Whom to ask how Poland spends billions from the Modernisation Fund?
The European Union has decided to allocate 2% of the allowances from its emissions trading system (EU-ETS) for support to poorer countries in their energy transition. Since 2021 this money is transferred to Poland, among others. The local operator – the National Fund for Environmental Protection and Water Management – has been distributing the funds without adequate public scrutiny and information. A year after taking charge of the Modernisation Fund, there is no transparent website to adequately inform society and potential applicants on what and how over EUR 11 bn (PLN 50 bn) is to be spent (and a further increase is on the table). This article deals with the consequences of the current flaws in this process and why their removal is so important for Poland.
Modernisation Fund - big money during rainy days
The Modernization Fund (MF) is a tool for reducing emissions by the Member States with a worse starting point. The 10 countries with the biggest CO2 reduction challenges2 and lowest GDP per capita receive additional funds, coming from the sale of 2% of the EU-ETS 2021-2030 emissions allowance pool. This is a solidarity mechanism: wealthier Member States contribute by depleting their pools. The investments financed by the MF are intended to support the transition to climate neutrality by helping to modernise the energy systems and improve energy efficiency, giving citizens access to cleaner and safer energy at affordable prices.
Poland is the biggest beneficiary, receiving the equivalent of almost 120 million allowances (43.4% of the pool; Graphic 1), which, depending on the price of allowances may yield as much as over EUR 11 bn (PLN 50 bn). This will be Poland’s second-largest distributor of money from the ETS system. Rational use of these funds is very important, as the ETS system rewards countries reducing emissions quickly. On top of that, funds based on ETS revenues have undeniable advantage: they fill the gap left by European funds 2021-2027, which are not yet available in Poland.
Compared to traditional EU funds, obtaining money under the Modernisation Fund requires following a relatively simple procedure (click to view the graphic). In detail, it depends on the type of expenditure.
- We distinguish between individual investments and schemes (multi-annual programmes). The latter are subject to a comprehensive assessment only once, when applying for the first payment. Subsequent transfers involve only the verification of available funds and the investment portfolio.
- Priority investments are defined in the ETS Directive. Others may be considered non-priority, if they contribute to GHG reductions and meet MF objectives. Non-priority investments require due diligence by the European Investment Bank (EIB) and the approval of the Investment Committee. The Investment Committee meets twice a year.
- Regardless of the division between individual investments and schemes, the minimal ratio of priority to non-priority investments in the national investment portfolio shall be 70:30.
The high pace of spending and controversial choices
National Fund for Environmental Protection and Water Management (NFOŚiGW) distributes MF funds in Poland, and reports in this area to the EIB. Applying for new programmes has been very successful. In one year NFOŚiGW has already obtained EUR 2.9 bn (PLN 13 bn) as full expected funding for long-term investments  (Table 1), which will be distributed as grants and loans to households, companies and other entities (housing cooperatives, DSOs, etc.).
Among the spending goals accepted by the EIB were waste incineration (Use of alternative fuels for energy purposes) or cogeneration for energy. These are controversial choices, to say the least. The first programme violates the principle of not doing significant harm (DNSH), weakening the pro-transitional character of MF in Poland. By allowing this type of investment (as a priority!) EIB proves that climate goals are subservient to others. The latter programme (limited to energy sector) should be financed from a dedicated fund, Fund for Energy Sector Transition (FTE) - if at all.
Complete lack of transparency
When the idea of the Modernisation Fund come to light in 2014, one of its main assumptions was transparency of spending funds. In order to satisfy this condition, detailed monitoring, reporting and information criteria appeared in the implementing regulation, which beneficiary countries are obliged to implement. Following examples prove that this criterion is not properly implemented in Poland.
Undesignated investment directions
One can hardly find a document in which Poland specifies investment plans for the entire MF pool, and what is expected to be achieved (e.g. scale of emission reductions). No information what distinguishes MF from other sources is provided either. While such a declaration is not obligatory, it would make the application and investment processes easier for the beneficiaries. It would also provide an opportunity to develop the domestic manufacturing base needed to meet increased demand at reasonable prices. Finally, clear formulation of public policy objectives and performance indicators increases the effectiveness of interventions.
The EIB itself, as the Fund's coordinating body at the EU level, expects recipient countries to send biannual indicative (non-binding) lists of investments . This allows to have flavour on future submissions. According to information obtained by Forum Energii, the Polish list for 2022-2023 has still not been sent to the EIB – although the deadline passed in February 2022. In such circumstances, the directions of support can be predicted based on the announcements from the meetings of the Investment Committee.
Good practice: the Czech operator (Státní fond životního prostředí České republiky, SFZP) has published a document describing the lines of action, expenditure structure and planned timetable, as well as target groups and exemplary investments under the FM until 2030. Support conditions (incl. selection criteria) are described in more details in brochures.
It is still possible to submit the programme to the EIB (via operator) and have the green light given – but only the best informed and organised potential beneficiaries are likely to know this. This group includes representatives of the energy and industry sectors, as evidenced by the long list of projects dedicated for them. Others must rely on the inventiveness of the Consultative Council and NFOŚiGW. Importantly, support for the energy sector is also subject to the FTE, which is much larger than the MF – lack of demarcation is incomprehensible and leads to a reduction of the MF pool allocated to decarbonisation in other sectors.
