European Funds and Just Transition – Sinan Eden

The European Commission and the Portuguese government say everything is fine. Hundreds of millions of euros of investment, thousands of new jobs, a “new growth strategy” (as the European Ecological Pact puts it). The climate transition is on its way, and all that is left is to compensate those who will lose their jobs, but the Just Transition Mechanism will also guarantee this. So, all we should do is improve what we already have, we should just ensure that it is done in a just and/or sustainable way.                                

This narrative ignores the fact that the European Union’s carbon budget ends in 2030, assuming all states fulfil all the commitments of the European Climate Pact and aim for carbon neutrality by 2050. In Portugal, the budget ends between 2026 and 2037, depending on the global distribution of historical responsibility and other contingencies. The official line covers up this reality. The European Union is announcing large cuts in relation to 1990, which translates into few cuts today. Portugal announces big cuts for peak emissions in 2005. At the same time, global emissions are stable. This means that an “insufficient decrease” in emissions is not happening, because no decrease is happening.       

Green capitalism is instituting itself alongside fossil capitalism, fixing itself to it.  

In this context, hundreds of millions of euros of European funds are coming to Portugal via the Just Transition Fund. This extensive article seeks to give an overview of the political and administrative processes of just transition and is part of a case study on Just Transition in Sines that will address other themes and related infrastructure (existing and planned) in separate articles.

§1. Climate policies: As part of the European Climate Pact, a Just Transition Fund was established in December 2020.[1] The Fund provides a total of €17.5 billion for the period 2021-2027. Some of this money comes from the Multiannual Financial Framework and some from NextGenerationEU (called the “bazooka”).           

In a public presentation in November 2021, Minister for Territorial Cohesion, Ana Abrunhosa disclosed that Portugal has been allocated €224 million from this Fund. The government will direct this money to three territories: Matosinhos (60 million) because of the refinery closed by Galp, as well as Pego (90 million) and Sines (74 million) resulting from the thermoelectric plants closed in 2021.    

At the same presentation, the Minister also announced two news items:

Portugal is drawing up the three territorial plans through the Regional Coordination and Development Commissions (Comissões de Coordenação e Desenvolvimento Regional, CCDRs) and these plans would be released in January 2022, which has not yet happened.              

On the other hand, these territorial plans are a prerequisite for the Fund. With European money still coming in, but infrastructure already closed, the government anticipated funds to implement measures that would be collected a posteriori by the Fund.   

§2. Enterprise policies: In the wake of these announcements, many companies launched communication campaigns about their future investments, all presented as parts of an energy transition. Some examples are the urbanisation project in the area where the Matosinhos refinery was located, several hydrogen projects in Sines, a mega data centre in Sines that could use the land adjacent to the old power plant to install photovoltaic panels, and plans to reconvert the Pego power plant and a lithium refinery in partnership with Galp. There is a staggering number of news items. Many of them also mention financial support.

This creates confusion about what is really happening, what is expected to happen eventually, and what is just a statement from a company about an idea that a manager had and shared in a meeting.

What are the criteria of this Fund? What type of support is included? What kind of support is excluded? What can happen in the future and what can civil society claim now? 

§3. What does the European Commission require for allocation from the Just Transition Fund?

The selection criteria for Fund projects are divided into the following four categories.      

 • Social impacts: job loss and job creation in the territory, vocational training needs.

 • Economic impacts: significant loss of turnover in the territory or effects on industries or businesses linked to the infrastructure concerned (such as processing, transport and logistics).              

 • Demographic impacts: impact on territorial cohesion, or whether the project reduces the possible exodus from the region.             

 • Environmental impacts: plans for soil and water decontamination, health risks.             

The Territorial Plans must be integrated into national decarbonisation plans such as the National Energy and Climate Plan 2030 and the Carbon Neutrality Roadmap 2050.            

Projects must also demonstrate that they will begin to have an impact by 2030. In other words, projects cannot start to have an impact until after 2030 to be eligible for this particular fund. This criterion could be crucial for understanding which of those company communications are genuinely relevant. However, beginning construction on an administrative building (a hydrogen project or a data centre, for example) may count as job creation and economic diversification to avoid migration.                           

The leaked documents state that the European Commission will assess projects according to these criteria.

§4. What does the Fund offer and what does it not offer?           

First of all, there are generic areas that the Commission identifies as eligible. Then, there are specific areas, divided into two categories: Industry and industrial processes on the one hand (i.e. factories where emissions happen not because of burning fuels, but because of chemical reactions that result in CO2 release), and the energy sector on the other. Let’s start with the generic ones.    

