Rethinking Just Transition in Investment Law Perspective: Incentives against Climate Crisis between Sustainability, Economic Security, and Strategic Industrial Planning

Abstract

With the expression “Just transition”, the European Commission refers to a new development model to bring in the environmental and digital transition “leaving no one behind”. From an investment law perspective, it implies the adoption of several incentives to support new green economy activities or the reconversion of old ones into green and energy-neutral production models. Starting from an analysis of the EU just transition strategy, the paper focuses on the Italian case, investigating the interconnection between just transition funds and other measures (the Single Special Economic Zone and National Recovery and Resilience Program) to verify their effectiveness in terms of investment retention and attraction and their effects in terms of strategic industrial planning. Concerning retention, the Sider Alloys and Acciaierie d’Italia case studies are analyzed. Concerning attraction, as the incentives may appeal to aggressive activities dangerous to the EU and Member States’ strategic autonomy, the paper offers an overview of the instruments available for screening and preventing creeping economic operations, especially the proposed reform of the investment screening mechanism and the anti-coercion instrument. In conclusion, the paper proposes the adoption of an ex ante impact assessment, including citizen consultation, aimed at verifying investment concrete capacity to contribute to the just transition process.

1. Introduction

“Just transition” is an expression used by the United States (US) trade union movement to indicate the interventions needed to secure workers’ rights and livelihoods when economies are driven towards more sustainable models of production1. The European Commission adopted the expression to refer to a new socioeconomic development model to fight climate change and make environmental and digital transition a reality, “leaving no one behind”.

Just transition has several implications in terms of economic growth, social transformation, environmental protection, and territorial cohesion. From the investment law perspective, it implies the adoption of several incentivizing instruments aimed at supporting new green economy activities or reconverting the old ones into greener and energy-neutral production models. Although it is very interesting both in terms of the quantity of financial resources and the impact on business model modernization, it is questionable whether these measures are really able to attract and retain investors interested in starting or carrying out profitable and innovative long-term projects.

This paper examines the effects of the European Union (EU) just transition strategy on EU and Member States’ (MS) industrial policy in order to assess its effectiveness in attracting and retaining investors. Furthermore, as investments have a significant impact not only on economic development but also on the environment, social policy, land use, and territorial cohesion, the paper seeks to underline the strict linkage between just transition incentivizing measures and industrial policy planning, focusing in particular on the decision making that leads to the decision to accept a specific foreign investment in a given territory.

2. Methods

Starting from an analysis of the EU regulation and documents concerning just transition, the paper focuses on Italy, investigating the interconnection between just transition funds and other incentivizing measures––specifically the Single Special Economic Zone (SEZ) for Southern Italy and the National Recovery and Resilience Program (NRRP). More specifically, this study aims to verify the effectiveness of these converging incentivizing measures in terms of investment retention and attraction. With regard to retention, two case studies concerning foreign investments in plants located in the just transition areas are analyzed: Sider Alloys (formerly Alcoa) and Acciaierie d’Italia (formerly Ilva). As for attraction, in light of the epilogue of the two case studies, the paper investigates the risk that such incentives may appeal to aggressive activities and investments capable of undermining the EU and Member States’ economic security and strategic autonomy. From this perspective, the paper offers an overview of the instruments adopted by the EU institutions to screen and prevent creeping economic operations managed by foreign actors. Lastly, the paper emphasizes the linkage between investment planning and more general territorial planning issues, proposing a method for strengthening ex ante investment impact assessment and reinforcing stakeholder and citizen involvement in decision making so that the just transition can become a reality.

3. The Green Deal and the Just Transition Fund: Promoting Sustainability through Supporting Greener Investments

With the 2019 Communication on the European Green Deal2, the European Commission launched a new growth strategy to transform the EU into a “modern, resource-efficient and competitive economy where there are no net emissions of greenhouse gases in 2050 and where economic growth is decoupled from resource use”. The European Commission underlined the necessity to assure that the “transition must be just and inclusive. It must put people first, and pay attention to the regions, industries and workers who will face the greatest challenges”. The ultimate aim was to transform the EU into “a global leader on climate and environmental measures, consumer protection, and workers’ rights” (Schoenefeld 2021; Chiti 2022; Tufano 2023; van der Sluis 2023). From this perspective, the European Commission established a roadmap aimed at designing a set of deeply transformative policies in several fields (clean energy supply, industry, production and consumption, large-scale infrastructures, transport, food and agriculture, construction, taxation and social benefits, natural ecosystems, sustainable use of resources, and improving human health). According to the European Commission perspective, sustainable transformation should be accompanied by digital transformation and the promotion of circular economy3, conceived as an opportunity to expand sustainable and job-intensive economic activity. The European Commission focused in particular on some specific energy-intensive industries, such as steel, whose decarbonization and modernization entail the adoption of new business models able to support clean steel breakthrough technologies leading to a zero-carbon steel-making process by 2030 and energy neutrality by 2050. The European Commission appears to be aware that climate change and environmental degradation hit the most vulnerable more than any other but also that the transition entails significant structural changes in production models, skill requirements, and relative prices. To face these problems, the European Commission proposed a Just Transition Mechanism (JTM). The JTM focuses on the regions and sectors most affected by the transition because they depend on fossil fuels or carbon-intensive processes. It is funded by the EU budget, as well as the European Investment Bank (EIB) group to leverage the required private and public resources. JTM is composed of three pillars: the Just Transition Fund (JTF), the Just Transition Scheme under InvestEU, and a Public Sector Loan Facility for Just Transition that combines European Commission grants with European Investment Bank loans. The main aim is to protect the citizens and workers most vulnerable to the transition, providing access to re-skilling programs, jobs in new economic sectors, or energy-efficient housing, involving and committing all the territorial stakeholders in the choices, and action geared to constructing the transition.

