Reaching a political agreement for the EU’s seven-year funding programme in December was no small feat. It was however eclipsed by events. The cliff- hanger Brexit agreement on Christmas Eve together with the daily ups and downs of the COVID-19 pandemic have relegated the €1.8 trillion fund, from a news perspective.
However, in European capitals and Brussels, a significant amount of spade work is currently being undertaken to bring these funds to the European economy as fast as possible. They hold the key to kick-start the EU economic recovery post-COVID-19. This is all the more important considering the vast stimulus packages issued by EU member states in 2020 which leaves them with limited fire power to prop up their economies in 2021.
The sheer size of the EU budget allocated has even shaken some political coalitions like in the case of Italy. Member states need to present to Brussels their recovery plans on how they intend to spend these funds by April latest, this will prove challenging taking into account the European Commission guidelines issued in January 2021.
Another difficult political agreement reached in December was Europe’s commitment on tougher climate goals for 2030 whereby the EU has increased its target to cut carbon emissions to 55 per cent from the original 40 per cent (of 1990 levels). This sets the long-term trajectory for the EU’s Green Deal ambition to become the first climate-neutral continent in the world by 2050.
How does the seven-year EU funding cycle and a climate-neutral Europe come together? The European Commission has ensured that climate change mitigation will play a key role in the EU’s seven-year funding programme. A quota of at least 30 per cent of all expenditure would need to be climate-related. This will amount to over €540 billion across all the EU.
In the case of Malta, with a budget allocation of just over €2 billion, total climate-related expenditure would exceed €600 million over the period 2021 – 2027. Will this be enough to adapt the Maltese economy to reach the 2030 EU target?
The sheer size of the EU budget allocated has even shaken some political coalitions like in the case of Italy
To attempt to answer this question, the Maltese government, together with the European Investment Fund (EIF), launched a European pilot initiative called the Energy Efficiency and Renewable Energy (EERE) Malta fund. This is a European pilot climate risk-sharing instrument that for the first time blends an EIF guarantee instrument with an EIF interest rate subsidy; integrates an EU risk-sharing instrument with EU technical knowledge, and creates a single fund for both individuals and business to invest in energy-efficient and renewable energy solutions.
The EERE Malta, funded through European Structural Investment Fund resources, provides an €11 million EU guarantee. Following a public call for expression of interest, these public funds have mobilised a €54 million bank-lending fund which is to be administered by two Maltese banks over the next three years.
The guarantee obliges the banks to reduce their interest rates and collateral obligations. These incentives are further topped up with an interest rate subsidy budget of circa €3 million which will reduce the interest rate by an additional two per cent over the first three years of the loan.
The technical team of specialists, which will be co-ordinated by the European Investment Bank (EIB), will provide support to create a new pipeline of investments in the area of energy efficiency.
The specialists will also measure the impact of the fund from the perspective of the energy saved, the renewable energy generated and the volume of CO2 reduced.
Bank of Valletta (BOV), as one of the selected banks, has a significant experience in designing and implementing risk-sharing instruments having leveraged over €500 million in bank financing over the past 10 years. The successful implementation of various BOV business and personal EU risk- sharing products in the Maltese market, such as the BOV JAIME and BOV Studies Plus+, will ensure the success of the EERE Malta pilot initiative.
Through the EERE Malta pilot initiative, Malta, together with the EIB Group, will lay the foundations for the rollout of the future climate risk-sharing instruments steering Europe towards a climate-neutral economic recovery post-COVID-19.
Mark Scicluna Bartoli sits on the board of the European Investment Fund and is a member of the EU Commission’s Mission Board on adaptation to climate change.
The BOV Personal Energy loan benefits from the guarantee granted in the framework of the Energy Efficiency and Renewable Energy Fund of Funds (‘EERE Malta’). The objective of this fund of funds and its first loss guarantee combined with an interest rate subsidy scheme is to support the access of the final recipients for their investments in energy efficiency and renewable energy measures.
EERE Malta is co-financed by the Republic of Malta and the European Union under the European Regional Development Fund.
Any views, assumptions or opinions expressed in this article are those of the author. All loans are subject to normal bank lending criteria and final approval from the bank.
Mark Scicluna Bartoli, Head, Bank of Valletta’s EU and institutional affairs section