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Documenting climate mainstreaming in the EU budget - making the system more transparent, stringent and comprehensive

  1. @IEEP_eu “Documenting climate mainstreaming in the EU budget - making the system more transparent, stringent and comprehensive” European Parliament – Committee on Budgets Committee Meeting Monday 31 August 2020, Brussels Martin Nesbit – IEEP Senior Fellow
  2. @IEEP_eu Presentation Outline • Project objectives and timing • Main findings: ‒ Current MFF (2014-2020) ‒ Forthcoming MFF (2021-2027) • Proposals for change • Beyond the report: implications of recent developments Wil focus primarily on climate tracking; although report also considers biodiversity tracking and makes recommendations.
  3. @IEEP_eu Project objectives and timing • Report commissioned by EP secretariat to: ‒ provide an overview of current methodologies used by the Commission for tracking climate expenditure (and biodiversity expenditure); ‒ Critically assess the methodologies’ strengths and weaknesses; ‒ Examine proposals for tracking in the 2021-2027 period, and how they deliver the (then) 25% target on climate; ‒ Offer suggestions for an improved and more stringent system, and a roadmap to implementation. • Intended to assist the Committee in its work on the 2021-2027 MFF • Project was carried out between December 2019 and March 2020, with the final report initially drafted early in March.
  4. @IEEP_eu Main findings: Current MFF (2014 - 2020) • Methodology does not track spending “on” climate, in the sense of spending whose primary purpose is to address climate objectives. • It tries to estimate expenditure which contributes towards climate objectives – main purpose may be something else (economic development, territorial cohesion, farm incomes). • Commission approach differs from OECD approach, which looks at “principal” or “significant” objective of expenditure; instead looks at whether expenditure makes a “significant” or “moderate” contribution to climate objectives. (Biodiversity tracking does follow OECD approach). • No overarching mechanism to allocate climate spending to meet 20% target. • Few other tracking mechanisms in national budgets to compare – probably most ambitious approach currently, despite a number of flaws.
  5. @IEEP_eu Main findings: Current MFF (2014-2020) • Main contributors to the 20% target are CAP (EAGF and EAFRD) and cohesion (ERDF and Cohesion Fund). • EAGF approach is based on an assumption that the 3 requirements of Greening of direct payments are counted at 100% (permanent pasture); 40% (ecological focus areas; and 0% (crop diversification); and assumes that 1/5 of rest of the direct payments budget delivers a “moderate” (40% contribution). Criticised by ECA (2016) as over-generous; and leads to 19.46% of direct payments being counted. • EAFRD approach is based on focus areas. Expenditure counted at 100% includes agri-environment climate schemes and expenditure supporting the shift to a low- carbon economy. Support to farm risk prevention (e.g.) is counted at 40%.
  6. @IEEP_eu Main findings: Current MFF (2014-2020) • ERDF and Cohesion Fund expenditure is based on the “intervention fields” used to classify programme expenditure. 100% marker applied to e.g. renewable energy, energy efficiency, cycle tracks. 40% marker applied to e.g. railways, seaports, multimodal transport, air quality measures. • Other funds tracked include: ‒ EMFF, where e.g. 100% of permanent cessation of fishing activities payments, or engine modernisation/replacement is counted; ‒ Copernicus ‒ Horizon 2020 ‒ LIFE ‒ Various external expenditure lines.
  7. @IEEP_eu Main findings: Current MFF (2014-2020) • System is probably the most advanced in developed countries • Has some advantages, including low admin burden, focus on capturing co-benefits But: • Based on approximation, rather than detailed and stringent tracking • A number of areas, particularly CAP and EMFF, get over-generous treatment • Does not require programmes to set targets, or demonstrate achievement of climate results; • Does not address risks of negative climate (or biodiversity) impacts of expenditure – including some expenditure counted towards the targets; • Does not distinguish between climate mitigation and adaptation expenditure; • Is not connected to the political process for agreeing the annual budget.
  8. @IEEP_eu Main findings: Forthcoming MFF (2021-2027) • Commission proposals essentially retain the current approach. • 2 improvements: ‒ Ex ante approach to assessing how to achieve the (25%) target; ‒ Ensuring that similar types of project (in different programmes) are assessed in a similar way. • Some changes to application of 100% and 40% markers: ‒ In ERDF and Cohesion Fund, minor changes to reflect more detailed intervention fields, but also an increase to 100% for rail investments; ‒ More stringent approach to Areas of Natural Constraint expenditure under EAFRD (40%, rather than a possible 100%). • A significantly more generous approach to EAGF expenditure (see next slide).
  9. @IEEP_eu Main findings: Forthcoming MFF (2021-2027) • More generous approach to EAGF tracking achieves more than all of the 5% increase from 20% to the Commission’s original 25% climate target. Climate spending calculated on old basis Climate spending calculated on new basis Greening payment (30%) Permanent pasture @ 100% 10.00% Eco-scheme (?)20% @ 100% 20%EFA @ 40% 4.00% Crop diversification @ 0% 0.00% Basic payment (70%) 20% "climate relevant" @40 5.60% Basic Income Support (?) 80% @ 40 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% * €267bn / €1135bn 4.62% 52%*€267bn/ €1135bn 12.26%
  10. @IEEP_eu Main findings: Forthcoming MFF (2021-2027) • Increase in EAGF climate tracked expenditure will depend on decisions at MS level on the split between Eco-scheme and Basic Income Support; • On a conservative estimate will mean that the EAGF’s climate expenditure increases from 4.6% of total budget to over 12% - more than accounting for the increase from 20% to 25% originally proposed. • ECA recommended a reduction in EAGF climate scoring (from 19.6% considered “climate” to c. 16%). • Options: ‒ Either a dramatic increase in climate ambition of the current CAP proposals or; ‒ Use a more conservative climate tracking approach, and demand greater climate ambition from other programmes.
  11. @IEEP_eu Proposals for an improved system • Explicit political decisions on each programme’s methodology for counting climate expenditure; • Clear distinction between climate mitigation and climate adaptation spending (with mechanisms to avoid double-counting in calculating total climate spend); • Only include programmes which have explicit, ideally quantified, climate targets – at a sufficiently demanding level (e.g. tonnes CO2 per EURO); • Enhanced mechanisms to avoid negative climate (or biodiversity) impacts • Improved linkage of climate expenditure to climate plans, eg NECPs. (Too) challenging to implement for beginning of next MFF; but Commission could be tasked to develop proposals, and introduce new system progressively.
  12. @IEEP_eu Recent developments – some observations • Commission proposals were aimed at meeting a 25% target – 30% much more challenging (even without a more conservative approach to CAP expenditure, as we suggest) • Delay in agreement on the MFF – including, for example, roll forward of current CAP for one or more years – makes the 30% harder. Keeping EAGF at 19.6% rather than (?)50% for just one year amounts to more than 1% of the total MFF needing to consist of increased climate contributions in other programmes. • Requires a dramatic refocusing of priorities, particularly in shared management expenditure, to ensure climate is rigorously addressed. • Application of 30% to NGEU is particularly difficult, given the general lack of mechanisms for achieving it. Risk of reporting based on wishful thinking and over-estimation. • Scope for ensuring RRF, in particular, has a stringent approach to climate tracking.
  13. @IEEP_eu Contact: We are happy to answer any questions which are not covered in today’s Q&A