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Avenues for change to shift financial flows and political state of play

 

CAN Europe Fossil Fuel Subsidies Categories GovernmentWithin the EU and across the European neighbourhood, 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. Numerous actors across the EU recognise that fossil fuel subsidies need to become a thing of the past. But the EU is yet to tie together how all the strands of financial support for fossil fuels can be equitably and quickly phased out across EU Member States and neighbouring countries. 

Despite the growing acknowledgement of the problem, European governments keep taking policy and budgetary decisions that allow for financial support to the fossil fuel sector. The results can have long-term negative impacts on a country’s economy, its local environment and its social sector. Not to mention the negative climate impacts. Comprehensive research has been conducted on the current state of government support to different energy sectors, including research by the OECD as well as civil society organisations and think tanks. [Additional information available in the 'Resources' as well as 'NGO report and publications' sections]

There are numerous mechanisms in the EU that have facilitated support for fossil fuels. Among these are financing facilities and funds, policy tools such as the EU’s Emissions Trading Scheme, and State Aid, which includes capacity mechanisms. CAN Europe calls on the EU to develop and agree on a roadmap to phase out fossil fuel subsidies by 2020. Such a roadmap should include strict timelines for the phase-out of fossil fuel subsidies with country-specific and measurable outcomes. Other European countries must do the same.

 

Political timeline

 

International Policy development

In 2009, G20 leaders committed to “rationalize and phase out over the medium term inefficient fossil fuel subsidies that encourage wasteful consumption”. Since then they have reiterated their commitment several times, with little evidence of fiscal change.

Governments have also, in different forms, reiterated their commitment to address environmentally harmful subsidies, including fossil fuel subsidies. They have done this through the Addis Ababa Action Agenda (Financing for Development), and Agenda 2030 – Transforming Our World (Sustainable Development Goals). In addition, the Paris Agreement stipulates that financial flows need to be aligned with low emissions and climate resilient development, further suggesting that our financial actions need to truly represent climate action. 

ARTICLE 2
(c) "Making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development."

More Effective and Efficient Global Economic and Financial Governance, 24: "We also reaffirm our commitment to rationalize and phase-out inefficient fossil fuel subsidies that encourage wasteful consumption over the medium term, recognizing the need to support the poor. We welcome G20 countries' progress on their commitments and look forward to further progress in the future [...]"

Climate Change, Energy, Environment Climate Change: "Given the fact that energy production and use account for around two-thirds of global GHG emissions, we recognize the crucial role that the energy sector has to play in combatting climate change. We remain committed to the elimination of inefficient fossil fuel subsidies and encourage all countries to do so by 2025."

  

Avenues for change and political state of play in the EU

  • EU's Mid-term review/revision of the multiannual financial framework 2014-2020
  • Phasing out environmentally damaging subsidies by 2020 (agreed in 2013)

 

  • European Semester

The European Semester was established in 2010 to coincide with Europe 2020 which is the EU’s flagship initiative to advance sustainable and inclusive growth across the EU. The European Semester sets out to have a better overview of the macro-economic health of countries through an economic cycle that assesses Member States’ budgetary and economic structural reforms. Based on such analysis, the European Commission provides a number of specific recommendations for EU Member States in order to improve their economic stability in various aspects.

Given its role in broader economic governance, the European Semester is a useful process to analyse and assess the impact that subsidising fossil fuels is having on individual Member States. Such analysis can better inform national governments on the medium and long-term negative social, economic and environmental impacts associated with fossil fuel subsidies. It can also prove to be a useful tool to provide country-specific solutions that are beneficial for the wider communities within Member States.

 

  • Energy Union Governance

The Energy Union, set up in 2015, is an obvious avenue for ensuring that fossil fuel subsidies are tackled by EU Member States.

The Energy Union was established to address Europe’s energy challenges and opportunities in a holistic way that guarantees both energy security and climate action through its various pillars. These include energy security, energy efficiency, governance, cutting carbon emissions, developing the internal energy market and research and development. The development of the governance structure of our energy systems provides an important angle for consulting and guiding EU Member States on national efforts to phase out fossil fuel subsidies. A framework of robust and transparent governance should include recommendations and reporting requirements that specifically addresses national fossil fuel subsidies, among other national trends and challenges.

 

  • The EU Budget, Multiannual Financial Framework

The EU’s long-term budget, the so called Multiannual Financial Framework, sets the structure and defines the spending priorities for the annual EU budgets over a seven-year period. It greatly contributes to translating the EU policy objectives into action and at the same time it defines future objectives, priorities and conditions of EU funding respectively the policies EU funds are supposed to finance.

The current 2014-2020 EU budget has 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 receive 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 remains largely untapped.

While the review/revision of the current MFF 2014-2020 is underway, the accordant legal adjustments are of rather technical nature. More important for the required shift of the EU budget are the discussions on the next financial period 2021-2027. These discussions are about to start. The post-2020 MFF will be critically important to deliver the long term climate goals of the EU, including the 2030 climate and energy targets and the (80%-)95% GHG reduction by 2050.

 

  • European Fund for Strategic Investments: make it coherent on climate action

The European Fund for Strategic Investments (EFSI), part of the European Commission’s “Investment Plan for Europe launched in 2015” aims to leverage through the European Investment Bank (EIB) financing for a total of EUR 500 billion in new projects by 2020. This guarantee fund should support infrastructure projects with a higher risk profile than normal EIB investments and should as well increase lending for investments with so-called “European added-value” – projects which significantly contribute to achieving European common policy objectives. According to its political objectives, the EFSI should play an important role in the fight against climate change and for environmental protection, and should also support projects in line with the Union's energy, climate and efficiency targets outlined in the Europe 2020 strategy and in the 2030 and 2050 frameworks for climate and energy policies.

According to the European Commission the Energy Union builds on the EFSI to provide for financing for renewables and energy efficiency. And yet, the analysis of its portfolio revealed that the EFSI still finances fossil fuel infrastructure and the large majority of its renewable energy and energy efficiency projects are concentrated in just a hand full of Member States in Western Europe. In September 2016 the European Commission published its proposal for the prolongation of the EFSI, increasing its green touch by e.g. proposing a 40% target of projects to contain “climate components”. However, EFSI is still not on track to be in line with the Paris Agreement climate objective. It has to become 100% climate proof sooner rather than later.

 

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