After the pandemic, the need to carry on the Green Deal strategy and promote the just transition became a priority of the European Commission and was pursued through several actions funded by the Multiannual Financial Framework 2021–20274, mainly the Just Transition Fund Regulation adopted as part of cohesion policy programming 2021–20275. Based on Article 175 of the Treaty on the Functioning of European Union6 (TFEU) and point (a) of Article 322(1) TFEU7, the Regulation aims to contribute to the fulfillment of the Union’s commitments to implement the Paris Agreement adopted under the United Nations Framework Convention on Climate Change (the ‘Paris Agreement’)8. More specifically, it pursues efforts to limit the temperature increase to 1.5 °C above pre-industrial levels and put the European Green Deal into practice. Regulation is based on the assumption that, although fighting climate change and environmental degradation can produce medium-term benefits, regions have different starting points in relation to transition. More specifically, transition has a wider social, economic, and environmental impact for regions that rely heavily on fossil fuels for energy use, especially coal, lignite, peat, and oil shale, and for greenhouse gas-intensive industries, risking variable transition speeds in the EU in terms of climate action, but also growing disparities between regions, with a detrimental impact on social, economic, and territorial cohesion9. The Regulation is also based on the conviction that “in order to be successful and socially acceptable for all, the transition has to be fair and inclusive”10. In this perspective, the JTF aims to “provide support to the people, economies and environment of territories which face serious socio-economic challenges deriving from the transition process towards the Union’s 2030 targets for energy and climate […] and a climate-neutral economy of the Union by 2050”11. The Regulation also establishes a green rewarding mechanism, whereby, if the resources increase, the additional funding will be distributed among the MS on the basis of the change in greenhouse gas emissions from their industrial facilities in territories funded by the JTF12. Access to resources is conditional upon the MS commitment to implement the objective of achieving a climate-neutral EU by 205013. Restrictions on accessing the funds have been established for MS that have not made this commitment (Armeni 2023, p. 1035 ff.; Villani 2023).

The activities financed by the JTF consist of investment in industry14, research and innovation15, the deployment of technology, systems, and infrastructures for affordable clean energy16 and renewable energy17, investments in smart and sustainable local mobility rehabilitation18, an upgrade of district heating networks19, as well as digitalization20, in addition to investments in the regeneration and decontamination of brownfield sites, land restoration including green infrastructure and repurposing projects21, investments in enhancing the circular economy22, and, lastly, the up-skilling and re-skilling of workers and jobseekers23.

The JTF resources are allocated for the categories of regions where the territories concerned are located on the basis of territorial just transition plans approved by the European Commission after verifying that the identification of the territories most negatively affected by the transition process is duly justified. MS should co-finance the JTF at differentiated rates for every category of region24.

Territorial just transition plans25 must be prepared in concert with the relevant local and regional authorities of the territories concerned and must cover one or more affected territories corresponding to NUTS level 326 regions or the areas within them that are “most negatively affected, based on the economic and social impact resulting from the transition, in particular with regard to the expected adaptation of workers or job losses in fossil fuel production and use and the transformation needs of the production processes of industrial facilities with the highest greenhouse gas intensity”27. It implies the adoption, in areas covered by the JTF, of a method of governance able to match environmental objectives, socioeconomic interests, land-use planning, and cohesion.

Since 2022, an indirect contribution to JTF objectives is also offered by the REPower EU program, launched by the European Commission after the Russian invasion of Ukraine to free the EU from dependency on Russian energy sources28. More specifically, REPower EU is based on four actions: EU energy supply diversification, securing affordable energy supplies, saving energy, and investing in renewable energy. Diversification is pursued by establishing agreements with other third countries for pipeline imports, the supply of renewable hydrogen, and the export of natural gas to Europe, as well as by investing in the common purchase of liquefied natural gas (LNG). Energy security is assured, firstly, through the EU Energy Platform launched in April 2022 to coordinate EU action and negotiations with external gas suppliers through common gas procurement for MS (Moschetta 2022; Pugliese 2023, p. 356 ff.; Marin 2023)29. It was accompanied by an EU company joint gas purchase initiative (Aggregate EU mechanism). Secondly, a gas storage mechanism was established to fill underground gas storage to 80% capacity by 1 November 2022 (Pugliese 2022b, p. 405 ff.; 2023, p. 356 f.; Marin 2023)30. By working together, EU countries surpassed this, reaching 95% gas storage instead. The yearly target for the coming winters will be to fill storage to 90% capacity by 1 November. Action to save energy is geared to changing the habits of businesses and citizens and being accompanied by actions to control energy prices31. Furthermore, actions have been taken to increase renewable energy deployment32. Lastly, Regulation 2023/435 allowed MS to introduce a REPower chapter in the National Plans for Recovery and Resilience (NPRRs) adopted in accordance with Regulation (EU) 2021/241 establishing the Recovery and Resilience Facility33. By assuring energy security and solidarity, reducing energy prices, and incentivizing renewable energy production, REPower is indirectly contributing to the objective of fostering just transition.

