Presentation of the findings of an IEEP study during a meeting of the European Parliament's Committee on Budgets on 31 August 2020.

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“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

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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.

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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.

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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.

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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%.

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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.

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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.

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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).

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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%

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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.

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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.

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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.

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Contact: mnesbit@ieep.eu
We are happy to answer any questions which are
not covered in today’s Q&A