Opinion of the European Economic and Social Committee on SMEs, social economy enterprises, crafts and liberal professions / Fit for 55

(own-initiative opinion)

(2022/C 486/01)

Rapporteur:	Milena ANGELOVA
Co-rapporteur:	Rudolf KOLBE

Plenary Assembly decision	20.1.2022
Legal basis	Rule 52(2) of the Rules of Procedure
	Own-initiative opinion
Section responsible	Single Market, Production and Consumption …
Adopted in section	27.6.2022
Adopted at plenary	21.9.2022
Plenary session No	572
Outcome of vote (for/against/abstentions)	143/1/0

1.   Conclusions and recommendations

1.1.

Micro, small and medium-sized enterprises, be they traditional enterprises, family businesses, traders, social economy enterprises, crafts or liberal professions (referred hereafter as MSMEs) are an essential part of the solution towards a competitive, climate-neutral, circular and inclusive EU economy, provided that the right conditions are created and prevail. Positive impact is generated by MSMEs through improving their own environmental performance and through providing expertise and solutions to other enterprises, citizens and the public sector. While acknowledging and highlighting the diversity and different needs of MSMEs, the EESC calls for specific attention to be paid to the smallest and most vulnerable ones.

1.2.

Many MSMEs lack knowledge on the continuously evolving legislative requirements, established to deliver on achieving climate neutrality, and on how to respond to them. Furthermore, they have difficulties in identifying potential business benefits and opportunities provided by the green transition. The EESC thus highlights that there is an urgent need to support MSMEs in understanding and managing the green transition in the best possible way.

1.3.

The EESC calls for wide-ranging and targeted information and awareness-raising measures, delivered in a coordinated and complementary manner by the EC and MSs, together with business organisations, chambers, social partners and other relevant stakeholders.

1.4.

The EESC also calls for a comprehensive programme, aimed at supporting MSMEs through all the issues they face in their business operations and activities in going green and complying with legislation. As there are considerable differences between MSMEs, highly customised solutions and well-targeted policies and measures are necessary.

1.5.

Immediate and targeted short-term support for MSMEs is pivotal for boosting their economic recovery from the pandemic and helping them manage the implications of the Russian invasion of Ukraine, such as high energy prices and lack of supply of materials and products. Due to the extraordinary circumstances, the EESC considers that proper flexibility in the European Green Deal (EGD) schedules should be given over time until the end of the crisis, while ensuring that the objectives are not abandoned for any reason.

1.6.

To improve the resource efficiency of MSMEs, the EESC proposes establishing ‘circularity hubs’ in various regions. This should enhance cooperation between companies across sectors and facilitate the development of new practices and processes, including demonstrating new technologies. MSME organisations, chambers, academia, social partners and other relevant stakeholders should be an integral part of the process.

1.7.

The EESC believes it important to involve MSME representatives in preparing sectoral climate action roadmaps at national level, as well as in shaping the EU level transition paths for various business ecosystems, thus also enhancing knowledge on sharing best practices, proper resource allocation and efficient implementation.

1.8.

The EESC calls on the EU and MSs to accelerate green investments of MSMEs by ensuring an enabling, predictable and encouraging regulatory environment, including smooth permission procedures and avoiding burdensome administrative duties, as well as by providing fast, easy, simple and traceable access to finance, tailored to the different needs of all diverse groups of MSMEs.

1.9.

The EESC calls for close cooperation between education providers and MSMEs in shaping training to meet the competences and skills needed in the green transition, including through upskilling and reskilling employees and entrepreneurs alike. Moreover, the EESC calls for supporting innovation activities for the MSMEs by incentivising and facilitating cooperation with other businesses, their organisations, chambers, universities and research organisations.

1.10.

The EESC urges the promotion of trade in green solutions produced by MSMEs, including in the context of public procurement, by providing MSMEs with a level playing field in the single market and by facilitating their access to foreign markets of green products, technologies and services. A competitive business environment must be ensured for EU enterprises in relation to third countries, deploying all means of diplomacy, including in the spheres of climate, resource and trade policy, and paying specific attention to moves by China and other emerging markets.

2.   The green transition and MSMEs

2.1.

MSMEs contribute to a job-rich and sustainable economy. They keep societies stronger together, often combining economic with social functions, and in this way strengthen the basis of democracy, unity and inclusiveness. They are key for economic and social recovery and prosperity, being grass-rooted at each and every corner of the EU and especially in the remote and rural areas, where quite often they are the only economic-activity-generating factor.

2.2.

Climate change drives the sustainable energy transition, but — most significantly — it drives the whole economy and society towards climate neutrality, circularity and overall sustainability. It causes extreme weather phenomena and natural disasters, and is linked to other major environmental challenges such as biodiversity loss, environmental pollution, and the degradation of natural resources.

2.3.

The Fit for 55 package focuses specifically on mitigating climate change and includes many pieces of legislation that affect MSMEs in various ways. It is part of the implementation of the EU flagship initiative — the EGD, that addresses sustainable growth related to industries, trade, services and energy, transport, buildings and food systems. MSMEs play an essential role in all these sectors.

2.4.

MSMEs are an essential part of the solution in the implementation of the EGD, provided that the right conditions are created and prevail. This positive impact is generated, on one hand, through improvements in the performance of the wide variety of MSMEs, and on the other hand through the actions of those MSMEs, providing expertise and solutions to other enterprises, citizens and the public sector.

2.5.

The green transition is closely linked to the digital transformation, and MSMEs need to manage both parts of this twin transition — a very demanding double challenge because of the substantial need for resources. Digitalisation is a tool for making business operations more efficient, helping new market expansion and internationalisation, and has the considerable potential to decrease emissions, waste and the use of natural resources. But digital services and equipment also cause environmental impacts which need to be managed simultaneously.

2.6.

Besides striving for the green and digital transitions, MSMEs are struggling with the economic recovery from the pandemic and with the implications of the Russian invasion of Ukraine. High energy prices and a lack of supply of materials and products are among recent issues that have significant impacts on MSMEs and their business. Their competitiveness, as well as the overall competitiveness of the EU economy, is further jeopardised by the sudden moves of China and other emerging markets, that also benefit from avoiding sanctions on Russia and following lower climate and environmental requirements.

2.7.

Climate- and environment-related issues are not only environmental sustainability matters but are also, to a great extent, an essential part of the competitiveness, profitability and overall economic performance of enterprises. Besides relying on their own values and general consciences, MSMEs meet climate and environmental requirements and expectations through various mechanisms. — Direct requirements of the regulatory framework for MSMEs, e.g. on emissions, energy, materials and products, or administrative obligations. — Indirect effects of some requirements, impacting the availability and prices of production factors such as energy and materials, or through other costs of running a business, including taxation. — Requirements through the value chains in the form of customer, investor and financier expectations, such as those regarding sustainable finance and reporting, or through the expectations of other stakeholders.

2.8.

Many MSMEs are not fully aware of the impacts of specific climate and environmental policies and requirements on their businesses and their supply and value chains, nor how to adapt or convert products and services at an early stage to prevent later losses or even market exclusion. Moreover, they are confronted with limited human and financial resources for everyday operations and for developing their businesses, and there is a risk that their limited size presupposes or requires too much multi-expertise. A remarkable share of enterprises face difficulties due to the complexity of continuously evolving pieces of legislation, administrative burdens, financial rules and high costs, lack of specific environmental expertise and knowledge for choosing the right actions (1), accompanied by difficulties in accessing new value chains, finance, staffing, and new business models, among others.

2.9.

While the lack of awareness of requirements and ways of responding to them are an important challenge, so too are the difficulties in identifying potential business benefits and opportunities such as reduced energy and material costs, improved access to finances, higher demand and new markets, and an improved image among stakeholders.

2.10.

MSMEs with a business value proposition in the circular economy, climate, biodiversity, renewable energy and other EGD themes have an inherent incentive to explore, invest and pursue new business opportunities in those areas. They have many opportunities, e.g. in the renovation of buildings, in the planning and construction of infrastructure, in industrial production and maintenance of equipment, in providing legal and accounting services, and in developing digital solutions. The transition process is, to a high degree, dependent on their smart solutions, generated by the experts they employ, which underlines the importance of high-quality and relevant education, VET and constant upskilling.

2.11.

The most vulnerable group of MSMEs, that also have the highest need of information are, in turn, those who believe the EGD is just an additional piece of legislation adding to cumulative administrative burdens, putting their current business models under pressure, and limiting profitability in a business-as-usual scenario. This highlights the fact that all MSME categories, be they vulnerable laggards, followers or leaders, require support that is different and specifically targeted towards them (2).

2.12.

Besides, in terms of capacity and preparedness, there are many differences between MSMEs in terms of the nature and magnitude of climate and environmental issues, the requirements and expectations targeted towards them, and the opportunities that open up to them. The differences stem from various factors: the natural resource intensity of the business, the size of the enterprise, the position of the enterprise in supply chains and business ecosystems, the location of the enterprise, the types of customers, the sources of production factors, and the geographic markets of the enterprise.

2.13.

This calls for highly customised solutions and well-targeted policies and measures that take account of the differences between, say, medium-sized enterprises in manufacturing industries, enterprises operating in hospitality and retail sectors, family and traditional businesses, innovative start-ups, social economy enterprises, and crafts and liberal professions.

2.14.

Despite the many differences between MSMEs, the successful management of the green transition in every enterprise starts with proper awareness of and knowledge on topical issues and trends, which makes it possible to see the strengths, weaknesses, opportunities and risks of the enterprise, and define how it wants to position itself in the green transition.

2.15.

The most concrete efforts at enterprise level are related to planning, organising and monitoring the overall business, including the production and trade of goods and services, transport and logistics, and procurement of energy, raw materials, and other production factors. Climate and environmental aspects are also an integral element in innovation activities, in skills development and the involvement of all personnel, and in communication and cooperation with stakeholders.

3.   Policies and measures to support MSMEs under Fit for 55

3.1.

In order to be Fit for 55 and able to successfully accomplish the green transition, MSMEs must be thoroughly informed and facilitated to better understand the implications of the new and complex legislative proposals (3). This requires wide-ranging and targeted information and awareness-raising measures, delivered in a coordinated and complementary manner by the EC and MSs, which have a crucial responsibility here. The role of business organisations and chambers is also central in informing and supporting their members, complemented by education and training providers, regional development offices, cluster organisations, social partners and relevant CSOs.

3.1.1.

Following the Russian invasion of Ukraine, the EGD policies are now under open consultation in terms of schedules due to the new extraordinary circumstances, and to the EU's dependence on energy and food from Russia and Ukraine. The EESC recognises the extraordinary circumstances and dependences, and considers that the green objectives should not be abandoned for any reason, however a logical flexibility should be given over time until the end of the crisis.

3.1.2.

In addition to the appropriate impact assessment of all legislative initiatives, the EESC calls on the EC to provide a comprehensive, clear and unambiguous guide on all the existing and upcoming climate-related requirements and their implications for MSMEs, which should cover: — the direct requirements or restrictions for MSMEs under the various pieces of legislation, broken down according to various types and categories of enterprises (sector, size, etc.); — the indirect impacts on MSMEs to be anticipated through market mechanisms, due to the requirements targeted towards big companies.

3.1.3.

The EESC calls for corresponding guidance on legislation on other major environmental issues to also be prepared. More generally, this kind of guide should become regular practice and accompany any future initiatives in the field of the EGD. MSMEs need a stable legislation framework which provides clear perspectives and planning for their investments. Therefore sudden changes, such as the recent change of renewables and energy efficiency targets proposed in the REPowerEU plan, must be avoided, as they aggravate the already highly complex and uncertain environment.

3.2.

In view of the wide scope and depth of the EGD, a total industrial transformation is envisaged. Following the Think Small First principle, and in order to avoid MSMEs ‘simply going out of business’, a comprehensive and wide-ranging support and capability development programme is needed. The aim would be to support MSMEs through all the issues they face in their business operations and activities in going green and complying with legislation.

3.2.1.

The EESC sees a high degree of interest, stated by the EC and the EP, to build on the initiatives already in place to promote the SME strategy and explore further possibilities for successfully delivering on the strategy. The EESC calls for this interest to be effectively translated into policy in all possible areas, and stresses the indispensable role of the MSs, which shall act in cooperation with MSMEs organisations, chambers, social partners and other relevant stakeholders.

3.2.2.

Young entrepreneurs are the future of further MSME and job growth. Their attention to consumers and attractiveness for young employees, combined with a growing concern about the green transition, must therefore be more specifically identified and addressed, for example in the recovery plans. Moreover, to make use of the full potential of the whole society and to enhance diversity in businesses, any obstacles to female entrepreneurship must be removed. The entrepreneurial spirit of all the vulnerable groups, such as persons with disabilities, migrants and minority communities, must also be stimulated and promoted.

3.2.3.

In order to enhance the synergies of digitalisation and greening in MSMEs, both trends need to be considered simultaneously in shaping policies and measures. As neither the green nor the digital transition are merely technical or financial matters, major personal and business issues need to be dealt with to get the broad majority of MSMEs to adopt a long-term and future-proof twin transition (4).

3.2.4.

The EESC also calls on the EC and MSs to monitor the effects of the implementation of the green and digital transitions in terms of the supply and value chains, and the respective regional economic and societal developments in order to be able to counteract possible negative effects on MSMEs and employment at an early stage.

3.3.

In order to support the development of the MSMEs' everyday business operations, such as the production of goods and services, energy production and use and the organisation of logistics, a proper supply of practical advisory services and cooperation platforms needs to be available.

3.3.1.

The EESC calls on the EU and MSs to enhance and encourage the establishment of technological and managerial support services available for MSMEs, deploying the full potential of different instruments, especially in the implementation of the national recovery and resilience plans and Partnership Agreements, with the aim of assisting enterprises to improve energy and material efficiency, and decrease the generation of emissions and waste, so as to minimise both costs and environmental impacts. The EESC also calls for integrating environmental aspects into the advisory services in the digital field.

3.3.2.

To improve the resource efficiency of MSMEs, the EESC proposes establishing ‘circularity hubs’ in various regions. This should enhance cooperation between companies across sectors and facilitate the development of new processes for recycling and reusing waste and by-products, including the demonstration of new technologies.

3.3.3.

The EESC calls for the involvement of MSMEs and their representatives in preparing sectoral climate action roadmaps at national level, as well as in shaping the EU level transition paths for various business ecosystems, thus also enhancing knowledge on sharing best practices, proper resource allocation and efficient implementation.

3.4.

In order to enhance and support investment in the greening of MSMEs, the economy, and society as a whole, a favourable investment environment and enabling conditions for MSMEs to enjoy proper access to financing need to be ensured.

3.4.1.

The EESC calls on the EU and MSs to accelerate investments of MSMEs by: — ensuring an enabling and encouraging regulatory environment, including short and simplified permission procedures and avoiding burdensome administrative duties; — providing fast, easy, simple and traceable access to finance, tailored to the different needs of MSMEs stemming from their type, activity, location, sector, etc., including through targeted grant instruments.

3.4.2.

The EESC calls on the EC to take due account of the indirect impacts of the sustainable finance criteria on MSMEs. The same applies to the solvency requirements for banks and any other policy measures in the fields of economic and fiscal policy that have an indirect impact on the MSMEs' capacity to invest and operate, which result in job creation and job retention.

3.4.3.

The EESC calls for sticking to the rules of sound competition when allocating public funding for green investments. The EESC also stresses the need for monitoring the finance flows with appropriate indicators. It is important to grant MSMEs equal access to public procurement and investment, e.g. in general infrastructure, as well as to encourage investment in the greening of the MSMEs themselves, e.g. by using public funding as a leverage for private investment.

3.4.4.

Following recent developments in the energy markets, the EC has recognised the vulnerability of MSMEs caused by the increasing risk of energy poverty (5). The EESC welcomes the definition of ‘vulnerable micro-enterprises’, and calls for an extra effort to provide them with relevant support to tackle this burden.

3.5.

The EESC calls on the EU and MSs to enhance trade in green solutions by MSMEs by developing and ensuring proper market conditions that do the following. — Provide MSMEs with a level playing field in the single market, in terms of trade in products, technologies and services that contribute to the green transition. — Ensure that MSMEs are given proper access to provide green solutions to the public sector in the context of tenders regarding, for example, construction, technologies and services. It is necessary to make quality-based procedures mandatory for such services, and to reduce capacity requirements that hinder MSMEs in participating in public procurement procedures. — Facilitate equal access to foreign markets of green products, technologies and services by MSMEs, by means of multilateral and bilateral trade agreements. The EESC also encourages MSs to take due account of the needs of MSMEs in their export promotion activities. — Ensure a competitive business environment for EU enterprises in relation to third countries, deploying all means of diplomacy, including in the spheres of climate, resource and trade policy. Specific attention should be paid to China and other emerging markets, through agile and coordinated responses to their sudden moves. — Ensure that standards promoting the green transition are drafted in an MSME-friendly way, and allow for innovation by enforcing equivalent alternative solutions.

3.6.

To strengthen the role of MSMEs in the development of new green solutions for businesses, consumers and society at large, the EESC calls for the following measures. — The various innovation programs and initiatives must be more easily understandable and accessible for MSMEs, and guidance should be provided regarding diverse funding instruments available in the field of green innovation, including the European Investment Fund tools. — The funding should promote MSME access to innovation ecosystems and partnerships with leading big companies. Moreover, MSs should facilitate cooperation between MSMEs and universities and research organisations in developing new products, technologies and solutions. — The development of common data spaces and easy access to them for MSMEs should be accelerated, with the aim of contributing to the development of new green and digital solutions, including those based on AI.

3.7.

In order to ensure the proper skills needed to develop and run businesses in line with the green transition (6), the EESC calls for the following. — Ensuring that the curricula of vocational and university studies and of continuous professional development (CDP) approaches take full account of the competences and skills needed in the green transition, focusing on the wider process of job greening and the interdependence between sectors. — Encouraging close cooperation between education providers and MSMEs in shaping the supply of training, including modules and micro courses applicable for upskilling, to meet the needs of enterprises. — Making use of social dialogue to identify needs and develop skills at workplaces. Given the size and diversity of MSMEs and the specificities of various national systems, social dialogue and collaboration between employers and employees in MSMEs has various modes.

3.8.

The EESC calls for the creation of proper indicators and practical tools that contribute to the systematic monitoring of the operations and impacts of enterprises in relation to the green transition. This should also serve for communicating to the wide range of stakeholders. Meanwhile, the EESC calls on EU policy-makers to refrain from setting burdensome reporting obligations for MSMEs, and to also evaluate the indirect implications for MSMEs caused by the reporting requirements targeted towards big companies.

4.   Specific comments on liberal professions, crafts and social economy enterprises

4.1.

In order to ensure a fair ecological transition in which no one is left behind, it is crucial that EU policies be formulated bearing in mind their potential impact on trades and crafts. These economic players are indeed important to local economies, providing indispensable goods and services tailored to the needs of consumers, even in geographic areas that are less connected to urban centres. Dialogue with their representatives, such as business organisations and chambers, allows for wise policy decisions that factor in the potential impact on the ground.

4.2.

Independent professional expertise is needed to find optimised innovative solutions for climate change and other environmental challenges. Liberal professions respond to this need in several fields of the economy and society by providing technical, legal, financial and non-financial expertise and advice. The EESC calls for EU-wide measures for incentivising the Member States to promote professional regulations to ensure the implementation of the green and digital transition in a proper way, e.g. in complex technical approaches, so as to promote the most market-driven and innovative solutions.

4.3.

Increasing sustainability in local and regional spatial planning can be ensured by enhancing consulting services for municipalities. It is also important to further develop the concept of strategic environmental assessment in the direction of sustainability assessment (ecological, economic, and social). Public procurement procedures across the EU should apply climate and other quality-oriented criteria, and through this promote MSME innovation and facilitate their access to projects, especially in the field of planning services.

4.4.

New techniques, products and processes are needed in the transition to the circular economy. For example, in the construction sector this requires recycling renovation and construction waste, reusing elements, and introducing new building materials, including acknowledging quality-assured secondary building materials, and close cooperation between producers, the crafts, professionals and the recycling industry. Regional value chains and building clusters must also be strengthened through the involvement of the crafts.

4.5.

The environmental challenges related to social economy enterprises are essentially the same as those of other enterprises in terms of the issues in question. However, the specific conditions of these enterprises need to be duly considered in line with the numerous EESC opinions, through targeted measures built on the recent EU social economy action plan.

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(1)  Data from Flash Eurobarometer 498. SMEs, green markets and resource efficiency report, p. 46, March 2022.

(2)  Smit, S.J., SME focus — Long-term strategy for the European industrial future, EP Policy Department for Economic, Scientific and Quality of Life Policies, PE 648.776 — April 2020.

(3)  The Fit for 55 package comprises a vast range of legislative initiatives, where the final decision is subject to negotiations between the institutions. Until this process is completed, the MSMEs can only follow partial information, and face uncertainty about the future.

(4)  SME focus, EP Policy Department, April 2020.

(5)  COM(2021) 568 final, 14.7.2021. https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52021PC0568

(6)  Also in line with OJ C 56, 16.2.2021, p. 1.

Opinion of the European Economic and Social Committee on Business transfers as promoters of sustainable recovery growth in the SME sector

(own-initiative opinion)

(2022/C 486/02)

Rapporteur:

Mira-Maria KONTKANEN

Plenary Assembly decision	20.1.2022
Legal basis	Rule 32(2) of the Rules of Procedure
	Own-initiative opinion
Section responsible	Single Market, Production and Consumption
Adopted in section	8.9.2022
Adopted at plenary	21.9.2022
Plenary session No	572
Outcome of vote (for/against/abstentions)	143/0/0

1.   Conclusions and recommendations

1.1.

Business transfers (BT) are an important strategic process ensuring the continuity of businesses and safeguarding employment. Therefore, the European Economic and Social Committee (EESC) suggests that European Union (EU) and Member State (MS) recovery and growth policies give business transfer promotion a strong role.

1.2.

Business transfers safeguard the social fabric of rural areas where MSMEs (micro, small and medium-sized enterprises) have a strong presence. Developing well-functioning business transfer ecosystems and support services is essential in preserving the livelihood and economies of rural and mono-industrial areas. The EESC believes that this should be recognised in the implementation of the EU's long-term vision for rural areas and in the Rural Action Plan.

1.3.

Successful business transfers safeguard existing jobs and create new employment as well as future prospects for employees in terms of job continuity and professional development. The EESC encourages Member States to share best practices on how to promote the transfer of a firm to employees, for example in the form of a cooperative (1) and other worker-owned social economy enterprises.

1.4.

The earlier entrepreneurs prepare for the transfer, the more successful transfers tend to be. Member States must increase their awareness-raising activities on business transfers and equip business and other support organisations to promote and assist MSME transfers. The EESC also calls for Member States to introduce and further develop Early Warning mechanisms (2) for MSMEs to support the resilience, viability and ultimately the transferability of the business.

1.5.

Acquiring an existing business should be actively promoted as an equally attractive opportunity for first-time entrepreneurs as being a start-up entrepreneur. Know-how on buying a firm and succession should be part of entrepreneurship education, in secondary and higher education. Thus, the EESC calls for incentives to be developed for the transfer of small firms to young entrepreneurs. Such incentives could include awareness-raising, advisory services, mentoring and access to finance. Also, young entrepreneurs' understanding of social dialogue could be further strengthened to ensure successful business transfers for all stakeholders. Equally, further incentives for BTs for female entrepreneurs should be developed, to increase the number of women entrepreneurs which is currently too low.

1.6.

Funding remains an obstacle for successful business transfers and most business transfers require external funding. The EESC strongly encourages each Member State to ensure that there are financial institutions available to support MSME business transfers, for instance by assisting with bank loan collaterals.

1.7.

The EESC recommends that the Member States establish national business transfer stakeholder forums that represent both public and private stakeholders. Business transfer forums offer a systematic and long-term approach to BT promotion. They also provide a space for an ongoing dialogue between national experts and constitute a more efficient use of resources.

1.8.

The EESC believes that online business transfer platforms should be developed in all EU Member States, and that they should also be accessible to micro- and small firms. Interlinkages and synergies should be developed between different online platforms in the MSs and the European Commission could facilitate the interlinkage between different online marketplaces in the EU.

1.9.

Data on business transfers is often fragmented, insufficient, outdated, and non-comparable across the EU Member States. The EESC therefore recommends that the Commission and MS continue to improve the business transfer database.

1.10.

A regular review of the situation of business transfers in Europe should be developed, for instance in the form of an EU-wide business transfer barometer that would also provide input for evidence-based policy making. The annual EU SME Assembly should be utilised as a regular discussion and experience sharing forum for MSME transfers. Lastly, different awareness-raising initiatives should be considered, such as establishing a national and/or European business transfer week.

2.   Introduction

2.1.

Increasing the number of successful business transfers would have immediate benefits for employment, business continuity and the European economy as a whole. In line with the proposals of Conference on the Future of Europe (3), business transfers contribute to more resilient and cohesive societies.

2.2.

Business transfers form an increasingly significant and natural part of the strategic development, renewal, and growth of MSMEs. As Europe's population ages and the number of entrepreneurs planning to withdraw from business increases, successful business transfers are becoming even more crucial for the European MSME economy.

2.3.

Approximately 450 000 firms with 2 million employees are being transferred each year across Europe. It is estimated that every year, around 150 000 businesses risk not being transferred successfully, endangering around 600 000 jobs. The smallest businesses are the most vulnerable to failed transfers (4).

2.4.

Business transfers can be a complex process due to financial, managerial, regulatory, administrative or market challenges, such as matching sellers with buyers. At the same time, most of all business transfers occur in micro-businesses with limited resources. A transfer is often more difficult for small businesses where the incumbent owner plays a dominant role (5).

2.5.

A well-functioning business transfer ecosystem is essential for successful transfers and helps to build dynamic BT markets. Business transfer ecosystems comprise various public and private stakeholders: buyers, sellers, predecessors, successors, business advisors such as business brokers, accountants, lawyers and consultants, mediators, financial institutions, business support organisations, policymakers, and academics. Awareness-raising activities that aim to increase preparedness for BTs are an important part of the ecosystem. Still today, the business transfer landscape varies substantially between Member States and between regions within a MS, leaving room for mutual learning and improvement for business transfer ecosystems throughout Europe. However, the final responsibility for the transfer always lies with the entrepreneur.

2.6.