Nevertheless, despite all the (also financial) efforts to promote it, the ability of the just transition to balance fighting climate change and the promotion of economic development and cohesion is not to be taken for granted. In the coming sections, the case of the Italian Just Transition Fund National Plan (JTF NP) will be examined to assess its concrete effects in terms of investment retention and attraction in the funded territories and its concrete ability to drive energy and environmental transition as well as promoting economic growth, employment, social wellbeing, and territorial cohesion.

4. Incentives as a Means of Investment Attraction and Retention: The Italian JTF Program and Its Connection with the Single Special Economic Zone for Southern Italy

The Partnership Agreement between the European Commission and Italy 2021–202734, signed and adopted on 19 July 2022, declared two Italian NUTS level 3 areas eligible for access to the JTF, namely Sulcis Iglesiente in Sardinia and the Taranto industrial area, located in Apulia. The Italian Program for a Just Transition 2021–2027 (JTF NP), including the two territorial transition plans, was approved on 16 December 202235.

From the context analysis proposed by the program, the two areas elected as JTF beneficiaries have several common features: economic dependency on the steel and carbon sectors, energy poverty, a large number of contaminated sites, high emission rates36, risks for health, a high unemployment rate, low incomes, a low entrepreneurship level, skills mismatch, and low innovation rates. Against these phenomena, the JTF NP promotes a strategy to mitigate the transition impact on climate neutrality in the two areas through business diversification in sustainable and innovative sectors, new employment and training opportunities, the fight against energy poverty, and environmental protection.

More specifically, in order to allow regions and people to face the employment, economic, and social effects of transition towards the 2030 objectives of energy and climate Union, as well as climate neutrality in 2050, the JTF offers incentives to undertakings to promote the use of renewable energy resources and decrease energy consumption, also by creating intelligent energy storage and distribution systems, mitigating effects on workers through up-skilling and re-skilling and by promoting research and development projects to implement the green hydrogen supply chain37. While these actions principally favor energy-intensive businesses, specific actions supporting small and medium enterprises (SMEs), start-ups, spin offs, and spin outs to accelerate the process of economic innovation and diversification are planned.

In pursuing these objectives, the JTF NP operates in synergy with structural fund planning (European Regional Development Fund38 and European Social Fund Plus39) and NRRP, as well as with the National Integrated Program for Energy and Climate, contributing to the objective of decarbonization by 2025 promoting renewable energy sources and electricity production by gas. JTF is a “shared management fund” between the European Commission and Italian Government. The JTF NP Managing Authority was the Cohesion Agency, whose functions were transferred in 2023 to the Cohesion Policy Department, a consultative body of the Presidency of Council of Ministers40. According to Regulation 2021/1056, the Italian Government manages the JTF NP in partnership with the regions and with the involvement of other territorial institutional, economic, and social stakeholders. As a consequence, the JTF NP has an effect on territorial governance and management, calling all the public and private territorial stakeholders to comply with just transition values and objectives.

It appears clear that the Italian JTF NP is principally intended to support undertakings in energy transition in three ways:

• Direct support comprising public aid directly devolved to renewing production processes with the aim of reducing energy consumption, adapting them to renewable resources, using digital instruments to “dematerialize” them, saving raw materials, but also reconverting energy-intensive businesses towards greener activities, and creating new undertakings.
• The “indirect” support derived from the availability of energy-renewable resources and infrastructures, more efficient services and areas, and a more skilled workforce.
• A “collateral” benefit deriving from the creation of a more investor-friendly context by improving environmental, urbanistic, service, way of life, educational, training, cultural, and creative milieux, such as to stimulate endogenous innovation, technological development, and more efficient territorial services.

As a consequence, despite being designed for specific objectives to drive production methods towards climate neutrality and renewable energy, the JTF NP also has an undeniable incentivizing potential. It could be used both to retain investors already present on the territory and deter them from delocalizing their activities elsewhere and to attract new investors. From this perspective, it promotes an innovative model of industrial planning, strictly inter-related to land use, urban regeneration plans, and social policy programs41. It implies a transdisciplinary and innovative perspective in land-use management oriented towards promoting societal transformation in terms of sustainability, aesthetics, and inclusion, according to the “New European Bauhaus” movement principles42.

Conceived as an instrument to attract and retain investors, among other things, JT incentives could be considered complementary to other state aid systems, both sectoral and horizontal, able to accumulate their effects in specific territories to favor economic activity and green transition. As an example of sectoral aid, the reference is to aid that might be considered compatible under Art. 107, §3, letter (c), TFEU on the basis of Guidelines on state aid for environmental protection and energy 2014–202043 and on the basis of Guidelines on state aid for climate, environmental protection, and energy 202244, as well as the aids considered as compatible under Art. 107, §3, letter (b), on the basis of the Temporary Crisis Framework for State Aid measures to support the economy following the aggression against Ukraine by Russia adopted by the European Commission on 24 March 202245. As for the horizontal aid, the JT incentives mainly appear to be complementary with the regional aid that could be considered compatible under Article 107, §3, letter (a). The amount of aid allowed in each region is established by the National Regional Aid Map, which generally grants greater intensity to the aid conferred to undertakings located within the less developed regions, which also receive more significant structural funds in order to accumulate the benefits coming from the two types of funds46. In the current programming cycle, the Italian National Regional Aid Map for cycle 2021–2027, first adopted on 2 December 202147, was amended on 19 June 2023 in an effort to increase aid for territories identified for support by the JTF48, demonstrating willingness to assure convergence between state aid and European cohesion funds (structural funds and the Just Transition Fund) in areas paying the higher price in terms of energy and the environmental transition.