§4.1 Economic diversification. By this, we mean support for companies to create other jobs in the specified area. This category has a strong focus on entrepreneurship and small and medium businesses. In extreme cases like coal communities (whole towns created just for one large mine) where the whole local economy is fixed to the unopened infrastructure, even creating new and diversified economic dynamism could have a significant impact.  These extreme cases do not exist in Portugal, however, and the workers in the industries concerned have average ages and qualifications too high to accept becoming precarious voluntarily.              

The Institute for Employment and Vocational Training (Instituto do Emprego e Formação Profissional, IEFP) has commissioned a study focused on retraining and identifying job opportunities for the workers affected by the closure of the Sines and Pego plants. This study mentions, in passing, “short-term opportunities” in tourism for former EDP power plant workers. The same study says that the average age of ex-workers is 50, and when we look at the workers directly contracted by EDP Produção the average age is 57 years old. The only possible opportunities in tourism would be for these people to leave their homes to go and live with the rest of their families and rent their own homes alojamento local (holiday and short-term accommodation requiring a specific license issued by the government). The Fund could perhaps pay an IEFP employee to explain to them how to set up an Airbnb account. In other words, ignoring ridiculous examples, economic diversification in this sense does not seem relevant to Portugal.          

On the other hand, this field is also for large companies. The Commission is quite clear that this would apply in limited cases and projects should meet four criteria at the same time, namely, the project has to (i) be necessary for the implementation of the Territorial Plan for a Just Transition, (ii) contribute to the transition, (iii) be necessary for job creation, and (iv) not result in the relocation of industry.

This definition explains two things:          

Firstly, why Galp insists on publicising decarbonisation plans for its refinery in Sines while at the same time talking about a lithium refinery. If this goes well, Galp could simply reorganise operations at the refinery, change production in one part of the refinery, and receive funds while continuing with the most polluting infrastructure producing profits and emissions.

Secondly, it also explains why there are so many hydrogen projects led by EDP and Galp in Sines. These companies want a transition that is “just” to their shareholders. By laying off workers, they want to get new business, but they want this transition to be paid for by public funds.   

Each of these infrastructures deserves a special detailed focus that will be part of the Case Study on Just Transition in Sines.              

§4.2 Employment. There are many expectations that the Just Transition Fund will actually combat job losses. These expectations are false.

The Fund is willing to pay for vocational training and retraining, but this the State should already be doing for all workers.              

The Fund is willing to provide job search assistance, which job centres already do.            

The Fund is not willing to finance early retirement or special compensation schemes for redundant workers. In other words, in the only case where the Just Transition Fund could contribute to a just transition, the Commission expressly rules out this possibility.             

So, the usual accounting games will happen, where the state will allocate the Fund to the IEFP and then divert money from the state budget that used to go to the IEFP to compensate workers. It is through the Environmental Fund that the government pays the total wages to workers at the Pego power plant after the closure.          

§4.3. Additionally, the Fund also supports research and innovation, investments in energy efficiency and renewable energy, sustainable local mobility, digitalisation, land regeneration, circular economy and social infrastructure for the care of children and the elderly.

This category is the most wide-ranging because basically it allows the Fund to support any project it wants, provided it can “justify its contributions to mitigating the impacts of transition.”         

So this will be the “transition” we referred to at the beginning of this article: since 328 workers at the Sines thermoelectric power plant have lost their jobs, there will be dozens of projects on any given topic in Sines, each project justifying its existence with the existence of these 328 people (saying it is creating jobs in an area where a power plant was closed), and will receive European funds without having to hire any of them.        

§4.4 Let’s now turn to industry, leaving the energy sector for last. These are plants already listed in the European Emissions Trading Scheme (ETS), i.e. in the market mechanisms for emission quotas in Europe. Industrial installations have to meet three conditions simultaneously, namely, they have to (i) contribute to the transition, (ii) cut emissions substantially and beyond the ETS targets, and (iii) be required to protect a significant number of jobs. 

The Fund does not support incremental reductions in emissions that do not result in a structural change in operations. Nor does it support processes already launched by the ETS, such as energy efficiency or thermal recovery.    

The Fund is willing to support carbon capture and storage, electrification of processes and the use of hydrogen in installations.

This type of reconversion project is not yet very common in Portugal, but the case of Galp’s lithium refinery seems, for now, to be pointing in this direction. 

§4.5 Finally, in the energy sector, the situation is complicated and will become increasingly so. The initial Commission communication expressly excluded support for activities related to any type of fossil fuels and the decommissioning or construction of nuclear power plants.              

But in the meantime, in early February 2022, the European Commission extended the green funding criteria to include nuclear and gas-fired plants, despite objections from NGOs, investors, member states and its own expert team. This change in taxonomy may affect the Fund’s criteria, but it may also not.