A successful change of ownership can result in a more resilient, innovative, and competitive business. When businesses with new owners adopt more green and digital business models, business transfers also contribute to the green and digital transition of the MSME sector.

2.7.

The COVID-19 pandemic has also highlighted the need to strengthen the resilience of European businesses and ensure better preparedness planning. The firm and its business model should be healthy and resilient to external shocks for the transfer to be successful. Financial health and resilience increase the chances of a successful transfer.

3.   Background

3.1.

Business transfers have been a part of EU entrepreneurship policy since the early 1990s. In 1994 the European Commission drafted a Recommendation (6) to improve the framework conditions in the Member States for BTs. This recommendation proposed a series of measures for MSs to improve the situation for businesses preparing for a transfer. These measures include awareness and preparedness-raising activities, improving the financial environment for BTs, opening up legal paths for restructuring, providing the legal means for ensuring partnership continuity in the event of a partner's or owner's death, ensuring that inheritance or gift taxes do not stand in the way of transfers and facilitating the transfer of businesses to third parties via appropriate tax rules.

3.2.

Since then, the EC reviewed the Recommendation in 2006 and published the Communication (7) Implementing the Lisbon Community Programme for Growth and Jobs: Transfer of Businesses — Continuity through a new beginning. The review highlighted that the implementation of the 1994 Recommendation still required further efforts. In addition to calling for implementation of the 1994 Recommendation, the 2006 Communication made further recommendations for BT promotion such as increasing the political attention given to business transfers, providing specialised support and mentoring, organising transparent transfer markets, and implementing national, regional, and local support infrastructure to foster transfers.

3.3.

In 2013 the EC evaluated the progress of the 2006 recommendations. The general conclusion was that not enough progress had been made in implementing measures to improve the framework for BTs since the 2006 Communication. The shortcomings listed in the evaluation were in areas such tax arrangements for third parties or employees or in the provision of dedicated support and finance initiatives. The evaluation also pointed out that business transfers were not given sufficient policy attention at EU or at MS level, in contrast to start-up policy.

3.4.

In 2020 the EC published an EU SME Strategy (8) reconfirming its commitment to continue to work on making business transfers easier and to support MSs in their efforts of establishing a transfer-friendly business environment. Recently, the EC has focused on improving the evidence base of business transfers, publishing a report in 2021 (9). EC’s actions and EU-funded good practices can be followed on EC website (10).

3.5.

The EESC has also recognised the importance of MSME transfers and is calling for swift measures to facilitate and streamline them at reasonable cost (11). In its opinion on the EU SME Strategy, the EESC is also calling for special attention to be given to cross-border MSME transfers to address the high costs associated with these transactions and the substantial differences between national regulations (12). The EESC follow-up opinion on the EU SME Strategy (13) illustrates the potential of successful business transfers to make a business more digital and sustainable, in line with the EU's twin transition goals.

4.   General comments

4.1.

Business transfers are an increasingly important topic for MSMEs due to European demographics and ageing entrepreneurs. Approximately 90 % of business transfers take place in micro-firms (14).

4.2.

Increasing the number of successful business transfers has immediate benefits for the European economy. Compared to start-ups, successfully transferred businesses perform better in terms of survival, turnover, profit, innovativeness and employment (15). According to the European Commission, existing firms conserve on average five jobs whereas a start-up only generates two jobs on average (16). Promoting BTs is thus the best possible promotion of entrepreneurial growth.

4.3.

Business transfers safeguard the social fabric of rural areas where there is a strong MSME presence; it is estimated that at least one third of European MSMEs are in rural areas. They ensure the economic and social cohesion of these areas through their services to citizens, consumers and local economic activities as well as through the employment they provide (17). Business transfers help to avoid the loss of local crafts expertise. Often, the local crafts and retail sector contribute positively to diverse consumer choice in the market, offering an alternative to uniform retail chains. For consumers, a successful transfer means continued and often improved services and products. Developing well-functioning BT ecosystems and support services is essential in preserving the livelihood and economies of mono-industrial and rural areas, having specific importance especially for the agri and food processing sector. Successful transfers also offer a pathway to speed up the twin transition in rural areas via a transformation initiated through a change of ownership. The EESC believes that developing BT ecosystems and support services should be part of the implementation of the EU's long-term vision for rural areas and of the Rural action plan.

4.4.

Business transfer promotion is also beneficial for employees as it preserves jobs and business continuity. In MSMEs in particular, employees are the most valuable asset that is transferred to the new ownership. Therefore, it is important to ensure the well-being of employees in the event of BTs. Often, new owners approach the transfer with enthusiasm to develop and grow the business. This also means better future perspectives for employees in terms of job continuity and professional development. The EESC encourages MSs to share best practices regarding transfers where employees can continue to work and develop the activities by taking over their enterprise, for example in the form of a cooperative and other forms of enterprise in the social economy owned by workers (18) that have demonstrated their resistance to crisis situations. Also, promoting social dialogue and information upstream facilitates employee buy-outs. This is in line with EESC opinion INT/925 (19) highlighting employee buy-outs as good practice for re-launching firms in crisis and transferring SMEs whose owners have no successors.

4.5.

Business transfer promotion must be given a strong role in EU and Member State recovery and growth policies. The EESC endorses the long-standing and strategic effort made by the Commission as well as business transfer promotion organisations such as Transeo (20) to create a more transfer friendly environment in Europe. However, there is still room for improvement. The level of attention, the current overall functionality of the business transfer ecosystem and the extent of BT promotion measures vary significantly between Member States. In a fast-developing business environment, entrepreneurs need to embrace opportunities for growth, both in-house and through acquisitions. All kinds of ownership transfers should be considered, including family successions, management buy-ins and buy-outs, strategic acquisitions, and employee buy-outs.

4.6.

For Europe's transition to the digital and green economy to succeed, MSMEs need to be taken on board. Business transfers are a natural way to transform an MSME business model into a greener and more digital one, supporting their digital and green transition. A successful change of ownership can result in a more resilient, innovative, and competitive business. Also, from a resource perspective purchasing an existing firm with its production assets is often more environmentally friendly than purchasing new ones.

4.7.

Especially when the business is being transferred from an ageing entrepreneur to a younger one, it is likely that the young entrepreneur is better equipped to integrate new technologies, production methods and sustainable business models into the acquired business. Thus, the EESC calls for further incentives, such as awareness-raising, advisory services, mentoring and access to finance to be developed for the transfer of MSMEs to young entrepreneurs. Also, young entrepreneurs' understanding of social dialogue could be further strengthened for example through modules of social dialogue in entrepreneurship training Starting as an entrepreneur by acquiring an existing business should be actively promoted as an opportunity that is equally attractive as becoming a start-up entrepreneur. Equally, further incentives for BTs for female entrepreneurs should be developed, to increase the number of women entrepreneurs which is currently too low.

4.8.

In the vast majority of business transfers external funding is needed. Due to increasing regulatory requirements in the financial sector, there are two key financial instruments to highlight to promote BTs. Firstly, the need for collaterals to finance business transfer packages is obvious. However, the growing share of business assets are immaterial, and the banking sector is required to comply with ever tighter rules. Each MS needs an operator or organisation that provides collateral for bank loans. Secondly, the development of the EU regulatory framework increases the demand for equity funding. There are several buyers, who would be qualified to run the target business but are short of equity funding. The EESC strongly encourages the EC to take a proactive role in promoting the development of both these financial instruments in the MSs.

4.9.

A growing number of family owned MSMEs will, in the future, be transferred to third parties. To attract third party buyers, the business needs to be in a viable and economically sound and attractive state. The earlier entrepreneurs prepare for the transfer, the more successful the transfer tends to be. Member States must increase their awareness-raising activities on business transfers and equip the business and other support organisations to promote and assist MSME transfers. Early Warning support offered to a business in financial distress can also be important in helping an entrepreneur to lead the business back onto a financially viable path and prepare it for a transfer. Therefore, the EESC calls for MSs to introduce and further develop Early Warning support mechanisms for MSMEs.

A recent study on Business Transfer Promotion in European Countries (21) showcases BT promotion practices in the Member States that could be replicated in other countries. The EESC supports the study's recommendation for the MSs to establish national business transfer stakeholder forums, representing both public and private stakeholders. Stakeholder cooperation is needed at all levels: regional, national and international. Business transfer forums offer — through an ongoing dialogue between national experts — a systematic and long-term approach to BT promotion and constitute a more efficient use of resources. Eventually, a cross-border dialogue, promoted by the European Commission, could be established between different national forums to exchange best practices in BT promotion in the MSs.

4.10.

The EESC recommends that the Member States make full use of digital technologies in promoting business transfers. Online BT platforms, which in most cases are owned and managed by private stakeholders, should be developed in all Member States, and they should also be accessible to micro and small firms. Interlinkages and synergies should be developed between different online platforms in the MSs and the EC could facilitate access to different online marketplaces in the Member States. Furthermore, the number of cross-border business transfers among small businesses is increasing. Improved cooperation between national online platforms would be a cost-effective way to enable small businesses to explore potential target owners in other MSs.

4.11.

Successful European policy making on business transfers requires improved data collection. Still today, the data on BTs is fragmented and non-comparable. The EESC recommends that the Commission and Member States take the suggested steps to improve the business transfer database. These steps were outlined in the recent report Improving the evidence base on transfer of business in Europe (22). The EESC also recommends developing an EU-wide BT barometer, reporting once every four years, to provide input for evidence-based policy making based on improved data. Also, different awareness-raising initiatives should be considered, such as establishing a national and/or European business transfer week.

4.12.

The EESC suggests that, in addition to developing better data collection, the Commission should regularly review the situation with business transfers in Europe. The annual EU SME Assembly should be utilised as a regular discussion and experience sharing forum for MSME business transfers.

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(1)  For instance, there is a framework in France to organise and facilitate the transfer of a company to employees and to strengthen the economic activity of the territories by facilitating the transfer of MSMEs.

(2)  The Early Warning mechanism is an advice and support service to companies in financial distress that aims for an early intervention to prevent bankruptcies of viable businesses.

(3)  Conference on the Future of Europe, Report on the Final Outcome, May 2022

(4)  European Commission: Business Dynamics: Start-ups, business transfers and bankruptcy, 2011.

(5)  European Commission Communication: Implementing the Lisbon Community Programme for Growth and Jobs Transfer of Businesses Continuity through a new beginning, 2006, COM(2006) 117 final, p. 4.

(6)  Commission Recommendation of 7 December 1994 on the transfer of small and medium-sized enterprises (94/1069/EC).

(7)  EC Communication, Implementing the Lisbon Community Programme for Growth and Jobs: Transfer of Businesses — Continuity through a new beginning, 2006, COM(2006) 117 final.

(8)  EC Communication, An SME Strategy for a sustainable and digital Europe, 2020, COM(2020) 103 final.

(9)  EC, Executive Agency for Small and Medium-sized Enterprises, Improving the evidence base on transfer of business in Europe: final report, Publications Office, 2021.

(10)  ec.europa.eu/growth/smes/supporting-entrepreneurship/transfer-businesses_en

(11)  OJ C 197, 8.6.2018, p. 1.

(12)  OJ C 429, 11.12.2020, p. 210.

(13)  OJ C 194, 12.5.2022, p. 7.

(14)  EC, EASME, Improving the evidence base on transfer of business in Europe: executive summary, Publications Office, 2021

(15)  Tall, Varamäki & Viljamaa: Business Transfer Promotion in European Countries, Seinäjoki 2021, p. 8.

(16)  Commission of the European Communities (2006), Transfer of Businesses: Continuity through a new beginning, Brussels, p. 3.

(17)  SMEunited, Position on long-term vision for the EU’s rural area, April 2022.

(18)  For example, worker-owned societies (‘sociedades laborales’) in Spain.

(19)  OJ C 286, 16.7.2021, p. 13.

(20)  Transeo is an international non-profit association bringing together experts in transfers and acquisitions of small and medium-sized businesses from Europe & beyond.

(21)  Tall, Varamäki & Viljamaa: Business Transfer Promotion in European Countries, Seinäjoki 2021, p. 8.

(22)  European Commission, Executive Agency for Small and Medium-sized Enterprises, Improving the evidence base on transfer of business in Europe: final report, Publications Office, 2021.

Opinion of the European Economic and Social Committee on Social taxonomy — Challenges and opportunities

(own-initiative opinion)

(2022/C 486/03)

Rapporteur:

Judith VORBACH

Plenary Assembly decision	20.1.2022
Legal basis	Rule 52(2) of the Rules of Procedure
	Own-initiative opinion
Section responsible	Economic and Monetary Union and Economic and Social Cohesion
Adopted in section	9.9.2022
Adopted at plenary	22.9.2022
Plenary session No	572
Outcome of vote (for/against/abstentions)	123/26/12

1.   Conclusions and recommendations

1.1

With this opinion the EESC sheds light on the idea of a social taxonomy, with the objective of stimulating the debate. The EESC calls on the Commission to publish the overdue report describing the provisions that would be required to extend the taxonomy’s scope to ‘other sustainability objectives, such as social objectives’, as requested in the Taxonomy Regulation (1) (the Regulation). The EESC speaks up for an operationally viable and conceptually sound social taxonomy, to make the opportunities come true, while also mastering challenges. The EU taxonomy should be aligned with a holistic approach including environmental as well as social sustainability. Given the challenges of the green transition, the economic and social impacts of the pandemic, the war in Ukraine caused by Russia’s aggression and the resulting geopolitical tensions, the EESC reiterates the demand for a balanced economic policy and an enhanced focus on social goals.

1.2

The Regulation’s minimum safeguards are welcome and should be implemented thoroughly. However, they are not enough to ensure social sustainability for workers, consumers and communities. An EU taxonomy would help to meet the urgent investment needs in the social field by channelling investments in that direction. It will even gain importance if it is part of an overall policy geared towards social fairness and inclusion. A just transition requires sustainable social conditions, and a social taxonomy could deliver the long-awaited guidelines. The EESC calls on the Commission to provide an estimation of the needed funds in order to implement the European Pillar of Social Rights. All in all, public investment will continue to play a crucial role in the field of public services. Financing of social welfare by government spending and stable social security systems remain fundamental. Still, a commonly agreed social taxonomy could provide guidelines for investments with positive social impacts.

1.3

The EESC recommends that the multilevel and diverse approach proposed by the Platform on Sustainable Finance (2) (the Platform) should be adhered to in the Commission’s report. Integrating a social taxonomy into the EU legislative environment on sustainable finance and governance would be useful, bearing in mind that there is a great deal of work to be accomplished. In particular, the proposed Corporate Sustainable Reporting Directive (CSRD) would be an important complement to a social taxonomy against which the measures could be assessed and evaluated. A well-designed social taxonomy would also contribute to tackling the potential problem of social washing. The EESC recommends starting with simple and clear guidelines, providing for easy and transparent procedures and complementing them step by step at a later state. A close integration of the social and environmental taxonomies should be the final goal, but as a first step mutual minimum safeguards might be practical.

1.4

The EU taxonomy should indicate actions and companies that contribute substantially to social sustainability and constitute a gold standard reflecting a higher level of ambition than provided for in legislation. The EESC welcomes the Platform’s suggested objectives of decent work, adequate living standards and inclusive and sustainable communities. While various international and EU principles should serve as a basis, the EESC recommends in particular referring to the European Pillar of Social Rights and the relevant Sustainable Development Goals (SDGs), such as SDG 8 on decent work. In any case, compliance with human and workers’ rights must be a condition for being taxonomy-conformant. Adherence to collective agreements and co-determination mechanisms in accordance with the respective national and European law is crucial and should constitute a DNSH (3) principle. Guidelines with positive social impacts, which are based on the agreement of social partners, should be deemed taxonomy conformant. It has to be kept in mind that the level of collective bargaining coverage varies significantly among Member States and has fallen in 22 of them, a problem which has been addressed by the minimum wage Directive.

1.5

The EESC urges legislators to fully involve the social partners and civil society organisations when designing the social taxonomy, both because they are affected and have to meet reporting obligations and in order to safeguard their ownership. The EESC questions the excessive use of delegated acts in the field of the taxonomy, because a wide range of political questions are addressed. The goal of the taxonomy is to provide transparency for investors, companies and consumers. In the future, its potential use by governmental institutions as a reference for aid and funding programmes should be properly assessed and discussed. Any broader use must be subject to an appropriate decision-making process. Undue interference with national legislation and the autonomy of social partners has to be prevented. Finally, the danger of social washing must be excluded. Complaint mechanisms for trade unions, works councils, consumer organisations and other representatives of organised civil society should be provided for and the competent national authorities should be made more responsible to carry out their control tasks.

1.6

The EESC wishes to highlight further benefits related to a social taxonomy. Firstly, the rising demand for socially orientated investment should be supported by providing a reliable taxonomy which constitutes a coherent concept for measuring social sustainability. Secondly, socially harmful activities might translate into economic risks, and a taxonomy could help to minimise these. Thirdly, transparency is crucial for capital market efficiency, and could also contribute to the social internal market as set out in Article 3 TFEU. It would foster a level playing field, prevent unfair competition and make companies and organisations contributing to social sustainability more visible. Fourthly, the EU should build on its strengths and strive to become a model and front runner of environmental and social sustainability. The debate on an EU ratings agency should be relaunched. The EESC also renews its call for financial and extrafinancial data providers to be properly regulated and supervised.

1.7

The EESC also highlights challenges and possible solutions. Firstly, concerns of market foreclosure arise. However, investments are also based on other criteria, such as expected return, which might outperform sustainability goals, and there are many cases of synergies between investors and other stakeholders’ interests. In any case, not being taxonomy conformant must not be deemed to be harmful, and this should be made clear by the Commission. The focus on the impact of sustainable investment on real economy activities should be enhanced. Secondly, the definition of what should be included in the taxonomy will be controversial. This is exactly the reason why the definition process should be subject to democratic debate and decision making. Thus, a common and reliable idea of sustainability could be developed, to which individual actors could and should refer. The success of the taxonomy is linked to its credibility, and the activities included must meet a widely accepted definition of sustainability. Thirdly, a social taxonomy could lead to additional reporting requirements. The EESC calls on the Commission to minimise these, while avoiding overlaps. Counselling and the provision of taxonomy-related services by a legally authorised agency might be useful, especially for small and medium-sized enterprises, cooperatives and non-profit business models. In addition, financial institutions should be encouraged to provide assessments of the social impacts of investments, as currently done by value-based banks worldwide.

2.   Background to the opinion

2.1

The EU’s sustainable finance framework should help steer private financial flows towards sustainable economic activities. The 2018 action plan on sustainable finance consists of a taxonomy, a disclosure system for companies and investment tools, including benchmarks, standards and labels, while the 2021 renewed sustainable finance strategy focuses on financing the real economy’s sustainability transition, as well as on inclusiveness, resilience, the contribution of the financial sector and global goals. Within this framework, the EU has worked on various legislative initiatives where the EU taxonomy plays a key role. The EESC points to its respective opinions (4).

2.2

The EU taxonomy should provide transparency for investors and companies and support them in identifying sustainable investments. The Regulation constitutes a classification system, which focuses on six environmental objectives in the areas of climate change mitigation, climate change adaptation, water, biodiversity, pollution prevention and the circular economy. An environmental sustainable investment must make a significant contribution to achieving one or more of these objectives, do no significant harm to any of them (DNSH principle) and comply with performance thresholds (referred to as technical screening criteria). It also has to meet social and governance-related minimum safeguards (Article 18). Therefore, procedures must be implemented by companies to ensure alignment of an activity with the OECD Guidelines for Multinational Enterprises (MNEs), the UN Guiding Principles on Business and Human Rights (UNGPs), the Declaration of the International Labour Organisation (ILO) on Fundamental Principles and Rights at Work and the International Bill of Human Rights.

2.3

Article 26 of the Regulation mandates the Commission to publish a report by the end of 2021 describing the provisions that would be required to extend its scope to ‘other sustainability objectives, such as social objectives’. This reveals an intention to extend its scope, but still does not require the implementation of a social taxonomy. In accordance with the Regulation, the Platform subgroup on social taxonomy was given the task of exploring the extension of the taxonomy to social objectives. Its final report on social taxonomy was released in February 2022 (5), later than announced, and the Commission is expected to draw up its report based on that. Moreover, the Platform is asked to advise the Commission on the application of Article 18, i.e. to give guidance as to how companies could comply with minimum safeguards, and on the possible need to supplement the article’s requirements.

2.4

The Platform proposes a structure for a social taxonomy within the present EU legislative environment on sustainable finance and governance. In the case of the implementation of a social taxonomy, further provisions would provide a regulatory landscape, including the proposed Corporate Sustainable Reporting Directive (CSRD) which will replace the Non-Financial Reporting Directive (NFRD) and introduce mandatory, EU sustainability-reporting standards; the Sustainable Finance Disclosure Regulation (SFDR); and the Directive on Corporate Sustainability Due Diligence (CSDD). In particular, the proposed CSRD requires companies to also address a bundle of information on social topics and reporting on governance factors and is expected to improve disclosure in relation to social matters. Therefore, it would be an important complement to a social taxonomy against which these matters can be measured and evaluated.

2.5

Despite some differences, the Platform suggests following the structural aspects of the environmental taxonomy. It proposes three main objectives accompanied by sub-objectives. The decent work objective includes sub-objectives such as strengthening social dialogue, promoting collective bargaining, and living wages that guarantee decent lives. The objective of adequate living standards includes healthy and safe products, quality health care and quality housing, and the objective of inclusive and sustainable communities should also promote equality and inclusive growth and support sustainable livelihoods. The suggested minimum safeguards refer to environmental, governmental and social goals in order to avoid inconsistencies, such as a company carrying out sustainable activities being involved in human rights abuses. Moreover, the relevant stakeholders should be addressed, specifically the entity’s workforce and value-chain workers, the end-users and the affected communities. Social-related DNSH criteria and the listing of harmful activities are also suggested.

3.   General comments

3.1

The EESC calls for an economic policy consistent with the objectives set out in Article 3 of the EU Treaty and with the SDGs. A balanced focus on key policy objectives is needed, specifically environmental sustainability, sustainable and inclusive growth, full employment and high-quality work, fair distribution, health and quality of life, gender equality, financial stability, price stability, balanced trade based on a fair and competitive industrial and economic structure, and stable public finances. The EESC also points to the competitive sustainability agenda, which puts its four dimensions — environmental sustainability, productivity, fairness and macroeconomic stability — on an equal footing in order to achieve reinforcing effects and a successful green and digital transition (6). Given the war in Ukraine caused by Russia’s aggression, the EESC stresses its call for a balanced economic policy that helps to mitigate its economic and social impacts, and points to the statement in the ILO’s 1919 Constitution whereby ‘universal and lasting peace can be established only if it is based upon social justice’.

3.2

The EESC sheds light on the concept of a social taxonomy, with the objective of stimulating the debate and raising awareness. The EESC speaks up for a well designed, operationally viable and conceptually sound social taxonomy to verify the considerable opportunities while also overcoming challenges (see below). Just like economic policy as a whole, the finance-related sustainability concept and, in particular, the EU taxonomy should be aligned with a holistic and multi-dimensional approach where we should strive for putting environmental and social sustainability on equal footing. Moreover, the green transition can be harmful in social terms. Therefore, the protection and improvement of standards in the social area is needed, with a focus on leaving no one behind. A just transition requires sustainable social conditions, and a social taxonomy could deliver guidelines.

3.3

The EESC perceives a social taxonomy as an important and necessary complement to the EU’s social dimension, and calls on the Commission to publish the report as requested in Article 26 in due time. The multilevel and diverse approach of the Platform’s report should be adhered to. However, striving for perfection and the inclusion of all aspects of social sustainability at once might lead to huge delays in the social taxonomy’s implementation and even the risk of the project being abandoned as a whole. Therefore, the EESC recommends starting the process with simple and clear guidelines as well as easy transparency procedures in a timely manner and then continually complementing this step by step. Concerning the relationship between the environmental taxonomy and a social taxonomy, striving for coherence and a close integration of the two approaches should be the goal. Still, as a first step, mutual minimum safeguards might be practical.

3.4

The EESC is pleased that the Platform has published a draft of its report regarding Article 18 of the Regulation in order to advise companies on how to implement the article’s requirements and possibly allow for it to be amended. In particular, in the context of social sustainability it is crucial to assess a company’s actual performance on human rights, industrial relations and decent work. However, while the environmental taxonomy’s minimum safeguards are highly welcome and should be implemented thoroughly, they would never replace a social taxonomy. They are not nearly enough to ensure social sustainability for workers, consumers and communities (7). Moreover, the EESC recommends cooperating with local social partners, civil society organisations and social enterprises in order to monitor and promote the positive impact of economic activities on stakeholders.

3.5

The social taxonomy will gain importance if it is part of an overall policy geared towards social sustainability accompanied by appropriate rules, for example concerning human-rights due diligence. However, it will never replace sound governmental regulation and social policy. Financing of social welfare by government spending and stable social security systems remains fundamental. The taxonomy should not serve as an instrument for crowding-out or privatisation. Public investment continues to play a crucial role in the field of public services and also often stimulates further private investment. However, the social taxonomy could provide sustainability criteria in the field of infrastructure, health, education and training and social housing for any investors to enable socially sustainable investments in the real economy and avoid social washing. In the future, the taxonomy might also be used by governmental institutions as a reference for aid and funding programmes. This will have to be properly assessed and discussed.

3.6

A social taxonomy would provide a detailed structure of the positive and negative social impacts of economic activities. Many points under consideration relate closely to matters traditionally debated between social partners and among civil society organisations. The EESC calls for organised civil society to be fully involved when designing the social taxonomy, in particular the (sub)objectives, DNSH criteria and safeguarding principles. Employers, employees, consumers, further stakeholders and communities are affected by the design of the objectives and/or have to meet reporting obligations. The EESC also points to pension funds as an example of employees being the beneficiaries of investments. The involvement of stakeholders is crucial to safeguard ownership. The EESC expects that a social taxonomy might be implemented by revising the Regulation, hence an ordinary legislative procedure would be carried out. The excessive use of delegated acts in the context of sustainable finance and in particular when implementing the taxonomy is questionable because a wide range of political questions are addressed, going far beyond technical specifications.

3.7

The EESC stresses the importance of enhancing the quality of information in the field of socially sustainable investments and preventing disinformation on the social situation, in order to avoid negative impacts on all stakeholders. A well-designed social taxonomy would contribute significantly to solving such problems by clearly indicating activities and entities that contribute substantially to social sustainability. It should constitute a gold standard and reflect a higher level of ambition than already provided for in legislation, while striking the right balance between being too global and too narrow. While environmental criteria are based more on science, a social taxonomy as proposed by the Platform would rely more on standards and globally-agreed frameworks, which might not be prescriptive but act as guidelines to encourage social sustainable activities.

