(1)

On 11 December 2019, the Commission adopted a communication entitled ‘The European Green Deal’, drawing a roadmap which sets out a new growth strategy for Europe and ambitious objectives for countering climate change and for environmental protection. In line with the objective of achieving the Union’s 2030 climate target as established in Regulation (EU) 2021/1119 of the European Parliament and the Council (4) and achieving climate neutrality in the Union by 2050 at the latest in an effective and socially fair manner, the European Green Deal announced a Just Transition Mechanism to provide resources for facing the challenge of the transition process towards the Union’s 2030 climate target and the objective of climate neutrality in the Union by 2050 while leaving no one behind. The most vulnerable regions and people are the most exposed to the harmful effects of climate change and environmental degradation. The transition towards a climate-neutral economy is a source of new economic opportunities, with significant potential for job creation, in particular in territories that currently depend on fossil fuels. It can also contribute to enhanced energy security and resilience. However, the transition may also trigger short term social and economic costs in territories undergoing heavy decarbonisation process, and already weakened by the disruptive economic and social effects of the COVID-19 crisis.

(2)

Managing the transition will require significant structural changes at both national and regional level. To be successful, the transition needs to reduce inequalities, create a net employment effect with new high quality jobs, and be fair and socially acceptable for all, while strengthening competitiveness. In that regard, it is critical that the territories most negatively impacted by the transition, in particular coal-mining regions, can be supported in diversifying and revitalising their local economies and in creating sustainable employment opportunities for the impacted workers.

(3)

On 14 January 2020, the Commission adopted a communication entitled ‘Sustainable Europe Investment Plan – European Green Deal Investment Plan’, in which it proposed a Just Transition Mechanism which focuses on the regions and sectors that are most affected by the transition because of their dependence on fossil fuels, such as coal, peat and oil shale, or their dependence on greenhouse gas-intensive industrial processes, but have less capacity to finance the necessary investments. The creation of a Just Transition Mechanism has also been affirmed by the conclusions of the European Council of 21 July 2020. The Just Transition Mechanism consists of three pillars: a Just Transition Fund (JTF) implemented under shared management, a dedicated Just Transition Scheme under InvestEU, and a public sector loan facility to mobilise additional investments to the regions concerned. Those three pillars provide complementary support to those regions, with a view to fostering the transition to a climate-neutral economy by 2050.

(4)

For the better programming and implementation of the JTF, territorial just transition plans are to be established, setting out the key steps and timeline of the transition process and identifying the territories that are most negatively affected by the transition towards a climate-neutral economy and that have less capacity to deal with the transition challenges. Territorial just transition plans are to be prepared together with the relevant local and regional authorities and involve all relevant partners in accordance with Article 8 of Regulation (EU) 2021/1060 of the European Parliament and of the Council (5). They may be amended, together with the corresponding programmes supported by the JTF, in accordance with Article 24 of that Regulation, to include new territories which would be severely impacted by the transition in a way that was not anticipated at the time of their initial adoption.

(5)

A public sector loan facility (the ‘Facility’) should be established. It constitutes the third pillar of the Just Transition Mechanism, which aims to support investments by public sector entities, given the key role of the public sector in addressing market failures. Such investments should meet the development needs resulting from the transition challenges described in the territorial just transition plans that have been approved by the Commission. The activities envisaged for support under the Facility should be consistent with, and should complement, activities supported under the other two pillars of the Just Transition Mechanism. In order to align its duration with the period of the multiannual financial framework from 1 January 2021 to 31 December 2027 (the ‘2021-2027 MFF’) laid down in Council Regulation (EU, Euratom) 2020/2093 (6), the Facility should be established for a period of seven years.

(6)

In order to enhance cohesion and the economic diversification of territories impacted by the transition, the Facility should cover a wide range of sustainable investments, provided that such investments contribute to meeting the development needs of these territories caused by the transition towards the Union’s 2030 climate target, as established in Regulation (EU) 2021/1119 and climate neutrality in the Union by 2050 at the latest, as described in the territorial just transition plans. In order to improve the effectiveness of the Facility, it should be able to support eligible projects which began their implementation stage prior to the submission of the application by beneficiaries to the Facility. The Facility should not support investments covering any of the activities excluded under Article 9 of Regulation (EU) 2021/1056 of the European Parliament and of the Council (7), but could support investments in renewable energy and green and sustainable mobility, including the promotion of green hydrogen, efficient district heating networks, public research, digitalisation, environmental infrastructure for smart waste and water management, and could support sustainable energy, energy efficiency and integration measures, including renovations and conversions of buildings, urban renewal and regeneration, the transition to a circular economy, land and ecosystem restoration and decontamination, taking into account the ‘polluter pays’ principle, biodiversity, as well as up-skilling and re-skilling, training and social infrastructure, including care facilities and social housing.

