EU Recovery Fund Has Costly Green Strings Attached

The European Union’s proposed €750 billion ($829B) fund to help the bloc recover from the coronavirus crisis will have green strings attached, with 25% of all funding set aside for climate action, the European Commission has said.

It’s now official: the EU’s updated seven-year €1 trillion ($1.1T) budget proposal and €750 billion recovery plan will both be geared towards the green and digital transitions.

Commission President Ursula von der Leyen (pictured) made the announcement on Wednesday (27 May) in a speech before the European Parliament.

“The recovery plan turns the immense challenge we face into an opportunity, not only by supporting the recovery but also by investing in our future: the European Green Deal and digitalization,” von der Leyen said in a statement.

Earlier plans to reserve 25% of EU spending for climate-friendly expenditure “will apply throughout” the EU’s updated budget proposal and recovery program from the COVID-19 crisis, EU officials explained.

Spending will also be guided by a sustainable finance taxonomy, which aims to channel private investments into technologies that contribute to at least one of six pre-defined environmental objectives, such as climate change mitigation.

And a “do no harm” test embedded in the taxonomy will in principle exclude fossil fuels and nuclear power, which are seen to be undermining other environmental objectives such as pollution prevention and control.

“The ‘do no harm’ principle is very much also applying to this recovery instrument,” said a senior EU official who briefed journalists on Tuesday, ahead of the plan’s publication. […]

Fund will support “investments and reforms”

Loans and grants distributed to EU member states under the recovery fund will need to support “investments and reforms” in the applicant country, an EU official explained, saying green aspects will be part of the criteria.

In addition, green criteria will also apply to the so-called solvency instrument aimed at shoring up companies in need of liquidity.

“The philosophy is very much helping the economy to recover. But we want the economy to recover in a certain direction, which is green, digital, and more resilient,” the official explained.

By adding green conditions to its recovery fund, the European Commission is also trying to restore a level playing field between rich and poor EU member states.

During the corona crisis, national governments have spent nearly €2 trillion in state aid for ailing companies and small businesses, without any green conditions attached. And 52% of that aid was spent by Germany alone, raising fears that the crisis will deepen economic disparities within the 27-member EU bloc.

“This is not an even game,” said Teresa Ribera, the Spanish ecology minister.

“Allowing countries to get an unfair advantage may create more problems” related to economic and social cohesion, she told a recent EURACTIV online event, calling for “a level playing field” where “everybody sets the same targets”. […]

Tight political oversight

Crucially, there will be tight political oversight on how EU recovery funds will be spent.

Any request to tap into the fund “must be signed off by the Commission and the Council,” an EU official said, referring to the EU Council of Ministers which brings together the 27 member states.

The close political scrutiny is partly aimed at ensuring EU funds are spent on “investments and reforms” in the regions and sectors most affected by the crisis, EU officials said.

But it is first and foremost aimed at placating the “Frugal Four” group of countries – Austria, Denmark, Sweden, and The Netherlands – who fear southern and eastern EU states lack the discipline to spend wisely.

First, EU countries will have to formally apply to the fund and submit a national plan to “explain” how it will support economic reforms agreed at the EU level during the so-called European “semester” of economic policy coordination.

The Commission will then assess national programs against the country-specific recommendations adopted under the European semester as well as broader EU objectives such as the European Green Deal and the digital agenda.

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