Europe urged to align budget with green finance rules

Lawmakers in the European Parliament are currently examining the details of the EU leaders’ deal on the €1.8 trillion budget and recovery fund, including spending rules. [European Central Bank / Flickr]

The EU’s sustainable finance taxonomy should be systematically applied to track green investments in the bloc’s next long-term budget and coronavirus recovery fund, which together amount to €1.8 trillion over the next seven years, according to a new report launched on Wednesday (28 October).

In a budget deal struck in July, EU heads of states and government have agreed to reserve at least 30% of EU spending for climate-friendly expenditure.

The deal, which is now being fine-tuned in the European Parliament, means up to €547.2 billion could be made available for investments over the next seven years to help achieve the EU’s climate goals.

But existing systems used to track how EU funds are spent are imperfect and can inflate climate action percentages, leading to greenwashing, today’s report warns.

“No climate tracking system can allow for green-wash, nor include fossil fuel projects that will quickly become stranded assets as Europe moves to a net-zero emissions economy,” says the report produced by consulting firms Climate Strategy & Partners and Climate & Company.

The EU’s green finance taxonomy is “the preferred climate tracking tool for reference in the legislation on all financial instruments” across the EU budget, the report adds, saying the EU “needs a credible tracking system, especially as it looks to get fit for new climate objectives in 2030”.

Lawmakers in the European Parliament are currently examining the details of the EU leaders’ July budget deal, including expenditure rules. A final vote is expected before the end of the year, causing tensions with EU member states, which must also agree to the EU’s final budget rules.

Pascal Canfin, a French centrist MEP who chairs the Parliament’s powerful environment committee, has said he is in favour of applying the EU’s sustainable finance taxonomy to the entire EU budget.

“The taxonomy must be used to guide public investments, not just financial markets,” Canfin told EURACTIV in a recent interview.

Pascal Canfin: On gas and nuclear, EU must apply green finance taxonomy

Whether in the European recovery plan or the just transition fund, Pascal Canfin says he is in favour of applying the EU sustainable finance taxonomy, which allows drawing a line between gas projects that merit public funding and those that don’t.

The EU’s sustainable finance taxonomy was approved last year and aims at channelling private capital into green investments. Those are subdivided into three categories: “green” technologies such as renewable energies; those “enabling” the transition, such as glass for building insulation; and the so-called “transition” technologies.

Today’s report shines a light on how the taxonomy could be applied in practice. Its findings are based on a review of 1,000 shovel-ready investment projects presented to EU member states earlier this year, and it provides “a line-by-line analysis” of the investment categories typically found in EU funds.

Sébastien Godinot, an economist at the World Wildlife Fund’s European Policy Office, said: “None of the public money invested in the European recovery must harm the Paris Agreement, and climate-friendly investments must be robustly tracked. The EU taxonomy is clearly the best tool for that.”

EU seals deal on green finance in breakthrough for climate goals

Lawmakers in the European Parliament have approved a compromise on the EU’s proposed sustainable finance rulebook, ending a bitter fight with EU member states on whether to recognise nuclear power as “green”.

[Edited by Zoran Radosavljevic]

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