This E3G report examines the gaps that the EU must address to bring about a transformation in thinking about EU fiscal policy. The report also makes recommendations about the necessary steps that ministries of finance must take to make fiscal policy fit for the clean energy transition.
EU fiscal policy does not properly align with the union’s ambitious climate action. Despite the urgency of the energy transition and the scale of net zero commitments that governments have made, the transition is still not central to macroeconomic management. And it will be impossible to achieve the energy transition without a transformation in thinking about EU fiscal policy.
Ministries of finance are in a good position to provide the impetus. They understand both the risks posed by climate change, and how to unlock investment. Therefore, they must incorporate climate change into how they analyse the economy, to enable more effective climate action. They must also properly address the investment needs to achieve the energy transition. Then, they should collect, allocate and redistribute the necessary resources to direct it.
These changes to fiscal policy are vital for meeting climate targets. But they are also crucial for securing the EU’s continued leadership and credibility on climate on the global stage.
Recommendations – EU fiscal policy
- The European Commission should mandate the development of climate-macroeconomic models in all member states as part of its review of the fiscal rules.
- EU member states should be required to set out climate investment plans to 2030. The EU Commission and the Council should agree a methodology that allocates sufficient expenditure to meet the Climate Law obligations.
- As part of the review of the fiscal rules, the Commission should propose a permanent climate investment facility to be approved by the Council, financed by member states and EU taxation.