More recently, in the just transition areas, as in all the Southern Italy regions, a new overall model of incentivization has been put in place on an experimental basis: the so-called “Single Special Economic Zone”. Special Economic Zones (SEZs) are an evolution of a traditional customs procedure (the free zone) as a blend of several customs procedures (such as temporary admission, inward/outward processing, or end-use) aimed at assuring preferential treatment for goods intended to be processed before being released for free circulation or exported49. They are used in EU as in several traditionally closed countries (such as China) to attract foreign investors offering them, along with easier customs treatments, simplified and less onerous administrative procedures, tax reductions, lower wages, and less heavy company–law burdens to facilitate localization (Bakos 2020; Da Silva Leandro and Li 2020; Sabatino 2020; Xie and Wang 2020; Pusceddu 2020; Pugliese 2020).

In Italy, SEZs were first disciplined by Law n. 296/200650, establishing the possibility of creating “urban free zones” in the southern cities’ disadvantaged districts to favor economic and social development, extended in 2007 to all cities with over 30,000 inhabitants. Overall regulation of SEZs as incentivization instruments was established by Law Decree 91/201751, allowing the establishment of SEZs to foster the creation of agreeable conditions in economic, financial, and administrative terms with a view to developing existing and new undertakings and to incentivize the founding of new industries. An SEZ should include at least one port area connected to the Trans-European Network Transport (TEN-T)52. The benefits granted to the undertakings working inside an SEZ consist of customs and administrative simplification, preferential access to infrastructures, and tax credit on investments. To realize SEZs in Southern Italy, further regulations were adopted both at the central and regional levels (Pugliese 2020, 9 ff.)53. Law Decree 77/202154 implemented the “Italia Domani” NRRP and established further facilitations and tax credit measures for undertakings localizing their activities in SEZs. Lastly, Law Decree 124/202355 unified the regional SEZs, as of 1 January 2024, in a Single Special Economic Zone for Southern Italy. In this area, the economic and production activities of undertakings already present, together with new investors, could benefit from special investment and business development conditions. Like the JTF NP and the NRRP56, the Single SEZ already has a centralized governance, attributed to a control room, set up within the Council of Ministers’ Presidential Bureau, comprising all the Ministries concerned and the Presidents of the southern regions. Coordination and monitoring are attributed to a mission structure created within the Presidency. The Single SEZ development policies are established according to a three-year strategic plan, consistent with the NRRP, which identifies the sectors, investments, and priority measures to be promoted. Specific attention is placed on investments in industrial reconversion, energetic transition, and the creation of enclosed free customs zones in accordance with Regulation 952/2013 (EU Custom Code). A single office (Sportello Unico per le Attività Produttive/SUAP) is responsible for carrying out all the administrative procedures preparatory to the launch of business activity. At the same time, a tax credit is in place for investments in modern equipment or building construction within the Single SEZ.

Single SEZ is an instrument devoted to making the Southern Italy regions more investor friendly. It operates in synergies with the measures funded by NRRP, structural funds, and, in areas where it operates, especially JTF. This is demonstrated by the fact that the Decree establishing the access procedures and requirements to the tax credit fixes, in line with the Italian Regional Aid Map, higher rates for undertakings investing in areas that may be admitted to the JTF57.

All these measures are devoted to supporting existing and new undertakings in facing the challenges determined by subsequent crises (financial crisis, the pandemic, recent wars) and energy and digital transition.

In the following sections, an effectiveness assessment of incentivization measures as a form of investment retention and attraction will be performed, underlining opportunities and risks in terms of the Government–investor relationship, created by the decision to concentrate massive fund granting in a specific area.

5. Are Incentives Effective in Influencing Investor Choices? Lessons Learnt from the Sider Alloys and Acciaierie d’Italia Cases

5.1. Analytical Description of the Sider Alloys and Acciaierie d’Italia Case Studies

This section presents two case studies in order to verify whether the availability of a mix of incentives in a specific territory could influence “stay-or-go” investor decisions. The case study concerns two important foreign investors operating in the areas covered by the JTF. They are currently involved in disputes against the Italian Government caused by their decision to disinvest from those areas. Due to the investors’ importance, the size of the plants, and their position in the global supply chains, the plants could be considered strategic not only at the domestic but also at the EU level. This implies the strong Italian Government and local authorities’ interest and their importance as examples of the difficult relationship between States and investors in critical sectors and areas.

It is important to underline that in these two cases, the disputes, rather than being adjudicated by Investor State Dispute Settlement (ISDS) tribunals, are managed through domestic administrative or judicial procedures. Despite often being ignored by investment law scholars, these kinds of disputes are very frequent and very interesting, as they give the opportunity to investigate to what extent a government is prepared to accept foreign investors’ conditions and what the “breaking point” of the investor–State relationships is.

