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The EU inflated its climate finance spending by €72 billion
(about $77 billion) while overstating the emissions benefits of
funding farms, roads, LNG terminals, and biomass projects.
Because of this, the bloc did not meet its 2020 target for
climate finance spending despite reporting otherwise, EU watchdog
the European Court of Auditors (ECA) concluded in a 30 May report.
But even without spending enough on climate action and
mitigation, the EU met both its renewable energy consumption and
GHG emissions reduction goals for the same year, the ECA noted.
The EU's executive body, the European Commission (EC), said it
reached its aim to spend at least 20% of the EU's combined 2014 to
2020 budget on climate action (€216 billion).
The ECA corrected the record, observing the EC spent 13% on
climate-related projects.
It based this finding on the EC's own rules for spending and
whether it had contributed to climate action, finding "reported
spending was not always relevant to climate action."
Part of the problem lies with the way the climate-positive
benefits are calculated. "We consider that the overall reporting on
climate spending was unreliable. It involved significant
approximation and tracked only the potential positive impact on
climate without evaluating the final contribution to EU climate
goals," the auditing body said.
The ECA found inconsistencies in the way the EC tallied up the
climate benefits, which was based on a formula taken from
legislation for European regional development funds.
"The methodology does not require quantification of the impact
of spending on GHG emissions or set any specific indicators
regarding adaptation," the ECA said, adding the EC's reporting
didn't differentiate between adaptation and mitigation
spending.
Among the improvements suggested by the ECA, it noted the EC
should update guidelines and measure its potentially
climate-negative spending by 2025.
The changes must happen during the next climate spending period as
a leveled-up climate spending target (30 %) is in the EU's sights
for 2027.
That target captures the EU's post-pandemic stimulus package for
member states, NextGenerationEU. The package includes the Recovery
and Resilience Facility (RRF), of which 37% must go towards member
state greening.
Already, the RRF finance being handed out has certain "potential
issues" such as funding milestones not linked to climate
objectives, said the ECA.
The RRF is set to balloon by a further €103.5 billion ($110.8
billion) under the EU's 2023 budget, the EC said on 7 June.
EU funding grew agricultural GHGs
The report's key finding is that half of the reported EU climate
spending went towards agriculture, but the EU did not successfully
decrease farm emissions.
On the contrary, EU-funded studies cited by the report "suggest
that without direct payments [made to farmers] EU GHG emissions
from agriculture would be 2.5-4.2% lower."
Payments for "non-viable" farms disincentivize adaptation, said
the ECA. It dubbed funding projects such as building roads and
mechanizing agriculture as "bad practice."
On the other hand, some payments to farmers allow them to adapt
to climate change, support climate-friendly cover crops, plant
forests, and maintain land to prevent wildfires.
Most climate spending (80%) was allocated from the budgets of
existing agricultural funding policies. About a fifth of this came
from the European Agricultural Fund for Rural Development (EAFRD),
which subsidizes farmers with payments and improves rural economic
competitiveness.
Like several EU finance programs, the EAFRD has a target for
"greening" related spending (30%), but the spending via EAFRD did
not prevent emissions as much as it thought because it was spent on
unhelpful compliance with public safety rules (cross-compliance)
and small organic farmers.
The EC's reporting counted small organic farmers automatically
towards its green spending target, but the EC did not require them
to meet any related criteria.
What's more, lower crop yields from organic farms may lead to
more emissions from increased production elsewhere, according to
the ECA.
Within EAFRD's $5.12 billion (€4.8 billion) in funding spent on
rural renewal, 10 of 17 projects claimed as climate action were for
local roads that negatively impact the climate, the ECA said.
Further inflation of the EC's reported climate spending might
come from other inconsistencies, for example where allocated money
remained unspent, and in one instance where the EC counted member
state spending as EU spending, the ECA pointed out.
The ECA said future agriculture funding choices need to show how
they contribute to EU goals, for example net-zero emissions by
2050. "We also recommend obtaining scientific evidence to support
the climate contribution made by the EU's agricultural policy," the
ECA said.
Roads emitting rather than saving
Road transportation accounts for a quarter of all GHG emissions
in the EU, according to the ECA.
The EU claimed the climate benefitted from 70% of the money
spent via a program funding transportation, energy, and
telecommunications projects, the Connecting Europe Facility
(CEF).
But while vehicles are a major source of the EU's overall
transportation emissions, only 4% of CEF transport projects by
value were focused on sustainability.
The EC also overestimated the climate benefits of projects
improving railways, said the ECA. It did not use conservative
assumptions and was inconsistent in reporting on these projects,
the ECA said of the rail projects.
For a €15.3 billion ($16.31 billion) pot of funding for railway
projects, the ECA said the money had achieved a modest CO2
reduction and noted railway construction was
emissions-intensive.
LNG, biomass get free pass
Less of the funding used for LNG terminals should have counted
towards climate goals, the ECA found.
This is because LNG locks in future use of natural gas rather
than relieving dependency, the ECA said.
Agreeing in part with the principle, on 7 June four
environmental groups launched legal action against the EC over
potential CEF funding for gas projects under a cross-border
infrastructure program called Projects of Common Interest
(PCIs).
A lawyer with environmental non-profit ClientEarth, a party to
the legal action, criticized the EU's gas infrastructure funding
plan. The EC "did not consider the impact of methane emissions
derived from gas infrastructure projects in spite of evidence that
these are substantial. That's unlawful as it directly clashes with
the EU's own climate laws and its legal obligations under the Paris
Agreement," said Guillermo Ramo.
The EC said the PCIs only included gas projects announced in
2019 or before. The groups said they funded 30 "major" projects:
among them, the Melita Transgas pipeline, the Cyprus LNG import
terminal, and a Floating Storage and Regasification Unit project in
Poland, LNG Gdansk.
Another EU climate spending area hotly contested by green
groups, biomass projects, received some funding through the
European Regional Development Fund (ERDF) and the Cohesion Fund
(CF).
For example, the CF had by 2014 financed at three "best
practice" biomass heating plants for district heat networks in
Austria, as well as new biomass boilers in Finland.
But a smaller amount of biomass project funding should have been
counted, the ECA said.
The rubber-stamping of EU renewable energy subsidies for biomass
power plants has long been questioned by environmental groups,
although the EC proposed new biomass power subsidy
limits.
"No one disputes that burning wood emits more carbon than coal
because, at the smokestack, wood is very inefficient, and so you
have to burn a lot of wood to generate a little bit of energy, and
all that wood has carbon associated with it," Partnership for
Policy Integrity Director Mary Booth told Net-Zero Business
Daily last year.
While the Intergovernmental Panel on Climate Change has
supported the use of biomass in carbon-negative practices like
bioenergy with carbon-capture and storage, research finds
traditional biomass power plant use worsens climate change,
according to Sasha Stashwick, director of the industrial policy,
climate and clean energy program for the US' Natural Resources
Defense Council.
Posted 07 June 2022 by Cristina Brooks, Senior Journalist, Climate and Sustainability
This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.