The EU's proposal for an unprecedented spending package to fuel the bloc's recovery from the coronavirus pandemic has been tied explicitly to green principles, although the plans are still lacking in detail and environmental groups have criticized the continued support for some fossil fuels.

The European Commission's proposal would see the EU raise €750 billion in recovery funds by issuing bonds, with €500 billion doled out to member states in grants and the rest in loans. This comes on top of €540 billion in postcrisis funding already agreed in April and a newly reinforced budget for 2021-2027 to the tune of €1.1 trillion. Combined, the funding amounts to the largest European spending plan ever proposed.

The debt repayments would come through new funds raised by member states, including through levies on imports of carbon-intensive goods from outside the bloc, revenues from the EU's Emissions Trading System and a tax on tech giants.

Officials presenting the plan in Brussels on May 28 emphasized that the proposal, which still needs approval from national leaders and the European Parliament, puts the European Green Deal at the heart of the bloc's economic recovery. European Commission President Ursula von der Leyen's flagship green policy program was only unveiled shortly before the crisis hit, prompting calls from economists and campaigners to enshrine its targets in the recovery plan to avoid bailouts of polluting industries.

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"We have to make sure ... that this takes us into the future, not the past. And the future is with a green, resilient, digital economy," Frans Timmermans, executive vice-president for the European Green Deal in the commission, said in a news briefing on the proposal.

The negotiations for the recovery package and the multiyear budget are still set to be contentious, particularly as the so-called "frugal four" governments of the Netherlands, Sweden, Denmark and Austria are wary of giving out a majority of recovery funds as grants, rather than loans.

Funding proposals

Although it is still unclear what areas any funds will eventually go to — partly by design, since this depends on member state input — the commission is earmarking a quarter of both its budget and the recovery package proposal for climate action.

"The Green Deal will be at the heart of this recovery plan," Kadri Simson, EU commissioner for energy, said during an online event organized by Brussels-based think tank Bruegel. Timmermans said the entire recovery package would follow a "do-no-harm" principle that will ensure member states do not spend money on aid that fails to take into account the bloc's climate ambitions. Countries will have to draft their own recovery plans, which will then be evaluated by the commission.

Specifically, the commission wants to double the funding guarantees for sustainable infrastructure within its existing InvestEU program to about €20 billion, to support projects including renewable energy and storage, clean hydrogen, batteries and carbon capture technology — areas that have seen a "huge decline in investments," according to Timmermans.

The commission would also mobilize at least €10 billion over the next decade for a "natural capital and circular economy" initiative and inject a further €15 billion into its rural development fund to help decarbonize agriculture.

All of the EU's plans assume that financing by the bloc would trigger a multiple in private sector spending. The commission said reaching the bloc's current 2030 climate goals, which were supposed to increase as part of the Green Deal, would already require around €470 billion in public and private investment per year, including €30 billion for renewable energy alone.

The commission also plans to increase direct funding from €7.5 billion to €40 billion for the regions hit hardest by the transition away from polluting industries. The so-called Just Transition Fund, first proposed as part of the Green Deal, will support coal-mining regions in Poland and Germany, for example. The aid can be used for retraining workers or making small and medium-sized companies more sustainable.

In addition, a new public sector loan facility would provide €1.5 billion in grants from the EU budget and up to €10 billion in loans from the European Investment Bank to help regions move to a climate-neutral economy.

The proposals appeared to fall short of a leaked draft of the recovery plan, published a week prior to the announcement by policy website Euractiv, that seemed to earmark substantial amounts of money for renewable energy, hydrogen production and electric mobility. A spokesperson said there are currently no plans to propose specific allocations for any energy projects.

According to the leaked document, the commission was considering an EU-wide tendering plan for 15 GW of renewable energy capacity, split up over the next two years, as well as plans to match national tender volumes up to a total investment of €10 billion. Currently, only national governments have auction programs for renewables in place.

The leak also detailed plans to pump tens of billions of euros into large-scale hydrogen projects and electric vehicle charging networks. A host of major European utilities, including Iberdrola SA, Enel SpA and Ørsted A/S, had written to Timmermans ahead of the proposal to urge the commission to focus on renewable hydrogen, which is seen as key to decarbonizing hard-to-abate sectors such as steel and aviation. Close to €100 billion in grants and loan guarantees would also go towards renovations such as rooftop solar panels, insulation and renewable heating systems.

'80% right'

Although none of those figures made it into the official proposal, utilities and industry groups broadly welcomed the package. Francesco Starace, CEO of Italy's Enel, said during the Bruegel event that the EU-wide renewables auctions would be particularly welcome.

Overall, Starace said the program was "80% right" and would matter more in terms of speeding up projects like new electricity networks and enabling "faster deployment of capital," rather than providing direct money to utilities, which have weathered the pandemic comparatively unscathed.

"It's more a question of time than of money, at least for our business," Starace said, adding that the there was "a big, big chance that this is the right time for an accelerated [energy] transition."

Analysts at Barclays estimated that initiatives to help reach climate neutrality could total up to €150 billion under the plan and specifically benefit Southern European utilities, since countries like Italy and Spain are in line to receive a larger chunk of the money.

"It's clearly going to be a green recovery [and] a boost for the energy transition," Giles Dickson, CEO of industry group WindEurope said in a statement on the proposal.

But some green groups slammed the plan for not allocating enough money directly to green initiatives. Climate Action Network Europe, a group of environmental nonprofits, said in a statement that the proposal would still allow some investment in fossil fuels as part of the recovery and also eliminates climate spending targets in regional development funding.

Asked about funding for fossil fuels, Timmermans said during the press briefing that using natural gas as a transition fuel "will probably be necessary to shift away from coal to sustainable energy" in some countries.