On July 21, the heads of state or government of the 27 European Union (EU) member states, together with the European Council President and the President of the European Commission, reached an agreement on a EUR 1.074 billion long-term budget and a EUR 750 billion COVID-19 recovery fund after a marathon summit. This was the first in-person meeting of the European Council since the pandemic started. They agreed that the European Commission will be authorized to borrow debt on behalf of the EU to address the pandemic challenges. The recovery fund of EUR 750 billion to be allocated among EU member states consists of EUR 360 billion in loans and EUR 390 billion in non-repayable grants. Throughout the negotiations, the grant portion was reduced from the original proposal of EUR 500 billion due to the so-called frugal states’ opposition.
While earmarking at least 30% of the total expenditure (long-term budget and recovery fund) for climate objectives to reflect the EU’s commitments to implement the Paris Agreement and the United Nations Sustainable Development Goals, the agreement also resulted in spending cuts to key climate and environment programs. Initiatives addressing such matters are as below.
- Reform own resources system by, among others, introducing new own resources based on non-recycled plastic waste in 2021.
- Put forward proposals on a carbon border adjustment mechanism and a revised Emissions Trading System (ETS) scheme.
- Support the transition to economically and environmentally sustainable agriculture through a reformed Common Agricultural Policy.
- Finance the Common Fisheries Fund, the EU’s maritime policy, and the EU’s international commitments in ocean governance to support sustainable fisheries and aquaculture.
- Finance the program for climate action to support biodiversity conservation and the EU’s transformation to a low-carbon and climate-resilient society.
- Create a Just Transition Mechanism, including a Just Transition Fund to address the social and economic consequences of the EU’s climate neutrality target by 2050.
– The Just Transition Fund was reduced to EUR 10 billion from the proposed EUR 40 billion.
– Member states that have not committed to the 2050 pledge will only get 50% of the national allocation (the other 50% will be available upon acceptance of the commitment).
Although a historic step in an EU budget negotiation was taken, uncertainties and significant next steps remain. The governance mechanism to make disbursement on climate initiatives should be developed and the approval of the European Parliament is required.