3.8

Compliance with human and workers’ rights must be a condition for being taxonomy-conformant. Likewise, adherence to collective agreements and co-determination mechanisms in accordance with the respective national and European law is crucial and should constitute a DNSH principle. Moreover, guidelines providing for easy and transparent procedures with positive social impacts, which are based on the agreement of social partners should constitute a taxonomy conformant economic activity. It is important to keep in mind here that the level of collective bargaining coverage varies significantly among the Member States, from only 7 % in Lithuania to 98 % in Austria. Since 2000, collective bargaining coverage has fallen in 22 Member States and it is estimated that at least 3,3 million fewer workers are now covered by a collective bargaining agreement. An important role in the implementation of the social taxonomy is played by the new Directive on minimum wages and the extension of the application of collective bargaining agreements (8). Moreover, the EESC recommends providing clear advice on the implementation of minimum safeguards in the proposed legal act itself, possibly relying on the Platform report on Article 18 of the Regulation.

3.9

Various international and EU norms and principles can serve as a basis for the social taxonomy. Concerning the (sub)objectives, the EESC recommends referring to the European Pillar of Social Rights and the associated action plan and the relevant SDGs, specifically SDG 8 (decent work and economic growth), SDG 1 (no poverty), SDG 2 (zero hunger), SDG 3 (health and well-being), SDG 4 (education and training), SDG 5 (gender equality), SDG 10 (reduced inequalities) and SDG 11 (sustainable cities and communities). Frameworks agreed on by the social partners could also provide an important source. The EESC considers that the Platform’s idea of implementing minimum safeguards based on the UNGPs and OECD guidelines is crucial. Moreover, the European Social Charter, the EU Charter of Fundamental Rights, the European Convention on Human Rights and the proposed CSDD would also constitute valuable reference points for a social taxonomy. Lastly, activities which are deemed to be significantly harmful, that is, activities which are fundamentally and under all circumstances opposed to any sustainability objectives and leave no way to render them less harmful, should be excluded. Weapons condemned by international agreements, such as cluster bombs or antipersonnel mines, should be included here. The EESC also recommends developing a concept on how to deal with aggressive and belligerent regimes.

4.   Opportunities of a social taxonomy

4.1

The EESC highly recommends using the taxonomy’s potential to channel investment towards socially sustainable activities and entities and create decent jobs. Well over 20 % of EU citizens are at risk of poverty; the pandemic has exacerbated inequalities and the war in Ukraine will further increase economic and social tensions. Globally, it is estimated that roughly USD 3,3 to 4,5 trillion a year needs to be mobilised to achieve the SDGs. Goods produced by violating labour-related human rights are linked to the EU market to which they are imported. In the EU, there is also a pressing need for social investment, for example in poverty reduction, life-long learning and health (9). The minimum gap in social infrastructure investment was estimated at around EUR 1,5 trillion from 2018 to 2030 (10). The EESC calls on the Commission to provide an updated estimate of investment needs in order to comply with the European Pillar of Social Rights and achieve the 2030 EU headline targets. Considerable public and private funds are needed to enforce social sustainability.

4.2

With the help of a social taxonomy, investors and companies could assess the social impact of their investment or activity and voluntarily consider this as an essential objective. The EESC points to the rising demand for socially orientated investment and embraces investors’ openness to socially sustainable finance. In contrast, there is a lack of definition and standardisation, and analysis of ESG ratings and related outputs also reveals fundamental differences depending on the provider of the ratings, which makes socially sustainable investment difficult. A social taxonomy would constitute a coherent concept for defining and advancing social sustainability and measuring progress. It has the potential to enhance accountability and to provide clear guidance. It would therefore decisively support investors’ ambitions and might constitute incentives for further market participants to invest in this area, while at the same time helping to prevent social washing.

4.3

Socially harmful activities might also translate into economic risks. There are risks of boycotts if a business is associated with the violation of human rights, and a company runs the risk of being excluded from public contracts should it neglect human-rights due diligence. It could also become entangled in expensive litigation due to human rights abuses, or supply chains could be disrupted due to strikes. The economic and political risks due to a growing gap between rich and poor could also afflict investments. This set of risks could be minimised by investment decisions based also on a social taxonomy. The EESC also draws attention to the ECB’s work on strengthening the monitoring and management of systemic risks due to the neglect of sustainability factors. The EESC highlights that environmental risks are often accompanied by social risks, for example where people lose their homes due to a flood. All in all, social sustainability risks should be explicitly addressed and be part of the ECB’s action on sustainability risks.

4.4

The EESC further points out that transparency is an essential element of market efficiency. This refers not only to capital markets. A social taxonomy could also serve as a tool to support a balance between economic freedoms and social and labour rights (11). By enhancing transparency, it might contribute to the social internal market as set out in Article 3 TFEU and promote fair competition. Moreover, the social taxonomy would also foster a level playing field and increase the visibility of companies which abide by human and workers’ rights and substantially contribute to social sustainability, helping them to attract investors. The taxonomy’s potential transformative role would be enforced by making it more widely known. In that context, the EESC again points to the positive role that financial instruments can play in the development of social impact companies (12).

4.5

Finally, the EU has established itself as a leader in environmental sustainable finance internationally and is actively contributing to this global effort. The EESC welcomes these efforts, but reminds the Commission of the need to also advance social sustainability and promote the SDGs. Also in the context of social sustainability, the EU should strive to serve as a role model and become a front runner by raising the topic in international forums. Particularly in times of war and international tensions, an international sustainable finance architecture also has to take on board social sustainability.

5.   Challenges and possible solutions

5.1

Financial investors’ intentions to conduct socially and environmentally sustainable investments are highly welcome and must be supported. However, financial market participants in general base their investment decisions on expectations about return, risk, liquidity and maturity. These motives might contradict the interests of other stakeholders and counter or even outperform environmental or social objectives. However, the EESC also points to many possible synergies between investors’ and other stakeholders’ interests, for example when improvements in workers’ participation enhance companies’ productivity or when an economic activity contributes to the wellbeing of communities. In any case, economic activities or entities which might not be taxonomy-conformant must not automatically be deemed harmful. In that context, concerns about market foreclosure arise, and the EESC asks the Commission for clarification and a well balanced approach. The focus on the impact of sustainable investment on real economy activities should be enhanced.

5.2

Incompatibilities might arise because social matters are regulated at Member State level and between social partners, while organised civil society as a whole strives to be involved in social, environmental and other policy matters. However, the EESC welcomes the Platform’s report regarding the risks of infringements of other regulations, and also assumes that the Commission’s proposal will take care to avoid contradictory overlaps and interference with national social systems, industrial relations and regulations. Moreover, a social taxonomy would rely on common international and European declarations and principles — such as the European Pillar of Social Rights — and constitute a basis for voluntary decision making without stipulating a particular social policy. However, any broader use of the taxonomy as referred to above must be subject to an appropriate decision-making process. Undue interference with national legislation and the autonomy of social partners has to be prevented, and differences in national labour-market models and collective bargaining systems have to be recognised.

5.3

Developing a social taxonomy, and therefore a structured overview of socially sustainable activities and sectors, also touches on political values. It will be challenging to define which economic activity and/or sector is deemed taxonomy-conformant. However, this is exactly the reason why drawing up a taxonomy should be subject to a political debate and democratic decision making (13). Only under these conditions can a common idea of social sustainability be developed which individual actors could and should rely on and refer to. The EESC highlights that in the social sphere as well, the success of the taxonomy depends on its broad acceptance. The activities and sectors included must meet a widely accepted definition of sustainability and be based on generally recognised values, such as human dignity, gender equality, fairness, inclusion, non-discrimination, solidarity, affordability, well-being and diversity. Safeguarding the taxonomy’s credibility is key in order not to jeopardise the project as a whole.

5.4

Further concerns are that a social taxonomy might lead to an overburdening of companies with additional reporting requirements and the need to provide complex and difficult information combined with expensive auditing procedures. The EESC calls on the Commission to minimise these burdens and to draw up simple and easily observable criteria, while also building on overlaps with other reporting requirements. The EESC welcomes the Platform’s approach to structuring the objectives of the social taxonomy in a similar way to the proposed structure of the CSRD. All in all, the EESC calls for an orderly and consistent set of rules without excessive complexity and duplication so that it works in practice, while also providing the necessary amount of transparency. Counselling and the supply of taxonomy-related services by a specialised legally authorised agency for companies and other organisations which want to become taxonomy-conformant might also be useful. This would also ensure that companies with fewer reporting resources have access to the taxonomy. However, financial institutions can still provide assessments of the social impact of investments as currently done by value-based banks worldwide.

5.5

Although the aim of the taxonomy is to provide a reliable framework for socially sustainable investment, the danger of green or social washing cannot be excluded. The EESC agrees with the Platform that merely checking commitments and policies does not ensure effective implementation and safeguard human rights, nor does it support the development of socially sustainable activities. There are severe difficulties in supervising and enforcing a company’s compliance with the proclaimed social sustainability objectives and in assessing its performance along today’s often highly complex supply chains. On the other hand, the Platform points to promising developments in the field of quantifiable social data, such as in the context of the revised Social Scoreboard and the SDGs. All in all, the social taxonomy must be transparent, reliable and constantly updated. The EESC also proposes that workers’ councils and civil society organisations, for example, be taken on board in these regards.

5.6

The EESC proposes that the debate on an EU ratings agency, which might now focus on sustainability, should be relaunched and thereby consolidate the EU’s pioneering role in this field. It also renews its call for financial and extrafinancial data providers to be properly regulated and supervised. Complaint mechanisms for trade unions, workers councils, consumer organisations and other representatives of organised civil society should be provided for in the event of false claims of taxonomy conformity. The EESC acknowledges that in the Regulation, the measures and penalties applicable to infringements are left to the Member States. In any case, the competent national authorities (14) should be made more responsible to carry out their control tasks, supplemented with obligations to report to their parliaments and civil society.

---

(1)  OJ L 198, 22.6.2020, p. 13.

(2)  Platform on Sustainable Finance | European Commission (europa.eu)

(3)  DNSH = Do no significant harm.

(4)  OJ C 517, 22.12.2021, p. 72.

(5)  Final Report on Social Taxonomy (europa.eu)

(6)  OJ C 275, 18.7.2022, p. 50.

(7)  OJ C 152, 6.4.2022, p. 97.

(8)  Directive on adequate minimum wages in the EU, Article 4(2), provisional agreement. The 80 % collective bargaining coverage threshold set there for requiring Member States to take measures to increase the rate should be supported in a social taxonomy.

(9)  Final Report on Social Taxonomy (europa.eu)

(10)  European Commission, Boosting Investment in Social Infrastructure in Europe, Discussion Paper 074/January 2018.

(11)  OJ C 275, 18.7.2022, p. 50.

(12)  OJ C 194, 12.5.2022, p. 39.

(13)  See above Chapter 3.

(14)  See Taxonomy Regulation, Article 21.

Opinion of the European Economic and Social Committee on Climate Adjustment Fund

financed by Cohesion and NGEU (own-initiative opinion)

(2022/C 486/04)

Rapporteur:	Ioannis VARDAKASTANIS
Co-rapporteur:	Judith VORBACH

Plenary Assembly decision	20.1.2022
Legal basis	Rule 52(2) of the Rules of Procedure
	Own-initiative opinion
Section responsible	Economic and Monetary Union and Economic and Social
Adopted in section	9.9.2022
Adopted at plenary	21.9.2022
Plenary session No	572
Outcome of vote (for/against/abstentions)	139/3/3

1.   Conclusions and recommendations

1.1.

The European Union (EU) is taking significant steps towards tackling climate change and reducing greenhouse gas (GHG) emissions. EU climate, environmental and energy policies have a long-term plan to help prevent the worst impacts of the climate emergency our planet is facing. However, this might still be insufficient.

1.2.

While the EU’s commitment is significant, the consequences of climate change and resource scarcity are sadly already making themselves known. We are therefore having to adjust to a reality we have not experienced before. While the EU is rightly committed to avoiding a worsening of the situation, we are nevertheless unprepared for unforeseen climate emergencies, energy crises and natural disasters.

1.3.

Since 2021, we have experienced two very notable emergencies that EU funding mechanisms have shown themselves to be ill-equipped to respond to. The first is the destruction caused by the floods and wildfires seen throughout Europe during the summer of 2022. The second is the ongoing energy crisis and need for EU energy autonomy brought about by Russia’s invasion of Ukraine in 2022.

1.4.

The EU’s current mechanism for responding to natural disasters is the European Union Solidarity Fund (EUSF). However, the EUSF’s available annual budget is dwarfed by the cost of the damage caused by recent natural disasters and needs to be drastically increased. EU funding for the green energy transition is more substantial, but does not take into account the urgency of the EU’s current need for energy autonomy and the huge risk of energy poverty, as outlined in the EESC’s opinion on Tackling energy poverty and the EU’s resilience: challenges from an economic and social perspective (1).

1.5.

It is the view of the EESC that the EU needs a new funding mechanism that can offer immediate and ambitious assistance to help the Member States in emergencies such as those indicated above. The EESC therefore proposes creating a new Climate Adjustment Fund. This funding should be redirected from existing EU funds, notably from the Cohesion Fund and the Recovery and Resilience Facility (RRF), but managed in a streamlined and coherent way through this new Fund.

1.6.

Modernisation of the funding environment could also include broadening the scope, stepping up existing programmes, and considering Next Generation EU (NGEU) as a template for a new funding tool.

1.7.

In light of the significant investment needs, the EESC also advises the Commission to look into bolstering the Climate Adjustment Fund by encouraging private investment and contributions. Regarding natural disasters specifically, the Commission and the Member States should also make efforts to increase and facilitate insurance coverage and use the insurance system as a means to direct financing toward improving climate change resilience, particularly in at-risk areas, in order to reduce reliance on EU funding support.

1.8.

The Climate Adjustment Fund must be adaptive, flexible, and ready to respond to new and emerging crises in the years and decades to come.

1.9.

It is crucial that the functioning of the Climate Adjustment Fund, with its greater focus on swift and urgent responses, be coherent with the EU’s overarching climate, environmental and energy policies, which in the long-run will reduce reliance on emergency responses and protect humanity as well as the natural world.

2.   General comments

2.1.

The EESC acknowledges that tackling the climate crisis is in line with the EU’s commitments made under the European Green Deal to implement the Paris Agreement and the Sustainable Development Goals (SDGs). While curbing the causes of climate change should be at the forefront of EU climate policy, the EESC stresses the need to have, in parallel to plans for GHG reduction, robust and streamlined funding mechanisms available to tackle the climate and energy emergencies the people of the EU are already facing.

2.2.

The EESC’s vision is for a new Climate Adjustment Fund, a proposal supported by several Members of the European Parliament (2). This mechanism should be resourced using existing money from Cohesion funding and the RRF, concentrated into a single fund that will improve efficiency and response times and facilitate centralised monitoring of where funding is most needed. It should reinforce the EU’s ability to support the Member States in responding quickly to climate, environmental and energy emergencies. In the current context, it would serve to address two of the most noticeable emergencies we are currently experiencing: recovery from increasingly frequent natural disasters, and the urgent need for a green energy transition and movement towards European energy autonomy, albeit with flexibility to meet crises arising in the future.

2.3.

EU funds are already being directed towards the energy transition and disaster recovery; however, various issues are impeding their effectiveness. The existing European Union Solidarity Fund (EUSF), set up to help communities recover from natural disasters, is simply not large enough to respond to the scale of modern climate disasters. Funding for the energy transition is more ambitious, but still far from being enough. In addition, it is managed through a number of different funds, with the risk of incoherence or overlap, and in a way that mixes imminent objectives with more long-term goals on fighting climate change. The need to increase the EU’s energy autonomy due to Russia’s invasion of Ukraine has underlined the extent to which our energy dependency on hostile countries weakens our ability to react decisively in the face of international events.

2.4.

The EESC therefore calls for the creation of a Climate Adjustment Fund, serving the specific purpose of responding to imminent environmental, climate and energy emergencies, and helping the EU adjust to a new reality in which such crises are sadly becoming ever more common. The Climate Adjustment Fund should serve as a funding reserve, ready to spring into action during times of acute investment needs.

2.5.

The fund must offer the flexibility and robustness needed for quick and ambitious investment in meeting the EU’s immediate needs, while remaining consistent with long-term climate and energy policies. It should draw together a share of Cohesion funding currently earmarked for climate issues, the existing EUSF, and a share of the RRF funding earmarked for environmental reforms. Having these resources concentrated into a single fund with a clear focus on urgent action will improve the efficiency of the response and facilitate monitoring of the most pressing investment needs. It should improve the ability to get the money to where it is needed without delay.

2.6.

Modernisation of the funding environment could also include broadening the scope and stepping up existing programmes. Given the common interest and the urgent need to combat climate change and its catastrophic consequences, the EESC also stresses the need for an improved funding method in the future. Even if a golden rule for green investments was to be — quite rightly — implemented, some Member States may still not have the capacity to raise the massive amounts of investment needed without jeopardising their fiscal sustainability. Therefore, the EESC also recommends considering Next Generation EU (NGEU) as a template for funding the Climate Adjustment Fund. Grants and/or loans from this fund should be unlocked on the condition that the Member State or region receiving them invests in tackling climate change or its consequences, for example by making subsequent investments in renewable and decarbonised energy. Any such policy measures must be linked to mandatory involvement of the social partners and civil society organisations and the partnership principle enshrined in cohesion policy must be respected.

2.7.

The EESC draws attention to the fact the Climate Adjustment Fund alone will not be enough to deal with the consequences of natural disasters and cover the costs of adaptation to climate change to enable better resilience. In that connection, the EESC draws attention to the ‘climate protection gap’, i.e. the share of non-insured economic losses caused by climate-related disasters. Insurance coverage against natural disasters remains low in Europe, with only around 35 % of losses due to natural disasters between 1980 and 2017 having been insured (3). It is therefore important to examine and promote disaster insurance in the Member States and promote national insurance schemes that encourage users to invest in adaptation, reducing the strain on EU funds and encouraging proactive investment. Dialogue between stakeholders and innovation regarding insurance products can develop novel risk transfer solutions within the insurance and reinsurance system, while prioritising financial market stability and consumer protection (4). This would improve the capacity of the Climate Adjustment Fund to be able to meet the challenges ahead of it.

2.8.

EU funds also have an important role as seed money to attract private investment including in adaptation to improve resilience to climate change.

3.   The Climate Adjustment Fund as a tool for disaster recovery and preparedness

3.1.

An interinstitutional EU study illustrates the urgency of tackling the climate catastrophe in clear words: ‘An increase of 1,5 degrees is the maximum the planet can tolerate; should temperatures increase further beyond 2030, we will face even more droughts, floods, extreme heat and poverty for hundreds of millions of people; the likely demise of the most vulnerable populations’ (5).

3.2.

It is starting to emerge that we are vastly underprepared for the challenges climate change poses. In 2021, the EU Member States experienced unprecedented destruction due to natural disasters, ranging from fatal floods in Germany and the Benelux, to catastrophic wildfires in Greece and Spain. In the face of the climate crisis, and together with other sources of environmental degradation, it is likely that destruction and natural disasters will become the norm rather than the exception. The more that effective measures to tackle the climate crisis and environmental degradation are postponed, weakened or averted, the higher the risks will become.

3.3.

At least 240 people lost their lives in the floods that hit western Europe in the summer of 2021 (6), with countless more displaced and losing their homes. In Greece, no fewer than 500 wildfires were recorded during a heatwave that hit the country (7).

3.4.

Not only was the scale of the destruction and loss of life due to environmental disasters in 2021 unprecedented, so too was the financial cost to the communities affected. In western Europe, the floods were estimated to have caused EUR 38 billion worth of damage (8). In Greece, the prime minister was obliged to approve a EUR 500 million aid package for the island of Evia, the region worst affected by the fires (9).

3.5.

No part of the globe is free from the increasing dangers of natural disasters. Likewise, no EU Member State is well enough equipped to overcome such massive challenges — either in terms of resources and material to deal with droughts, wildfires and floods, or in terms of the funding needed to help the affected areas recover.

3.6.

Investment from the Climate Adjustment Fund to respond to natural disasters should work to complement ongoing spending from the European Structural Investment Funds on disaster preparation and prevention. There is a need for huge investment to create resilience against the impacts of climate change, for example investment in the construction of dykes, flood-resistant buildings, protection against coastal erosion, equipment to monitor and contain wildfires, and technology to help save and store fresh water in areas affected by droughts, among other things. While structural investment funds should work ex ante to reduce possible damage, the Climate Adjustment fund should be there to respond quickly in cases where such preventative measures have not succeeded in warding off certain damage.

3.7.

The EESC highlights that the predicted repercussions of the climate crisis require a much more robust support mechanism than the one currently in place. The total budget of the EUSF is limited to a total of EUR 500 million per year (10). Since its implementation in 2002, the EUSF has supported 28 different European countries, providing over EUR 7 billion (11). This is impressive, but would by no means be enough to cover the costs of damage due to natural disasters in 2021 alone.

3.8.

In cases of natural disasters, we see an increased risk of loss of life among certain groups who cannot easily evacuate the affected areas. This is notably the case for older people, persons with disabilities, and children. Investments need to be targeted to ensure that emergency services have the material and back-up of additional rescue workers to assist all people requiring particular attention. People with fewer resources are also less able to evacuate because of the cost involved in finding alternative accommodation and their limited access to means of personal mobility. This should be something the Climate Adjustment Fund seeks to address.

4.   The Climate Adjustment Fund as a route to the green energy transition

4.1.

It is the EESC’s view that climate adjustment is also about adjusting to a new reality of sustainable energy production. Due to recent developments, the EU faces huge and urgent challenges regarding energy independence which were not foreseen when the Multiannual Financial Framework (MFF), NGEU and the Economic Governance framework were drawn up. Referring to the Commission’s REPowerEU plan (12) and the Conclusions of the European Council, the EESC fully agrees that, following Russia’s invasion of Ukraine, the case for energy independence has never been stronger, including the development of renewables.

4.2.

The EESC stresses the need to focus on the role that green and decarbonised energy technologies, improving energy efficiency and reducing energy demand can play in increasing the provision and affordability of energy in the EU. This will help protect against price hikes, which impede economic growth, exacerbate inequalities, provoke energy poverty, enhance production costs and hamper the EU’s competitiveness. In particular, the EESC welcomes the acceleration of the deployment of innovative hydrogen-based solutions and cost-competitive renewable electricity in the industry.

4.3.

The need to invest urgently and ambitiously in the movement towards greener forms of energy produced within the EU is more important than ever. While green energy production and energy autonomy should always be a long-term goal for the EU, the immediate context sees the EU in urgent need of affordable energy provision from alternative sources, without compromising on its energy goals. The urgent investment needs to provide affordable energy from alternative sources for citizens could be addressed by the Climate Adjustment Fund more effectively and efficiently than existing mechanisms.

4.4.

The EESC observes with increasing clarity that energy dependency is a causal factor in weakening the EU’s responses to countries such as Russia, as seen clearly in the EU’s response to the invasion of Ukraine. Current overdependency on Russian gas severely undermines the ability of the EU and its Member States to take swift action without putting its own citizens at risk of fuel shortages and energy poverty. Unfortunately, plans to procure natural gas from the USA do not offer a sustainable or environmentally responsible solution (13).

4.5.

The Climate Adjustment Fund should serve as a means of funding our urgent need for EU-produced green and decarbonised energy, with ambitious procurement of existing technologies and investment in developing new technologies to achieve a zero-emission economy. The EESC urges that the war in Ukraine must not lead to the EU’s mission of accomplishing environmental and social goals being neglected, as these form the basis for building economic strength in the long run.

4.6.

In the context of reducing energy consumption, progress varies markedly between the Member States. In 2018, only 11 of the 27 Member States had lowered total domestic energy demand below their 2020 target. All in all, the EU is far from reaching its 2030 targets, implying the need for additional efforts. Fortunately, the share of renewables in gross final consumption of energy in the EU has risen steadily. The Fit for 55 package has proposed reaching a share of 40 % of renewables in energy consumption by 2030. While the share of renewables in energy consumption also varies substantially across the EU, so too does the capacity to produce renewable energy, owing to budgetary restrictions and geography. In some countries, installed photovoltaic capacity per head is quite low despite high potential in this field. Other countries achieve a high share of renewable energies due to the favourable geographical possibilities for hydropower plants.

4.7.

Stepping up efforts towards the green energy transition will go hand in hand with new funding needs, and will have to be done urgently in light of the energy crisis and the growing need for EU energy autonomy. Boosting the Fit for 55 proposals with higher targets and earlier deadlines for renewable energy, for example by rolling out solar and wind energy and improving energy efficiency, will require a robust funding response. The Commission announced its intention to assess these financing needs in the context of the REPowerEU proposals (14), based on a mapping of needs in the Member States as well as requirements for cross-border investment. The EESC welcomes this, but also points to the concern that the current financing tools at EU and national level will not be sufficient and that action is needed to make renewable energy a solution now. Climate Adjustment Fund expenditure on renewable energies should also be boosted by attracting private investment, with the fund acting as a provider of seed money.

4.8.

Scaling up investment to improve the EU’s energy autonomy should be done in line with a focus on the green and renewable energy transition. In order to succeed, in addition to more immediate investments by way of the Climate Adjustment Fund, the EU will require significant long-term investments in research and innovation and new ways of producing and consuming, in order to improve our ability to offer clean and affordable energy to all. The EU’s research and innovation agenda is already showing considerable commitment to this goal, with the potential to make noticeable progress. However, this emphasis on research must be matched by a commitment by the Member States to adopt greener forms of energy production and their ability to transition away from more traditional means of energy production, particularly in Member States that still have a strong reliance on coal.

4.9.

While the EESC welcomes the existing funding dedicated to climate policy in the MFF and the NGEU, it also highlights that the most immediate environmental threats to people in the EU have changed since they were drawn up and that new approaches are needed. In addition to the creation of this new fund, the EESC asks the Commission to review the funding environment in order to identify financing gaps and additional funding needs regarding various aspects of climate policy.

5.   Ensuring the robustness of existing EU climate and energy policies and the complementarity of the Climate Adjustment Fund

5.1.

