Solidarity in times of energy crisis

The European Union is in the process of adopting an energy plan to phase out dependency on Russian fossil fuels, named REPowerEU. This program builds on the legal construction of Next Generation EU (NGEU), the recovery plan adopted in the aftermath of the pandemic to address the social and economic consequences of Covid-19. In Italy, it is known as the National Recovery and Resilience Plan (PNRR, the Italian acronym). On the one hand, Next Generation EU involves the issuance of massive common debt by the EU and on the other hand, the distribution of the proceeds provided to the Member States in the form of loans and grants, conditioned on the national implementation of reforms and investments. Next Generation EU is an example of solidarity among Member States as the distribution criteria favors countries most affected by the consequences of the pandemic.
NGEU was built on the legal and political premise to be a temporary and one-off measure. However, since its introduction, commentators have wondered whether the NGEU would have been more of a blueprint for further actions. In this regard, the political willingness of the Member States is divergent. Following the Russian aggression in Ukraine, some Member States immediately called for additional Eurobonds to face hardship caused by the energy crisis, while others rejected this proposal.
The REPowerEU is a compromise between these opposite views. On the one hand, it does not involve the issuance of additional common debt. On the other, it builds on the architecture of NGEU, updating it in view of including new energy targets. Specifically, REPowerEU modifies the Regulation establishing the Recovery and Resilience Facility (the Facility) which is the largest spending program of NGEU, receiving up to 90% of the NGEU funds. Indeed, the Facility is the real innovative tool that links the disbursement of funds upon the achievement of milestones and targets, following a rewarding logic.
So far, the Facility has proved to be a well-functioning instrument to deliver on urgent priorities of the EU and a well-suited tool to address emerging needs. To tackle the new challenges, REPowerEU performs two different actions. First, it pools additional resources to the Facility. Second, it adds a REPowerEU chapter to the Recovery and Resilience Plans.
Firstly, new resources to finance REPowerEU will come from the auctioning of allowance of the Emission Trading System (ETS), up to 20 billion euro. This amount will be distributed in the form of grants to the Member States. Second, REPowerEU unlocks unspent loans under NGEU. So far, some Member States requested support under the Facility only in the form of grants. This explains why there are currently unspent loan money within the Facility. REPowerEU mobilizes these resources. Moreover, under REPowerEU, Member States may request the transfer of the national allocation of cohesion funds and Brexit Adjustment funds to the Facility to be used for energy targets.

Secondly, Member States willing to receive additional financing under the Facility are invited to update their National Recovery and Resilience Plan, including a REPowerEU chapter. This chapter must illustrate new reforms and investments, or the scale up of reforms and green investments already included in the RRP. REPowerEU chapters must explain how they contribute to increasing the resilience of the EU energy infrastructure by decreasing dependency on fossil fuels and diversifying energy supply at Union level. Upon the satisfactory achievement of the REPowerEU targets and milestones, resources are distributed to the Member States.

The adoption of REPowerEU is very significant and symbolic. It shows that since the outbreak of the pandemic, the EU has radically changed its approach in facing common challenges. It is now clear that the EU may deliver more than Member States on their own. The new approach is much more solidarity oriented as resources will be once again distributed and favors States worst hit by the energy crisis. Indeed, the REPowerEU distribution criteria considers Member States energy dependency rate and the share of fossil fuels in gross inland energy consumption. As said, REPowerEU builds on the Recovery and Resilience Facility thus proving that the Facility is a well-functioning mechanism for common expenditure dedicated to strategic needs. In conclusion, although less ambitious than NGEU, REPowerEU confirms the need of the EU to provide itself with a permanent fiscal space to react asymmetric shocks in a solidaristic way.