved.
○ Just Transition Platform
- The Executive Committee established the "Just Transition Platform (JTP)" in 2020 to support the just transition of member countries
- A key platform that helps EU member countries and territories get support through the Just Transition Mechanism (JTM), including the Just Transition Fund (JTF)
- Just Transition Platform (JTP) has four dedicated working groups (three dedicated groups and one stakeholder group) for carbon-intensive regions
- Three dedicated groups in steel, cement, and chemistry focus on specific carbon-intensive sectors, each of which is greatly affected by transition
- One horizontal stakeholder strategy group identifies and assesses best practices and contributes to developing a common vision for transition with stakeholders such as regional and social partners, civil societies, NGOs, industries, economic entities, and academia
▶ Analysis of the EU Just Transition Fund Regulation
○ Purposes and systems of the regulations
- The Regulation is enacted to support the regions and residents of the Member States in the face of the social, economic, and environmental challenges derived from the European Union's energy and climate objectives and its transition to a climate-neutral economy
- The Just Transition Fund Regulation (JTFR) describes the 23 Reasons for Enactment and Principles and Objectives in the preamble, which consists of 15 Articles and two Annexes and tables and indicators
○ Scale of the Fund
- The JTFR specifies that the scale of the Fund during the 2021-2027 EU Budget Session will be 7.5 billion euros (JTFR Article 3-2 and 110-1).
- It specifies that 10 billion euros will be additionally created for the JTF's regulatory purposes from 2021 to 2023 (Regulation (EU) 2021/1060 Article 109-1), of which 2 billion euros will be used in 2021, 4 billion euros in 2022, and 4 billion euros in 2023 (JTFR Article 4-2)
- Annex I of the JTFR divides the long-term budget (EUR 7.5 billion) and additional funding (EUR 10 billion) to set out the allocation for each member state (JTFR Annex 1)
○ Financial resources for a Just Transition Fund
Ⅲ. Major Characteristics and Implications of Legislation related to the EU Just Transition
▶ Characteristics and implications of the implementation system
○ A support system for regional plans and funds
○ Working groups by field of expertise
○ Various fund raising systems and fund projects
○ Platform for use of cases and information
▶ Characteristics and implications of the Fund-related regulations
○ Specifying the financial resources and the scale of the Fund
- One of the major features of the EU's just transition is to suggest the path to raise fund and its scale, especially the Just Transition Fund defines its resources and scale on an annual basis(Articles 3-2 and 110-1, Article 4-2 of the JTFR)
- Annex I to the Just Transition Fund Regulation sets specific amounts for each Member State (Annex 1 to JTFR)
- Korea's regulation on just transition funds stipulates the 'path of resources'. However, there is a limit to specifying the specific amount of the Fund because of liquid financial resources for the Climate Crisis Response Fund.
○ Provisions concerning substantial and procedural requirements of the target region
- Provide for separate substantial and unified formal requirements to determine 'just transition target regions'
- As the "substantial requirements" of just transition target regions, (1) the dependence on fossil fuel or greenhouse gas (GHG) intensive industrial activities, (2) the negative impact of the transition due to the economic and social features of the region, (3) the need for adaptation of workers or job reduction and change in the production process of industrial facilities with high dependence on greenhouse gas (JTFR Article 11.1).
- As a formal requirement for regional qualifications, Member States shall, (1) together with the relevant local and regional authorities of the region concerned, (2) in accordance with the form specified in Annex II, (3) including a NUTS Level 3 Region or a part of it (one or more influences), (4) prepare one or more Territorial just transition plans (TJTPs)
- The formal requirements for an application for a special district of just transition in Korea has its limitation which requires substantial requirement (each subparagraph of Article 48 (1) of the Framework Act On Carbon Neutrality And Green Growth For Coping With Climate Crisis) to be included in the application (formal requirement). It means more distinct and unified formal requirements are needed to distinguish transition region
○ The scope of distribution and support of the Fund based on effectiveness
- EU fund should contribute to mitigating the impact of the transition (substantial requirements), and demonstrate the relevance of the transition challenges specified in the TJTP format (formal requirements)
- Allocation of the JT Fund is defined to be affected by the performance and implementation of carbon neutrality by the EU Member State (Article 4 of the JTFR)
- For example, even if the program is in progress, the confirmation guarantee and the final performance report will be canceled if they are not submitted to the Committee (Article 4 of JTFR and (EU) 2021/1060 Release Regulations of Title VII Chapter IV)
○ Adjustment of the Fund according to the regional gap and the level of implementation
- Additional resources are to be distributed among Member States based on the reduction of greenhouse gas emissions (Article 5 of the JTFR)
- In order to distribute specific allocations for outer most regions and islands, the Member States set out specific amount allocated those territories with the corresponding justification and specific challenges of those territories in the Territorial Just Transition Plans(TJTP) (JTFR Article 6)