Towards an MFF that supports clean heating and cooling

Half of Europe’s energy consumption fuels our heating and cooling. As such, this sector holds the key to our energy resilience, meeting our climate targets, and combatting energy poverty across the EU. Hence, it is crucial that the EU’s next Multi-annual Financial Framework (MFF) adequately supports this critical sector.

Since the European Parliament Elections last year, we have transitioned from the previous Commission, the Commission of the European Green Deal. This mandate was characterised by ambitious legislation and target-setting. The task of the current Commission is to enable Europe to accomplish these objectives by delivering on the European Climate Law and Fit for 55 legislation. These targets are not hindrances to competitiveness or economic growth, and instead represent fundamental demand drivers for cleantech solutions, such as those related to clean heating and cooling. 

On 23 July, representatives of Clean Heat Europe, Cool Heating Coalition, Euroheat & Power and CEE Bankwatch gathered in Brussels to discuss what the new overhaul of the budget means for clean heat, and whether the new Competitiveness Fund could finally unlock the rollout of key technologies in the heating transition. The key takeaways in this article are based on the discussion that took place at the event. 

The new EU budget: what’s in it for clean heat?

To meet the targets of the Green Deal, this budget must hence be one of clean investment. Key takeaways from the published budget proposal, which rises to the sum of around two trillion Euros, include: 

• This MFF establishes a so-called “mainstreaming target” for Green investment, essentially mandating that 35% of the entire budget, one way or another, should fund the green transition. While the previous budget held this at a lower percentage (30%), when calculating this total target sum of investment based on the total budget sizes of this and the previous MFFs – and while accounting for inflation –  the 30% of last budget cycle amounts to more money in practice than the 35% of the current budget.

  • The current 35% budget allocation amounts to EUR 700 billion to be earmarked for green investments. Adjusted for inflation, this represents a reduction compared to the current EU budget period. The 2021-2027 budget, with NextGenerationEU, had earmarked a total of EUR 577.5 bn for green objectives, which in 2025 prices translates to EUR 750.2 billion. 
    

•  Moreover, the classification of what works towards the mainstreaming target remains unclear, with media reports that distinctly unsustainable investments could be labeled green.
  

•  The recently proposed MFF restructures a large portion of EU funding into a slimmed-down number of financing vehicles. Most prominently, the Commission intends to fold several older, more specialised funding vehicles into a broader “EU Competitiveness Fund”. This fund explicitly names heating and cooling a strategic priority sector, but it's not clear how the great number of strategic priorities will be weighed against each other.
  

•  Additionally, the EU Competitiveness Fund is primarily focused on industrial decarbonisation. While this, naturally, is critical for Europe’s future competitiveness, the challenges faced by the EU’s clean heat manufacturers are primarily on the demand side, with issues such as affordability for households being key to unlocking uptake.
  

• This MFF, and the way to access its funding, is highly centralised. This poses a problem for a number of smaller, local heating and cooling actors who might struggle to access funds that would be critical for their success.
   

The new MFF should make Europeans feel warm

The following key action items would represent concrete steps towards improving the current budget proposal and enabling a continental transition away from expensive, polluting fossil fuels:

• The European Commission must clarify the mechanisms and principles through which competing priorities within large funding vehicles will be weighed and funded. Clean heating and cooling, for industry and households, should be a clear priority with dedicated funding under the Competitiveness Fund.
  

•  Due to the highly localised nature of heating and cooling solutions, there need to be clear pathways for local actors – whose decision-making and funding may well be the engine of an area’s clean heat transition – to access the relevant EU funds directly, without having to navigate cumbersome national bureaucracies.
  

• The mainstreaming target should be raised to 50%, to ensure that in the current budget, the sum earmarked for climate and nature-related investment is, in fact, the same / larger, than the previous budget’s mainstreaming target. We appreciate that the ‘Do No Significant Harm’ principle, for the first time, applies to all EU budget spend. Now, a robust implementation, which should include the permanent exclusion of fossil fuel finance in the EU budget, is key.
  

• The guidelines for what constitutes a sustainable investment, and what counts towards the mainstreaming target, must be clarified. These guidelines must be published in a transparent manner, and be highly restrictive to ensure that this money is not diverted to greenwashing or outright unsustainable purposes. This will ensure trust in the EU institutions and enhance certainty for businesses.
  

• Substantial funds must be earmarked, both to the funding the buildout of manufacturing capacity, and the establishment of large-scale heating and cooling facilities, as well as to the bringing down of installation costs for individual households and ensuring equitable participation in a green transition. The MFF should prioritise households which are low-income and lack access to private finance via strong ring-fencing mechanisms and social safeguards. Additionally, funding needs to ensure a general transition to decarbonised and renewable heating and cooling solutions from closing skill gaps to leveraging more private investment into the transition. 

These budget negotiations have only just begun. As such, the next months will be foundational for the next decade of EU competitiveness and energy security. Clean Heat Europe, the Cool Heating Coalition, as well as the entire heating and cooling community, stands ready to collaborate with policymakers to chart a path towards pan-European access to cheap, clean and secure heat.