The first case study concerns the investment carried out in 2018 by the Swiss steel giant Sider Alloys in the Portovesme steel plant for aluminum production. The plant was owned by US Alcoa Inc. and has been shut down since 2014. In 2018, it was sold to Sider Alloys Italia Spa, controlled by Sider Alloys Holding Italia S.r.l., linked to the Swiss Sider Alloys and involving, as minority funders, Invitalia, the business development agency of the Italian Ministry of Economy, and an association of workers. Sider Alloys Italia signed a Development Contract to reactivate the Alcoa plant, funded by the Italian Ministry of Economic Development and the Sardinia Region through a Regional Program Agreement58. Reopening has been delayed several times due to the requirement to sign agreements with ENEL, the Italian company responsible for energy network management, negotiating the amount and prices for energy provision, and with regional administration seeking to obtain environmental authorizations in accordance with the Environmental Strategic Assessment (ESA)59 and Environmental Integrated Authorization (AIA)60 procedures. Although Sider Alloys should have become one of the more substantial beneficiaries of the JTF, the frequent delays in restarting production caused difficulty in accessing these funds and the temporary framework adopted after the Ukrainian crisis61. After repeated delays, in December 2023, Sider Alloys obtained a loan from SACE, the Italian insurance financial company specializing in supporting businesses and the national economic fabric62. Conferral of this further state aid was considered the premise for beginning production again in 2024, but news concerning the last meeting between the undertakings, the regional authorities, and the Ministry of Businesses and Made in Italy show great uncertainty about a genuine possibility of starting production. There is doubt surrounding the hypothesis that the foreign investor would only exploit the incentives without actually relaunching the plant63. These delays are putting at serious risk the possibility for Sider Alloys to benefit from all the direct incentives and the indirect and collateral advantages coming from its positioning in an area covered by the JTF NP and the other incentivizing measures for the Sulcis development. The principal damage arising from this situation is suffered by satellite activities and workers64.

The second case study concerns investment by the global steel leader ArcelorMittal in the ex-Ilva of Taranto, in the Apulia Region. Ilva of Taranto, the largest European steel plant, has a very troubled history: born as a State-owned enterprise (Ilva/Italsider) in 1965, in 1995 it was privatized and sold to the Ilva group owned by an Italian entrepreneurial family, the Rivas. In 2012, during an investigation on environmental and pollution crimes, the court ordered seizure, and the Italian Government, to safeguard production and employment, decided to put the plant under external administration and opened an international purchasing tender, which attributed, in 2018, ownership to the entrepreneurial group ArcelorMittal through the AM InvestCo Italy S.p.A. In 2019, after the worsening of the environmental situation, condemned also by some European Court of Human Rights (ECtHR) judgments (Scocca 2020)65, ArcelorMittal declared its intention to withdraw from the purchase and return the plant to Ilva. After several negotiations, in 2020, in the context of massive re-nationalization operations launched by the Italian government in reaction to the pandemic crisis (Pugliese 2022a, p. 232 f.; 2024), Invitalia decided to assume 38% ownership of the plant, leaving 62% to the foreign investor. In this way, the new company, Acciaierie d’Italia (AdI), came under the joint control of public and private foreign investors. The agreement also established new environmental and industrial investments aimed at completely decarbonizing production and making Ilva the largest EU “green” steel producer66. The strategy followed by the Italian Government was based on the conviction that participating in Ilva’s capital through public funds, assuring AdI indirect advantages through NRRP funds, and offering it green energy resources funded by the JTF would retain the foreign investor and encourage it to invest new funds in modernization, environmental protection, and complete plant decarbonization. The Italian Government’s ultimate goal was to ensure ongoing production and employment maintenance67.

More specifically, in the “Italiadomani” NRRP, a specific investment was envisaged (Investment M2C23.2) to incentivize hydrogen use in the sectors where emission reduction is prohibitively costly or impossible to reduce with the currently available abatement technology (the so-called “hard-to-abate” sectors). Specifically concerning the steel sector, the NRRP funds the production of direct reduced iron (DRI), also called “sponge iron”, realized from the direct reduction of iron ore into iron by a reducing gas, which contains hydrogen without greenhouse gas emission. In Taranto, the NRRP funds DRI d’Italia, an undertaking created by Invitalia to make research and produce DRI devoted to becoming the principal semi-product of the AdI plant production processes, when the electric furnace is built68. It should be specified that neither JTF NP nor NRRP confer specific funds on the AdI plant. Nevertheless, the object of creating a green energy supply chain in the Taranto area by funding hydrogen energy research and production is primarily meant to benefit AdI.

In March 2022, with the law decree concerning urgent measures to respond to the Ukrainian crisis69, new funds were allocated to the decarbonization of the former Ilva. In the months to follow, AdI announced the launch of research projects to make production more sustainable through the creation of an electric steel furnace and the use of hydrogen as an alternative energy source. At the same time, it increased production, despite facing a serious lack of liquidity, in part due to the increased energy and raw material costs caused by the Ukrainian crisis70. Nevertheless, in November 2022, ArcelorMittal decided to stop a large part of the AdI contracting companies, causing the suspension of production and the redundancy of many workers71. Through Law Decree 2/202372, the Italian Government established measures to support strategic undertakings, among which AdI was mentioned, through funds devoted to their capital strengthening.