The Climate Adjustment Fund would respond to a very specific unmet need in terms of EU funding, which is to say having sufficient funding available for swift responses to climate, environmental and energy emergencies. However, this fund must be consistent and coherent with the EU’s overarching policies in these areas.

5.2.

The climate crisis is a systemic issue that transcends boundaries, meaning there is a need for systemic change to how our economy works and making it crucial that governments commit to systemic solutions instead of just addressing the symptoms of the problem.

5.3.

Huge disparities in how individuals and groups are engaged and afflicted exacerbate the problem of climate change. These disparities relate to carbon footprints, with quite significant variation in per capita CO2 emissions in different EU Member States and regions. We also see disparities in the impacts of climate change, the capacity to adapt and to deal with the challenges and, finally, the impacts of climate policy measures, and the impending significant structural changes.

5.4.

Within the EU, climate impacts differ widely within and between Member States, depending on their geography and the state and structure of their economy. For example, while 7 % of the EU population live in areas at high risk of flooding, over 9 % live in areas marked by 120 days without rain.

5.5.

Striving for a just transition also requires sustainable social conditions in line with the Sustainable Development Goals (SDG) and the European Pillar of Social Rights. Moreover, the EESC calls for a holistic approach to environmental sustainability and points to the Taxonomy Regulation, which establishes six environmental objectives: climate change mitigation, climate change adaptation, the sustainable use and protection of water and marine resources, the transition to a circular economy, pollution prevention and control, and the protection and restoration of biodiversity and ecosystems.

5.6.

With an approved budget of over EUR 330 billion in the current programming period, cohesion policy is currently the biggest and most important common investment tool in Europe and therefore plays a crucial role in tackling the climate crisis. The disparities within and between Member States, which cohesion policy has the goal of addressing, are also very likely impacted by climate change and its consequences. For its part, the Recovery and Resilience Plan also places a strong focus on climate. While we see a clear commitment to investment, there is a need to have a clear and structured view of which EU funds are targeted at tackling climate change and how they are managed.

5.7.

The EESC also emphasises the need for local and regional authorities to make a clear political commitment to achieving climate targets. There is an urgent need to step up multi-level dialogue among national, regional and local authorities on planning and implementing national measures on climate change at regional and local level, on direct access to funding for local authorities, and on monitoring the progress of the measures adopted. The social partners and organised civil society must be involved in this process in order to safeguard a balanced approach, respecting the interests of all groups.

5.8.

The EESC highlights the pivotal role of local, social and regional partners in tackling the consequences of climate change. Unfortunately, the support that many of these actors receive to finance their activities is still far from being enough to meet the challenges they are dealing with. Among other things, the Just Transition Fund needs to be bolstered to offer better support.

5.9.

The EESC insists that the transition towards environmental sustainability must be inclusive and in line with the SDGs and the European Pillar of Social Rights. Within this context, key criteria must include safeguarding and creating new, quality green jobs, thus ensuring training and inclusive social measures by developing alternative climate-neutral economic sectors for the regional population. It has to outweigh the potential regressive effects of climate policy measures and structural changes. For example, public procurement and State aid measures for companies should be linked to the creation of quality jobs and be respectful of workers’ rights, environmental standards and fiscal obligations. Moreover, vulnerable persons must be protected from the impact of climate change, avoiding energy poverty at all times. Finally, the EESC points to the EU taxonomy’s ‘do no significant harm’ principle, which stipulates that no environmental goals may be harmed through the implementation of various policies.

5.10.

Since formal and nonformal education are important mechanisms to combat the climate crisis, it is crucial to invest in accessible education relating to climate change and active citizenship. Education on sustainability is a powerful tool to equip young people with, empowering them to become part of the conversations on the direction concrete climate policy should take. The role of education and training to combat climate change is increasingly recognised.

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(1)  https://www.eesc.europa.eu/en/our-work/opinions-information-reports/opinions/tackling-energy-poverty-and-eus-resilience-challenges-economic-and-social-perspective (See page 88 of this Official Journal).

(2)  Regional development MEPs suggest to set up a Climate Change Adaptation Fund | News | European Parliament

(3)  Economic losses from climate-related extremes in Europe — European Environment Agency.

(4)  Forging a climate–resilient Europe — the new strategy on adaptation to Climate Change, COM(2021) 82 final, section 2.2.3 and Strategy for financing the Transition to a Sustainable Economy COM(2021) 390 final, Sections II and III, Action 2 c, European Insurance and Occupational Pensions Agency (EIOPA) dashboard on insurance protection gap and discussion paper.

(5)  ESPAS_Report.pdf, p. 8.

(6)  https://www.brusselstimes.com/belgium-all-news/199487/europes-summer-floods-amount-to-worlds-second-most-costly-natural-disaster-of-2021.

(7)  https://www.reuters.com/world/europe/greece-starts-count-cost-after-week-devastating-fires-2021-08-09/.

(8)  Europe's summer floods amount to world's second-most costly natural disaster of 2021 (brusselstimes.com).

(9)  https://www.reuters.com/world/europe/greece-starts-count-cost-after-week-devastating-fires-2021-08-09/.

(10)  EU Solidarity Fund.

(11)  https://ec.europa.eu/regional_policy/en/funding/solidarity-fund/.

(12)  REPowerEU plan, COM(2022) 230 final.

(13)  U.S., EU strike LNG deal as Europe seeks to cut Russian gas | Reuters.

(14)  COM(2022) 230 final.

Opinion of the European Economic and Social Committee on Crypto-assets — Challenges and opportunities

(own-initiative opinion)

(2022/C 486/05)

Rapporteur:	Philip VON BROCKDORFF
Co-rapporteur:	Louise GRABO

Plenary Assembly decision	24.3.2022
Legal basis	Rule 52(2) of the Rules of Procedure
	Own-initiative opinion
Section responsible	Economic and Monetary Union and Economic and Social Cohesion
Adopted in section	9.9.2022
Adopted at plenary	22.9.2022
Plenary session No	572
Outcome of vote (for/against/abstentions)	148/0/3

1.   Conclusions and recommendations

1.1.

Whilst acknowledging the increasing market capitalisation of crypto-assets, the EESC strongly supports the European Commission's proposal for a Regulation on Markets in Crypto-assets (MiCA) which is aimed at regulating crypto-assets within the EU and which resulted in a provisional political agreement of the co-legislators on 30 June 2022 (1).

1.2.

The EESC also calls for a robust regulatory and operational framework to improve the financial tracking of transactions and tax compliance of crypto-assets.

1.3.

The EESC strongly recommends that authorities should abide by the ‘same activity, same risks, same rules’ principle. This requires building on existing regulatory frameworks in the case of businesses transacting in crypto-assets where similar risks as those arising in traditional ones need to be covered. The EESC believes this is necessary to avoid asymmetries between analogous services and assets that could fall under different frameworks due to technicalities.

1.4.

A regulatory framework for crypto-assets needs to be consistent across jurisdictions and not just within the EU. Standards based on a level playing field should be set within and outside the EU to protect customers. The EESC supports the Transfer of Funds Regulation (2) (TFR) although in some aspects this goes further than for traditional finance transactions. However, at the same time, the EESC supports innovation within the EU and it is important that ordinary products based on blockchain technology that are not financial in nature are treated as their physical counterparts and not as financial instruments, following the ‘same activity, same risk, same rules’ principle.

1.5.

The EESC notes with concern the environmental consequences of crypto-assets and related mining activities given the EU's climate commitments as part of the Green Deal and is of the view that despite emerging DLTs such as blockchain that seem to be able to deliver sustainable infrastructure for a low carbon future, there is no conclusive proof that this is the case.

1.6.

The EESC is of the view that blockchain, as the main underlying technology for crypto-assets, could help address the risks that currently prevail in the market. The potential benefits of blockchain range from real-time transactions allowing risk reduction and better capital management to improved regulatory effectiveness, for example by using blockchain for Know-your-Customer or anti-money-laundering checks.

1.7.

The EESC also notes that technological developments can help address existing tax compliance limitations, thus improving transparency and the quality of data sent to the tax authorities for control purposes, addressing tax fraud and illicit transactions.

1.8.

Further technological developments in blockchain could also motivate banks to cooperate within the blockchain ecosystem, enabling them to share information and experience with the wider blockchain community via a blockchain-based trade finance platform.

1.9.

Finally, the EESC fully supports the role played by the ECB in monitoring developments in crypto-assets and their potential implications for monetary policy and the risks crypto-assets may pose to the smooth functioning of market infrastructures and payments, as well as for the stability of the financial system.

2.   Background

2.1.

Crypto-asset market capitalisation more than tripled in 2021 to USD 2,6 trillion, yet crypto-assets remain a small portion of overall global financial system assets (3). In terms of numbers, crypto-assets compare to some of the established asset classes, though they are nowhere close to the importance of government bonds, stock markets and derivatives. The rapid growth of crypto-assets has attracted several new players in the ecosystem with an increasing number of crypto-assets being offered, some of them referred to as ‘virtual currencies’ or digital ‘coins’ or ‘tokens’. The most prominent crypto-assets to date include Bitcoin and Ether, which together represent about 60 % of the total market capitalisation of crypto-assets.

2.2.

Over the past year, the demand for a class of crypto-assets called stablecoins (4) has seen an unprecedented growth aided by developments in technology, notably blockchain. In particular, stablecoins trading volumes have outstripped almost all other crypto-assets mainly because they are heavily used to settle spot and derivatives trades on exchanges. The relative price stability of stablecoins also helps shield crypto-asset holders from the volatility associated with non-stablecoin crypto-assets.

2.3.

Decentralised finance or DeFi (5) based on blockchain technology and providing financial services using stablecoins and other crypto-assets is one of the main reasons for the increase in demand for crypto-assets, since it has allowed users to trade crypto-assets without an intermediary. There is also no need for a credit risk evaluation of the client during a transaction. Interestingly, such transactions involve mainly institutional players from developed economies where stablecoins are commonly transacted (6).

2.4.

Blockchain or distributed ledger technology (DLT) can be described as one big public file that is shared and stored across a huge network of computers containing all the transactions in crypto-assets. As it is publicly shared and its contents validated, it is not possible to reverse or alter the transaction. Hence, the public file produced as a consequence of DLT use precludes fraudulent transactions.

2.5.

During the peak of the COVID-19 crisis, a time of market stress, the value of Bitcoin peaked at USD 10 367,53 in mid-February 2020, dropping to USD 4 994,70 in mid-March of the same year. However, the sharp rise and fall in value had little to do with the pandemic and its effect on the share market (7). The seemingly erratic behaviour of Bitcoin's value is a result of the phenomenon miners and experts refer to as ‘halving’. Bitcoin halving occurs every four years, or every time 210 000 blocks are mined. It occurred in 2012 and showed the same predictable fluctuations in Bitcoin prices. This pattern has not changed much since 2012.

2.6.

As things stand, crypto-assets do not appear to pose a material risk to financial stability, as confirmed by the Financial Stability Board (FSB) in its 2018 report. That said, the FSB itself expressed concerns about the risks that increased market capitalisation could bring, particularly risks regarding investor confidence, risks arising from the direct and indirect exposure of financial institutions, and risks from the use of crypto-assets for payments and exchanges.

2.7.

The same concerns have been expressed by the European Supervisory Authorities (EBA, ESMA and EIOPA) who have warned consumers that many crypto-assets are highly risky and speculative, and are not suited for most retail investors or as a means of payment or exchange. Their view is that consumers face the very real possibility of losing all their invested money if they buy high-risk crypto-assets. They also warn that consumers should be alert to the risks of misleading advertisements, including via social media and influencers. Consumers should be particularly wary of promised fast or high returns.

2.8.

Direct connections between crypto-assets and systemically important financial institutions and core financial markets, while growing rapidly, are limited at the present time. Nevertheless, institutional involvement in crypto-asset markets, both as investors and service providers, has grown over the last year, albeit from a low base. If the current trajectory of growth in scale and interconnectedness of crypto-assets to these institutions were to continue, this could have implications for the global financial system.

2.9.

The growth in scale and interconnectedness of crypto-assets reinforces the need and importance for crypto-assets to undergo consistent, comparable, and objective audits with the objective to report on the accuracy and completeness of financial information being reported to the public. Against this background, in September 2020, the European Commission presented a legislative proposal to harmonise and legitimise cryptocurrency regulation in crypto-assets (8). The proposal provides a comprehensive framework for the regulation and supervision of issuers and offerers of crypto-assets and crypto-asset service providers with a view to protecting consumers and the integrity and stability of the financial system. A provisional political agreement has been reached between the co-legislators on 30 June 2022. The final legislative text is expected to be published and enter into force in the coming months. The EESC's position on this is contained in its opinion on Crypto-assets and distributed ledger technology (9).

3.   Risks posed by crypto-assets

3.1.

The rapid growth of crypto-assets has generally been characterised by poor operational set-up, weak cyber risk management and weak governance frameworks. A combination of all three increases the risks for clients, with cybersecurity being an issue in the field of crypto-assets. Stolen crypto-assets typically find their way to illegal markets and are used to fund further criminal activity. Along the same lines, in the context of ransomware attacks, criminals often ask victims to pay the ransom in cryptocurrencies such as Bitcoin (10). The Regulation on Digital Operational Resilience for the financial sector (DORA), recently agreed by the co-legislators and currently in the process of being finalised in order to be published, provides uniform requirements concerning the security of network and information systems supporting the business processes of financial entities, including crypto-asset service providers, which is necessary to achieve a high common level of digital operational resilience.

3.2.

The crypto-assets ecosystem is also exposed to some degree of concentration risk with trading dominated by a relatively small number of entities (11). A study found that less than 10 000 people worldwide collectively owned 4,8 million Bitcoins (12) — nearly a third of the 18,5 million Bitcoins mined thus far. The latter carried a market value of nearly USD 600 billion. The situation has not changed much. The Bitcoin ecosystem is still dominated by large and concentrated players, be it large miners (13), Bitcoin holders or exchangers. This concentration makes Bitcoin susceptible to systemic risk, and also implies that the majority of the gains from further adoption are likely to fall disproportionately to a small set of participants (14).

3.3.

In its latest report (15), the FSB states that market systems such as banking have been largely shielded from the volatility of crypto-assets. However, the FSB warns about the increasing importance of digital assets in the operations of financial institutions. Were a major stablecoin (used extensively for payments) to fail, this could further impact financial stability, at a time of growing uncertainty because of the war in Ukraine, with persistently high commodity prices. A failing stablecoin could also lead to liquidity shortages within the broader crypto-asset ecosystem, thus limiting trading volumes.

3.4.

As noted in a previous opinion (16), the EESC fully supports efforts in the EU to increase supervision of crypto-assets. However, due to their perceived anonymity, crypto-assets may still fall prey to criminal intent despite improvements in their tracking. Crypto-assets have also recently featured most heavily as the preferred currency of cyber attackers, who use ransomware to hack into systems and then demand Bitcoin payments in return for not destroying or leaking the company's valuable data. Moreover, there has been an increase in reports of crypto-Ponzi schemes. The ECB also claims that cryptocurrencies are being used to evade sanctions imposed on Russian oligarchs because of the war in Ukraine (17). The risk of misusing crypto-assets to circumvent the sanctions against Russia is an important reminder that these markets must be required to comply with the required standards, including information about investors, anti-money laundering and disclosure requirements.

3.5.

Misleading information and a lack of transparency is another cause of great concern. Some crypto-assets are aggressively advertised to the public, using marketing material and other information that may be unclear, incomplete, inaccurate or purposefully misleading, overstating the potential gains while overlooking the risks involved. Marketing is often done through influencers on social media who do not disclose whether they have a financial incentive to market certain crypto-assets, particularly the recent rise in non-fungible token art (NFT art) linked to various celebrities and sportspeople.

3.6.

The EU supervisory authorities believe that the extreme price fluctuations of crypto-assets pose a great risk to investors, although similar risks could also arise in global stock market fluctuations. In fact many crypto-assets are subject to sudden and extreme price swings rendering them highly speculative, with prices mainly dependent on investor demand. Extreme price swings raise fresh doubts over the future of cryptocurrencies as an asset class.

3.7.

Worryingly in the case of crypto-assets, investors often find it almost impossible to assert claims for damages or other legal claims for say, misleading information, particularly because until now these assets do not fall under the existing protection of the current EU regulations for financial services. Investors are also not protected by the banks' deposit guarantee schemes since they only cover currency and not crypto-assets, stocks or bonds.

3.8.

From an EU perspective, with the eventual entry into force of MiCA, the lack of harmonisation among Member States that currently prevails should be addressed. As for taxation, diverse approaches apply across Member States, and several charge capital gains tax on crypto-asset-derived profits at rates of 0-50 %. In 2020, with the adoption of the digital finance package, aimed at regulating Fintech, the EU recognised the potential of digital finance in terms of innovation and competition, while mitigating the risks arising from it.

3.9.

The EESC calls for an effective regulatory and operational framework to improve the tracking of transactions and tax compliance of crypto-assets. Whilst recognising the problems caused by the lack of centralised control for crypto-assets, its pseudo-anonymity, valuation difficulties, hybrid characteristics and the rapid evolution of the underlying technology, the EESC is of the view that tax compliance based on a symmetrical approach is achievable. A recent study (18) reported that the tax revenue potential from capital gains from Bitcoin within the EU totalled EUR 850 million in 2020, which underscores the significant potential tax gains that can be reaped from this sector. This assumes, of course, that income derived from crypto-assets should be subject to taxation, much like traditional financial instruments. Again, this requires proper enforcement of tax obligations based on proper reporting and access to data provided to tax administrations. An added benefit of improved tracking in real time of business sales would be an enhancement to the VAT collection process.

3.10.

It is pertinent to point out that some crypto-assets may qualify as financial instruments within the scope of the Markets in Financial Instruments Directive II (MiFID II), or qualify as electronic money within the E-money Directive (EMD), or as funds under the Payment Services Directive 2 (PSD 2). The problem is that some Member States have put in place bespoke rules at national level for crypto-assets that fall outside current EU regulations, leading to regulatory fragmentation. This distorts competition in the Single Market, making it more difficult for crypto-asset service providers to scale up their activities across borders, giving rise to regulatory arbitrage.

3.11.

Whereas the EESC agrees that a holistic approach to target both crypto-assets that could qualify as existing financial instruments as well as crypto-assets that currently fall outside the regulatory perimeter is the preferred approach, the EESC strongly recommends that authorities abide by the ‘same activity, same risks, same rules’ principle. This requires building on existing regulatory frameworks in the case of businesses transacting in crypto-assets where similar risks as those arising in traditional ones need to be covered. The EESC believes this is necessary to avoid asymmetries between analogous services and assets that could fall under different frameworks due to technicalities. Also, any innovation in crypto-assets needs to be followed up by an effective regulatory response to mitigate risks.

3.12.

Finally, the environmental consequences of crypto-assets and related mining activities are hugely important, given the EU's climate commitments as part of the Green Deal. A recent study by the Central Bank of the Netherlands (2021) reports that the carbon footprint of the Bitcoin network is increasing, with a total electricity usage of the network comparable to the electricity usage of the Netherlands and a resulting environmental cost of EUR 4,2 billion (19). That said, it may be pertinent to compare the global banking industry's electricity usage. In this connection, the EESC notes that emerging DLTs, such as blockchain, are apparently being used to enable the delivery of sustainable infrastructure for a low carbon future. However, there is as yet no tangible evidence that this is the case. On a positive note, developers across the energy sector are seeking to leverage DLT technology to help decentralise energy distribution, control energy networks through smart contracts and provide demand response services linked to electricity usage and supply forecasting.

4.   Opportunities arising from Crypto-assets

4.1.

In the light of the aforementioned risks, it is unclear whether cryptocurrencies will ever become a mainstream means of exchange. However, it is not unreasonable to predict that the shortcomings that have characterised crypto-assets such as processing capacity and the very high energy consumption for their mining, may be addressed with future developments in technology. The same could be said for the associated risks of criminal activity and money laundering where the illicit share of the cryptocurrency transaction volume dropped from 0,62 % in 2020 to 0,15 % in 2021 (20) and law enforcement agencies are getting better at tracking and confiscating illicit cryptocurrencies. In the light of this, the EESC notes that since the publication of the EC's Fintech action plan in March 2018, the Commission has considered both the opportunities and challenges raised by crypto-assets.

4.2.

As much as it is necessary to provide a robust legislative framework for crypto-assets as outlined in the Commission's Proposal (21), the EESC is of the view that blockchain, as the main underlying technology for crypto-assets, could go a long way to addressing existing risks. The potential benefits of blockchain range from real-time transactions allowing risk reduction and better capital management, to improved regulatory effectiveness, for example by using blockchain for Know-your-Customer or anti-money-laundering checks. In addition, blockchain also brings about enhanced cyber-security given that hacking into a blockchain-based ecosystem would require exorbitant resources in terms of network and computing power. There is also huge potential for integration with other emerging technologies, such as artificial intelligence and the Internet of Things, to support the technology for crypto-assets.

4.3.

As noted earlier, the lack of transparency and information is a serious problem surrounding crypto-assets, leading to both pseudo-anonymity and scant tax data. Further technological developments can help address existing limitations, thus improving transparency and the quality of data sent to the tax authorities for compliance purposes, addressing tax fraud and illicit transactions. Additionally, synergies between blockchain and artificial intelligence could also be a solution, as blockchain technology provides high-quality data for AI applications, transparent patterns for benchmarking studies, and ensures the integrity of an automated tax assessment.

4.4.

Further technological developments in blockchain could also motivate banks to cooperate within the blockchain ecosystem, enabling them to share information and experience with the wider blockchain community via a trading platform. Such an infrastructure could offer a fully integrated end-to-end trading, settlement and custody service for digital assets based on blockchain. It could also provide a safe environment for issuing and trading digital assets, and enable the tokenisation of existing securities and non-bankable assets to make previously untradeable assets tradeable.

4.5.

Of course to achieve this, there needs to be a robust regulatory framework. That said, the regulatory framework needs to be consistent across jurisdictions and not just within the EU. Standards, based on level playing field principles, should be set within and outside the EU to protect consumers. In this context, the EESC supports the Transfer of Funds Regulation (TFR), although in some aspects it goes further than for traditional finance transactions. However, at the same time, the EESC supports innovation within the EU and it is important that ordinary products based on blockchain technology that are not financial in nature are treated as their physical counterparts and not as financial instruments, following the ‘same activity, same risk, same rules’ principle.

4.6.

The final consideration relates to the possible introduction of a digital euro. It should be made clear that a digital euro is not a crypto-asset but another form of the euro (22). A digital euro would enable EU citizens to make digital payments throughout the euro area — just like they can use cash for physical payments. There are, of course, arguments in favour and against the entry of a digital euro but it does appear to be a logical step to take as payments become increasingly digitalised. This is critical for two main reasons: a digital euro could counter somewhat the prevailing US stablecoin market dominance, and it is relevant that the ECB continues to monitor developments in crypto-assets and their potential implications for monetary policy and the risks crypto-assets may pose to the smooth functioning of market infrastructures and payments, as well as for the stability of the financial system.

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(1)  The text is expected to be finalised once approved by COREPER around the end of September 2022 and therefore will most likely not be available before the adoption of this EESC opinion.

(2)  The TFR is basically the result of the FATF recommendation to create an obligation on payment service providers to accompany transfers of funds with information on the payer and the payee. New technologies such as the ones used in crypto-asset transfers will be covered by the TFR.

(3)  Assessment of risks to financial stability from crypto-assets.

(4)  Liao and Caramichael, ‘Stablecoins: Growth potential and impact on banking’, International Finance Discussion Papers No 1334, Washington: Board of Governors of the Federal Reserve System (2022).

(5)  DeFi basically means the provision of financial services in a decentralised way, i.e. without the use for an intermediary to facilitate the provision of the financial service. Once developed by individuals, DeFi applications are deployed on the blockchain and gradually take on a life of their own as governance is ceded to the user community. The ultimate form of a DeFi application is a decentralised autonomous organisation (DAO). This comes into contrast with the traditional financial system, which relies on centralised intermediaries that control access to financial services. The use of blockchain technology alone does not make something DeFi, it is rather the absence of intermediaries (made possible by i.e. blockchain) that leads to DeFi.

(6)  Chainalysis (2021)

(7)  See Sajeev, K.C., Afjal, M. ‘Contagion effect of cryptocurrency on the securities market: a study of Bitcoin volatility using diagonal BEKK and DCC GARCH models’. SN Bus Econ 2, 57 (2022).

(8)  Proposal for a regulation of the European Parliament and of the Council on markets in crypto-assets, and amending Directive (EU) 2019/1937, COM(2020) 593 final, 24.9.2020.

(9)  OJ C 155, 30.4.2021, p. 31.

(10)  Crypto-assets: Key developments, regulatory concerns and responses.

(11)  It is pertinent to highlight that the degree of concentration risk is in relative terms and limited to the crypto-assets ecosystem. It has no bearing on the concentration of wealth as described in, for example, the Forbes World's Billionaires List.

(12)  Makarov, I., Schoar, A., Blockchain Analysis of the Bitcoin Market (April 18, 2022).

(13)  Crypto mining is the process of creating individual blocks added to the blockchain by solving complex mathematical problems. The purpose of mining is to verify cryptocurrency transactions and show proof of work, adding this information to a block on the blockchain, which acts as a ledger for mining transactions.

(14)  Makarov, I., Schoar, A., Blockchain Analysis of the Bitcoin Market (April 18, 2022).

(15)  Assessment of risks to financial stability from crypto-assets.

(16)  EESC opinion on Crypto-assets and distributed ledger technology (OJ C 155, 30.4.2021, p. 31).

(17)  ECB President Christine Lagarde says that cryptos are being used to evade sanctions imposed on Russia.

(18)  Thiemann, A. (2021), Cryptocurrencies: An empirical View from a Tax Perspective, JRC Working Papers on Taxation and Structural Reforms No 12/2021, European Commission, Joint Research Centre, Seville, JRC126109.

(19)  Trespalacios, J.P., and Dijk, J., ‘The carbon footprint of bitcoin’, De Nederlandsche Bank, DNB Analysis Series, 2021.

(20)  The Chainalysis 2022 Crypto Crime Report.

(21)  Proposal for a regulation of the European Parliament and of the Council on markets in crypto-assets, and amending Directive (EU) 2019/1937, COM(2020) 593 final.

(22)  See ongoing own-initiative opinion on A Digital euro.