The Augeas website
It requires great determination to obtain knowledge from the government website devoted to the MF. The exposition of information, its timeliness and accessibility leave much to be desired. For example:
- on the main FM webpage there are 4 links to sub-pages with the funding offer and news each - including 1 described incorrectly as Q&A (access: 02.05.2022);
- Q&A section remains outdated since Tranche 1 of the funding (access: 02.05.2022);
- although the EIB approved 11 priority programmes for Poland in the first 3 tranches, NFOŚiGW lists information about only 5 of them (access: 17.05.2022);
- there is no information on the public consultations planned to be launched, while the indicative opening date for the competition can be more than a year away, and some calls have outdated deadlines - on this basis it is difficult to say what their current status is (access: 17.05.2022);
- lack of space for information on beneficiaries and the scale of support granted to them (access: 02.05.2022).
Subscription of the NFOŚiGW newsletter is not especially useful for a potential applicant or a civil society representative. No relevant information can be found in irregular mailings, while a separate communication channel was not foreseen.
A neglected consultation
Public consultation serves to improve the quality of public policy by making actions more accessible and tailored to the needs of recipients, as well as eliminating obvious errors. Given how they are run, mandatory MF consultations in Poland are a fig leaf.
- Programme documents and their assumptions are consulted alternately. Only the EIB website allows to determine the status of the documents.
- Consultation lasts on average 8 business days (some were not conducted at all). For programme assumptions, the shortest consultations lasted 4 days, while 5-7 day deadlines were not uncommon. No advance notice was given to stakeholders or published on websites and social media.
- The results of any public consultation carried out so far have not been announced. It is therefore unclear what impact the 4-day consultation has had on the quality of the programmes. It is difficult to say who tried to change the programmes, in what direction, and which remarks were (not) taken into account. The lack of information in this respect allows us to assume that the comments were completely ignored or that the shape of the programme was tailored to one or several beneficiaries. This simply cannot be excluded.
Wikipedia instead of reliable public information
Receiving information about MF via the official route to the Ministry of Climate and Environment is also disappointing. Out of 12 questions sent by the Polish Green Network on Dec, 1st, 2021, after over 2 months the ministry responded in a two-page letter partially to two questions, filling the rest of the letter with Wikipedia-style information. No reference was made to questions on public consultations, transparency of NFOŚiGW activities or participation of partners representing civil society in MF management (in a form similar to the Monitoring Committee).
How to ensure the Modernisation Fund proper management? Conclusions
The Modernisation Fund is a public fund, aimed at supporting the energy transition in Poland and to level the playing field with other EU countries. This should increase access to cheap, clean and safe energy for citizens. It is particularly important contribution to implementing the Fit for 55 (higher climate ambitions) and RePower EU (energy derusification) packages. These funds must be spent efficiently if the RES or energy efficiency targets are to be met successfully. Its rational use will also be an argument in favour of the Polish government in its efforts to increase the allowance pool as part of the ongoing negotiations on EU-ETS reform.
Current management limits the ability of civil society to influence the direction of spending, and of beneficiaries to invest rationally. Publication of intervention guidelines, sound consultation, better guidance for potential beneficiaries and transparent information about beneficiaries are necessary to ensure transparency of spending and effectiveness of interventions.
FM's investments should help accelerate the green transition and curb soaring energy prices. For this to happen, they cannot be planned, implemented and accounted for behind closed doors. Improving FM performance will also help to set a good standard for the forging the significantly larger Fund for Energy Sector Transition.
Sonia Buchholtz, PhD - Forum Energii
Krzysztof Mrozek - Polish Green Network
Date of publication: 23 May 2022
 Assumptions: 93 EUR/EUA, exchange rate 4.5 PLN/EUR. The currently pending (May 2022) draft amendment to the ETS Directive, part of the Fit for 55 package, envisages an increase in the FM budget by a further 2% between 2024 and 2030 (for 12 countries, including Greece and Portugal) - cf. https://caneurope.org/modernisation-fund-the-overlooked-source-that-can-change-the-energy-transition-game/
 The largest fund will be the Energy Transformation Fund (FTE) with a budget below EUR 25 bn (PLN 112 bn). Its creation is under procedure: https://legislacja.rcl.gov.pl/projekt/12352303/katalog/12822408#12822408.
 (1) generation and use of electricity from renewable sources; (2) improvement of energy efficiency (incl. in transport, buildings, agriculture, waste, and except in energy efficiency related to energy generation using solid fossil fuels); (3) energy storage; (4) modernisation of energy networks (including district heating pipelines, grids for electricity transmission, increase of interconnections among Member States); (5) support to a just transition in carbon-dependent regions in the beneficiary Member States (including support to the redeployment, re-skilling and up-skilling of workers, education, jobseeking initiatives and start-ups, in dialogue with social partners)
 Investment Committee is a body consisting of beneficiary countries, representatives of non-beneficiary Member States, the EIB and the European Commission.
 COMMISSION EXECUTIVE REGULATION (EU) 2020/1001 of 9 July 2020 laying down detailed rules for the application of Directive 2003/87/EC of the European Parliament and of the Council as regards the operation of a modernisation fund to support investment in the modernisation of energy systems and in improving energy efficiency in certain Member States https://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX:32020R1001
 "indicative, non-exhaustive and non-binding list of priority investment examples"