- Spending allocation on climate projects could be overestimated by €34.5 billion
- Not all measures tagged as ‘green’ were assessed as being so
- No full account of the actual sums spent on climate action in EU countries
The contribution of the Recovery and Resilience Facility (RRF) – the main pillar of the EU’s pandemic recovery fund – towards climate action and the green transition is unclear, concludes a new report by the European Court of Auditors. At least 37 % of RRF funds have to be earmarked for climate action. The European Commission has assessed that, as of February 2024, measures in support of the EU’s climate goals reached 42.5 % (or €275 billion) of the RRF funds. However, the auditors warn that those contributions could be overestimated by at least €34.5 billion, with more issues besides. They also found weaknesses in the milestones and targets for climate-relevant actions, the reporting of actual expenditure, and the environmental friendliness of some projects tagged as ‘green’.
One of the main objectives of the RRF is to contribute to Europe’s climate targets and the green transition in the EU member states. Unlike other earlier forms of EU spending, RRF funds are disbursed on the basis of milestones and targets reached, rather than in response to actual expenditure. Alongside other weaknesses, the auditors found that this financing model and the relatively short timeframe for implementing the RRF have cast doubt on whether all the money planned for climate action will actually contribute to it.
“The RRF is a major investment across the EU and, if properly implemented, should greatly accelerate the fulfilment of the EU’s ambitious climate targets”, said Joëlle Elvinger, the ECA Member responsible for the report. “However, it currently suffers from a high level of approximation in the related plans, as well as discrepancies between planning and practice, and ultimately provides little indication of how much money goes directly to the green transition.”
In practice, the climate contribution from RRF measures is not always fine-tuned, point out the auditors. To calculate the share of money planned for ‘climate action’, the European Commission uses a ‘climate coefficient’ formula. Actions assessed as making a substantial contribution to climate change are given a 100% coefficient; actions with a non-marginal, positive contribution a rate of 40%; and funds with a neutral or insignificant contribution a rate of 0%. However, many measures were not clear-cut, and the auditors found that their climate contributions were overestimated in certain cases. Furthermore, some projects tagged as green were found to lack a direct link to the green transition upon closer inspection. For instance, one measure to improve water management was given a 40 % climate contribution rate. In reality, funds were spent on government IT solutions to digitalise the water supply system, meaning that a 0 % contribution would have been more suitable. To avoid such cases, EU auditors recommend that climate-relevant projects should be assessed in more detail and more accurately in future.
The auditors also found that some measures were not as green as they appeared. One project which literally muddied the waters was a pumped-storage hydro plant for which the significant environmental impact was not assessed before the plant was funded. To reach climate spending targets, countries give cost estimates in their plans, which are checked upfront but not after implementation. The actual costs of any RRF measure can differ significantly from estimates, meaning there is no full account of the funds spent on climate action. To avoid such discrepancies, EU auditors recommend that links between future instruments and climate targets should be strengthened, and that a full account of money spent should be collected and published.
Background information
The Recovery and Resilience Facility (RRF) is the €700 billion special funding package made available by the EU in the wake of the COVID pandemic. It comprises a mix of loans and grants. Member states that receive the funds set out milestones to be achieved and the estimated costs in Recovery and Resilience Plans. At the planning stage, at least 37% of funding has to be allocated to climate action contributing to the EU’s 2050 net-zero target.
Climate-tracking methodology was established for the 37 % of RRF funds to be allocated to climate action. The RRF also contained methodology for tracking environmental objectives, but it was not used.