Green budgeting

Green budgeting

The Commission uses green budgeting as an instrument to enhance the transparency of the EU budget in terms of funding to support climate and environmental objectives, in line with the Paris Agreement and the European Green Deal. In March 2022, the Commission committed to further pursuing its work on green budgeting, together with the French Presidency of the Council of the European Union and several Member States. 

The Commission has set the green transition as one of its key priorities for 2019-2024, as set out by President von der Leyen in her political guidelines. The European Green Deal, adopted in 2019, confirms this ambition. In line with the Green Deal, the European Climate Law, adopted in 2021, specifically prescribes that the EU should become climate-neutral by 2050 and sets an intermediate target of reducing net greenhouse gas emissions by at least 55% by 2030 compared to their 1990 levels. In addition, the Commission has proposed a reduction of at least 90% by 2040.

To underscore its commitment to its climate and environmental goals, the EU has set quantitative targets for its 2021-2027 multiannual financial framework and NextGenerationEU funding. In particular, the EU has committed to dedicating at least 30% of its multiannual financial framework and NextGenerationEU budget to climate-relevant expenditure, and 7.5% of the 2024 annual budget and 10% of the 2026 and 2027 annual budgets to protecting and enhancing biodiversity. 

The EU’s green budget is established around four areas: climate adaptation, climate mitigation, biodiversity and clean air. It also includes a strong ‘do no (significant) harm’ component that covers both climate and environmental objectives. All activities have to comply with this principle, in line with the relevant legislation.

Expected green contribution (budgetary commitments)in the 2021-2027 period (million EUR) ⁽¹⁾

^{Source: European Commission.}

The data available for the 2021-2027 period show that the EU budget is on track to reach its 30% target for climate mainstreaming, thanks to the strong performance of the Recovery and Resilience Facility and the RepowerEU initiative, which are also contributing to clean air tracking. All the data used in this report use expected commitment appropriations. 

For biodiversity mainstreaming, while the projection for 2024 is close to the target, the 2026 and 2027 targets will be more difficult to achieve. More details are available in the specific section on biodiversity below. 

It is important to note that other funds managed by the Commission also contribute to the green budget priority, despite not being part of the multiannual financial framework, such as the Innovation Fund, the Modernisation Fund and the upcoming Social Climate Fund. The revenues from these funds come from the EU Emissions Trading System. 

The amounts above are calculated based on commitment appropriations, as shown below.

• For direct management, estimates are prepared by each service based on the most updated data available (including data from the financial system for climate mainstreaming only). For future estimates, work programmes, sectorial targets and historical values are used.
• For shared management, past and future figures are presented on the basis of the programmes and common agricultural policy strategic plans agreed with the Member States and updated according to the annual reports. 
• For indirect management, the figures are based on the existing targets and agreements with the implementing partners, along with their annual reports.
• Past expenditures are corrected every year following a quality review operated by the different services to reflect the additional information received on the project selected.

^{(1)As the same action can contribute to more than one objective, it is important to recall that horizontal priorities (e.g. climate, biodiversity and clean air figures) cannot be summed up to avoid double counting.}

A focus on results is fundamental for green budget action and the EU budget in general. The results stemming from available indicators can be used to achieve more targeted spending and to improve steering of the EU budget. It can also make the green transition more efficient by improving accountability. The latter is also important in view of the need to contribute to multiple international commitments. 

The focus on energy efficiency, emissions reduction and renewable energy expansion is crucial for achieving the EU’s climate neutrality goals and achieving the 2030 targets. The above results show that the Member States are diversifying their energy mix and gradually reducing their reliance on fossil fuels, thus lowering energy costs. This also results in decreased emissions of greenhouse gas, helping combat climate change, and of air pollutants.

^{(2)Aggregated data of core performance indicators reflecting estimated and expected impact from the EU budget project as from 2014.}

Measuring the actual impact of NextGenerationEU investments

In December 2023 the Commission unveiled the first impact report for NextGenerationEU green bonds, which was presented at the United Nations Climate Change Conference (COP28) in Dubai. This report marks a fundamental transparency achievement, allowing us to measure the concrete climate impact of the investments financed by NextGenerationEU green bonds.

Building on the robust EU green bond framework, the report relies on detailed analyses of the milestones and targets for green-bond-financed investments under the Recovery and Resilience Facility to provide the foundation for the calculation of their climate impact, allowing to measure progress on the path to a sustainable future and ensuring a direct link between funding and climate impact.

The analysis reveals that after full implementation, NextGenerationEU green bond investments have the potential to avoid greenhouse gas emissions by a total of 44 million tonnes of carbon dioxide equivalent per year – equivalent to 1.2% of the EU’s total emissions in 2022. This number represents approximately 57% of the investments financed by green bonds, meaning that subsequent analyses and reports will present an even clearer picture of the true climate impact. While the impact of currently realised expenditure is naturally lower at the initial project stages, the report estimates a reduction equivalent to 224 143 tonnes of carbon dioxide annually. This number will increase quickly with the accelerating implementation of the Recovery and Resilience Facility.

Taxonomy

This year, for the first time, several key programmes within the ‘programme performance statements’ (Annex 4 of this report) include an analysis on their alignment with the EU taxonomy for sustainable activities. This addition provides a key starting point for future analyses of how EU spending contributes to a greener future ⁽³⁾.

While the analysis of taxonomy alignment in the Recovery and Resilience Facility has been detailed previously in the context of NextGenerationEU green bond reporting, this year’s ‘programme performance statements’ broaden the scope to encompass other critical programs. This approach offers a more comprehensive view of the EU’s commitment to sustainable financing across its various initiatives.

^{(3)Taxonomy alignment is not a prerequisite for funding.}

Read more

• Climate mainstreaming
• Biodiversity mainstreaming
• Clean-air tracking