REACTION: The STEP proposal: recovery funds and cohesion policy should not be cannibalised for financing dubious objectives

Financing the transition

The European Commission proposed, along with the mid-term review of the EU budget (Multi-annual Financial Framework, MFF) a regulation establishing a Strategic Technologies for Europe Platform (‘STEP’). The objectives of this initiative are to strengthen Europe’s autonomy by reducing its dependence on strategic technologies; enhance its competitiveness; favour a level playing field in the Single Market for investments; and promote access to quality jobs. 

Initially, as part of its Green Deal Industrial Plan (GDIP), the Commission had announced a new EU sovereignty fund, as a response to the Inflation Reduction Act in the United States. What was ultimately proposed, however, is a Regulation for a new Platform, combined with a so-called “Sovereignty Seal” and “Sovereignty portal”.

The proposal mostly consists in a reshuffling of existing EU funds with the objective of supporting capital investments of businesses and access to jobs in high tech, with a budget to the tune of EUR 10 billion.

Unfortunately, the proposed Platform doesn’t pass any of the “tests” set out  by CAN Europe  when the GDIP proposal was launched back in January.  As we further analyse below, STEP diverts resources from existing EU funds that are desperately needed to finance common public goods and the green and just transition; and it fails to guarantee positive social or environmental outcomes, beyond the possibility to fund skilling and access to employment in technologies covered. 

In its attempt to scrape funds from existing budgets, the European Commission’s proposal risks cannibalising three crucial EU funding instruments for climate action – namely the Recovery and Resilience Facility, the Cohesion Fund and the European Regional Development Fund. 

As we have analysed in previous reports, the EU existing funds mobilised are already insufficient to fill the “climate investment gap” for achieving ambitious 2030 targets, especially given the fact that at least 50% of those investment needs are public, in nature. However, instead of mobilising additional finance for filling this public investment gap, the proposal would allow Member States to transfer part of those precious resources for financing STEP objectives. This would take away money from regions and from green public investments (e.g. crucial public services and infrastructure such as public transport or electricity grid) for financing mostly private sector investments, including large companies, hence undermining both climate targets and regional development objectives. We are staunchly opposed to such a prospect.          

Furthermore, the design of STEP is problematic on a number of counts: 

First, STEP does not guarantee positive social or environmental outcomes. Among others, the proposal does not include serious social and environmental conditionalities when providing cheap finance to industry, especially to large companies. On the social front, there are no conditionalities beyond a non-binding recital encouraging conditions such as apprenticeships and jobs for young disadvantaged persons. This is a missed opportunity to empower workers in recipient companies and guarantee gender equality in their operations. On the environmental front, there are no guarantees that the investments supported will abide by the “do no significant harm” principle present in the RRF, when transferring available resources to other instruments such as InvestEU. This is crucial as STEP will be able to finance digital and biotech investments whose adverse climate and environmental impacts can be significant. Similarly, the climate and environmental mainstreaming criteria proposed in the Article 13 of the proposed regulation are too broad for ensuring that the investment support provided genuinely contributes to positive climate, biodiversity, resource reduction, and circular economy outcomes.     

Second, STEP is neither about climate action nor about achieving Green Deal objectives per se, as had initially been envisaged in the Green Deal Industrial Plan. Indeed, investments in green industries consist in a fraction of the envelope, as “critical and emerging technologies relevant to the green and digital transitions, from computing-related technologies, including microelectronics, quantum computing, and artificial intelligence, to biotechnology, and biomanufacturing and net-zero and other clean technologies” would be eligible. In addition, “STEP will reinforce the research strand of the European Defence Fund, which will boost the innovation capacity of the European defence technological and industrial base”. 

Third,  the list of “green sectors” whose companies are eligible for finance are highly problematic. As already analysed in a previous joint statement of environmental CSOs, the financial leg of GDIP should have focused on priority sectors that have a demonstrable positive impact for delivering immediate emissions reductions at scale or other environmental benefits and social innovation. Instead, the proposed STEP regulation entails the eligibility of sectors that are environmentally harmful, unproven at scale or linked to fossil fuels – such as “alternative fuels” (presumably including biomass, biofuels, biogas), Carbon Capture Utilisation and Storage (CCUS) and fossil-based hydrogen. This would divert precious resources from the roll-out and development of proven existing technologies and techniques.  

Finally, instead of ensuring a genuine additionality of public finance, by providing financial support to MSMEs, cooperatives and other alternative business models that face genuine barriers for accessing public finance, the STEP proposal makes large companies eligible for public support. Using scarce EU funds that could be used more effectively for climate action, for financing large corporations that face no barriers of access to private finance for capital investments, is a poor use of EU funds.   

To conclude, the STEP proposal is a missed opportunity for contributing to building an economy that respects planetary boundaries, including through a holistic industrial policy: its one-sided supply side technology angle is dubious, its sectoral targets problematic, and its assumption that large corporations need more public funds for investing in climate action is unfounded. Crucially, transferring scarce EU resources from funds that are designed to benefit local authorities, necessary green public infrastructure and community projects, to high-tech companies at a moment where most people in Europe face a cost of living crisis exacerbated by corporate-driven inflation is missing the mark. Given the substantial public investment and spending gaps for achieving ambitious climate targets, we call on the European Commission, the Parliament and Council, to both safeguard existing budgets within the RRF and cohesion policy funds, and to develop a proposal for setting up a genuine EU climate fund for delivering a just transformation of our economic system.