Opinion of the European Economic and Social Committee on Health Workforce and Care Strategy for the future of Europe

(own-initiative opinion)

(2022/C 486/06)

Rapporteur:	Danko RELIĆ
Rapporteur:	Zoe TZOTZE-LANARA

Plenary Assembly decision	20.1.2022
Legal basis	Rule 52(2) of the Rules of Procedure
	Own-initiative opinion
Section responsible	Employment, Social Affairs and Citizenship
Adopted in section	6.9.2022
Adopted at plenary	21.9.2022
Plenary session No	572
Outcome of vote (for/against/abstentions)	194/4/3

1.   Conclusions and recommendations

1.1.

The EESC firmly stands by the principle that strong and resilient health systems can only be based on and developed by an educated, skilled and motivated health workforce, which is fundamental to delivering a successful health policy and by consequence essential for the achievement of human-centred health coverage for all and the ‘right to health’, as recommended by the Conference on the Future of Europe, guaranteeing all Europeans equal and sustainable access to affordable, preventive, curative, and quality health care.

1.2.

The EESC welcomes the initiative for EU-level action to strengthen long-term care and early childhood education and care as envisaged under the European Pillar of Social Rights, which will contribute to high quality, accessible, equitable and affordable care services and help strengthen gender equality and social fairness.

1.3.

The EESC calls for a transformative approach to care centred on people, their rights and their needs, including their participation in any relevant discussions, consultations and decisions. It urges the Commission to be ambitious in setting out a care strategy that can contribute to cohesion and upward convergence in healthcare and long-term care among and within the Member States.

1.4.

Α European Care Guarantee can ensure that everyone living in the EU has life-long access to affordable quality healthcare and care services, address care deficits, and promote decent working conditions, providing training opportunities. Support and better recognition of informal carers and policies geared to address problems in paid and unpaid informal care are key to an efficient use of resources.

1.5.

Given that efficient, accountable and well funded public services remain key in ensuring equal access to quality care, the EESC calls on the European Union to ensure complementarity between all providers of care services based on solidarity, encourage investment in public services, the social economy and support social economy actors in the care sector.

1.6.

Workforce planning should take into account the development of digital technologies, as innovations in these areas open up opportunities for creating new work environments and settings in which care is delivered, and require new skills. Supporting the digitalisation of LTC services is key in tackling the digital divide and digital poverty.

1.7.

The EESC proposes an update of the Action Plan for the Health and Care Workforce in the European Union (1). The development of integrated health workforce planning and forecasting and the adaptation of health and long-term care workforce skills are essential for improving access to and the quality of these services. An updated plan could ensure better data collection, harnessing the potential of digitalisation across the EU and develop methods to better forecast workforce and skill needs.

1.8.

The EESC emphasises that the right to mobility must be respected within the EU. Cross-border mobility adds an extra dimension to workforce planning, the establishment of a European health workforce surveillance service to assist Member States in establishing and maintaining planning structures, and coordinating cross-border aspects of planning would be a useful long-term infrastructure element.

1.9.

Social dialogue involving governments, employers and workers and their representative organisations is key to a transformative care strategy and resilient health and care systems in the EU; care givers and receivers have to be included in charting an inclusive, resilient, gender-equal care and health ecosystem.

2.   General comments on care

2.1.

Vital for social protection and the wellbeing of EU citizens, long term care comprises a range of services and assistance for people who experience mental and/or physical fragility and/or disability over extended periods of time, depend on help with daily life, and/or requiring some permanent nursing care by professional or non-professional paid/unpaid providers at home or at nursing and residential care facilities (2).

2.2.

The COVID-19 pandemic severely tested the resilience and the adequacy of care systems across the EU, indicating structural problems, such as underfunding and understaffing in many countries, which can deteriorate due to ongoing economic/political challenges, inflation, uncertainty and the energy crisis.

2.3.

The European Pillar of Social Rights enshrines the right to care and the right for everyone to have access to quality formal care services based on need. Announced by Commission President Von der Leyen in her 2021 State of the Union speech, the new European Care Strategy entails two Council recommendations on childcare (revising the Barcelona targets) and on long-term care. The European Parliament has recommended improving life-long care provision based on the needs of care recipients and providers, urging the Commission to support MS in developing quality care services (3).

2.4.

The EESC has adopted several opinions on care provision in the EU (4), stressing the need to invest in high-quality, sustainable and accessible care for all, and address deficits in childcare and LTC. It has identified shortcomings in care provision for all, ‘in the diversity and fragmented nature of the services on offer, in poorly regulated services, in difficulties in coordinating management levels, in coordination problems between social and healthcare services, in the growing commodification of services and in the need for prevention policies and measures’; opposing stereotyping and other discrimination against the elderly, the EESC has called for people-centred care supported by digitalisation. In this context, the EESC recommends full deployment of digitalisation to reduce undue paperwork for care workers and applying the best achievements of smart regulation.

3.   A transformative approach to care

3.1.

An effective European Care Strategy requires engagement towards a transformative and ambitious approach, which puts at its heart people and their fundamental rights and needs, ensuring their participation in consultations and decisions, with the potential to contribute to cohesion and upward convergence among and within the Member States.

3.2.

Embodying this transformation, a European Care Guarantee would ensure that everyone living in the EU has lifelong access to affordable and quality care, provide a cohesive framework for MS to deliver high quality services and lifetime care strategies, and improve working conditions and training for carers and support informal carers.

3.3.

Large-scale investment in the care economy and infrastructure is requisite for a transformative approach that would address persistent care gaps, potentially creating ca. 300 million jobs by 2035 that would also enhance gender equality and women's access to labour markets (5).

3.4.

While different models exist in Member States, efficient, accountable and well-funded public services remain key in ensuring equal access to quality care, and in supporting unpaid care providers, particularly women. The EESC emphasises the need to maximise complementarity and the synergy between all care and health providers in both the public and private sectors (profit and not profit) to achieve coverage for all (6), taking into account best practices and positive examples in the Member States, and while respecting national specificities and differences.

3.5.

Privatisation trends and market-driven practices such as risk selection and maximising profit over care and health can exacerbate inequalities, affecting the most vulnerable with unmet care needs. Based on solidarity, respect of the national competences and subsidiarity, LTC and child care at EU and Member State level need strong social protection systems and public services, social investment and social economy actors — e.g. mutual societies — to provide optimal community and home-based care by adequately trained carers (7).

3.6.

EU structural and investment funds can be used to support investment in care. On healthcare and LTC, the Commission should better target its country-specific recommendations within the European Semester and, where needed, help Member States prioritise adequate funding as a productive investment rather than an economic burden.

4.   Working conditions, challenges and employment potential

4.1.

Around 6,3 million people work in the long-term care (LTC) sector in the EU while 44 million people provide frequent informal LTC to relatives or friends, in one of the fastest growing sectors worldwide (8). Up to 7 million jobs for healthcare associate professionals and care workers are expected to be created by 2030 (9).

4.2.

Major challenges for the care sector include staff shortages, unattractive and demanding working conditions, an ageing workforce, and underfunding, due to social and health budget cuts during the 2008 economic crisis, in varying degrees across the MS (10). In almost all EU countries job growth lags behind increasing demand, owing to mentally and physically arduous conditions that cause care workers to leave the sector — a trend exacerbated by the pandemic, adversely affecting health and safety for both care recipients and workers.

4.3.

A transformative approach should promote gender equality, considering that women represent over 80 % of the care sector workforce, are principal caregivers and recipients in formal and informal settings (11) and are on average older than the overall EU workforce. As women undertake the vast majority of caring responsibilities in the family, accessible and affordable Early Childhood Education and Care (ECEC) and LTC services would enable more women to join the labour market. The right to at least five working days of carers' leave per year, introduced by the Work-Life Balance Directive, will provide some support to informal carers trying to balance work and caring responsibilities. The lack, however, of adequate paid leave prevents full enjoyment of the Directive's provision of this right and may exacerbate gender inequalities.

4.4.

Wages in the sector are below average in many EU countries, despite arduous working conditions, specific requirements in skills/competencies and qualifications, and high occupational health and safety risks (12). In several MS, unionisation, collective bargaining coverage, job satisfaction and staff-user ratios are at low levels; inter alia, the pandemic exposed deficient provision of personal protective equipment.

4.5.

Unpaid informal care, or family care, is a cornerstone of LTC provision in Europe, but home care and community-based care in many countries remain underdeveloped and hard to access (13). Considering the impact of informal care provision on key life outcomes, the EESC strongly recommends policies which foster the ‘formalisation’ of informal care, support informal carers and contribute to an efficient use of resources.

4.6.

The EESC expresses concern regarding widespread precarious care work among undeclared, mostly female domestic care workers who engage in livein care, mostly coming from migrant groups or mobile citizen categories. Exacerbated by lack of access to formal care and economic necessity, this grey area calls for a cohesive policy approach, with due attention to skill certification, regularisation, and/or resident permit procedures.

4.7.

As demand for LTC grows, the sector will benefit from higher and more stimulating wages, effective collective representation and collective bargaining, and more training. Public funding leveraged to improve working conditions (for instance via requirements in public procurement) can help address staff shortages and ensure high quality LTC. Professionalisation, defining quality and elaborating standards to assess/measure quality as well as harmonisation of standards across MS are essential to the renewal of the sector (14).

5.   Other comments

5.1.

The pandemic has exposed fragmentation and dispersion, particularly in provision and funding responsibilities in many MS, indicating the need for better integration between healthcare and national care systems (15), which are best placed to deliver in terms of ensuring access for all and efficiency.

5.2.

One emerging major challenge requiring concerted measures in the new care strategy concerns preventing and addressing mental health problems that are a combined result of the pandemic and rising mental health incidences (e.g. dementia) linked to an ageing population.

5.3.

As recent experience related to the prevention and control of COVID-19 in long-term care facilities demonstrates (16), effective assessment, efficient and streamlined external supervision and inspection, in both public and private care provision facilities are key in preventing abuses and ensuring safety and quality, particularly for vulnerable populations, the elderly and children, capitalising on existing good practices in MS.

5.4.

Developing EU-wide standardised data collection and LTC indicators is vital for a successful Care Strategy at MS level, including reporting requirements and regular reviews, to be carried out with efficient and streamlined procedures. Adequate child care provision, in particular, requires quantitative and qualitative targets to measure progress and to deliver on and go beyond the Barcelona targets.

5.5.

Support for digitalisation of LTC services is key in tackling the digital divide. Special attention needs to be given to accessibility, assistive systems, improving digital literacy and to digitalisation for job quality, upskilling and new methods of diagnosis, monitoring and treatment.

5.6.

The EESC condemns war crimes committed by the Russian Federation in Ukraine, targeting care and health workers, patients, children, hospitals and other facilities; alongside deaths and injuries this aggression is gravely affecting Ukraine's health and care system, calling for targeted aid and support measures — also having in mind that the crisis in Ukraine is spreading everywhere and affects many aspects of social and economic environment.

5.7.

Social dialogue involving governments, employers and workers and their representative organisations is key to a transformative care strategy and resilient health systems in the EU; importantly, those who receive and provide care have to be included in charting a more inclusive, resilient and gender-equal care and health ecosystem, engaging civil society and other stakeholders, e.g. the church and philanthropy.

6.   General comments on health workforce

6.1.

Good health care is a pillar of a stable, secure, and prosperous society and its organisation is the government's responsibility. It is common practice in many countries to rely on the low cost and quick recruitment of health workers from other European countries. This is simply acknowledged as a fact of life and left appallingly unaddressed.

6.2.

The EESC firmly stands by the principle that strong and resilient health systems can only be based on and developed by an educated, skilled and motivated health workforce, which is fundamental to delivering a successful health policy and by consequence essential for the achievement of health coverage for all and the right to health. The very recommendations of the Conference on the Future of Europe aim to create a ‘right to health’, guaranteeing all Europeans equal and access for all to affordable, preventive, curative, and quality health care.

6.3.

The European Health Union should improve EU-level protection, prevention, preparedness, and response against human health threats. In that context, the success of all key initiatives within the European Health Union depends heavily on a high-quality health workforce.

6.4.

In a number of opinions (17), the EESC has addressed the issue of the health workforce in a variety of other contexts and activities. Especially during the pandemic, health workers are on the front lines, demonstrating an outstanding level of solidarity during the most difficult times.

6.5.

The EESC supports measures that should be taken to make jobs in the health care sector more attractive to young people. This is one of the most important prerequisites for creating sufficient human resources capacity in health care systems to meet healthcare needs, health promotion, and disease prevention.

6.6.

Data on numbers, migration, skills, and other specifics related to the health workforce should be standardised and continuously shared among Member States. Numerous events (the COVID-19 pandemic, earthquakes, floods, the Russian invasion of Ukraine, etc.) demonstrate the importance of rapid response, especially in crisis situations.

6.7.

Employment in health and social services increased by 48 % in OECD countries between 2000 and 2017 (18). As the population ages and changes, the demand for health services will also grow and change: it is estimated that the global demand for health workers will nearly double by 2030 (19).

6.8.

Even before the COVID-19 pandemic, the capacity to deliver basic health services was limited in many countries due to persistent health workforce shortages and a projected global shortfall of 18 million health professionals by 2030 (20).

6.9.

It is important to clearly define the principles of the possible transfer or combination of skills and tasks (task shift/skill mix). There is a need to coordinate institutions that train the health workforce to respond appropriately to the needs of the national healthcare system through timely corrections to enrolment rates and curricula.

6.10.

The development of human resources in health and social care should follow the principle of coordination, intersectoral cooperation, and integration of care, with the common goal of achieving continuity of care for citizens in the 24/7/365 model.

6.11.

Special attention should be paid to the availability of treatment in local communities, especially in sparsely populated areas, remote or isolated rural areas, and islands, where modern transportation and telemedicine solutions need to be used more actively.

7.   Health workforce planning

7.1.

The EESC believes that health workforce planning must aim to create conditions for a professional practice that improves the quality of care and patient safety. At the same time, the capacity for high-quality training must be ensured at all levels.

7.2.

The management of the health workforce must be considered a strategically important activity at the level of the whole state administration and through the key role of the Member State government, and must be implemented in a multisectoral way, taking into account different perspectives and priorities.

7.3.

Health workforce management must address all phases of the ‘life cycle of professionals’ — from recruiting future students to employing retirees. The process of selecting candidates for training, employment, and promotion should be transparent and fair, without any form of discrimination.

7.4.

In planning the health workforce, it is important to consider and clearly represent the needs of citizens and health workers. Planning and management processes must establish the methods by which it is possible to identify all the needs of professionals, from working conditions, material rights, opportunities for advancement, adequate time and resources allocated to learning and research, to the establishment of a sustainable balance between personal and professional life.

7.5.

The planning of the health workforce must reflect the planning of the structure, but also the actions and processes to achieve the goals set — to define what needs to be achieved and in what specific way.

7.6.

The EESC proposes an update of the Action Plan for the Health and Care Workforce in the European Union (21). The development of integrated health workforce planning and forecasting and the adaptation of health and long-term care workforce skills are essential for improving access to and the quality of these services.

7.7.

Social partners and all interested civil society organisations must play an active role in the health workforce planning process. It is necessary to define the relationships between the different professional groups, the population's specific needs and the system for certain competencies.

7.8.

The identification of unattractive geographic areas or areas of activity where there is a shortage of human resources is necessary for safeguarding the rights and provide adequate incentives for health professionals. EESC proposes that the European Commission should issue recommendations on minimum ratios of resources per population unit for baseline universal health coverage and emergencies, taking into account geographic distribution and age profile (22).

7.9.

As a basis for these recommendations, it is important to improve international data collection exercises to harmonise data categories where possible in order to identify differences and avoid misinterpretation of data. It is important to reflect national deviations from the harmonised categories across Europe to be able to put data into context (23).

7.10.

The issue of financial resources will be addressed differently depending on the economic circumstances in each Member State. Evidence suggests that Member States need to ensure that system planning in general, and health workforce planning in particular, takes into account both the broader environment and the government's relative ability to influence it (24).

7.11.

Workforce planning should take into account the development of digital technologies as innovations in these areas open up opportunities for creating new work environments and settings in which care is delivered, and require new skills.

8.   Working conditions

8.1.

The importance of working conditions as a factor in professionals' decisions to enter, stay in, or leave medical career highlights the importance of coherent policies in areas such as education, employment, family life, finance, and migration. While much discussion of health workforce planning focuses on professional compensation as a key factor in recruitment and retention, access to education and training, including professional development and the ability to maintain skills, practical conditions such as availability of care, official working hours, safe staffing, meaningful professional development opportunities, and work-life balance all contribute to a healthy work environment in which medicine is an attractive and sustainable career choice (25).

8.2.

European and international medical organisations note that physicians working in hospitals, general and private practices are increasingly confronted with situations of violence — sometimes extreme — in their daily practice, outside of any conflict (26). EESC calls on the European Commission and all stakeholders to show political commitment and to be aware of the urgent need to protect the health workforce in the performance of their work.

8.3.

Healthcare workers are at risk of contracting infectious diseases through exposure at work. Transmission of diseases leads to absenteeism, morbidity, and in some cases mortality among healthcare workers. These ultimately create a reduction in the workforce and consequently affect the quality of patient care and safety.

8.4.

Healthcare workers may also suffer from psychological stress and potentially mental disorders that affect both their work and personal lives. In recent years, reports of health care workers reducing professional practice or retiring early due to burnout, depression, or other mental health conditions have increased (27). The EESC calls for investment in public mental health services to ensure full and free access to these services for all health professionals.

9.   Mobility

9.1.

The EESC emphasises that the right to mobility must be respected both within and outside the EU. Cross-border mobility should be facilitated for the benefit of the individual worker and the profession as a whole, as it provides an opportunity for knowledge transfer and mutual learning, which benefits patient care and ultimately the entire health care system. In the event of migration due to economic necessity or unfavourable working conditions, it is critical to identify and address the root causes of these dynamics and work toward improving the situation of the health workforce (28).

9.2.

Cross-border mobility adds an extra dimension to workforce planning, the establishment of a European health workforce surveillance service to assist Member States in establishing and maintaining planning structures and coordinating cross-border aspects of planning would be a useful long-term infrastructure element. It should be linked to EU processes, particularly the European Semester and pandemic planning envisaged under a future EU regulation on serious cross-border health threats (29).

9.3.

Member States must implement ethical recruitment policies in accordance with the WHO Global Code of Practice on the International Recruitment of Health Personnel (30). Recruitment of professionals from abroad should not be considered a simple means of mitigating the shortage of domestic health personnel. Where there are asymmetric mobility flows, efforts should be made to create balancing mechanisms that work toward win-win exchanges.

10.   Other comments

10.1.

Effective leadership is crucial for managing health professionals at all levels; it is a complex and highly valued component of healthcare education that is increasingly recognised as essential to achieving high standards of education, research, and clinical practice.

10.2.

Consequently, high-quality and sufficient leadership education and development should be part of the curricula of all health professions (31).

---

(1)  The European Commission published in 2012 its Action Plan for the EU health workforce.

(2)  European Commission, DG for Employment, Social Affairs and Inclusion. (2014). ‘Adequate social protection for long-term care needs in an ageing society: report jointly prepared by the Social Protection Committee and the European Commission’, Publications Office, https://data.europa.eu/doi/10.2767/32352 p. 14.

(3)  European Parliament resolution of 15.11.2018 on care services in the EU for improved gender equality https://www.europarl.europa.eu/doceo/document/TA-8-2018-0464_EN.html

(4)  OJ C 129, 11.4.2018, p. 44; OJ C 487, 28.12.2016, p. 7; OJ C 204, 9.8.2008, p. 103; Brochure and EESC opinion on Economic, technological and social changes in advanced services for the elderly (OJ C 240, 16.7.2019, p. 10); EESC opinion on ‘Towards a New Care Model for the Elderly: learning from the Covid-19 pandemic’ (OJ C 194, 12.5.2022, p. 19).

(5)  Addati, L., Cattaneo, U., and E. Pozzan. (2022) Report on ‘Care at work: investing in care leave and services for a more gender equal world of work’. ILO, Geneva https://www.ilo.org/global/topics/care-economy/WCMS_838653/lang--en/index.htm

(6)  https://www.who.int/publications/i/item/WHO-HIS-SDS-2018.53

(7)  See EESC opinion on ‘The impact of social investment on employment and public budgets’ (OJ C 226, 16.7.2014, p. 21).

(8)  Eurofound (2020), ‘Long-term care workforce: Employment and working conditions’, Publications Office of the EU, Luxembourg. https://www.eurofound.europa.eu/nb/publications/customised-report/2020/long-term-care-workforce-employment-and-working-conditions.

(9)  Barslund, Mikkel et. al (2021). ‘Study: Policies for long-term Carers’ (2021). Brussels, European Parliament, https://www.europarl.europa.eu/RegData/etudes/STUD/2021/695476/IPOL_STU(2021)695476_EN.pdf

(10)  https://www.euro.who.int/__data/assets/pdf_file/0011/186932/12-Summary-Economic-crisis,-health-systems-and-health-in-Europe.pdf

(11)  European Commission, Directorate-General for Employment, Social Affairs and Inclusion, ‘Long-term care report: trends, challenges and opportunities in an ageing society’. (2021) Volume I, Chapter 3. Publications Office, pp. 12, 28 https://data.europa.eu/doi/10.2767/677726

(12)  See footnote 11, pp. 68–70.

(13)  European Commission, DG for Employment, Social Affairs and Inclusion, (2018) Zigante, V., ‘Informal care in Europe: exploring formalisation, availability and quality’, Publications Office, https://data.europa.eu/doi/10.2767/78836

Spasova, S., et al (2018). Challenges in long-term care in Europe. A study of national policies, European Social Policy Network (ESPN), Brussels: European Commission. https://ec.europa.eu/social/main.jsp?catId=738&langId=en&pubId=8128&furtherPubs=yes

(14)  See footnote 11, chapter 3.

(15)  European Commission, DG for Employment, Social Affairs and Inclusion. (2014). ‘Adequate social protection for long-term care needs in an ageing society: report jointly prepared by the Social Protection Committee and the European Commission’, Publications Office, p. 36 https://data.europa.eu/doi/10.2767/32352 and Pan-European Commission on Health & Sustainable Development (2021). ‘Drawing light from the pandemic: a new strategy for health and sustainable development. A review of the evidence’ https://www.euro.who.int/__data/assets/pdf_file/0015/511701/Pan-European-Commission-health-sustainable-development-eng.pdf

(16)  Danis, K., Fonteneau, L., et al.,(2020). High impact of COVID-19 in long-term care facilities: suggestion for monitoring in the EU/EEA,. Euro Surveillance : European Communicable Disease Bulletin, 25(22). https://doi.org/10.2807/1560-7917.ES.2020.25.22.2000956

(17)  OJ C 286, 16.7.2021, p. 109; OJ C 429, 11.12.2020, p. 251; OJ C 242, 23.7.2015, p. 48; OJ C 143, 22.5.2012; OJ C 18, 19.1.2011, p. 74; OJ C 77, 31.3.2009, p. 96.

(18)  https://one.oecd.org/document/ECO/WKP(2021)43/en/pdf

(19)  Liu JX, Goryakin Y, Maeda A, Bruckner T, Scheffler R. Global health workforce labor market projections for 2030. Human Resources for Health 2017; 15:11 (https://human-resources-health.biomedcentral.com/articles/10.1186/s12960-017-0187-2).

(20)  https://www.who.int/health-topics/health-workforce#tab=tab_1

(21)  In 2012, the European Commission published its Action Plan for the EU health workforce.

(22)  CPME Policy on Health Workforce (https://www.cpme.eu/policies-and-projects/professional-practice-and-patients-rights/health-systems-and-health-workforce).

(23)  See footnote 2.

(24)  Russo G, Pavignani E, Guerreiro CS, Neves C. Can we halt health workforce deterioration in failed states? Insights from Guinea Bissau on the nature, persistence and evolution of its HRH crisis. Human Resources for Health 2017; 15(1):12.

(25)  See footnote 2.

(26)  https://www.cpme.eu/api/documents/adopted/2020/3/EMOs.Joint_.Statement.on_.Violence.FINAL_.12.03.2020.pdf

(27)  Dyrbye, L. N., T. D. Shanafelt, C. A. Sinsky, P. F. Cipriano, J. Bhatt, A. Ommaya, C. P. West, and D. Meyers. 2017. Burnout among health care professionals: A call to explore and address this underrecognised threat to safe, high-quality care. NAM Perspectives. Discussion Paper, National Academy of Medicine, Washington, DC.

(28)  European Commission, DG for Employment, Social Affairs and Inclusion. (2014). ‘Adequate social protection for long-term care needs in an ageing society: report jointly prepared by the Social Protection Committee and the European Commission’, Publications Office, https://data.europa.eu/doi/10.2767/32352 p. 14.

(29)  European Commission, DG for Employment, Social Affairs and Inclusion. (2014). ‘Adequate social protection for long-term care needs in an ageing society: report jointly prepared by the Social Protection Committee and the European Commission’, Publications Office, https://data.europa.eu/doi/10.2767/32352 p. 14.

(30)  https://www.who.int/publications/m/item/migration-code

(31)  Van Diggele, C., Burgess, A., Roberts, C., & Mellis, C. (2020). Leadership in healthcare education. BMC Medical Education, 20 (Suppl. 2), 456. https://doi.org/10.1186/s12909-020-02288-x

Opinion on the European Economic and Social Committee on The EU Youth Test

(own-initiative opinion)

(2022/C 486/07)

Rapporteur:

Katrīna LEITĀNE

Plenary Assembly decision	24.2.2022
Legal basis	Rule 32(2) of the Rules of Procedure
	Own-initiative opinion
Section responsible	Employment, Social Affairs and Citizenship
Adopted in section	6.9.2022
Adopted at plenary	21.9.2022
Plenary session No	572
Outcome of vote (for/against/abstentions)	158/0/5

1.   Conclusions and recommendations

1.1

Political participation is the basis of every functioning democracy. The main asset of the EU for young Europeans is the respect for democracy, human rights and the rule of law (1). It is crucial to ensure that young people have a say in decisions affecting their future since even an indirect effect can still have a strong impact on young people and generations to come. Policies not directly targeting young people or not considered to be part of the traditional youth policy field can still have a strong impact on young people’s lives. It is important to offer efficient mechanisms which complement the existing participatory mechanisms and are aligned with democratic principles and tailored to the needs of young people. This can contribute to better and more effective policy-making.