Despite the great number of measures being taken and public resources being spent, in late 2023, the relationship between the public investor Invitalia and the foreign investor ArcelorMittal gradually deteriorated due to the lack of liquidity. This situation caused serious difficulty for AdI’s suppliers along with production shortages, leading to the crisis of satellite activities. After Invitalia filed for bankruptcy with the Italian Ministry of Business Development and Made in Italy and entered external administration, AdI appealed to the Milan Bankruptcy Tribunal to suspend the administrative proceedings. However, the Tribunal rejected the appeal, affirming the Ministry’s administrative discretion in deciding whether to place the company under external administration, as well as the legislator’s freedom to determine the forms of corporate reorganization for strategically important enterprises73. This decision allowed the Ministry to place AdI under external administration. This situation anticipates the possibility of—at least temporary–AdI nationalization, pending the identification of new investors interested in providing capital to the company. As evidence of this, on 17 April 2024, the Government extended external administration to the AdI holding to assure continuity of production and the loss of jobs74.

5.2. Managing Foreign Investment Dismissions in a Just Transition Perspective: Balancing Economic, Environmental, Social, and Territorial Sustainability

Sider Alloys and AdI cases demonstrated the limits of incentives as instruments to retain foreign investors in a territory. Indeed, in both cases, the vast resources allocated to supporting the green and energy transition and recovery after the financial, pandemic, and energy crises were not sufficient to convince the foreign investors neither to assure the plants the funds necessary to continue or restart their production activities nor to realize all the investments necessary to adapt their activity to the strategic objectives promoted by public decision makers and funders. The two cases confirm that, if an investor does not have a solid long-term vision and business plan, it is unlikely to be convinced to maintain investment on the basis of the injection of State aid and incentives alone.

In both cases, nationalization was envisaged as an instrument to protect national strategic undertakings. From this perspective, in January 2024, a law decree was adopted by the Italian Government aimed at simplifying and accelerating external administration procedures for strategic undertakings, facilitating nationalization75. Interpreted in an investment law perspective, the law decree could be considered almost as a form of “indirect expropriation” (Dolzer and Bloch 2003; Weiner 2003; Fortier and Drymer 2004; Reisman 2004; Perkams 2010; López Escarcena 2014; Ortino 2016). Nevertheless, it is justified by the Government’s need to safeguard its strategic environmental, economic, and social objectives. As a consequence, it is fully justified by the “right to regulate” (Henckels 2012; Treves 2014; Titi 2014; Pellet 2015; Korzun 2017; Pugliese 2017, p. 133; Mouyal 2018; Levashova 2019).

Since the pandemic emergency, the Italian Government has carried out several (re)-nationalizations, for example, in the transport (Alitalia/ITA) and infrastructure (ANAS) sectors, to support national champions in overcoming their structural difficulties aggravated by the health crisis (Pugliese 2022a, p. 232 f.). Nevertheless, these interventions were conceived as exceptional and temporary. The Government, mainly for budgeting reasons, appears to promote re-privatization as soon as an undertaking shows performance recovery and demonstrates its sustainability. For example, the Italian Government is leading negotiations with Lufthansa for selling ITA. Nationalization could be a useful instrument to protect strategic undertakings from the collapse generated by foreign owner disinvestment and to pursue general interests, such as, for example, climate neutrality (Schrijver 2009, p. 173 ff.). Nevertheless, to assure its effectiveness, State participation should be seen as a long-perspective project, based on a robust business plan able to overcome the industrial crisis and embark on a path of long-term sustainability with high profitability. Re-privatization should be considered only when the undertaking is definitely perceived as solid and reliable by creditors, competitive by international market operators, effective in complying with environmental and social requirements, and genuinely attractive to new private investors. New investor selection and choice should be made through a tender based on requirements compelling the seller not only to assure the undertaking’s economic and financial stability and competitiveness, but also compliance with objectives of general interest, such as climate neutrality, environmental protection, and social responsibility76. Furthermore, maintaining public control over the undertaking’s strategic management through golden power mechanisms allows the State to block any foreign investor decisions that might divert the plant from its strategic functions and protect national and EU general interests (Pugliese 2024). In such a scenario, the mix of incentivizing measures offered in a territory does not become, as in the above-analyzed cases, bait for speculators. Rather, it can represent an effective tool to attract foreign investors willing to start a serious and proud business activity, bring in capital, technologies, innovation, expertise, new export opportunities, and become part of the just transition process.

6. Avoiding Speculations on Climate Change Policies: Trade Defense Instruments as a Means of Protecting Strategic EU and National Interests

After the judges’ decision to place AdI in external administration, several preliminary offers were made by foreign and domestic investors, some of which appeared advantageous and promising77. Nevertheless, no certainty exists as to the reliability and stability of these investments. In reality, the question arises whether, like the previous ones, also these investors are attracted by the direct, indirect, and collateral advantages from the huge funds offered by the territories eligible for the JTF rather than by the perspective of engaging in profitable long-term innovative economic operation.

In reality, using incentives to fight climate change as a means of investment attraction into a specific area may always give rise to the danger of stimulating creeping operations on territorial critical resources and infrastructures (mainly in the raw material, transport, and energy sectors). These operations can distract them from their essential functions, putting national and EU security and public order at serious risk.

