Delivering on climate neutrality: The EU budget
The EU’s long-term budget, the so called Multiannual Financial Framework (MFF), sets the spending priorities for the annual EU budgets over a seven-year period. It greatly translates the EU policy objectives into action. It defines objectives, priorities and conditions of EU funding respectively the policies EU funds are supposed to finance.
The EU budget 2021 – 2027 is critically important to deliver the long-term climate goals of the EU, including the revamped 2030 climate and energy targets and climate neutrality by 2040.
The 2014-2020 EU budget had some important climate-relevant features such as “climate mainstreaming”, the strategic link to the EU 2020 climate and energy framework or the political target to spend 20% of the EU budget on climate action. However, fossil fuels still received support from the EU budget, and competing priorities and incoherent implementation of climate action are sweeping off the climate credits of the EU budget. Overall its full potential to catalyse the clean energy transformation in Europe remained largely untapped.
LEARN MORE about the reform opportunities and climate impact of the EU budget.
The EU budget 2021–2027 shows increased climate ambition with an increased climate action target across all EU programmes and the limitation of fossil fuels from Regional Development Funds. A fossil fuel free Just Transition Fund will help carbon intensive regions to become climate neutral.
To meet the goals of the Paris Agreement, the European Union needs to achieve net zero greenhouse gas emissions by 2040. EU funds must support the decarbonization of all sectors by developing zero-carbon processes and products, enable the just transition, establish a genuine circular economy and foster a transition towards sustainable food systems.
The development of EU funds spending plans – The Programming
Overview EU funding for climate action
The upcoming development of EU funds’ spending plans at national and regional level as well as for the additional ‘economic recovery plans’ – the ‘programming’ – will ultimately determine the direction of the recovery and future economic developments.
Decision making on the implementation of the next EU budget including the significant amounts of recovery funding is therefore crucial to put the EU on a pathway towards climate neutrality. Investment decisions taken to stimulate the economy need to contribute to achieving more ambitious 2030 climate and energy targets at the same time.
EU financing also needs to embrace the long-term transition to climate neutrality as set down in the European Green Deal. Greater investments in the transition of all sectors of the economy are needed to ensure a sustainable, green and just economic recovery and to shape the EU’s long-term pathway to achieving the Paris Agreement’s objective of limiting global temperature rise to 1.5°C.
In order to maximise the impact of EU funding, both to increase climate ambition and to ensure the recovery is sustainable, Member States need to direct their upcoming spending plans towards climate neutrality.
During the programming of Partnership Agreements and Operational Programmes under Cohesion Policy, in the development of Territorial Just Transition Plans within the Just Transition Mechanism and while setting priorities for Recovery and Resilience Plans to receive support from the EU’s Recovery Fund, Member States must seize all funding opportunities to catalyse the green, sustainable and just transition, whereas any climate and environmentally harmful spending has to be prevented.
Learn more about the green programming priorities in 14 EU countries.
The EU’s recovery funding
The EU’s recovery funding
The COVID-19 pandemic and economic crisis is converging with the increasingly evident climate and biodiversity crises. Global warming and ecosystem deterioration are laying the ground for future upheaval of society. While the recovery measures must address the immediate health, social and economic urgency, they must support the development of a resilient and sustainable economy, in line with the Paris Climate Agreement and the European Green Deal.
Business as usual is not an option, and economy-wide untargeted measures would risk resuscitating dying and polluting industries and technologies that have no room in our future carbon-neutral economy.
Instead, the economic recovery measures must support ‘future-proofing’ companies through a rapid shift of their business models towards decarbonisation, thereby ensuring a much higher return on public investment.
Learn more about CAN Europe Urgency Plan for the Climate and Economic Recovery.
Reacting on calls for a wide response the EU adopted – as part of the overall EU budget – a financial package ‘Next Generation EU’ aiming to address the economic upheaval.
Despite some positive elements, the recovery package falls short of making climate ambition and the phase out of all fossil fuels the “new normal”.
The EU’s recovery efforts in a nutshell
Learn more about the deficits and opportunities of the EU’s recovery funding.
This is important to pave the way for an EU agreement by the end of this year on a substantially increased 2030 climate target of at least 65% emission cuts, to achieve climate neutrality by 2040, and to ensure recovery from the crisis is sustainable, supports green job creation, the just transition, and future-proofs the EU economy and livelihoods.
Financing the Green Deal and the Just Transition
The Sustainable Europe Investment Plan (SEIP) is the financial arm of the European Green Deal, created for financing European economies’ transition to zero-carbon emissions and expected to mobilise at least €1 trillion over the next decade. A key element of the plan is the creation of a Just Transition Mechanism (JTM) aimed at supporting those carbon-intensive regions of the EU – such as coal-mining areas – where moving to climate neutrality will be more complex.
The transition to a climate-neutral economy means learning new skills, innovating and implementing new technologies, renewing our infrastructure and cutting dependence on fossil fuels.
It requires not only more investments, but better, transformational investments, and great attention to issues of governance, namely the creation of an enabling regulatory and institutional environment. It will require additional investments in all sectors and areas of society.