1.2

The EESC believes that education is one of the most effective ways of reaching out to young people and to inform them about all the possible forms of participation and the values the European project represents. Existing programmes supporting formal and non-formal education, such as Erasmus+ and the European Solidarity Corps, have successfully improved the views of young people when it comes to democratic participation and the values and principles of the European Union.

1.3

The EESC points out that there is an explicit need to include young people in policy-making through their meaningful participation in the way most suited to young people, followed by monitoring, evaluation and impact assessment to ensure that the views of young people have been taken into account when policy decisions are made. Involvement throughout the policy-making process creates trust among young generations and beyond, enabling them to be seen as relevant and significant during that process. These processes should include visible and transparent communication of the outcomes of their involvement. This element is crucial in order to build trust between young people and policy-making (2). Furthermore, social inclusion and reaching out to groups with different needs is very important.

1.4

The EESC agrees that civil society organisations can play a critical role in engaging young people in societal challenges and therefore in their participation in policy-making and the democratic process. Such organisations can serve as bridges and support networks to help young people engage with formal public bodies and enable young people to become active citizens. The EESC supports these organisations and young citizens in taking action and calls for measures to enable them to do so.

1.5

The EESC encourages the EU institutions and Member States to implement measures and mechanisms that ensure that the youth perspective is taken into account in every policy field, while also creating space for young people to provide consistent and expert input on the challenges they are facing. These structures should also include transparent and visible follow-up and monitoring mechanisms, and complement existing youth participation instruments while not resulting in decreased funding. Suitable resources should be made available for meaningful youth participation in policy-making.

1.6

Young people’s participation in policy and decision-making processes can support better regulation and policies by mapping and understanding the current and upcoming trends that are impacting the lives of young people and future generations. This can also make the task of the author of a proposal easier, since they can receive qualitative input to complement secondary data.

1.7

The EESC would like to stress that while the EU Youth Test is built on the key objectives of the EU Youth Strategy (3) and the European Year of Youth, both emphasise the importance of youth mainstreaming in policy-making, which requires a cross-sectoral approach. It is also one of the measures set out in the Report on the Final Outcome (4) of the Conference on the Future of Europe which has been endorsed by all voting components in the Conference plenary and citizens. To achieve long-lasting impact and a legacy beyond the European Year of Youth, young people need to be empowered to lead the change and to build a better future.

1.8

The EESC acknowledges the reference to the EU Youth Test in the European Commission’s Communication on the outcomes of the Conference on the Future of Europe (5). However, it stresses that the Commission’s proposal is not in line with the goals and means of the original proposal and lacks meaningful engagement with youth organisations and experts, the mainstreaming of youth in all policies and does not consider the long-term impact of policies on future generations. The EESC believes an EU Youth Test should be part of the Better Regulation Toolbox as a separate tool, since future generations and young people deserve specific attention.

1.9

The EESC is calling for more cooperation between the institutions on aligning existing successful initiatives such as the EU Youth Dialogue, ‘Your Europe, Your Say!’ and the European Youth Event, and for them to be connected to future initiatives such as the EU Youth Test, in line with the EU Youth Strategy. Furthermore, the EESC outlines a list of proposals on youth participation in the EESC and aims to introduce the EU Youth Test concept in its work.

2.   General comments

2.1    The role of young people in building the European project

2.1.1

Young people are the engine of the European project and their creativity, energy and enthusiasm is the driving force for its sustainability. The current year 2022 has been designated the European Year of Youth, with the President of the European Commission, Ursula von der Leyen, stating that ‘Europe needs all of its youth’ and ‘Our union needs a soul and a vision they can connect to’ (6).

2.1.2

The EU project cannot be effectively and properly achieved in the current democratic environment without recognising the discourse on youth political participation (7) within democratic traditions and geopolitical contexts. The Vice-President for Promoting our European Way of Life, Margaritis Schinas, has stated that ‘The European Year of Youth should bring a paradigm shift in how we include young people in policy and decision-making’. The underlying justification is to provide access to, and to empower (8) young people to engage in meaningful youth participation.

2.1.3

According to Eurobarometer polls (9), less than half (47 %) of Europeans trust the EU and only 44 % have a positive image of it. The future of the European project is highly dependent on how strong young people’s association is with Europe’s values and their willingness to embrace a European identity. Young people’s active engagement in the political and decision making processes is crucial since their future will be determined by today’s decisions. Therefore, participatory instruments should be introduced to ensure young people’s voices are taken into account. Participation in civil and democratic life has to be strengthened at all levels to ensure Europe’s future prosperity, acknowledging that democratic maturity influences (10) patterns of political participation among young people in the EU.

2.1.4

The EU’s initiative to convene a Conference on the Future of Europe worked as an incentive to promote participatory dialogue with citizens across the Union. Improving the effectiveness of existing youth participation mechanisms, and developing new ones, is considered to be the way forward. As suggested in the final outcomes of the Conference on the Future of Europe, this could include a ‘Youth Test’ (11) of legislation, with an impact assessment and a consultation mechanism involving representatives of young people (12).

2.1.5

The Youth Test acts as a method of Strategic Foresight for policy-making. Strategic Foresight is a valuable concept that the European Commission aims to use within the policy-making process. As it builds on principles such as horizon scanning, megatrends analysis, scenario planning and visioning, it is inevitable that the youth perspective and that of future generations is considered within this framework. While the foresight process acknowledges that the future is not predetermined, it collects information on possible scenarios and aims to prepare for emerging challenges. Intergenerational dialogue can include valuable tools that ensure that the policies drafted consider these trends and future scenarios. Conducting analysis that considers the perspective of young people and future generations can and should contribute to better and more tailored policies that are capable of addressing the challenges of future generations.

2.1.6

In order to create better policies that are fit for future challenges, these need to acknowledge and safeguard the rights of young people and future generations, ensuring there are no negative impacts on any specific generational and social groups. These groups are currently often ignored or considered as part of other groups, which does not reflect the reality. As a result, policies do not properly address challenges and contribute to the decline in trust and disengagement with formal institutions.

2.2    The need for meaningful youth participation

2.2.1

Meaningful involvement is about power-sharing, an ability to make decisions, with the engagement of other stakeholders, under transparent conditions known to all actors concerned. Well-designed accountability processes establish the trust of all stakeholders in political participatory processes and the explicit responsibilities of the various actors should be communicated to all stakeholders.

2.2.2

Young people’s trust in public institutions has stalled since the global financial crisis in the late 2000s (13) and their perception of having political influence and representation in decision-making remains unchanged. Youth participation in democratic life can take diverse forms. However voting in local, national or European elections is considered to be the most effective way of making their voice heard by decision-makers (39 %) (14) while the proportion of young people trusting this type of democratic participation is still very low. At the same time, for those likely to stay away from politics this is due to the lack of meaningful engagement and trust and the feeling that there is no point in participating without their contribution being taking into account. One of the main barriers for young people to participate is the belief that decision-makers ‘don’t listen to people like me’ (15). Promoting trust and strengthening the dialogue between young people and public institutions is thus crucial to ensuring the preparedness and resilience of societies to cope with future shocks (16).

2.2.3

A majority (70 %) (17) of young people feel they do not have much, or any, say over important decisions, laws and policies affecting the EU as a whole. 24,8 % (18) of young people feel they have no influence at all over what topics enter public or political debates and a further 40,8 % say they do not have much influence. Furthermore, 2/3 of the respondents consider that more awareness among politicians of young people’s concerns would help young people to influence public policy more, while more than 50 % of them think that a stronger role of youth organisations in politics would serve this purpose as well.

2.2.4

Young people have changed their modes of participation, now preferring non-institutionalised, and particularly non-electoral, forms of political engagement (19). Research has increasingly shown that this is linked to declining levels of trust in public bodies, and dissatisfaction with how representative democracy works. Young people’s unconventional political participation has become increasingly fluid, individualised and personalised with a preference for engaging on single issues and topics as well as direct activism and protest in the sense of ‘individual lifestyle choices’ (20). Overall, young people are highly motivated politically. Experts on political participation, when considering the question of youth participation, have turned their focus from whether young people wish to participate to where and how they choose to express their political views (21). Considering the wide range of ways young people now seek to influence policy and politics, there is a clear need to take account of the unconventional nature of political participation, participatory decision-making, enhanced communication and transparency mechanisms within a democratic institutions framework. Policy-making within public bodies should be adjusted and designed accordingly to ensure outreach and engagement with all groups of young people when policy decisions are made. Participatory mechanisms should in fact be inclusive and communicated in such a way as to reach a diverse public and those who are hard to reach.

2.2.5

Youth-led organisations have developed expertise and knowledge of a wide range of topics related to issues young people are facing. Including them in the policy-making process will result in more coherent and adapted rules and regulations. This is also supported by the ever increasing number of young people who are joining these organisations (22).

2.2.6

Meaningful engagement with young people is crucial. Youth participation needs to be improved, tackling in particular: lack of youth democratic representation, and lack of a youth perspective outside of the traditional youth policy domain. Young people wish to be included in shaping policies that impact their lives. Intergenerational justice (23) is how inequality between generations in ageing societies can be healed.

2.2.7

The existing tools for youth impact analysis, such as Tool #31 in the Better Regulation Toolbox, do not provide for youth mainstreaming and the inclusion of youth organisations and young people with relevant expertise, who are able to provide a systematic review of the issues from a youth perspective. What is more, based on the publications available, such tools are implemented less frequently than the relevancy and significance of the proposals would require.

3.   Specific comments

3.1    The EU Youth Test

3.1.1

The proposal is based on three pillars: consultation, impact assessment and mitigation measures (24). It provides a framework for improving the effectiveness and efficiency of policy, based on strengthened youth participation and youth mainstreaming in policy-making, while also taking into account vulnerable groups of young people, such as young people with disabilities, NEETs (25), young people living in remote areas, etc. With the different components of the EU Youth Test, it provides a coherent structure for producing high quality and better policies that address issues that future generations may face.

3.1.2

The first step of the EU Youth Test is to determine the relevance and impact of any upcoming draft policy proposals for young people and future generations. This will help determine whether a full Youth Test should be carried out on that upcoming policy. Through a checklist tool, the assessors determine whether the draft proposal is indeed relevant for young people, and the direct and indirect impact of the proposal on young people and future generations. If such a determination is made, the Youth test proceeds to the full consultation, impact assessment and mitigation measures stages. The checklist indicators would be based on the needs and ideas of young people in order to ensure it considers the relevant proposals from their perspective.

3.1.3

Under the next step, the respective assessors are expected to consult meaningfully with youth-related stakeholders in order to ensure that systematic expertise is provided for a thorough analysis. Based on this engagement, the assessors will seek to identify young people’s concerns about the potential impacts of the draft policy being tested. This participatory component needs to be transparent and provide space for a wide range of youth representatives, youth-led organisations and young people with relevant expertise to provide input. This way, a systematic approach to the issues tackled by the draft policy proposals can be ensured. Including youth organisations, youth representatives and young people with relevant expertise can give a very diverse and unique background to the impact assessment. Through meaningful engagement, the assessors can receive a comprehensive overview based on the overarching knowledge and expertise that these young people have established. Using this input, the impact analysis can be detailed enough to identify the challenges and aspects where policies might cause disruption.

3.1.4

Based on the available data to be gathered throughout the process and on the outcomes of the consultations, the assessors are able to draft the impact analysis following the topics mentioned in the checklist and also provide foresight analysis for future generations.

3.1.5

If a negative impact is identified, the assessor ought to propose mitigation measures which should primarily focus on groups living in vulnerable situations and disadvantaged young people. It is advisable that, during the consultation, the assessors include questions about possible mitigation measures that could be included in the analysis. In the coming years, it is recommended that an evaluation be carried out to monitor the impact of the policies and how the mitigation measures have addressed the negative impacts.

3.1.6

The EU Youth Test should not substitute meaningful engagement with young people in general and should complement existing participatory mechanisms.

3.1.7

The proposal was an outcome of a series of discussions with Europe’s largest youth networks, while also being specifically mentioned in several recommendations of the EU Youth Dialogue since it (and its predecessor the Structured Dialogue) was established. Young people expressed their strong wish for a transparent policy-making procedure that would allow young people to contribute to drafting and to monitor the outcomes.

3.1.8

The proposal is also inspired by the SME test, which is an example of a suitable EU level impact assessment tool, based on the three pillars of consultation, impact analysis and mitigation measures (26). Furthermore, like the SME test, the EU Youth Test is also intended to be part of the Better Regulation Toolbox as a separate tool in order to emphasise the role of young people in the future of Europe, in line with the communication of the President of the European Commission.

3.1.9

The proposal is based on the examples of youth impact assessment tools already existing in several Member States, such as Austria, Germany, France, Flanders in Belgium and outside of the EU as well, like in New Zealand and Canada.

3.1.10

The proposed impact assessment is providing a solution to ensure the impact of policies take into account the needs and expectations of young people and provides a scope outside of the traditional youth policy field. Only a small part of the proposals from the European Commission is analysed from the youth perspective. However, a significant part of these proposals directly and indirectly affects the quality of lives of young people.

3.1.11

It is suggested to include the EU Youth Test in the publicly available Better Regulation impact assessments and publishing it on the European Youth Portal. However, the most impactful way should be further explored. Nonetheless, the Directorate-General for Communication is encouraged to actively promote it to ensure its visibility, while the Secretariat-General should support its adoption across different DGs. The EU Youth Test could be also published by those institutions that decide to implement it, including on the website of the EESC. By publishing the assessment and the final version of the proposal the youth stakeholders involved in the consultation will be able to see how their contribution has been taken into account.

3.1.12

The EU Youth Test is proposed to be a structure that can be implemented at local, regional and national level, together with the institutions of the European Union.

3.1.13

The EU Youth Test can potentially improve policies but it also needs to be based on meaningful participatory mechanisms, because drawing on community knowledge is a way to ensure efficiency and bring about improvements.

3.2    Youth participation within the EESC

3.2.1

The EESC acknowledges the importance of youth engagement in shaping Europe’s future (27), and thus runs several successful initiatives such as ‘Your Europe, Your Say!’, the Youth Climate and Sustainability Round Tables, and the EU Youth Climate Summit jointly organised by the EESC and the European Parliament. As a follow-up to the EESC’s opinion NAT/788 (28), the EESC included a youth delegate in its official delegation to the UNFCCC COP meeting for the first time in 2021, on the occasion of COP26. Furthermore, in the context of the European Year of Youth, the EESC Civil Society Prize 2022 will reward effective, innovative and creative initiatives which aim to create a better future for and with young Europeans.

3.2.2

The EESC will endeavour to magnify the voices of young people and youth organisations through more structured, meaningful and targeted youth participatory mechanisms in order to enhance the internal engagement of young people and youth organisations in the EESC’s work. Accordingly, the following steps by the EESC should be taken: — transparent and cross-sectional coordination mechanisms should be introduced to mainstream youth perspectives in the EESC’s work and legislation; — young experts with relevant expertise on key opinions could be introduced; — in the context of the European Year of Youth, to have youth as a common topic for the autumn round of own-initiatives opinions; — to hold thematic debates with European youth organisations and grass-root organisations to link national and European perspectives more effectively; — youth-related topics could be selected for EESC studies (29) yearly; — all opinions drawn up by the EESC should also always take into account the intergenerational perspective (as they do for the gender perspective); — to build vibrant relations with other EU institutions to map youth participatory mechanisms and to strengthen outreach activities with youth and youth organisations at national, regional and local level; — to adopt the resolution on youth engagement in the EESC drafted by the Coordination Group for the European Year of Youth; — to create a ‘youth engagement’ tab on the EESC website to highlight the past, current and future youth-related activities including opinions, public hearings, events etc.; — a permanent structure could be established within the EESC to ensure that the work on youth engagement within the EESC and with the other institutions will continue beyond 2022.

3.2.3

The EESC will further explore and consider possible ways to apply the EU Youth Test concept in its work to develop a consistent approach on youth involvement in the EESC.

3.2.4

The EESC invites the European Commission to respond to this own-initiative opinion and the EU Youth Test proposal and to brainstorm together on the implementation.

---

(1)  Desk research European Youth in 2021.

(2)  Influencing and understanding political participation patterns of young people, European Parliament, 2021.

(3)  European Council Resolution on The European Youth Strategy 2019-2027.

(4)  Conference on the Future of Europe, Report on the final outcome, May 2022.

(5)  https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A52022DC0404&qid=1660827033223

(6)  https://ec.europa.eu/commission/presscorner/detail/en/speech_21_4701

(7)  Deželan, T., Moxon, D., Influencing and understanding political participation patterns of young people: The European perspective, study, 2021.

(8)  Barta, O., Boldt, G., Lavizzari, A., Meaningful youth political participation in Europe: concepts, patterns and policy implications, research study, 2021.

(9)  Eurobarometer 96 — Winter 2021-2022.

(10)  Kitanova, M., ‘Youth political participation in the EU: evidence from a cross-national analysis’, Journal of Youth Studies, Vol. 23, No. 7, 2020 (paper received in 2018).

(11)  https://www.youthforum.org/files/YFJ_EU_Youth_Test.pdf

(12)  Report on the final outcome of the Conference on the Future of Europe.

(13)  Governance for Youth, Trust and Intergenerational Justice Fit for all generations? Highlights.

(14)  Flash Eurobarometer on Youth and Democracy, conducted between 22 February and 4 March 2022.

(15)  European Parliament youth survey Report (European Parliament, September 2021).

(16)  Governance for Youth, Trust and Intergenerational Justice Fit for all generations? Highlights.

(17)  European Parliament youth survey Report (European Parliament, September 2021).

(18)  Youth Survey Report (Under the Trio Presidency Germany-Portugal-Slovenia, January 2022).

(19)  Youth Survey Report (Under the Trio Presidency Germany-Portugal-Slovenia, January 2022).

(20)  Youth Survey Report (Under the Trio Presidency Germany-Portugal-Slovenia, January 2022).

(21)  Deželan, T., Moxon, D., Influencing and understanding political participation patterns of young people: The European perspective, study, 2021.

(22)  Eurobarometer on the European Year of Youth: Young Europeans are increasingly engaged, European Commission, 2022.

(23)  Governance for Youth, Trust and Intergenerational Justice Fit for all generations? Highlights.

(24)  https://www.youthforum.org/files/Concept-Note_final.pdf and https://www.youthforum.org/files/YFJ_EU_Youth_Test.pdf

(25)  OJ C 152, 6.4.2022, p. 27.

(26)  Better Regulation Toolbox — SME Test.

(27)  SOC/706 European Year of Youth, OJ C 152, 6.4.2022, p. 122 and SOC/589 A new EU Youth Strategy, OJ C 62, 15.2.2019, p. 142.

(28)  OJ C 429, 11.12.2020, p. 44.

(29)  There is an ongoing EESC study on structured youth engagement: mapping local, national, EU and international good practices to develop the necessary and appropriate mechanisms to ensure that the voices of young people will be heard.

Opinion of the European Economic and Social Committee on the Role of carbon removal technologies in decarbonising European industry

(own-initiative opinion)

(2022/C 486/08)

Rapporteur:	Andrés BARCELÓ DELGADO
Co-rapporteur:	Monika SITÁROVÁ

Plenary Assembly decision	18.1.2022
Legal basis	Rule 52(2) of the Rules of Procedure
	Own-initiative opinion
Section responsible	Consultative Commission on Industrial Change (CCMI)
Adopted in section	24.6.2022
Adopted at plenary	21.9.2022
Plenary session No	572
Outcome of vote (for/against/abstentions)	229/0/7

1.   Conclusions and recommendations

1.1.

The EESC reiterates its strong support for the Green Deal commitments and for reinforcing strategic autonomy in energy provision and industrial leadership.

1.2.

The effects of the ongoing war in Ukraine on the availability of energy and raw materials cannot be disregarded, and the European Semester must monitor the situation.

1.3.

The green transition in the manufacturing industry needs a basis of a sufficient, proper mix of renewable energy for electrification and for the production of green hydrogen to succeed. Carbon Dioxide Removal technologies (CDRs), Carbon Capture and Storage (CCS) and Carbon Capture and Use (CCU) will help the industry to achieve climate neutrality. Deployment of renewable energy across Europe is necessary to achieve the Green Deal targets.

1.4.

Decarbonisation will require a deep transformation of industrial activities (in the next 30 years). Although many low-carbon technologies already exist, their technology readiness levels (TRL (1)) are low. Ambitious technology roadmaps will be needed to upscale and widely deploy these breakthrough technologies, and the EU must promote innovation through the Climate and Innovation Funds.

1.5.

Development of technologies and education and reskilling of the workforce is therefore vital for the green transition in the manufacturing industry. Social dialogue at both European, Member State and regional level should support awareness, acceptance and support of a green and just transition in the industry. Capability building and projects to define key skills will be essential in order to ensure an effective industrial transition that leaves no one behind.

1.6.

Increasing the use of alternative feedstocks — in particular sustainable biomass — has the potential to contribute to sustainable removal of carbon from the atmosphere by promoting the sustainable management of productive land (farm and forest land) and the use of biomass in long-lived products that further prolong the removal benefit. Additionally, it would help to reduce the EU's dependence on imported feedstocks and resources.

1.7.

The EESC calls for the competitiveness of European industry to be preserved: the EU is a pioneer in CO2 emissions reduction, but it needs other players to follow its climate ambition. As the climate crisis is global, European Union diplomacy must step up its efforts to effectively persuade third countries to scale up their efforts to fight it. Regardless of the ambitious EU policy objectives, the EU will increasingly become a pioneer for the decarbonisation of industries thanks to its political support and to companies’ and their workers’ practical knowledge of industrial capacities, the necessary technologies and how to anticipate change, enabling practical measures to be taken accordingly.

1.8.

Keeping a sound industrial base within the EU will secure prosperity, quality jobs and a commitment to fighting climate change for European society. European industry must invest in Europe, with a proper regulatory framework, in both R&D&I and plant and equipment, in order to keep its competitive position.

2.   General comments

2.1.

The European climate law has set an ambitious emission reduction target for 2030 while confirming the climate neutrality objective for 2050. In order to reach the European Union’s goal, all greenhouse gas (GHG) emissions activities need to be analysed and pathways to net-zero emissions by around 2050 need to be identified.

2.2.

Manufacturing industries are responsible for 20 % (2) of European emissions. The CO2-intensive manufacturing industries in Europe are the iron and steel, cement, chemical and petrochemical, pulp and paper, fertiliser, glass, ceramic, oil refineries and non-ferrous metal (mainly aluminium) industries. The industrial sector’s GHG emissions include carbon dioxide (CO2) from energy use, from non-energy uses of fossil fuels and from non-fossil fuel sources, as well as non-CO2 gases.

2.3.

The green transition of the manufacturing industry is vital in order to comply with the European climate law. There will be a transition in technologies and, following that, changes in working methods, skills and competencies in the industries. However, demand-side measures to promote the uptake of low-carbon products and new business models (industrial symbiosis, circularity, demand response) will also be needed.

3.   Manufacturing industry on the pathway to climate neutrality

3.1.

This own-initiative opinion focuses on industrial sectors under the ETS. Energy utilities, transport and buildings are not, therefore, covered.

3.2.

In addition to the decarbonisation challenge, improving energy efficiency is imperative for every single industrial sector. Although it will not be enough to decarbonise European industry, energy efficiency can significantly reduce emissions from energy consumption. There will be a shift from fossil fuels to non-greenhouse gas emitting technologies, mostly renewable energy. Utilities and public authorities are accountable for the energy transition from fossil fuels to non-emitting technologies.

3.3.

In relation to the decarbonisation challenge, industries could be classified as follows: — sectors that need to radically change their production process: steel (integrated route), fertilisers and chemical industry; — sectors that need to change the energy vector in the production process: steel (electric arc furnaces), glass, ceramic, paper, etc.; — ‘hard to abate sectors’, such as the cement sector, which must capture and store (or use) the CO2 emitted during the manufacturing process to become climate neutral; — sectors that may take advantage of Carbon Capture and Utilisation technologies, to develop high value-added products, such as oil refineries and the chemical and petrochemical industries.

3.4.

Industrial high-efficiency cogeneration (CHP (3)) will certainly contribute to more energy efficiency, but it cannot decarbonise the industry. Alternatively, using low enthalpy heat from the industry for district heating would be another way to raise overall energy efficiency, and it could maybe be credited during the transition path to full decarbonisation.

3.5.

Carbon Dioxide Removal (CDR) technologies remove CO2 already emitted from the atmosphere, thus creating ‘negative’ emissions. CCS-related technologies, such as bioenergy with carbon capture and storage (BECCS) and direct air capture and storage (DACCS), are an important part of the portfolio of negative emissions technologies. However, despite their climate change mitigation potential, these technologies are currently only at the demonstration stage. Other CDR technologies comprise activities enhancing natural CO2 sinks, such as afforestation and reforestation, and are outside of the scope of this opinion.

The challenge of the future of CDR in the manufacturing industry is to find a balance where carbon capture and storage is a mitigation option alongside other carbon reduction and removal technologies. GHG reductions and removal must be aligned with the Paris Agreement and the European climate law. CCS can enable the EU to proceed at the necessary pace with GHG removal, but the goal must be to avoid carbon storage in the long run.

3.6.

Hydrogen produced by using renewable energy (green hydrogen) seems to be the cross-sectoral answer to the decarbonisation processes. For example, there is a project in Sweden aiming to eliminate greenhouse gas emissions from steel production by using renewable hydrogen. In Finland, a project will demonstrate ways of producing blue and later green hydrogen and capturing CO2 and permanently store it in the Baltic Sea.

4.   Manufacturing industry on the road to decarbonisation

4.1.

Of all European industries, we are focusing on the sectors with high potential for improvement and impact on reducing European CO2 emissions. In the manufacturing industry, the focus is on sectors which have more challenges to overcome in order to decarbonise. This opinion focuses on the steel, cement, chemical and petrochemical, oil refineries, pulp and paper, fertiliser, glass and ceramic industries.

4.2.

Before describing technologies that could have an impact on the reduction and removal of carbon dioxide emissions, we have to consider turning from fossil fuel-derived energy sources to other non-emitting sources of energy and other renewable sources. These sources could be wind power, photovoltaic and thermo-solar power, hydropower, geothermal energy, biomass and biofuels.

4.3.

There are some industries that would have to adopt existing or new technologies in their processes in order to achieve zero emission of GHGs in order to move to a climate neutral society. Depending on each industry and their current CHG emissions, they may need to take a single or several steps.

