Five steps for a climate-friendly EU Budget

DISCLAIMER: All opinions in this column reflect the views of the author(s), not of EURACTIV.COM Ltd.

Although it represents only around 1% of the EU economy, the EU’s next long-term budget will have a big role to play in ensuring the EU hits its 2030 climate and energy targets, argues Jonathan Gaventa. [© European Union, 2011 / Source: EC - Audiovisual Service]

The EU’s next Multi-Annual Financial Framework (MFF) must reflect the commitment the EU has made to decarbonise its economy, in line with the aims of the Paris Agreement. Strong overall coherence to ensure that funds are spent in targeted and intelligent ways is the key to its success, writes Jonathan Gaventa.

Jonathan Gaventa is director of E3G, an independent think tank operating to accelerate the global transition to a low carbon economy.

Although it represents only around 1% of the EU economy, the EU’s next long-term budget will have a big role to play in ensuring the EU hits its 2030 climate and energy targets and is in good shape to achieve net carbon neutrality by 2050.

In contrast to the current budget, which finances both high carbon and low carbon projects, this means gearing the entirety of the next budget to support the low carbon economic transformation.

There are five ways in which this should be done:

  • Ringfence more EU money to leverage private finance for low carbon technology

There is welcome momentum building up behind the EU’s Action Plan on Financing Sustainable Growth and the EU budget must do all it can to boost it by using EU funds to leverage the private capital needed to plug investment gaps.

The European Commission suggests that the EU needs to invest an additional €170 billion per year to achieve its 2030 climate and energy targets. Yet clean energy investment in Europe is currently falling: wind and solar power projects, which fell by over a quarter in Europe last year. This stands in stark contrast to China, where investment in renewable energy soared to a new record of US$133 billion.

The European Fund for Strategic Investments (EFSI) will see at least 40% of its funds reserved for climate action. It needs to be scaled up further, after 2020, with a similar earmark for climate spending being applied to the rest of the budget, including for infrastructure and agriculture.

  • Stop funding high-carbon projects

Another key aim of the High-Level Expert Group on Sustainable Finance is for a for a long-term EU policy framework to avoid stranded assets. The long-term EU budget should recognise this and to stop making payments to high-carbon infrastructure projects like natural gas pipelines.

The current EU budget has allocated billions of euros to natural gas infrastructure projects since 2014 and this should not be repeated, not least as the long-term trend for gas demand in Europe is falling and these projects would become “stranded assets” within a few years of coming online – a huge waste of EU funds.

  • Invest more in clean-tech innovation

Europe’s future competitiveness in a world committed to rapid decarbonisation rests on European innovation. The EU currently allocates €80 billion to research and development through Horizon2020, 35% of which is reserved for climate-related targets.

Doubling the funds available for clean innovation in the next budget, as the High-Level Group on EU Research and Innovation has suggested, would send a clear signal that Europe intends to continue to be a global hub for low carbon innovation.

The EU budget should identify priority industrial decarbonisation challenges and then link them to funding for research, innovation and deployment. The overall mission for EU innovation should be clear: Net zero emissions by 2050.

  • Climate adaptation and security

Climate change is an increasing threat to EU security, with climate-related economic losses doubling over the last 10 years. Disaster-response needs to be adequately funded and linked to the development of climate adaptation strategies and action plans at Member State level.

More fundamentally, all investments funded through the EU budget need to be resilient to more extreme climate conditions.

  • Support communities with the transition

Finally, while innovation, digitalisation and decarbonisation are expected to create more jobs than they destroy, these trends do pose major challenges to communities highly dependent on older industries. These communities need targeted support to help them take advantage of the economic opportunities offered by industrial innovation and to ensure a socially just transition. Mechanisms for identifying and supporting these communities should be built into a reformed cohesion policy in the next EU budget. The low carbon transition must be a just transition.

EU policymakers have a huge chance to set a positive agenda through the next seven-year period of EU funding. Let’s hope we get the climate-friendly budget that Europe deserves.

You can read the latest from E3G on how EU finances can play a greater role in Europe’s sustainable development here.

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