The EU budget needs more conditionality to drive climate investment, say researchers

The research note – entitled Can the next EU budget point the way to an investment plan for climate transition? – strikes a warning tone. With nearly a trillion euros a year needed to meet 2030 climate targets, write researchers Clara Calipel and Ciarán Humphreys, "these latest EU budget proposals do not demonstrate a clear commitment to targeting public money to catch up."

Conditionality and strategic priorities: keys to the transition?

Calipel and Humphreys point to some welcome developments – a simplified funding system via the new Competitiveness Fund and the near-doubling of the EU’s innovation- and research-focussed Horizon Europe programme. At the same time, where the proposals miss the mark is in building a cohesive overall strategy to channel public and private money where it needs to go – particularly as regards the individual member states’ budgets, which are much more important to the climate transition than the relatively small EU budget itself.

"What is more interesting than just talking about the numbers or the allocation of the funds for climate financing, is (talking) about the governance framework," Calipel tells Impact Loop. In particular, she points to the opportunity to tie EU funds to conditionality targets for energy and climate strategy in the member states, prompting them to take more action.

The right strategy, says Calipel, would look to "fund the climate investment gaps at national levels, trying to find solutions both through public money but also through other instruments, to boost private finance."

Likewise, the new Competitiveness Fund has big potential for helping fund the green industrial transition, but success will depend on a structure that gets the member states to focus their own resources on it. "Industrial policy coordination, and leveraging national tools and revenues, will be key," writes Ciarán Humphreys.

What does it mean for the impact community?

The budget itself is still a long way off, but it's clear it could play a big role in channeling funding to the impact scene and de-risking certain areas of decarbonisation to entice more private capital.

The I4CE research suggests some things to watch to get a sense of how much, and where, funding opportunities might emerge. In particular, the thing to watch will be how conditionality is written into the budget, and how ambitious in turn individual member states’ National Energy and Climate Plans are. Likewise, Humphreys emphasises watching to see how much the Competitiveness Coordination Tool, a tool for making sure EU countries are united on priority policy areas, is developed.

"If money is tight, we need a truly European approach to identifying which industries and projects get funded and receive regulatory support," writes Humphreys.