In recent years, the EU has adopted some instruments specifically created to detect economic operations by foreign operators that could undermine common strategic interests and strategic autonomy (Helwig and Sinkkonen 2022; Gehrke 2022; Zamani and de Waele 2023). The most important is the investment screening mechanism established by Regulation 2019/45278 to allow the European Commission and other MS to be informed about foreign direct investments likely to affect security or public order, due to their potential effects on, inter alia, critical infrastructures, including energy and transport, as well as land and real estate crucial for the use of such infrastructure and critical technologies including energy storage, in addition to the supply of critical inputs, including energy or raw materials79. There is a specific focus on foreign investments likely to affect projects or programs of Union interest on grounds of security or public order80, the list of which, attached to the Regulation, has been amended to include also Trans-European Networks for Transport (TEN-T)81, Trans-European Networks for Energy (TEN-E)82, and the Connecting Europe Facility83 (Hillebrand Pohl 2023; Hindelang and Moberg 2020; Pettinato 2019; Vellucci 2019; Verellen 2021; Zwartkruis and de Jong 2019). Learning from the key role played by the national investment screening mechanisms as a means of security and public order during the COVID-19 and energy crises (Pugliese 2022a, 2024; Mauro 2023) on 24 January 2024, as part of the package to strengthen European economic security84, a reform of Regulation 2019/452 was proposed to improve the mechanism’s effectiveness, with important innovations that could improve investment screening effectiveness in areas covered by substantial public incentives85. Indeed, the proposal extends the screening on investment typologies that the current regulation does not address specifically, such as, for example, greenfield investments, where the foreign investor or a foreign investor’s subsidiary in the EU sets up new facilities or a new undertaking in the EU, or the investments carried out by an EU entity controlled by a non-EU investor maintaining decision-making power86. At the same time, the proposal aims to ensure that a more careful screening is carried out on foreign investments where the Union target is part of, or participates in, a project or program of Union interest, where the Union target’s economic activity relates to a technology, asset, facility, equipment, network, system, or service of particular importance for the security or public order interests of the EU or when it concerns EU targets or economic activities that a MS considers critical for its security or public order87. In these cases, according to the proposal, the European Commission could issue an opinion. To improve risk prevention effectiveness, the proposal introduces risk-based conditions for the notification of foreign investments undergoing screening to the other MS and the European commission88. At the same time, it requires MS to adopt appropriate measures to mitigate the risks, taking into utmost consideration the comments issued by other MS and the opinion issued by the European Commission. If approved, the proposal seems to significantly reinforce FDI screening mechanism efficiency and effectiveness and to give help also to identify investments that are potentially risky for incentive programs like JT NP (Bohnert 2024).

As a means of investment control in just transition areas, the contribution of sectoral regulation must be taken into account—for example, the Energy Risk Directive and the Storage Mechanism Regulation89, establishing certification mechanisms aimed at controlling economic operations and investments in energy-critical infrastructures (Pugliese 2022b, p. 414 f.; Pugliese 2023, p. 356 ff.).

Other instruments useful to this effect are the International Procurement Instrument90, allowing the European Commission to undertake investigations into alleged third-country measures or practices against EU economic operators, goods, and services, and to enter into consultations with the third countries concerned (Dawar 2023)91. Additionally, the Foreign Subsidies Regulation92 aims to establish rules and procedures for investigating foreign subsidies that distort the internal market and to redress such distortions concerning any economic activity, particularly in mergers and public procurement procedures (Akritidis and Blancardi 2023; Blockx and Mattiolo 2023). The investigation focuses specifically on subsidies supporting concentrations and participation in public procurement in order to acquire control of strategic assets such as critical infrastructure and innovative technologies. From this perspective, it is a useful instrument for intercepting and stopping creeping operations. Applying control of subsidized undertakings investing in areas like Southern Italy, where several EU funds are available, could help to avoid speculation. Nevertheless, although the European Commission underlined the risk of foreign subsidies in the context of access to EU funding93, the issue is not covered by the regulation. This lack should be filled up by the approval of the new investment screening mechanism, devoting great attention to the investment in the projects and programs of EU interest.

