What is the European Recovery Plan?
On 27 May 2020, in order to mitigate the severe economic consequences of the COVID-19 outbreak, the European Commission proposed the European Recovery Plan, with a new recovery instrument alongside the new 2021–2027 EU budget, which aims to boost the economy while, at the same time, delivering on the EU's green and digital objectives.
This new recovery instrument would amount to EUR 750 billion of financial firepower and is called "Next Generation EU." It will be added to the proposed enhanced EUR 1.1 trillion EU budget, resulting in a total spending potential of EUR 1.85 trillion over the next seven years.
Next Generation EU will be spent in different ways: (i) to support Member States recover and emerge stronger from the COVID-19 crisis; (ii) to boost private investment and kick-start the economy; and (iii) to learn the lessons from the health crisis and increase the resilience of the EU while accelerating the green and digital transitions.
How is Next Generation EU linked to the green transition?
Despite the pandemic, the Commission has announced that it remains fully committed to its climate-neutrality goal. To that end, an unprecedented level of investment dedicated to green technologies and projects will be unlocked over a short period. Funding opportunities will be presented for a wide range of sustainability projects such as renewable energy and hydrogen projects, sustainable heating and mobility.
In fact, sustainability will have to run through most of the actions supported by Next Generation EU (and the new EU budget) as the European Council's compromise agreeing to the Commission's proposal sets an overall climate target of 30%, which will apply to the total amount of expenditure from the next EU budget and Next Generation EU. This amounts to EUR 555 billion of climate- related spending up to 2027, which will have to rely heavily on spending from Next Generation EU and, hence, largely be front-loaded.
A EUR 672.5 billion boost
The Recovery and Resilience Facility, a newly established instrument that forms part of Next Generation EU, is by far the biggest of this initiative and is a real "game changer." It will provide EUR 672.5 billion-312.5 billion through grants and the rest through loans, in the form of large-scale financial support to reforms and investments undertaken by Member States to prepare their national economies to undergo the green and digital transitions while mitigating the economic and social impact of COVID-19.
These funds will be made available quickly: 70% of the grants (i.e., EUR 218.75 billion) to be provided under the facility must be committed to the Member States in the years 2021 and 2022. The maximum grants are to be provided to a particular Member State. The remaining 30% (i.e., 93.75 billion) must be committed by the end of 2023. The allocation of the first 70% between Member States has already been determined and is illustrated in the diagram below.
How does this impact your business?
Funds from the Recovery and Resilience Facility will be provided to Member States based on their National Recovery and Resilience Plans (to be submitted to the Commission). These plans significant contribution to the Green Deal and digital agenda is a prerequisite for receiving funding. They must thus contain a sufficient number projects that are compatible with the Green Deal and digital agenda, of sufficient scope and size, to spend EU funds on. As illustrated below, for many Member States, the European funds will complement and be used as part of national recovery plans.
This provides to EU companies an invaluable window of opportunity to assist their national governments with the preparation (or revision) of their plans by designing valuable job-creating decarbonization and digitalization projects that are compatible with the Green Deal and the digital agenda. These companies would then benefit from the recovery plan funds for adapting their business to the new green and digital economy.
Germany's recovery plan
For example, Germany proposed a national recovery plan of EUR 130 billion, out of which nearly EUR 35 billion will be dedicated to climate-friendly investments. The development of the hydrogen industry holds a key role in the country's green recovery as a way to decarbonize heavy industries and HGV traffic and subsidize electric vehicles. Notably, the German government plans to invest EUR 7 billion to scale up hydrogen's production to 5 GW by 2030 and 10 GW by 2040. In the same vein, the country has set ambitious goals for solar and offshore wind power production.
Another important pillar of the national recovery strategy refers to the reform of the transport sector. It is worth noting that investments are planned in the industry of electric vehicles when petrol and diesel-powered cars seem to be excluded from the plan. Regarding the public transport sector, the rail system and other forms of travel will be modernized to create less carbon per passenger. Finally, financial support will be targeted to buildings' CO2 renovation and heating performance.
France's recovery plan
The recovery plan and sustainability objectives of the French government resonates, to a large extent, with their German counterpart. France aims to inject EUR 100 billion to restart the French economy focusing mainly on three pillars: sustainability, competitiveness and cohesion. Out of the whole budget, EUR 40 billion will be provided by the EU Recovery and Resilience Facility, of which almost EUR 30 billion will be dedicated to the green transition. The latter is envisaged notably through investments to upscale the production of hydrogen (and biofuels), research and development schemes for new, sustainable technologies and the decarbonization of the energy- intensive industries.
In particular, France envisages incentivizing the production and use of (renewable) hydrogen and biofuels through major research and development schemes and the launch of PCI projects (such as the development of electrolysers for the production of low-carbon hydrogen for the decarbonization of industrial sites and R&D projects on renewable hydrogen for maritime and aviation purposes). In parallel, the French plan envisages reforms in infrastructure and the mobility sector as well as significant investments for the improvement of buildings' energy performance. The government also plans to support projects that will help these industries switch to renewable and low-carbon sources for their energy needs (e.g., through the replacement, or conversion, of an old coal boiler for heat production with a new carbon-neutral biomass installation).
Navigating the regulatory framework to access funding
All companies operating in the European energy space (and in particular those pursuing hydrogen opportunities) should consider taking advantage of the funding presented the European Recovery Plan and other EU and national funds. The companies will need clarity in respect of the specific funding structures the Commission and member states are proposing to implement. Some details of the funding programs are already available, whilst others are still being developed. Based on Baker McKenzie's experience across Europe in helping our clients navigate and gain access to public support, we are well placed to help companies navigate the regulatory framework required to access funding.
The first draft national recovery and resilience plans of most (if not all) Member States should be submitted to the Commission in the coming weeks, prior to being negotiated between the Commission and Member States until the formal submission of the (finalized) plans in April. We are thus likely to have several announcements relating to plans shortly, with hopefully more details on their content. This will enable us to better identify specific national opportunities, which will of course be commented here.