Climate tracking in the EU budget needs a more robust system

Author: Martin Nesbit

A deal on the budget and recovery plan is welcome – but will it deliver the promised 30% for the climate? Senior Fellow Martin Nesbit draws some lessons from IEEP’s new report for the European Parliament on climate mainstreaming.

The European Council negotiations on the budget and the coronavirus recovery plan have been long and painful, but they reached a conclusion on Tuesday. A key element for environmental interests is the focus of expenditure on addressing climate change, with an agreement to earmark 30% of the total budget and recovery fund package for climate objectives.

This is a welcome step forward from the Commission’s original, pre-COVID, proposal of 25%. But can we be sure that 30% will really be spent on what citizens would regard as climate investments? A new report by IEEP for the European Parliament suggests that the current EU mechanisms for tracking climate expenditure are no longer adequate to the increased political importance of the issue.

Documenting climate mainstreaming

The report – “Documenting climate mainstreaming in the EU budget – making the system more transparent, stringent and comprehensive” – points to a number of weaknesses in the current system for tracking climate expenditure.

The EU is in advance of other economies, and of Member State governments, in having a comprehensive system for monitoring climate expenditure.

But the system relies on judgements of whether the expenditure is expected to have either a “significant” or a “moderate” impact on the delivery of climate objectives; and this means that expenditure is chalked up to the climate total even in cases where climate change has little or no relevance to the motivation behind the spending.

The current climate tracking does not really measure spending “on” climate objectives as such

So the first point our report makes is that the current climate tracking does not really measure spending “on” climate objectives as such, but instead tries to estimate how much expenditure in practice contributes to their delivery.

Secondly, the approaches used to identify positive climate policy impacts vary between EU funding programmes. Some areas of spending have pretty robust approaches: regional development and cohesion fund spending, for example, although even here some investments which may involve fossil fuel use are included.

The methodology for other programmes has been subject to more criticism, including in reports from the European Court of Auditors. A case in point is the Common Agricultural Policy (CAP), where the court of auditors has criticised both the scoring of the income support regime, and of rural development funding, as over-generous.

The Commission has proposed keeping broadly the same overall system for tracking climate expenditure in the new budget period (2021-2027), based on spending expected to have a “significant” contribution to climate objectives being counted at 100%, and spending with a “moderate” contribution counted at 40% of its value.

A major question mark arises for agricultural spending

A major question mark, though, arises for agricultural spending, where the Commission has proposed a big increase in the percentage of income support which is counted as contributing towards climate objectives.

While the Commission’s policy proposals aim at increasing the impact of agriculture spending on climate delivery, a number of commentators, including IEEP, have expressed concerns about whether Member State implementation will really deliver (see for example Allan Matthews’ comments). The Court of Auditor’s opinion on the Commission proposals found the estimated contribution “unrealistic”.

Our calculations show that this increase in the recorded climate policy impact of the European Agricultural Guarantee Fund (which provides income support to farmers, including through the Direct Payments system) more than accounts for the whole of the Commission’s original commitment to increase the climate share of the budget from 20% to 25%, and even gets most of the way to the new 30% target for the EU budget.¹

Changes in EAGF’s contribution to the climate target (original budget proposals)

Climate spending calculated on old basis	Climate spending calculated on new basis
Greening payment (30%)	Permanent pasture @ 100%	10.00%	Eco-scheme	(?)20% @ 100%(depending on MS choices)	20%
	EFA @ 40%	4.00%
Basic payment (70%)	20% “climate relevant” @40	5.60%	Basic Income Support	(?) 80% @ 40(depending on MS choices)	32%
Total climate share	19.60%	Total climate share	52.00%
Direct payments budget = €267484m
MFF total = €1134583m
Direct payments proposed recording of climate spending, as a percentage of the MFF total:
*19.6% €267484m / €1134583m**	4.62%	*52%€267484m / €1134583m**	12.26%

There are other areas of expenditure where the robustness of tracking methodologies can be questioned, although none has a budget of a size which skews the overall picture of whether the EU budget as a whole is meeting a 30% target.

Given how central climate change now is to European policymaking, the IEEP report recommends an overhaul of the current system

Fisheries fund expenditure on permanent or temporary cessation of fishing activities, for example, is included at 100% and 40% respectively, despite climate not being an element in the justification of either measure, and despite the lack of a convincing rationale for the climate impact.

Given how central climate change now is to European policymaking, and how central it needs to be to the EU budget, the IEEP report recommends an overhaul of the current system. It is important to identify not just whether money is spent in ways which are expected to have some, occasionally questionable, positive impacts; but to assess whether those impacts are significant enough, and respond enough to the urgency of the climate challenge.

Our recommendation in the report is for a new tracking system, where only expenditure with clear, measurable, climate policy objectives would be included; and only where impacts are on a scale which justifies the expenditure.

Programmes would also need to report on the delivery of those benefits. A system like this would enable the Parliament, and the Council, to make a case-by-case judgement on whether programmes show enough climate ambition, and would help them take an overview on whether the budget as a whole was spending enough on climate, and spending it effectively.

This proposed new approach would require a real, detailed political debate about climate spending. It would take time to get it right, precisely because it requires more focus on climate issues than currently. We recommend the Commission be asked to develop proposals in a mid-term review, to implement them as soon as possible on a programme-by-programme basis, with full coverage by the start of the following (2027 onwards) financial perspective.

In the meantime, the urgency of climate action needs to be clearly underscored – and urgent action taken – throughout the budget. Legislators should either ensure that programmes like the Common Agricultural Policy have a dramatic increase in climate stringency, or that a more realistic scoring of their climate impact is including in the climate tracking totals.

Climate change needs a much more urgent and focused response than it has yet had from public investment

If a reduction in climate scoring is a more accurate response to the outcome for some programmes, then the shortfall towards the 30% budget needs to be made up by a dramatic increase in the real climate focus of other spending, like regional development funding and funding from the recovery package.

Our research was carried out, and the report largely drafted, before the impact of coronavirus. The new reality, in the light of the massive economic and social impact of the disease, means there is an urgent need for public expenditure, including EU expenditure, to revive the economy. But the new reality has to incorporate the old reality – that climate change needs a much more urgent and focused response than it has yet had from public investment.

The European Council has effectively agreed with the Commission’s recommendation that the recovery package provides an opportunity to take important steps in the fight against climate change. This is a welcome step, and legislators now need to make it a reality. EU citizens should have a mechanism for tracking EU climate expenditure that they can rely on; the present system has too many weaknesses and should be replaced.

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1. The exact calculation will depend on the implementation choices made by Member States; in addition, they can spend up to 10% of their envelope on voluntary coupled support, which would be scored at 0% – although, of course, support for some forms of production, particularly ruminant livestock, would have potential negative climate impacts.