(7)

Infrastructure development could also include cross-border projects and solutions leading to enhanced resilience to withstand ecological disasters, in particular those accentuated by climate change. A comprehensive investment approach should be favoured, in particular for territories with important transition needs. Investments in other sectors could also be supported if they are consistent with the approved territorial just transition plans. By supporting investments that do not generate sufficient streams of revenues to cover their investment costs, the Facility should aim to provide public sector entities with the additional resources necessary to address the territorial, social, economic and environmental challenges that will result from the adjustment to the transition. In order to help identify investments that are eligible under the Facility and that have a high positive environmental impact, including in relation to biodiversity, the Commission should take into account, when carrying out the evaluation of the Facility, the EU taxonomy on environmentally sustainable economic activities. All finance partners should use, where applicable, the EU taxonomy on environmentally sustainable economic activities, including the ‘do no significant harm’ principle, to provide for transparency in relation to sustainable projects.

(8)

Respect for fundamental rights and compliance with the Charter of Fundamental Rights of the European Union, and in particular gender equality, should be ensured, as appropriate, throughout the preparation, evaluation, implementation and monitoring of eligible projects under the Facility. Similarly, beneficiaries and the Commission should also avoid any discrimination based on gender, racial or ethnic origin, religion or belief, disability, age or sexual orientation, throughout the implementation of the Facility. The objectives of the Facility should be pursued in line with the United Nations Sustainable Development Goals, the European Pillar of Social Rights, the polluter pays principle, the Paris Agreement adopted under the United Nations Framework Convention on Climate Change (8) (the ‘Paris Agreement’) and the ‘do no significant harm’ principle.

(9)

Horizontal financial rules adopted by the European Parliament and the Council on the basis of Article 322 of the Treaty on the Functioning of the European Union (TFEU) apply to this Regulation. Those rules are laid down in the Regulation (EU, Euratom) 2018/1046 of the European Parliament and of the Council (9) (the ‘Financial Regulation’) and determine in particular the procedure for establishing and implementing the budget through grants, prizes, procurement, indirect management, financial instruments, budgetary guarantees, financial assistance and the reimbursement of external experts, and provide for checks on the responsibility of financial actors. Rules adopted on the basis of Article 322 TFEU also include a general regime of conditionality for the protection of the Union budget.

(10)

The Facility should provide support in the form of grants provided by the Union combined with loans provided by a finance partner in accordance with its rules, lending policies and procedures. The financial envelope for the grant component, implemented by the Commission in direct management, should take the form of financing not linked to costs, in accordance with Article 125 of the Financial Regulation. That form of financing should help incentivise project promoters to participate and contribute to the achievement of the Facility’s objectives in an efficient way relative to the size of the loan. The loan component should be provided by the European Investment Bank (EIB). It should be possible to extend the Facility to enable other finance partners to provide the loan component, where additional resources for the grant component become available or where it is required for the correct implementation of the Facility. In such cases, the Commission should inform Member States and the European Parliament about the intention to extend the Facility and select additional finance partners, taking into account their capacity to fulfil the objectives of the Facility, to contribute their own resources and to ensure appropriate geographical coverage.

(11)

Administrative agreements should be signed between the Commission and finance partners. Those agreements should set out the implementing arrangements for the evaluation and the monitoring of projects, as well as the respective rights and obligations of each party, including the detailed arrangements on audits, reporting and communication. The communication arrangements should include, in particular, the obligation to publish information on each individual project or loan scheme receiving support under the Facility.

(12)

By addressing the investment needs of the territories that are most negatively impacted by the transition towards a climate-neutral economy, the Facility should provide a key contribution to mainstream climate actions. Resources from the grant component of the Facility will therefore contribute to the achievement of the climate objectives to the same extent as the JTF.