Lastly, an indirect contribution to avoid creeping activities in areas where several public incentives converge is the Regulation on anti-economic coercion94, establishing a framework for the EU to deter or halt economic coercion. It enables the EU, as a last resort, to counteract economic coercion through EU response measures. According to Article 2, §1, “for the purposes of this Regulation, economic coercion exists where a third country applies or threatens to apply a third-country measure affecting trade or investment in order to prevent or obtain the cessation, modification, or adoption of a particular act by the Union or a Member State, thereby interfering in the legitimate sovereign choices of the Union or a Member State. In determining whether the conditions … are met, the Commission and the Council shall take into account …the intensity, severity, frequency, duration, breadth and magnitude of the third-country measure, including its impact on trade or investment relations with the Union…”. According to Article 3, ‘Particular act’ means any legal or other act, including an expression of a position, by an institution, body, office, or agency of, respectively, the Union or a Member State, or of a third country (Casolari 2023; Nguyen 2023; Nguyen 2024a, 2024b; Olsthoorn 2024; Schäffer 2024; Ceci 2024). As a consequence, anti-coercion is an instrument of “right to regulate” and “strategic autonomy” protection. According to Article 9, “the determination of the Union interest in taking, suspending, amending or terminating Union response measures shall be based on all available information and consist of an appreciation of the various interests at stake, taken as a whole. Those interests include primarily the preservation of the ability of the Union and its Member States to make legitimate sovereign choices free from economic coercion, and all other interests of the Union or the Member States specific to the case, the interests of Union economic operators, including upstream and downstream industries, and the interests of Union final consumers affected or potentially affected by the economic coercion or by Union response measures”. Although the anti-coercion measures are specifically addressed to third countries, they could also be addressed to certain natural and legal persons in specific circumstances95. Criteria for selecting and designing EU response measures include “the avoidance or minimization of negative impact on: (i) Union actors affected by Union response measures, in light of, inter alia, the availability of alternatives for such actors, such as alternative sources of supply for goods or services; (ii) the investment environment in the Union or a Member State, including the impact on employment and regional development policy; (e) the avoidance or minimization of negative effects of the Union response measures on Union policies or objectives”. Consequently, the impact of anti-coercion measures on the Green Deal and Just Transition objectives, as well as the cohesion objectives must be taken into account. It is remarkable that, according to Recital 15, in verifying where there is coercion, “the Commission and the Council should examine closely whether the third country pursues a legitimate cause, because its objective is to uphold a concern that is internationally recognized, such as, among other things, …the protection of the environment, or the fight against climate change”. As an instrument to protect EU and MS strategic autonomy, the anti-coercion regulation can also contribute to the climate change objectives, especially after the ECHR judgment establishing a sort of State responsibility to adopt measures in this field96. For example, in reaction to coercion measures aimed at sabotaging the strategic undertaking and infrastructure operativity necessary to pursue the energy transition (as export interruptions of raw materials, semi-products, technology, or suspension of intellectual property licenses), the EU could impose measures affecting the access of foreign investments or impose restrictions on the protection of intellectual property rights or their commercial exploitation to third-country citizens97.

An indirect contribution to protecting general interests could also come from acts external to trade policy, such as Directive 2022/2557 on the resilience of critical entities98 (Pursiainen and Kytömaa 2023). It lays down obligations on MS to identify critical entities, to support them in meeting the obligations imposed on them, and, more broadly, to take specific measures to ensure that services essential for the maintenance of vital societal functions or economic activities are provided in an unobstructed manner in the internal market. More specifically, MS must ensure that critical entities take appropriate and proportionate technical, security, and organizational measures to ensure their resilience, based on the relevant information obtained from risk assessment, including measures necessary to prevent incidents, duly considering disaster-risk reduction and climate adaptation measures99. From the same perspective, the Critical Raw Material Act100, adopted on 18 March 2024, establishing a framework to ensure the Union’s access to a secure and sustainable supply of critical raw materials, should be considered.

Lastly, it is important to consider the impact of cybersecurity regulation101, with specific reference to the Commission Delegated Regulation of 11.3.2024, establishing a network code on sector-specific rules for cybersecurity aspects of cross-border electricity flow102 aimed at improving the resilience of critical energy infrastructure and services.

All the instruments mentioned could allow MS and the EU to easily intercept creeping activities realized by foreign operators to speculate on public incentives, mainly in the just transition areas, assuring the effectiveness of public policy, the EU and MS regulatory and political freedom of choice, as well as the protection of citizens’ rights.

Nevertheless, to ensure overall control of economic activities that could potentially undermine EU and national climate change objectives, as well as their general interests, it would seem necessary to establish a consistent and innovative decision-making method for investment planning. This method should be capable of balancing economic interests with environmental, land-use, cohesion, and social considerations.

7. Conclusions

The analysis presented suggests that just transition has the potential to promote a significant change in terms of economic growth, social transformation, consistent land use management, and territorial cohesion only if public institutions engage with the investors in a dialogue aimed at making them conscious and responsible about their role as change drivers. Such a relationship with investors could be created only by building an effective decision-making process during the investment pre-establishment phase.

More specifically, it would be very useful to carry out an overall ex ante impact investment assessment to verify its concrete capacity to activate processes of long-term profitability, stable and secure employment, life-long worker training, technological innovation, the adoption of green and circular production patterns, and coordination and cooperation with the local institutions and non-governmental organizations (NGOs). To better understand the needs and fears that the citizens perceive concerning the investment, a deep consultation phase should be open during the impact assessment process. Models like Environmental Impact Assessment (EIA)103 and Environmental Strategic Assessment (ESA) could be taken as examples, but they should be supplemented by procedures allowing the citizen to have a direct influence on the authorities’ final decision about investment approval. In the investment studies, the problem of participation generally arose regarding the right to protection of indigenous peoples (Erueti et al. 2018) and land grabbing in less developed countries (Silvestri 2012; Nino 2018). Nevertheless, also in European countries, where mechanisms of indirect democratic representation are established by constitutions and managed through highly regulated administrative proceedings, inserting forms of mandatory consultation and direct citizen participation in the decision making concerning foreign investments could help the local authorities to better understand their expectations and needs, to select the foreign investor most sensitive and open towards the objectives of general interest, and to drive an effective and just transition truly able to spread benefits across the entire territorial community. To make citizen participation really effective, it could be useful to create bodies comprising NGOs and territorial stakeholders with powers of veto on the local entities’ decisions concerning investment acceptance. From this perspective, the Italian experience of negotiated programming could appear to be a valid model, but it should be complemented with systems able to strengthen the responsibility, transparency, and accountability of the engagement taken by all the territorial stakeholders in order to assure investment functionality to the strategic territorial, national, and EU interests.