4.4.

This first step could seem to be ‘just’ a change in the production/sourcing part of the process. In many other situations, further research and development may be needed, for example to adapt current natural gas burners to hydrogen or to use heat pumps. In addition, considerations regarding the interplay between hydrogen and the materials or products should be addressed too.

4.5.

Steel industry: The challenge for the traditional steel industry (integrated route, which requires iron ore reduction) has already led to several new technological approaches being introduced, which now focus on replacing blast furnaces with electric arc furnaces fed with direct reduced iron (DRI) produced using green hydrogen. Other alternatives already explored rely on CCS technologies, but they cannot meet the GHG reduction target. Iron ore electrolysis could emit up to 87 % less CO2 than the current integrated route (if the electricity supply is fully decarbonised). Hydrogen plasma reduction aimed at zero CO2 emissions. In fact, hydrogen steelmaking could emit up to 95 % less CO2 than the current integrated route (if it uses fully decarbonised electricity), but due to the energy lost during hydrogen production this would increase the industry’s energy consumption. Steel produced in electric arc furnaces emits just 14 % of the GHG emissions from the integrated route and its main challenge is to replace natural gas in the rolling furnaces with green hydrogen or induction electricity. CCU (using the waste gases of blast furnaces) can reduce emissions by up to 65 % if fully deployed (CO2 reduction also depends on the full lifecycle of the resulting chemical products). Several are at a more advanced stage of development — the Steelanol demonstration plant (currently under construction — TRL 9) uses waste gas to produce bio-ethanol and the Carbon2Chem project (TRL 7-8) aims to use waste gas as a raw material for chemicals.

4.6.

Cement industry: Only 37 % of emissions in the cement industry come from fuels, while the remaining 63 % of emissions are the result of a chemical reaction of the raw material (process emission). The use of fuels derived from renewable sources (biomass or hydrogen) will therefore reduce emissivity by a maximum of 35 %. Technologies are currently being tested that may allow for the future capture and management or storage of CO2 (amine method and calcium loop). Another way to reduce emissions is to develop what are known as low-clinker cements, which currently have a TRL of 5-7. Such cements have an emissivity up to 30 % lower than pure Portland cements.

4.7.

Chemical industry: In the chemical industry, the electrification of production processes such as steam cracker electrification aims to cut CO2 emissions per cracker by 90 %. The chemical sector is an important contributor to restoring sustainable carbon cycles. Chemical products are a massive reservoir of carbon that can fix the carbon for 10-40 years. Today the volume of carbon embedded in chemical products is comparable to total emissions of the industry for the production of those. Even most of this carbon ends up in the atmosphere when products are incinerated at the end of their use, setting up an ambitious circular economy strategy is a pre-requisite for achieving sustainable and climate-resilient carbon cycles by keeping carbon ‘in the loop’. The chemical sector can contribute to emission abatement in other sectors by ‘absorbing’ carbon and storing it in products.

4.8.

Pulp and paper industry: In the pulp and paper industry, a combination of process improvements, including the transition to Industry 4.0, along with investments in state-of-the-art production technologies, are expected to lead to a reduction of 7 million tonnes of CO2 by 2050. Leveraging its on-site CHP facilities, the industry has the ability to engage on the energy market using surpluses of intermittent renewable energy. The associated decarbonisation benefits could be as high as 2 million tonnes. Further conversion of industrial installations to low- to no-carbon energy sources is projected to deliver an emissions reduction of 8 million tonnes of CO2. In addition to some of the breakthrough concepts identified in the Two team Project (4), such as the Deep Eutectic Solvents technology now under development, other innovative and disruptive solutions could complement the emission reduction effort by some 5 million tonnes of CO2.

4.9.

Oil refineries: Oil refineries have the potential to contribute to the energy and climate transition of the EU economy in two ways: i) by substantially reducing the carbon footprint of their manufacturing process, and ii) by progressively replacing fuels and other products of fossil origin with fuels and other products based on biogenic or recycled CO2. The gradual replacement of fossil energy with bioenergy, coupled with CCU & CCS technologies, will even result in negative GHG emissions. The net GHG emissions generated during use of fuels and other refinery products can be radically cut by progressively switching the feedstock from crude oil to sustainable biomass and recycled CO2. The resulting fuels, once burned, will add zero or very low net CO2 to the atmosphere, thus contributing to the decarbonisation of transport, especially for those modes more difficult to electrify. Investments and new projects in these fields are ongoing. As an example, three of the approximately 80 major refineries in the EU have been converted to biorefineries, completely replacing crude oil with sustainable biomass (5). This climate transition strategy requires lower financial resources than other solutions, as the refineries themselves and the logistics system for the distribution of products can to a large extent be adapted and reused.

4.10.

Fertilisers: The fertiliser industry is now exploring replacing natural gas as a raw material with green hydrogen. Several pilot projects (6) are being developed across the EU, and once green hydrogen becomes available and its cost is settled, the industry will move forward to full decarbonisation.

4.11.

In conclusion, the manufacturing industry has potential for decarbonisation through energy efficiency, optimising processes and conversion to renewable energy. R&D&I investments will be needed in order to reach the carbon neutrality goal by 2050. CCS and CCUS technologies are also of importance for manufacturing industries such as the cement industry and where biomass is the energy source.

5.   Skills and competencies in the future manufacturing industry

5.1.

New industrial processes will undoubtedly demand new working methods. Industries and workers will need to adapt the way they perform their duties in the industry, focusing on reducing CO2 emissions from the very first steps in the manufacturing processes.

5.2.

The green transition of the manufacturing industry will change production in many ways, by fully deploying new production technologies and taking advantage of digitalisation. New skills and up- and reskilling, will be needed to achieve a just transition where no one is left behind. Special attention must be devoted to inviting EU citizens and workers, SMEs, social enterprises and regional experts to play a proactive part in the unavoidable change in the places where they live.

5.3.

The EU must ensure that knowledge on new technologies and how to implement them in current industries reaches industry workers. Public authorities and companies, within the social dialogue, have to make the effort to leverage already existing skills as well to meet the decarbonisation objectives.

5.4.

Full deployment of green hydrogen in the industry will be key for many industries. However, in addition, implementing the CDR technologies will influence skills and competencies in the manufacturing industry and also very much in the supply chain.

6.   EU action and framework conditions

6.1.

The EU legal framework and national regulations have to help decarbonise the industry. It should take into account that there are going to be different possibilities and/or resources to be invested for the transition that differ widely between Member States and between regions in Europe.

6.2.

The Just Transition Fund dedicated to supporting regions that are highly dependent on carbon intensive industries is a positive first step. However, the scope, which is limited to regions highly dependent on coal, lignite, peat, oil shale and carbon intensive industries, is too narrow. The EESC, like the European Parliament, proposes dramatically increasing the Just Transition Fund budget, in order to provide support to other sectors that will be affected by the decarbonisation of industry. Additional budget resources should be earmarked to ensure job-to-job transition, alternative, quality job creation in the same regions and proper training, reskilling and upskilling of workers.

6.3.

The green transition in industry will require access to abundant carbon neutral energy and feedstock at an affordable, stable and competitive price. Significant investments, including in energy infrastructure, will have to take place in Europe in order to meet industry’s need for large quantities of renewable energy.

6.4.

The EU regulatory framework must lead the EU economy to meet the objective of net climate neutrality in 2050 by creating the conditions to unlock the huge resources — financial, technological and intellectual — for investments in low-carbon technologies, including Carbon Removal Technologies, to be quickly implemented.

6.5.

Regular incentives are needed to encourage the deployment of carbon capture in manufacturing industries, either at European level — through the Innovation Fund — and in every Member State, but without breaking up the Single Market, which is one of the cornerstones of the EU. Additional EU initiatives will be needed to attract and mobilise private investment.

6.6.

Strategic alliances need to be forged at European level in order to speed up the development of this industry, enabling the EU to take the lead in this field. The current state aid rules could be adapted to allow this to happen.

6.7.

Particular attention needs to be paid to R&D activities, with dialogue on this at European level. The Innovation Fund must be the preferred vehicle for channelling those activities.

6.8.

Public procurement policies should be used to boost the markets for green products where producers are lowering GHG emissions vis-à-vis ‘brown’ products.

6.9.

The identified delay in addressing the climate challenge and time pressure means that European Semester reporting and recommendations to every Member State must include some key performance indicators for helping to reach the needed industry decarbonisation.

6.10.

The Strategic Foresight Report should review, periodically, the progress, the most promising scenarios/options and the weak points in attempts to achieve the climate goals. This is even more important as it can provide guidelines for urgent and high-risk investment, but also for reasonable resource-pooling, both vertically and horizontally.

6.11.

A warning set of signals show a playing field that is not level and the risk of ‘carbon-leakage’ to third countries, hindering the no-carbon transition. This underlines once again the importance of introducing the competitiveness check as a risk-filtering and orientation tool.

6.12.

There are clearly measured splits in emissions concentrations by Member States, emissions/capita, economic sectors and regions. Due to the time pressure, priority needs to be given to putting forward the quickest and biggest results bringing about decarbonisation steps. Therefore, there should be strong focus on metallurgies, mineral materials and chemicals and the renewable fuels industry. Early-phase innovations and the desire to use and sell them differ according to the size of companies, with very large groups having an advantage with regard to the former, and SMEs with regard to the latter. Thus, both intersectoral and vertical knowledge transfer should be encouraged and facilitated by creating a favourable business environment.

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(1)  TRL: Technology Readiness Levels are different points on a scale used to measure the progress or maturity level of a technology.

(2)  European Environment Agency.

(3)  CHP: combined heat and power.

(4)  https://www.cepi.org/two-team-project-report/.

(5)  Gela, Venice biorefinery (eni.com) and La Mède (TotalEnergies.com).

(6)  Fertiberia has launched Impact Zero fertilizer plant in Puertollano, Spain.

Opinion of the European Economic and Social Committee on The energy and digital transition of rural areas

(own-initiative opinion)

(2022/C 486/09)

Rapporteur:	John COMER
Co-rapporteur:	Luís MIRA

Plenary Assembly decision	20.1.2022
Legal basis	Rule 52(2) of the Rules of Procedure
	Own-initiative opinion
Section responsible	Section for Agriculture, Rural Development and the Environment
Adopted in section	30.6.2022
Adopted at plenary	21.9.2022
Plenary session No	572
Outcome of vote (for/against/abstentions)	173/1/2

1.   Conclusions and recommendations

1.1

The EESC considers that a combined strategy of energy and digital transition in rural areas has not received the level of attention and support that one would expect. The EESC calls for the swift implementation of the Commission’s long-term vision for the EU’s rural areas and the mobilisation of stakeholders through the EU Rural Pact. The most vulnerable rural areas need special attention so that no one is left behind. It is vital to focus on energy poverty and areas of rural poverty.

1.2

The EESC is convinced that the future success of Europe will largely depend on how we deal with rural areas in a way that is in balance with urban areas. Rural communities should not be disadvantaged when it comes to digitalisation and options for energy use, e.g. necessary use of private cars due to a lack of public transport.

1.3

The role of local communities has to be leveraged to achieve a just energy transition combined with community development, through the establishment and scaling up of renewable energy communities and citizen energy communities comprising the voluntary coming together of citizens, local authorities and SMEs to promote social and economic benefits.

1.4

The EESC calls for the following policies and instruments to be stepped up: — Renewable energy policy: the current renewable energy policy is primarily driven by the need to increase capacity rather than increasing synergies with rural community welfare. The necessity to maximise renewable energy capacity is essential and equally essential is the need to quantify and deliver on all rural development issues. — Tendering policy: the current tendering policy for renewable energy installations is unhelpful for rural communities due to its primary focus on cost reductions rather than the socio-economic needs of rural citizens. All renewable energy installations should aim to be established as cost-efficiently as possible and make a meaningful contribution to the socio-economic needs of rural communities and rural citizens. — Electricity storage: the electricity storage sector needs to grow. One of the key challenges will be the seasonal security of electricity supplies. Battery storage and smart electrification combined with demand-side responses will help in this regard. Green hydrogen storage will be needed as a backup. — Specific financing through earmarking of the national recovery and resilience plans and thus ensuring that the money is actually spent in rural areas.

1.5

The EESC calls on the Commission to propose a Digital Rural Act as the third component of the EU digital strategy, together with the Digital Markets Act and the Digital Services Act. Digitalisation will open up new opportunities, especially for young people, which could change population trends by enabling people to work from home and from rural work hubs.

1.6

The EESC stresses that for EU or national recovery and resilience plans to benefit fully from the contribution of rural areas, it is imperative that high-speed internet connectivity is ensured in the whole territory, including sparsely populated zones. The EESC urges governments to either create the conditions for private operators to provide this service or use a state company to provide the service.

1.7

The EESC considers that government authorities and service providers need to develop user-friendly applications specifically adapted to the realities of rural lifestyles and activities. The application of these technologies will for example reduce the carbon footprint of agriculture (precision farming) and help improve the accessibility of remote areas (drones). The public sector must step in if the private sector fails to supply these solutions.

1.8

The EESC stresses that rural users of different ages must be provided with the possibilities for appropriate training and upskilling to use this new digital technology. The inclusivity in less-favoured areas must also enable access to the required devices, either through shared use or through a state subsidy for their purchase.

1.9

The EESC concludes that the deployment of digital technologies in rural areas is necessary to support the energy transition. The rural energy system must be decentralised, which implies a huge need for more and better interconnection, which of itself requires the deployment of digital technologies to match supply and demand and ensure efficient energy flows. The digital application at rural level will have to be highly energy efficient because of the lower utilisation rate and the lower population density. Low energy IT connectivity is a must for rural areas.

1.10

The EESC emphasises that, with 30 % of the EU population living in rural areas, a just rural energy transition is a key element in the just transition to a climate-neutral, sustainable and prosperous European Union, in line with the Territorial Agenda 2030.

1.11

The Commission has proposed that an investment of 20 % of NextGenerationEU will be in digital. The EESC recommends that all Member States devote at least 10 % of these funds to rural digital without imposing undue bureaucracy.

2.   The energy transition of rural areas

Introduction

2.1

There is general scientific agreement that the most likely manner in which mankind is influencing global climate change is due to carbon dioxide release from burning fossil fuels.

2.2

Climate scientist Michael Mann says in his book The New Climate War that our planet has now warmed into the danger zone and that we are not yet taking the necessary measures to avert the largest global crisis that we have ever faced.

2.3

Dangerous climate change has already arrived in some places due to rising seas. Venice and Miami face significant challenges in this regard. The Amazon region has seen massive forest clearances and climate change induced drought. The quicker than expected melting of the Arctic Ice Cap is of major concern.

2.4

Action is needed among all stakeholders on a global scale to take immediate steps on climate change, by way of mitigation and adaptation measures to reduce greenhouse gas (GHG) emissions. The swift reduction in the use of fossil fuels must be an immediate priority.

Rural areas

2.5

130 million people or 30 % of the EU population live in rural areas. Rural areas are diverse and greatly influenced by their location. In many areas, especially in Southern Europe, climate change will progressively increase water scarcity, exacerbate flooding and increase the intensity and frequency of wild fires. In Northern Europe, increased rainfall and storms can and will cause significant and costly damage to infrastructure. Higher temperatures will intensify the water cycle and increase the frequency of severe storms. These circumstances demonstrate the need for the fastest possible energy and digital transition in rural areas.

2.6

The idea of rural energy transition has not received the level of attention that one would expect. This is surprising because the resources needed to produce renewable energy are very much linked to rural areas. The majority of renewable energy infrastructure, such as wind turbines, solar and biogas plants are located in rural areas. Transmission grids are also a feature of the rural landscape. Many rural inhabitants feel that these structures are imposed upon them and provide greater benefit to urban areas.

2.7

Rural areas have varied and distinct needs depending on their location. Rural areas can be designated as follows: — Rural areas within commuting areas of a city (60 km radius) and whose development is integrated with the city. — Rural regions that are not part of the urban labour market but have a flow of goods and environmental services and other economic activities in and out of the region. — Remote rural regions where the local economy depends largely on the exporting of primary activities such as agricultural produce out of the region. In particular, these areas tend to have scattered populations and be subject to poor public services.

2.8

These different rural areas face many and varied challenges in implementing an energy transition, which indicates the importance of a just transition in order to achieve the desired objective.

2.9

Many rural areas are physically isolated with little economic diversity and a low population density. In many cases, low incomes and an ageing population increase the vulnerability of rural communities. People living on their own in isolated rural areas with little social interaction presents enormous problems when implementing an energy transition. Energy poverty is a significant problem in these areas.

2.10

The roll out of smart meters is an essential part of the rural energy transition. To date it would seem the roll out of smart meters has been rather slow in rural areas. We must also ensure that low-income households and people with limited computer skills can make the best use of smart meters as part of a just energy transition where no one is left behind. The Recovery and Resilience Facility has allocated EUR 25 billion to support digital skills and education. Member States need to ring-fence an adequate proportion of this fund towards digital skills and literacy training for rural people. The fact that parts of Europe do not have internet is an intolerable situation and must be remedied as soon as possible.

2.11

The EESC has highlighted in its opinion Towards a holistic strategy on sustainable rural/urban development (1) that agriculture, food and rural policies must tie in with climate change and biodiversity policies. The multifunctional aspect of agriculture is as important as the promotion of non-agricultural activities such as establishing businesses in the clean energy services sector to create job opportunities. The potential of e-commerce needs to be explored.

2.12

The Communication A long-term vision for the EU Rural Areas (2) includes a Rural Pact which aims inter alia to foster territorial cohesion and create new opportunities to attract innovative businesses. The implementation of this vision would greatly facilitate a just energy transition in rural areas. The EESC has welcomed this approach in its opinion A long-term vision for the EU’s rural areas (3).

Transport

2.13

Rural transport provision is a key issue because of poor public transport, sparse population and remoteness from shops and services. In addition, rural people working in urban centres frequently cover long commuting distances to their workplaces.

2.14

There is a need for local and national planning to provide a multi-modal transport system to transition to renewable energy. Such a system must provide choices and alternatives for people transport and goods transport.

2.15

Goods transport in rural areas needs specific attention as regards the energy transition. For example, deliveries of farm supplies and collection of farm produce must be an important part of the planning for the energy transition. Electric-powered heavy goods vehicles (HGVs) and hydrogen-powered HGVs must be the objective to be reached. In the short-term, sustainable biofuels and hybrid vehicles could help to reduce GHG emissions.

2.16

The major expansion of online purchases, especially in rural areas, indicates the importance of reducing the GHG emissions of delivery vans. The use of electric-powered vans would suit this purpose as soon as adequate charging infrastructure is in place. As well, the courier companies need to finance the purchase of electric-powered vans. The immediate priority is to start reducing emissions in every way possible.

2.17

Better public transport provision in rural areas, encompassing reduced GHG emissions and social inclusion and enabling rural development opportunities, needs to be prioritised. Rural public transport must be seen as a public good in the context of energy transition and so public funding is required to promote and facilitate sustainable public transport.

2.18

Private cars are considered to be an indispensable means of rural transport as rural living would be impracticable in their absence. The priority must be to help and encourage rural residents to reduce the use of private cars when possible and to change to low emission vehicles as soon as possible. Financial aid to promote the purchase of electric vehicles must be a key objective for the energy transition in rural areas.

2.19

Battery storage is an effective means of flattening the net demand curve for renewable electricity. The widespread use of electric vehicles (EVs) could help in this regard. When EVs are enabled to send electricity back to the grid, the electric fleet can act as a battery storage asset in addition to other forms of battery storage. It must be financially attractive for consumers to return electricity to the grid from EVs as outlined in the EESC opinion on the Regulation on deployment of alternative fuels infrastructure (4).

Tourism

2.20

Rural areas often depend on tourism as an important income earner. Therefore, rural areas need to have an adequate alternative fuels infrastructure to encourage the tourist industry while reducing GHG emissions. Car hire companies must be encouraged to move to low emission vehicles and preferably to electric vehicles. Energy transition in rural areas requires action to facilitate greater income from tourism.

Renewable electricity

2.21

Renewable electricity such as wind, solar and biogas is a major component of the rural landscape. The harmonisation of the legislation among Member States must promote and protect prosumers’ interests and motivate investments in renewable energy infrastructures. The capacity to sell the energy produced into the national grid must be made possible in all Member States. There must be adequate compensation schemes between the renewable energy produced by the prosumers and the energy consumed to ensure the energy independence of rural areas.

2.22

Recent auctions for centralised procurement of renewable electricity have become increasingly widespread and have succeeded in many cases in reducing the construction costs of wind and solar facilities. In general, the development of rural electricity is primarily linked to the decarbonisation of the energy sector and there are no synergies with rural development objectives. Rural inhabitants frequently object to such developments as they foresee little benefit to the local community.

2.23

Co-operatives and other locally based organisations need to be involved in agreeing locations for renewable electricity facilities, both land-based and in coastal regions. Local communities need to have a shareholding and obtain a local benefit from such facilities.

2.24

In these large projects, the development of renewable energy is primarily linked to the decarbonisation of the energy sector; there is little concern for rural development. Small-scale wind farms, small solar and anaerobic digesters operated by co-operatives and local people can be more targeted towards rural development, as well as social and economic inclusion of rural communities. There is a need for a balance to be achieved in relation to these two systems. Renewable energy communities and citizen energy communities provide a way to achieve a just energy transition combined with community development.

2.25

A case study in rural Sweden (Ejdemo and Söderholm, 2015) found that, in the absence of community benefit schemes, employment opportunities were very modest in the context of rural development.

2.26

A citizen energy community is a legal entity where citizens, SMEs and local authorities come together as final users to cooperate in the generation of renewable energy. One such example is in the Municipality of Feldheim, (a small village southwest of Berlin) which has become self-sufficient in energy. They have set up wind turbines in their backyard and installed an independent grid. Residents pay minimum prices for electricity. The establishment of a biogas plant enabled the village to establish a district heating network. This is an excellent example of a renewable energy community in operation. It also demonstrates that a bottom up approach is vital for the future of rural areas (5).

2.27

Demand-side response shifts electrical consumption to periods of time when the system can cope with the demand. We need to flatten the net demand curve for electricity during peak demand periods so as to avoid outages as more green electricity is produced. The use of battery storage, hydro storage and smart electrification will provide flexibility in flattening the net demand curve.

2.28

Speaking in Dublin to Irish parliamentarians, energy commissioner Kadri Simson said that the war in Ukraine had forced Brussels to move further and faster to end Russian fuel imports. She said that, under proposals yet to be agreed, the EU will aim to take 45 % of its energy consumption from renewables by 2030. That will be an increase from the present 32 % target and more than double the 22 % share in 2020. The EESC endorses this new target but warns that it can only be achieved by rapidly driving forward with new and greater investment in the rural energy transition.

2.29

The wind does not always blow so a backup will be necessary. Green hydrogen can provide a backup to satisfy the varied demand for electricity and can be stored until required.

Agriculture

2.30

Agricultural activity is central to the development and prosperity of most rural areas. This sector of the rural economy faces enormous challenges in achieving energy transition.

2.31

Major work has not been done to reduce the carbon footprint of farm machinery.

2.32

In the immediate future, it would seem that the use of sustainable biofuel provides the best possibility of reducing emissions as existing machinery could be used, when suitably modified.

2.33

Sustainable biofuels are not cheap to manufacture and can be more than twice the price of diesel. Prices may reduce slightly going forward.

2.34

In the future, when electric-powered farm machinery becomes more widely available, it will be possible to significantly reduce emissions.

2.35

Agriculture is mostly a low profit enterprise and so the capital costs of changing to electric-powered machinery would be extremely difficult to finance. Overcoming the problem of financing the change to electric- or hydrogen-powered machinery will be a major issue in the energy transition of rural areas.

2.36

The use of solar panels on farm buildings would enable farmers to use green electricity and, as farming is a high user of electricity, this would be a significant gain in the energy transition. Any surplus could be sold back to the grid.

2.37

Precision agriculture is a data-driven approach to farm management that can improve production and yields and reduce the carbon footprint of farming. This is possible because of advances in digital technology with remote sensing, GPS and satellite steering systems for tractors. All this will be important in the energy transition in farming combined with the requirement for investment, training and upskilling.

2.38

Farmers may have opportunities to sell surplus electricity to the grid as dairy and beef farmers have extensive roofs on their farms. Some farmers may be able to become partners in establishing biomass plants and sell gas to the gas grid. The use of forest residues in biomass plants is important in facilitating forest management in those areas where such materials are available.

2.39

The consequences of the Ukraine war mean that we must look again at food security in the EU. As a priority, land must be used to produce food. There should be no competition with the installation of industrial-scale panels and production of biomass for renewable energy; this should rather be complementary.

Biomethane

2.40

Biomethane is a biogas from which carbon dioxide, hydrogen sulphide and water have been removed; it can then be injected directly into the gas grid or used in a gas-powered vehicle.

2.41

Anaerobic digesters need to be established near where there is an adequate supply of slurry. Surplus grass silage and maize silage can also be used, provided it does not conflict with food and fodder production.

2.42

There is a need for further research to improve the efficiency of anaerobic digesters and to reduce the cost associated with the process.

2.43

The use of anaerobic digesters needs to be promoted and financed as part of the energy transition in rural areas.

2.44

Biomass energy can be used to produce heat or generate electricity. Biomass will play a vital role in the generation of renewable electricity.

Rural houses

2.45

There is scope for many rural households to install micro-generation technology such as solar panels and small wind turbines with the possibility of selling any excess supply back into the grid.

2.46

Low-income households need financial assistance to install micro-generation facilities. This would make a significant energy transition in rural households.

2.47

Rural houses are in general less well-insulated and less energy-efficient than urban houses. Many rural houses are standalone houses in weather-exposed sites.

2.48

A major investment programme to retrofit rural housing to improve insulation and energy efficiency is necessary as part of the energy transition. Such an investment will be a major step forward in reducing energy consumption and decarbonising rural home heating. A grant aid scheme will be required as the capital costs of a major retrofit scheme are very high. Low-income households and those experiencing fuel poverty will need special help to achieve such a transition.

3.   The digital transition in rural areas

3.1

In 2021, the European Commission presented its vision for Europe’s digital transformation by 2030. First of all, it highlighted the need for the Digital Markets Act and Digital Services Act legislative proposals to ensure a safer digital space, where users’ fundamental rights are protected, and to establish a level playing field for European businesses in the digital world.