This Overview of EU funding sources to build climate-neutral economies lists those EU funding sources with a potential to catalyse the transition to climate-neutral economies: it displays the various financing and funding instruments which are sourced and legally based at the EU level. Further on it highlights various opportunities for financing soft-measures, technical assistance and capacity building, needed to create a favourable investment environment.
Fossil fuel subsidies
Ending fossil fuel subsidies in Europe
Fossil fuel subsidies represent one of the biggest barriers to short-term and long-term climate action. Without cutting off financial support for one of the causes of climate change – fossil fuels – it will be extremely difficult to effectively overcome the climate crisis. Unfortunately, the financial support to the fossil fuel industry continues to flow.
This trend stands in the way of increasing support for climate action across Europe, and potentially increasing Europe’s international support for mitigation and adaptation in developing countries.
Fossil fuel subsidies distort markets and dis-incentivise investments in renewable energy and energy efficiency. They impose large fiscal costs on governments and drain scarce financial resources away from key sectors such as education and health care.
In addition, these subsidies negatively impact local environments and water sources and cause illness and premature deaths due to local air pollution and heightened congestion. Despite the overwhelming evidence against fossil fuel subsidies, governments around the world continue to pump approximately EUR 520 billion per year into polluting fuels such as coal, oil, gas and diesel.
The figures speak louder than words: billions of euros of public finance are still being provided to polluting industry, superseding all support for renewable energy and international climate finance which protects our communities against the very impacts of burning fossil fuels.
Billions of euros of public finance are still being provided to polluting industry.
Fossil fuel subsidies – public financial support for fossil fuels – come in many forms and through many methods. In the EU, it has been hard to capture the level and extent of fossil fuel subsidies, mainly for two reasons: subsidies can be facilitated and applied through numerous policy processes and tools, and subsidies vary in their form across different EU Member States.
European governments and the EU are handing out more than €112 billion each year to prop up the production and consumption of fossil fuels, despite a pledge to phase out harmful subsidies by 2020.
Read our report Phase-out 2020: Monitoring Europe’s fossil fuel subsidies (September 2017) and our briefing Europe in motion – Ending all public financial support for fossil fuels (October 2017).
CAN Europe, similar to the WTO, argues that any form of government action or public intervention which lowers the cost of fossil fuel energy production or consumption can be defined as a subsidy. This includes e.g. direct funding (e.g. for coal mines’ operations) and tax exemptions (e.g. on diesel fuel), preferential loans and guarantees from public banks, and giving favourable access to resources, infrastructure and land.
In addition, CAN Europe agrees with the International Monetary Fund (IMF) that environmental degradation, air pollution and health costs stemming from extracting and burning fossil fuels is not carried by the industry but paid by society. Therefore, these ‘external costs’ are also considered as fossil fuel subsidies.” All forms of fossil fuel subsidies (in Europe) are inefficient, harmful to the environment and blocking the transition to clean energy systems.
Within the EU and across the wider Europe, financial support for fossil fuels has gained increasing attention in recent years, both at country level and across the EU’s financial institutions and policy processes. But the EU is yet to tie together all the separate strands of how financial support for fossil fuels can be equitably and quickly phased out across EU Member States and neighbouring countries.
Fossil Fuel Subsidies phase-out in the EU Energy Union
To govern the EU’s climate and energy policies and ensure the achievement of targets up to 2030, the EU has established a planning, monitoring and reporting system called the Energy Union Governance. Under this, Member States are obliged to submit National Energy and Climate Plans (NECPs). These are the main instruments to ensure Member States set out their targets and policies up to 2030, also with a view towards 2050, and are used to measure performance against these targets. Recognising the extent of fossil fuel subsidies and the ongoing challenges in removing them, the NECP framework requires Member States to report on their energy subsidies as well as their ‘national policies, timelines and measures planned to phase out energy subsidies, in particular for fossil fuels’
However, none of the EU countries provide a comprehensive overview of their fossil fuel subsidies nor a concrete plan to phase them out in their draft NECPs, despite having committed to end fossil fuel subsidies ten years ago through the G20.
Some countries even deny that they provide fossil fuel subsidies even though data from pre-existing research, including from the European Commission itself, show that all EU Member States continue to subsidise the production and/or use of fossil fuels. Five EU Member States (the United Kingdom, Germany, Greece, Poland and Slovenia) even intend to introduce new fossil fuel subsidies in the next decade.
Learn more about EU Member States fossil fuel subsidies regime here.
Find our other publications on fossil fuel subsidies here.
Reform of EU fiscal framework
Reform of EU fiscal framework
Important investments are needed to decarbonise Europe’s economy and keep global temperature rise below 1.5°C . The EU economic governance framework was designed 30 years ago and is outdated to meet today’s societal challenges. There is an urgent need to transform our economies and societies to address the climate, environmental and social justice challenges. The EU economic governance framework, and the Stability and Growth Pact in particular, need a deep reform in order to be aligned with the objectives of the European Green Deal and the Paris Agreement.
Read CAN Europe position on the need to reform the EU fiscal system
CAN Europe response to a public consultation
Will the war in Ukraine be a game changer for the EU economic governance?
Fiscal reform and why it matters?
Manifesto for a green, just and democratic European economy