24/7 Live News Portal

The public budget can be green, European example

The European Commission and many countries, regions and cities have recently increased their commitments to contribute to the fight against climate change. Climate change is a long-term challenge in economic, social and environmental terms and, perhaps for this reason, it is important that the structure with which this climate emergency is combated is robust and that the stake is important.

It must be considered as a growth strategy that allows the relocation of investments through changes in political priorities, in the measures to be developed by public entities and in the future decisions that private agents have to make, thereby achieving relocation. investment priorities.

The European Green Deal was presented at December 2019 before the European Parliament and since then measures have been taken that begin to glimpse their budgetary expression. For this they have designed strategies, thematic initiatives and actions, but also operational elements from which many other administrations can learn and develop their own methodologies.

The Multiannual Financial Framework approved by the European Council at its meeting of July, will involve the mobilization of more than 1 billion euros in the period 2021-2027. The Next Generation EU program agreed at the same meeting, being 25% lower, will constitute the embodiment of a European financial strategy for economic recovery over the next four years. The community budget had never reached these magnitudes and the 30% of the same must be destined to the fight against climate change through programs framed in the European Green Pact. We are talking about almost 550 billion euros to be allocated to projects and activities in the 27 Member States to transform the EU economy into a fully sustainable one.

For the allocation and control of expenditures to climate objectives, the European Commission has been developing a series of climate coefficients according to the type of policy being developed. It is an application method derived from a technical proposal prepared by the OECD known as “river markers”. According to this methodology, the key is to determine whether “the issues of the Rio Convention”Are not related (0), have a significant link (1) or are actions whose main objective is the objective to be measured.

In this case, the European Commission has decided to use 0%, 40% and 100%, respectively. Attributing himself according to an explicit analysis of the problem (context); objectives, results and activities proposed for each community policy reflected in the budget. It is a simple and transparent approach that does not impose any additional administrative burden on Member States or the European Commission. At the same time, it enables the tracking and monitoring of climate spending in different funding streams under the European Funds and provides robust and reliable data on climate spending.

Example of applying green coefficients to the European budget

Source: European Court of Auditors (2016):

Of course, it must be borne in mind that the European Court of Auditors concluded Recently While setting such targets may represent an effective measure to achieve the EU’s climate targets, a significant part of the success or failure of such a measure depends on the projects being developed. The cohesion support programs and the common agricultural policy currently in force allow spending with a potentially detrimental impact on the climate or positive assumptions without valid justification. Research policy, another budget pillar in the Union, was making slow progress towards its climate target. Improvements in this regard are therefore essential.

Furthermore, in the case of the European budget, a positive element derived from the generation of own resources should be highlighted. The financing of the European funds recovery program includes the implementation of new green taxes such as the one on single-use plastics and the carbon adjustment at the border. The expansion of the European carbon market (EU-ETS) will also bring revenue while contributing to the goal set by the European Green Deal. On the other hand, the community debt process will be partially achieved through the issuance of green bonds, making it probably the world’s largest issuer of this type of finalist bonds.

In short, it is necessary to develop prior work that allows linking public finances with the environmental impact they generate, but its application and subsequent analysis can only bring important improvements to a process, that of budgeting public income and expenditures, which should contribute to make current commitments a reality.

Ricardo Pedraz González, professor at Afi School of Finance