3.2

To feed a growing world population, with minimal environmental impact and in a way that promotes carbon neutrality, digital and technological infrastructure is needed in rural areas to facilitate the efficient and precise use of resources in farming. Despite the fact that 30 % of Europe’s population lives in rural areas, however, and that these areas account for 80 % of the 27 Member States’ territory, digitalisation faces greater difficulties in rural areas which, if not addressed, will undermine Europe’s digital ambitions. The European legislative framework for the Digital Rural Act is designed to address these difficulties by promoting: — guaranteed equal broadband network coverage for all of Europe’s regions: currently coverage is good in large urban centres and poor in rural areas; to meet digitalisation targets, this problem must be tackled urgently so as not to open up an even wider gulf between regions; — infrastructure: ensuring private investment in developing last-mile infrastructure, taking into account non-financial benefits such as socio-economic externalities; — capacity building: improving the digital literacy of people living in rural areas; — suitability: promoting the development of applications that meet the needs of the agricultural and rural community, which make little use of digital services designed for the urban environment.

3.3

The Digital Rural Act, as a legislative mechanism of the European Commission, just like the Digital Markets Act and the Digital Services Act, will be a set of rules, obligations and responsibilities aimed at ensuring that European rural areas have access to a set of initiatives, tools and forms of access which, due to low population density, are economically unfavourable to private investment. In this way, the Digital Rural Act will ensure that digitalisation takes place in rural areas, where the need for it is inversely proportional to the financial returns obtained.

3.4

Finally, the Digital Rural Act will be the biggest forerunner of the European Green Deal, the Farm to Fork Strategy and Europe’s carbon neutrality in 2050, as the transition to a fair, healthy and environmentally-friendly food system will only be possible if technology and digitalisation are available and accessible to the agricultural and rural world.

3.5

As stressed in the EESC opinion Upgrading inclusive, secure and trustworthy digitalisation for all (6), the importance of digitalisation cannot be underestimated, because it can ‘support increased mobility in the labour market, enhance productivity and flexibility at the workplace and enable work-life integration when workers work remotely from home’. For this to happen, a comprehensive set of digital skills is necessary, irrespective of whether workers live in urban or rural areas. However, additional multi-faceted barriers exist in remote locations. Therefore the EESC calls for the dedicated digital skills agenda to support European citizens living in rural areas. This approach, to be represented at the centre of the Digital Rural Act, should simultaneously help to bridge the digital divide and to reap the benefits of the digital transformation of the society.

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(1)  EESC opinion Towards a holistic strategy on sustainable rural/urban development (OJ C 105, 4.3.2022, p. 49).

(2)  COM(2021) 345 final.

(3)  EESC opinion A long-term vision for the EU’s rural areas (OJ C 290, 29.7.2022, p. 137).

(4)  EESC opinion on the Regulation on deployment of alternative fuels infrastructure (OJ C 152, 6.4.2022, p. 138).

(5)  ERP WORKSHOP REPORT Workshop 21.

(6)  EESC opinion Upgrading inclusive, secure and trustworthy digitisation for all (OJ C 374, 16.9.2021, p. 11).

Opinion of the European Economic and Social Committee on the Public investment in energy infrastructure as part of the solution to climate issues

(own-initiative opinion)

(2022/C 486/10)

Rapporteur:	Thomas KATTNIG
Co-rapporteur:	Lutz RIBBE

Plenary Assembly decision	20.1.2022
Legal basis	Rule 52(2) of the Rules of Procedure
	Own-initiative opinion
Section responsible	Transport, Energy, Infrastructure and the Information Society
Adopted in section	7.9.2022
Adopted at plenary	22.9.2022
Plenary session No	572
Outcome of vote (for/against/abstentions)	162/7/8

1.   Conclusions and recommendations

1.1.

The consequences of the climate crisis are having a major impact on Europe and the world. Although the opportunities available to effectively adapt to climate change have increased in recent years, experts point to insufficient mobilisation of funding, insufficient engagement of citizens and the private sector, and a lack of political leadership.

1.2.

To meet increasing demand for electricity and achieve our climate objectives, we must double investment in the electricity grid to EUR 55 billion per year and increase the budget for building clean generation capacity to EUR 75 billion per year (1). In this context, public investment in smart and renewable energy systems and storage infrastructure is of great importance when it comes to ensuring security of supply, tackling energy poverty, keeping prices affordable, and creating jobs.

1.3.

The EESC supports the Commission's proposals to speed up and streamline permit-granting procedures in the area of renewable energy and to establish ‘go-to areas’ for such projects. There is significant potential here to speed up the energy transition. It is all the more important to determine as precisely as possible what simplifications apply in the ‘go-to areas’.

1.4.

European energy law does not recognise climate protection as an objective of grid regulation. As a result, national regulators also find it difficult to create incentives to transform, expand and modernise electricity distribution grids that meet the requirements of climate neutrality.

1.5.

With regard to the future organisation of energy systems and energy infrastructure, the EESC has repeatedly stressed the importance of the active participation of all consumers — households, businesses and energy communities — in developing smart energy systems, as well as the need to create incentives to enable civil society to participate in the energy transition, but also to ensure they contribute when it comes to financing.

1.6.

The EU's rate of public investment in clean energy technologies needed for decarbonisation is the lowest among the major economies and puts the EU's competitiveness at risk. Since deregulation began, investment by electricity companies has been declining. This decline in investment has led to shortages of supply and hampers the further development of renewable energies. The EESC therefore supports the Commission's proposal to use the Recovery Plans and the Recovery and Resilience Facility, as well as additional funding from the Cohesion Fund for regional development and the EU's Common Agricultural Policy pot, to implement the REPowerEU Plan.

1.7.

Market design and regulation must be adapted to new future realities in which renewable energies prevail (including more decentralised production and increased on-site consumption). They must also create the necessary conditions for the various players involved, and ensure adequate consumer protection. The EESC welcomes the Commission's intention to explore options to optimise the design of the electricity market and is strongly in favour of market assessments to analyse the behaviour of all potential players in the energy market as well as the energy market design. In any case, the EESC stresses the importance of carrying out a comprehensive impact assessment prior to making any proposals.

1.8.

The EESC once again recommends the ‘golden rule’ for public investments, in order to safeguard productivity and the social and ecological base for the well-being of future generations.

1.9.

Blended finance involving private investors is only an option if it can be ensured that allocations are transparent and that there are no unjustified additional costs for the public authorities compared to public financing. There must be full transparency regarding justified additional costs. It is all the more important, when using such blending models, to clearly define rights and obligations, clarify liability issues, and provide for an efficient and rapid conflict resolution system, in order to avoid additional long-term costs and adverse liability issues.

1.10.

The EESC underlines that the ‘just transition’ is not just a question of financing the transition. It also includes the objective of creating decent work, quality jobs and social security, as well as of maintaining the competitiveness of European businesses, and requires specific action at all levels, particularly at regional level.

1.11.

The EESC is convinced that particular attention should be paid to defining grid development as an overriding public interest, including climate protection as a regulatory objective and, more generally, synchronising the planning of renewable energies and the electricity grid more effectively. There is an urgent need for specific provisions under EU law.

1.12.

The developments of the last decade, the challenges linked to grid expansion, the massive increase in energy prices, the danger of cyberattacks, and, last but not least, the war in Ukraine, clearly illustrate what is at stake: namely the question of who, in future, will have control over key infrastructure such as the energy grid. There is therefore primarily a public interest. This would logically entail public ownership that is committed to the common good and eliminates existing inequalities.

1.13.

The issue of the advantages and disadvantages of public and private ownership and/or private financing of energy infrastructure for a well-functioning energy market is undoubtedly important and should be examined in the Commission's planned assessment of options for optimising the design of the energy market. The results of such an analysis can serve as a valuable decision-making tool for Member States, who are responsible for deciding on public or private ownership of energy infrastructures. In the EESC's view, electricity is not only a key strategic commodity for the entire EU economy, but also a public good. The EESC therefore calls on the European Commission to analyse in detail the impact and consequences of the whole process of the privatisation and liberalisation of the European energy sector in relation to its stability, the reliability of supply and the functioning of the electricity market, and to translate the results into a redesign of the entire energy sector, including options for strengthening the role of the national and public sectors.

2.   Background

2.1.

The impact of the climate crisis is already affecting billions of people worldwide, but it is also affecting ecosystems, as highlighted in the latest reports of the Intergovernmental Panel on Climate Change (IPCC). This is despite the fact that the temperature increase has not yet reached the 1,5 oC degree target set in Paris. One particularly problematic issue is the fact that the systems and groups that will be hardest hit by heat, drought, floods, diseases, and water and food shortages often have the fewest resources to deal with them.

2.2.

The possibilities for effective adaptation to climate change have increased in recent years. However, in many parts of Europe the measures implemented and planned are not satisfactory. Experts point to insufficient mobilisation of funding, insufficient engagement of citizens and the private sector, and a lack of political leadership.

2.3.

The fact that, as a result of the war in Ukraine, Europe is rapidly making large amounts of money available for military purposes is giving rise to fears that financial resources will become tied up as a result, possibly leading to delays with regard to climate action. The EESC therefore welcomes the measures and instruments announced by the Commission in the REPowerEU Plan (2) to reduce the EU's dependence on fossil fuels, in particular those originating from Russia, by taking energy saving measures, accelerating the transition to renewable energy, promoting diversification of suppliers, and joining forces to achieve a more resilient energy system and a genuine Energy Union.

2.4.

In order to achieve the climate objectives, renewable energy capacity needs to be more than doubled. The cost, in large countries such as Germany, of green electricity that cannot be used or transported and which must be curtailed already amounts to several hundred million euro a year. This economic loss will increase many times over if electricity grids and storage capacities are not rapidly expanded and the possibilities for using electricity locally are not improved. It is important, when planning and regulating networks, to align the development of energy networks with the climate neutrality objective. Distribution networks play a crucial role in this regard; this is because this is where most renewable energy installations are connected.

2.5.

To meet these requirements, we must double investment in the electricity network to EUR 55 billion per year and increase the budget for building clean generation capacity to EUR 75 billion per year (3). In this context, the EESC stresses the added value of the Commission's proposals on swift permit-granting procedures for renewable energy projects and the establishment of ‘go-to areas’ for such projects. The EESC supports speeding up and streamlining permit-granting procedures linked to renewable energy. Particular attention must be paid to distribution grids, as renewables generally feed into these.

2.6.

In this context, public investment in smart and renewable energy systems is of great importance when it comes to ensuring security of supply, tackling energy poverty, keeping prices affordable, and creating jobs. There is no doubt that the green transition, in line with the European Green Deal, will have a huge impact on employment in carbon-intensive energy sectors. At the same time, a substantial increase in public investment in climate-neutral energy systems will create numerous new employment opportunities. This calls for corresponding budgetary margins by reshaping the fiscal framework, as proposed by the EESC in its own-initiative opinion of October 2021 on Reshaping the EU Fiscal Framework for a Sustainable Recovery and a Just Transition.

2.7.

European energy law does not yet recognise climate protection as an objective of grid regulation. As a result, national regulators also find it difficult to create incentives to transform, expand and modernise electricity distribution grids that meet the requirements of climate neutrality.

2.8.

With reference to the future organisation of energy systems and infrastructure, the EESC has repeatedly stressed the importance of the active participation of all consumers — households, businesses and energy communities — in developing smart energy systems. Unfortunately, there have been no discernible initiatives in this direction, only promises. The EESC calls for incentives to finally be introduced to mobilise prosumers, renewable energy communities and citizen energy communities, in order to enable civil society to participate in the energy transition and to give consumers the opportunity to actively participate in the market. This will also help to alleviate the problem of the ever-increasing costs associated with the need to curtail renewable energy due to grid congestion.

2.9.

The EESC is in favour of adapting the EU rules on the trans-European energy networks (TEN-E) to the objectives of the Green Deal more effectively, combining in particular the decarbonisation of the energy system, the transition to climate neutrality, the development of renewable energy sources, energy efficiency, and the prevention of the risk of fuel poverty. As energy networks play a key role in ensuring the balance, resilience and development of the energy system, the EESC calls for the Regulation to fit more clearly into the process of integrating the energy system, in order to promote all decarbonised forms of energy, and for any form of break-up to be rendered impossible. Against this background, the Committee welcomes the initiative adopted by the Council and the European Parliament to define distribution grids as a matter of ‘overriding public interest’, alongside renewable energy.

2.10.

The current price increases are putting a strain on European citizens and businesses. The EESC notes with regret that its call (4) for a reduction in strategic dependency on unreliable third parties was not previously translated into action by political leaders, and that on the contrary this dependency has increased. Russia is the largest exporter of oil, gas and coal to the EU and many nuclear power plants depend on Russian fuel rods and technologies. The current energy price crisis would have hit European citizens and businesses much less severely if Europe had reduced its imports of fossil fuels as promised. The EESC therefore welcomes the efforts set out in the REPowerEU Plan to rapidly reduce this dependency, in particular on Russia. The EESC supports the efforts of the EU institutions and the Member States to effectively address the price issue in line with the Communication of October 2021, Communication COM(2022) 236 final on the electricity market, and the tools offered under the State Aid COVID Temporary Framework.

2.11.

In the current context, however, the EESC reiterates that it is not primarily a matter of diversifying dependencies, but rather of achieving, as far as possible, ‘strategic energy independence and autonomy’. Renewable energy and hydrogen will be a driving force in the decarbonisation process and their production should, as far as possible, be located within the EU.

2.12.

LNG currently offers a short- to medium-term substitute for Russian natural gas in some regions, alongside significant energy saving measures. In the long term, if it is available in sufficient quantities and at a reasonable price, green hydrogen is a climate-compatible option. As long as Europe is not able to produce the full volume of gas it needs — which is obviously true in the case of LNG, while in the case of hydrogen the EU still has the possibility to structure its import independence — the right lessons must be drawn from the Russian disaster. When it comes to resources to replace Russian gas, the EESC warns that the EU must take particular care with regard to the impact of these resources on the environment as well as to new dependencies on third countries that do not share European values such as democracy, respect for human rights and the rule of law.

2.13.

The EU's rate of public investment in clean energy technologies needed for decarbonisation is the lowest among the major economies and puts global competitiveness at risk. In addition, the European Court of Auditors warns that the REPowerEU strategy may not mobilise enough money. The EESC therefore supports the Commission's proposal to use the Recovery Plans and the Recovery and Resilience Facility, as well as additional funding from the Cohesion Fund for regional development and the EU's Common Agricultural Policy pot, to implement the REPowerEU Plan.

2.14.

The impact of the war in Ukraine is seen in some EU Member States, and at EU level, as a definitive impetus for greater energy independence and climate neutrality. The EESC welcomes this. However, the picture is mixed: increased use of liquefied gas and a return to coal are on the cards and could mark a step backwards in the energy transition. The EESC takes a critical view of this, but is aware that, in the short term, having versatile options for generating energy boosts energy security as an emergency measure. In addition to wind and solar power, it is thus important to make use of the wide variety of low-carbon energy sources that fit economically and ecologically within an energy system. At the same time, the EESC calls for more efforts towards the green transformation of the energy system.

2.15.

The European Public Service Union (EPSU) published a report (5) confirming that the deregulation of the energy system has provided few answers to the ongoing climate crisis. The widespread use of viable alternatives to carbon-emitting energy sources has been made possible largely by substantial public subsidies and not by free market competition. The report shows that, without a change to the current energy system model in Europe, it will not be possible to meet the Paris Agreement commitments.

3.   General comments

3.1.

Due to rapid climate change and the current energy crisis, investment in infrastructure is needed in the short term in order to achieve the objective of climate neutrality by 2050 and ensure energy supply. At the same time, the surge in energy prices has highlighted the weaknesses in the energy market. Fundamental questions need to be asked about the future of energy that ensures a clean, affordable and reliable energy supply and the right to energy. The EESC stresses the urgency of public investment to achieve energy independence from Russian gas imports and supports the measures in this regard proposed by the Commission in the REPowerEU Plan.

3.2.

In this connection, it is necessary to take into account the design and regulation of the energy market, to create the necessary conditions for individual players, and to strengthen adequate consumer protections. The EESC welcomes the Commission's intention to explore options to optimise the design of the electricity market and takes note of the Commission's analysis of the electricity and gas markets and of the measures proposed to address high energy prices, as well as the proposals to improve energy networks and storage capacities, as well as the renewed promises to improve market access for small players (prosumers) and ensure security of supply.

3.3.

Market design and regulation must be adapted to new future realities in which renewable energies prevail. Keywords: decentralised production and increased on-site consumption. For this to happen, however, the necessary conditions still need to be put in place for the individual players and an adequate level of consumer protection needs to be ensured. Market assessments are needed that analyse the behaviour of all potential players in the energy market as well as the energy market design. In any case, the EESC stresses the importance of carrying out a comprehensive impact assessment prior to making any proposals. The EESC points out the urgent need to combat high electricity prices, including the bundling of electricity and gas prices, which are having a negative impact on the economies of the Member States.

3.4.

The question of the degree to which security of supply can be achieved by means of the market, and with which market design, has been put off for a long time. In principle, an energy system based on (largely domestically produced) renewables promises a high level of security of supply. However, this system will not come about of its own accord — having the right regulatory setting is a prerequisite. Particularly important are smart grids that send clear signals to the many millions of producers and consumers so that they behave in a ‘system-friendly’ way, thereby contributing to security of supply.

3.5.

With regard to the financing of infrastructure projects, strict fiscal rules have in the past proved, time and time again, to be the biggest barrier faced by public authorities. The aim must therefore be to exempt projects associated with the European Green Deal, energy independence and the digital sector from any rules that hamper such public investment. Therefore, in line with its opinion on Reshaping the EU fiscal framework (6), the EESC recommends applying the ‘golden rule’ for public investment in order to safeguard productivity and the social and ecological base for the well-being of future generations.

3.6.

Blended finance involving private investors is only an option if it can be ensured that allocations are transparent and that there are no unjustified additional costs for the public authorities compared to public financing. There must be full transparency regarding justified additional costs. A European Investment Bank report notes that, for example, PPP contracts in the area of road transport in Europe were on average 24 % more expensive than similar projects with traditional financing (7). It is all the more important, when using such blending models, to clearly define rights and obligations, clarify liability issues, and provide for an efficient and rapid conflict resolution system, in order to avoid additional long-term costs and adverse liability issues.

3.7.

The Commission rightly points out that public investments can and need to trigger private money. But REPowerEU does not cover the refinancing of the respective public funds. The abolition of subsidies for fossil resources would be one approach for how to organise it; the taxation of windfall profits, that have their origin in the major oil and gas crisis and find their expression in enormous extra profits especially for big oil companies would be another one. The EESC is concerned that the extremely high profits of energy companies on the one hand and the increased energy poverty caused by energy price surges on the other may have a dangerous destabilising effect on society. The EESC proposes that these profits be skimmed off with the help of taxes and passed on as financial compensation to energy consumers, e.g. financially weaker households or energy-intensive companies, and used for the expansion of renewable energy production and the necessary grid infrastructure, especially as it is already being discussed or implemented in some Members States. The EESC takes the view that in order not to discourage energy companies from investing in low-carbon solutions, such taxation should be defined very sensitively. The EESC calls on the Commission to propose respective measures without any further time delay.

3.8.

The primary purpose of infrastructure is that it works, not that it transports electricity from A to B as an end in itself, thereby generating steady returns. The developments of the last decade, the challenges linked to grid expansion, the massive increase in energy prices, the danger of cyberattacks, and, last but not least, the war in Ukraine, clearly illustrate what is at stake: namely the question of who, in future, will have control over key infrastructure such as the energy grid. There is therefore primarily a public interest. This would logically entail public ownership that is committed to the common good and eliminates existing inequalities.

3.9.

The EESC underlines that the ‘just transition’ is not just a question of financing the transition. It also includes the objective of creating decent work, quality jobs and social security, as well as of maintaining the competitiveness of European businesses, and requires specific action at all levels, particularly at regional level. Other key factors for a ‘just transition’ include an active and organisational role for the public sector and ensuring the democratic participation of the social partners at all levels.

3.10.

The energy grid is part of our critical infrastructure. Failure or disruption of this infrastructure can cause devastating supply shortages and threaten public security. Critical infrastructure such as transport and traffic circulation, health services, finance and security, to name but a few, are increasingly in the hands of private operators in Europe due to the wave of deregulation and privatisation in recent decades. This is problematic as the sectors are interlinked and the vulnerability of one sector reduces or limits the ability of other critical infrastructure to operate (cascade effect). On the one hand, these interdependencies are difficult to estimate and, on the other hand, it is in the public interest to ensure their operational performance. Particularly in the event of market disruptions or a disaster, it becomes crucially important for public coordinating bodies with the power to ensure regionally coordinated resilience to have access. These risks are particularly high in the case of electricity, without which the functioning of an advanced 21st century civilisation is practically unthinkable, and widespread blackouts would lead to the breakdown of society as a whole.

3.11.

Given that buildings in Europe account for around 40 % of energy consumption, a smart link with new technologies, implementation-effective renovations and the promotion of new civic participation models play a particularly important role in the energy transition and in increasing energy efficiency in the housing sector. The Electricity Directive promotes this participation of consumers in the production of renewable electricity and provides an essential basis for the acceptance of decentralised energy production. In this connection, harmonisation for the whole EU area is important in order to enable as many households as possible in Europe to participate in the energy transition. Concepts such as energy sharing and community energy in general offer reasonable prospects for using energy grids for small-scale, demand-driven, grid-centred supply.

3.12.

The EESC reiterates its position that the aim should be to achieve the greatest possible reduction of greenhouse gas emissions at the lowest possible socio-economic cost. The EESC recommends combining instruments compatible with a well-regulated market and regulatory measures when needed, including financial instruments with the support of the Multiannual Financial Framework and NextGenerationEU to contribute to a more efficient energy environment. However, it must also be clear that, where careful analysis indicates that there are well-founded indications of existing market failure or a threat of such a failure, the public authorities must remedy this situation, for example by investing or intervening in the market.

4.   Specific comments

4.1.

Investments in energy infrastructure are about boosting security of supply and the development of renewable energy in a swift, efficient and cost-effective manner for the benefit of consumers and the economy. In this connection, everything centres on one key question: who will have control over key infrastructure such as the energy network and storage infrastructure in the future? Since deregulation began, investment by electricity companies has been declining. This decline in investment — in the grid and in generation — has led to shortages of supply and hampers the further development of renewable energies.

4.2.

From an economic point of view, the question arises as to why an energy network that is attractive to investors because it represents a reliable investment should not also be attractive to the State. The annual dividends paid by private companies could be reinvested in public ownership in the public interest and would relieve the burden on public finances. Not least because some partial privatisations in the past have already shown that public ownership would have been the rational choice in purely financial terms. A number of Member States already use public or semi-public structures. At the same time, there is a trend towards re-municipalisation. The issue of the advantages and disadvantages of public and private ownership and/or private financing of energy infrastructure for a well-functioning energy market is undoubtedly important and should be examined in the Commission's planned assessment of options for optimising the design of the energy market. The results of such an analysis can serve as a valuable decision-making tool for Member States, who are responsible for deciding on public or private ownership of energy infrastructures.

4.3.

In this context, local and regional energy supply and the remunicipalisation of utilities are becoming increasingly important, especially in the context of decentralisation strategies. In this context, public investment in decentralised energy production at local level plays a key role. Other financing possibilities, such as direct financing through funds, should be explored. Roofs on public buildings are particularly well suited to supplying cheap solar energy to entire neighbourhoods.

4.4.

In some Member States, financial incentives are provided in order to step up the roll-out of photovoltaics. In a letter to the Commission, Austria, Belgium, Lithuania, Luxembourg and Spain request that administrative buildings, supermarkets, flat roofs and industrial installations be required to be equipped with photovoltaic systems under certain conditions. Photovoltaic systems should also become the norm for new and renovated houses. They call on the Commission to make more money available from the EU budget for developments in this direction. The EESC welcomes this idea and calls on the Commission to analyse what investment, regulations, and accompanying measures such as research and development, are needed to boost the development and production of photovoltaics in the EU.

4.5.

Energy as a social good: in this connection, the EESC points to the implementation of the EU's shared values regarding services of general economic interest within the meaning of Article 14 of the Treaty on the Functioning of the European Union (TFEU), as set out in Protocol No 26 to the TEU and the TFEU on services of general interest. This would increase efficiency and affordability and avoid market failures.

4.6.

The current energy crisis highlights the particular importance of energy as an asset with social relevance. In addition to maintaining quality jobs and employment, the link between social and environmental aspects is becoming clear. Public ownership can ensure democratic control, public investment, security of supply, and a fair distribution of the costs of transforming the energy sector to renewable energy sources.

4.7.

In order to avoid bad and misguided investments, existing ambiguities and inconsistencies concerning the new energy system's basic structures, market architecture, market roles and market rules need to be addressed, and in particular the social impact on workers and consumers needs to be resolved immediately. A fair distribution of the investment burden plays a central role in this regard — the same applies to a fair distribution of any profits. Ensuring investment needs and profitability is one of the key issues to be addressed in order to ensure the optimal functioning of the energy market in the long term. The EESC takes note of the conclusions of the ACER study and the Communication on the electricity and gas markets in this regard and welcomes the Commission's intention to assess the electricity market.

4.8.

An important aspect of the energy transition will be coordination and organisation between importers, regional grid operators, civic energy companies, self-suppliers and energy communities using their electricity locally, as well as storage companies and distributors.

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(1)  This is the conclusion of the federation for the European electricity industry, Eurelectric.

(2)  REPowerEU Plan COM(2022) 230 final.

(3)  This is the conclusion of the federation for the European electricity industry, Eurelectric.

(4)  EESC opinion on Energy prices (OJ C 275, 18.7.2022, p. 80).

(5)  A Decarbonised, Affordable and Democratic Energy System for Europe.

https://www.epsu.org/sites/default/files/article/files/Going%20Public_EPSU-PSIRU%20Report%202019%20-%20EN.pdf

(6)  Opinion of the European Economic and Social Committee on ‘Reshaping the EU fiscal framework for a sustainable recovery and a just transition’ (OJ C 105, 4.3.2022, p. 11).

(7)  EIB 2006. Ex ante construction costs in the European road sector: a comparison of public-private partnerships and traditional public procurement. Economic and Financial Report 2006/01, Blanc-Brude, F., Goldsmith, H. and Välilä, T., https://www.eib.org/attachments/efs/efr_2006_v01_en.pdf