(13)

EUR 250 000 000 of the grant component of the Facility should be financed from the Union budget in accordance with Regulation (EU, Euratom) 2020/2093 and should constitute the prime reference amount, within the meaning of point 18 of the Interinstitutional Agreement of 16 December 2020 between the European Parliament, the Council of the European Union and the European Commission on budgetary discipline, on cooperation in budgetary matters and on sound financial management, as well as on new own resources, including a roadmap towards the introduction of new own resources (10), for the European Parliament and the Council during the annual budgetary procedure.

(14)

EUR 275 000 000 of the grant component of the Facility should be financed by repayments stemming from the financial instruments established under the programmes listed in Annex I to this Regulation. Such revenue stems from terminated programmes independent of the Facility and should be considered external assigned revenue by way of derogation from point (f) of Article 21(3) of the Financial Regulation on the basis of Article 322(1) TFEU.

(15)

EUR 1 000 000 000 of the grant component of the Facility should be financed by the foreseeable surplus of the provisioning for the EU guarantee established by Regulation (EU) 2015/1017 of the European Parliament and of the Council (11). Therefore, a derogation should be made from point (a) of Article 213(4) of the Financial Regulation, which envisages an obligation for any surplus of provisions for a budgetary guarantee to be returned to the budget, in order to assign that surplus to the Facility. That assigned revenue should be considered external assigned revenue by way of derogation from point (f) of Article 21(3) of the Financial Regulation on the basis of Article 322(1) TFEU.

(16)

In accordance with point (c) of Article 12(4) of the Financial Regulation, the appropriations corresponding to external assigned revenue could be automatically carried over to the successive programme or action. That provision allows for matching the multiannual schedule of assigned revenue with the implementation path of the projects financed by the Facility.

(17)

Resources for advisory support should also be provided for in order to promote the preparation, development and implementation of eligible projects and the early preparation of projects prior to the submission of the application by the beneficiary to the Facility. A share of those resources should be dedicated to supporting the endogenous capacity of beneficiaries to ensure the sustainability of eligible projects.

(18)

In order to ensure that all Member States are able to benefit from the grant component, a mechanism should be set up to pre-allocate national shares during a first stage, as set out in Annex I to Regulation (EU) 2021/1056. However, in order to reconcile that objective with the need to optimise the economic impact of the Facility and its implementation, such national shares should not be pre-allocated for the period after 31 December 2025. Thereafter, the remaining resources available for the grant component should be provided without any pre-allocated national share and on a competitive basis at Union level, while ensuring predictability for investment and following a needs-based and regional convergence approach.

(19)

The eligibility conditions and award criteria should be set out in the work programme and the call for proposals. Those eligibility conditions and award criteria should take into account the relevance of the project in the context of the development needs described in the territorial just transition plans, the overall objective of promoting regional and territorial convergence and the significance of the grant component for the viability of the project. The work programmes should also set award criteria for cases where resources would be insufficient to support eligible projects. Priority should be given to projects located in less developed regions, to projects contributing directly to the achievement of Union’s climate targets and projects promoted by public sector entities that have adopted decarbonisation plans with this corresponding hierarchy of criteria, where applicable. Union support provided under the Facility should thus only be made available to Member States that have at least one approved territorial just transition plan. The work programme and calls for proposals should also take into account the territorial just transition plans submitted by Member States to ensure that the coherence across the different pillars of the mechanism is ensured. In order to optimise the impact of the Facility, individual projects supported under the Facility should not receive support from other Union programmes, except in relation to the preparation of projects. However, for operations composed of identifiable separate projects, those projects can be supported by different Union programmes, in accordance with the applicable eligibility rules.

(20)

In order to optimise the effectiveness of Union assistance and to prevent the replacement of potential support and investment from alternative resources, support under the Facility should only be provided to projects that do not generate sufficient streams of revenues to cover their investment costs. Those revenues should correspond to revenues other than budgetary transfers that are generated directly by the activities carried out by the project, such as sales, fees or tolls and incremental savings generated by the upgrade of existing assets.

(21)

Since the grant component should take into account the divergent development needs of regions across Member States, such support should be adjusted in favour of less developed regions. Taking into account the fact that public sector entities in less developed regions generally experience lower public investment capacity, the grant rates applied to loans provided to such entities should be comparatively higher.