The end of February produced a completely different reality. With Russia’s invasion of Ukraine, gas supplies in Europe have become tight. While the European Union is trying to find immediate alternatives, Germany has already mentioned the possibility of halting the closures of nuclear and coal-fired plants and at the same time betting on liquefied natural gas terminals.

For now, we do not know what will happen to European green funding in the coming period, but there is a real possibility that the funds will be diverted. If this happens and impacts the Just Transition Fund, then the Fund (which already has little to do with justice) will no longer have anything to do with transition. In that case, we would need to find another name for it.              

Next steps: The government’s Ordinance of late November 2021 brings forward funds to implement just transition measures.       

By “measures” the government means (i) vocational training, (ii) retraining, (iii) support for hiring the affected workers, and (iv) support for entrepreneurship.           

Support will be directed to (i) productive investments in SMEs and non-SMEs leading to economic diversification, modernisation and reconversion, (ii) investments in technology deployment, and (iii) investments in renewable energy. 

Now the Commissions of Coordination and Regional Development (CCDR) will prepare territorial plans for the three regions (Matosinhos, Pego and Sines) and funds will be allocated according to these plans. However, as explained above, the money has already been anticipated and the government is already entering into partnerships and companies are submitting projects. According to market logic, the plan will be made a posteriori, after the companies decide and execute their decisions.   

§6. The Just Transition Fund is currently more a communicative tool in the hands of business and government than a plan. It is press release after press release touting new projects that promise thousands upon thousands of jobs.        

Very soon, the Fund will also become an administrative tool to absorb workers’ discontent regarding eternal negotiations about their future after dismissal.              

Seen in this light, it seems questionable to us whether the Just Transition Fund can really serve as a mechanism for building a just and sustainable society.          

On the other hand, expecting the European Commission to solve crises is a method already tested in the 2008 financial crisis and again in the 2020 pandemic crisis. Civil society, workers and local communities need to build their claim plans for a just transition.            

In this article, we will limit our attention to claims directly linked to the management and allocation of possible funds for a just transition, whether European or national.

The European Commission’s Just Transition Fund basically guarantees that a fossil fuel company that has brought the planet to the brink of the abyss of climate chaos will be compensated when it stops destroying it. This is a just transition approach that ignores climate justice. If a mass murderer says he wants to stop killing people, the two things the Commission wants to do are to give money to the murderer and assist the people affected by the attacks. This is a sure way to foster distrust in the transition processes.   

We have identified two structural problems that must be reversed. Firstly, the timescales of closures and emissions cuts are being driven by a political realism that denies climate realism. As discussed at the beginning of this article, the decarbonisation and carbon neutrality plans that aim for 2050 actually exhaust the carbon budget as early as 2030, if not earlier. Currently, it is the market that decides what will happen, when it will happen and on what terms it will happen. (By “the market,” we mean the managers of multinational companies.) In other words, it is the climate criminals who call the shots on climate policy. We must reverse this and centre the debate on the planet and people, as well as create a national climate justice commission with deliberative power which excludes the fossil fuel industry and privileges science and civil society.             

Secondly, current climate policies protect the companies that caused the problem. As the concrete cases of the Matosinhos refinery and the Sines power plant have shown, the state arrives after all the decisions are made by the companies and then arranges funds for the new projects proposed by the same companies (the urbanisation project in Matosinhos and several hydrogen projects in Sines). Reversing this means creating just transition commissions which privilege workers in each territory and each facility. Regarding installations, project financing must be determined by votes in the workers’ plenary.    

New projects supported by the funds cannot consolidate the power of fossil fuel companies in the energy sector
. If building social justice and energy democracy is one reason for this, another is climate science. Two examples show this clearly: If EDP, which owns the gas-fired power plants and dams, controls hydrogen, it will optimise its production to maximise its profit, not to reduce climate impact. If it is Galp, which has the only refinery in Portugal that produces gasoline and diesel, that controls lithium processing and hydrogen projects, then it will be Galp that controls the transport sector and will adjust it based on profit. In either case, if the same private company that continues destructive activity also has access to the alternatives, then the alternative serves organised expansion rather than transition. We can observe this hypothesis empirically at the global level. Understood in this way, funds must not reinforce this dynamic because this will fail to generate transition. (This is what we are observing in the European taxonomy. See §4.5.)

§8. We recognise that these claims need to be translated into concrete cases and complemented by contextual claims. The Case Study on Just Transition in Sines aims to contribute to this public debate with separate articles that will be integrated into a synthesis.

[1] The pact also contains two additional tools: the creation of a scheme within InvestEU dedicated to just transition to attract private investment (read: public-private partnerships and other forms of subsidies and incentives to private companies), and another public sector loan facility supported by the European budget. These two tools do not interact with just transition and so we will omit them in this article.

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