(22)

In order to ensure the effective implementation of the Facility, it may be necessary to provide advisory support for the preparation, development and implementation of projects. Such support should be provided through the InvestEU Advisory Hub for eligible projects and for the preparation of projects prior to the submission of applications, paying particular attention to beneficiaries that have lower administrative capacity or that are located in less developed regions. It should also be possible for such support to be granted under other Union programmes.

(23)

In order to measure the effectiveness of the Facility, its capacity to meet its objectives and support the preparation of its possible prolongation beyond 2027, the Commission should carry out an interim and a final evaluation, including an assessment of the possibility of adopting provisions on a gender impact assessment, if appropriate, and should submit the evaluation reports to the European Parliament and to the Council. Pursuant to paragraphs 22 and 23 of the Interinstitutional Agreement of 13 April 2016 on Better Law-Making (12), the Facility should be evaluated on the basis of information collected in accordance with specific monitoring requirements, while avoiding an administrative burden, in particular on Member States, and overregulation.

(24)

In order to speed up implementation and ensure that resources are used in a timely fashion, this Regulation should lay down specific safeguards to be included in the grant agreements. In view of that objective, the Commission, in line with the principle of proportionality, should be able to reduce or terminate any Union support in cases where there is a serious lack of progress in the implementation of the project. The Financial Regulation applies to the Facility. In order to ensure coherence in the implementation of Union funding programmes, the Financial Regulation should apply to the grant component and to resources for advisory support provided under the Facility.

(25)

In accordance with the Financial Regulation and Regulation (EU, Euratom) No 883/2013 of the European Parliament and of the Council (13) and Council Regulations (EC, Euratom) No 2988/95 (14), (Euratom, EC) No 2185/96 (15) and (EU) 2017/1939 (16), the financial interests of the Union are to be protected through proportionate measures, including the prevention, detection, correction and investigation of irregularities, including fraud, the recovery of funds lost, wrongly paid or incorrectly used, and, where appropriate, the imposition of administrative penalties. In particular, in accordance with Regulations (Euratom, EC) No 2185/96 and (EU, Euratom) No 883/2013, the European Anti-Fraud Office (OLAF) has the power to carry out administrative investigations, including on-the-spot checks and inspections, with a view to establishing whether there has been fraud, corruption or any other illegal activity affecting the financial interests of the Union. The European Public Prosecutor’s Office (EPPO) is empowered, in accordance with Regulation (EU) 2017/1939, to investigate and prosecute criminal offences affecting the financial interests of the Union as provided for in Directive (EU) 2017/1371 of the European Parliament and of the Council (17). In accordance with the Financial Regulation, any person or entity receiving Union funds is to fully cooperate in the protection of the financial interests of the Union, grant the necessary rights and access to the Commission, OLAF, the Court of Auditors and, in respect of those Member States participating in enhanced cooperation pursuant to Regulation (EU) 2017/1939, the EPPO, and ensure that any third parties involved in the implementation of Union funds grant equivalent rights.

(26)

In order to amend certain non-essential elements of this Regulation, the power to adopt acts in accordance with Article 290 TFEU should be delegated to the Commission in respect of the key performance indicators to monitor implementation and progress of the Facility. It is of particular importance that the Commission carry out appropriate consultations during its preparatory work, including at expert level, and that those consultations be conducted in accordance with the principles laid down in the Interinstitutional Agreement of 13 April 2016 on Better Law-Making. In particular, to ensure equal participation in the preparation of delegated acts, the European Parliament and the Council receive all documents at the same time as Member States’ experts, and their experts systematically have access to meetings of Commission expert groups dealing with the preparation of delegated acts.

(27)

In order to ensure uniform conditions for the implementation of this Regulation, implementing powers should be conferred on the Commission as regards work programmes and the conditions and procedures for selecting finance partners other than the EIB. Those powers should be exercised in accordance with Regulation (EU) No 182/2011 of the European Parliament and of the Council (18).

(28)

Since the objective of this Regulation, namely to benefit the territories most negatively impacted by the transition towards climate neutrality by addressing the corresponding development needs through leveraging public investments, cannot be sufficiently achieved by the Member States alone, owing to the difficulties that public sector entities have in supporting investments which do not generate sufficient streams of revenues to cover their investment costs, but can rather, by reason of the need for a coherent implementation framework under direct management, be better achieved at Union level, the Union may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on European Union. In accordance with the principle of proportionality as set out in that Article, this Regulation does not go beyond what is necessary in order to achieve that objective,