Greening the European Semester : a literature review Different proposals have been made in the last couples of year on how to reform the European Semester, or at least some of its processes, to deliver environmental sustainability-related objectives. Here are the main proposals made by different academics and experts, categorized by processes or overarching ideas. The authors sometimes have similar ideas, but there are certain differences, which are highlighted here under.
An extended Semester Scoreboard Céline Charveriat & Eloïse Bodin (2020)1: A key question for the successful integration of the environmental sustainability leg of the SDGs in the economic policy of the new European Semester will be the choice of indicators: •
Continued focus on sustainable economy o
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Limited number of indicators o
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Choosing from existing indictors that can already be integrated in 2021 cycle
Integration with social scoreboard o
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They propose 8 dimensions illustrated by 15 indicators
Pragmatic approach o
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in line with the economic focus of the Semester, but with a broader understanding of what constitutes a sustainable economy than what the current indicators suggest.
Synergies with the social objectives of the EU and the social scoreboard of the Semester could be explored by measuring employment in the circular economy or tracking just transition funding in Member States
Introduce concept of sustainable wellbeing economy o
Measuring progress towards a sustainable wellbeing economy will be critical in the medium-term
8 dimensions of a sustainable economy: •
Size of the green economy
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Long-term sustainability of the economy
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Sustainable public finance
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Green incentives, taxes and subsidies
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Measuring green R&D and innovation
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Sustainable industry
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Climate change risk
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Negative spilldecarbonisation pathways
The process of the Semester should be used to assess progress towards the achievement of targets by each Member State and to tailor recommendations according to the distance to target.
Matthias Duwe and Eike Karola Velten (2016)2: Include at least one indicator related to climate and/or energy in the indicator set for the Macroeconomic Imbalance Procedure to reflect that imbalances in the field of climate and energy also impact economic development and/or state budgets. The Commission would have the option of a follow-up on imbalances with respect to climate and energy and Member States would have to describe climate and/or energy aspects in their macroeconomic outlook.
CAN Europe (2021)3: The Semester (EU macro-economic and budgetary policy coordination) should be based on improved indicators that capture the distributional impact of policies; climate and environmental protection indicators; and social indicators (beyond job creation to encompass fundamental rights such as health, education, food or housing and gender equality). For example, as per the indicators in the European Pillar of Social Rights and the Social Scoreboard.
Improve country-specific recommendations (CSRs): Céline Charveriat & Eloïse Bodin (2020)4: Efforts could be made to align and/or sequence Semester country recommendations, the Environmental Implementation Review (EIR) country recommendations and the review processes for national plans with specific legislations or country programming processes under InvestEU and other relevant European funds. To avoid the administrative burden and sometimes meaningless results of annual reporting, specific emphasis to subset of the policy areas included in the Semester could be allocated to specific years, similar to the thematic foci within the United Nations High-Level Political Forum (UNHLPF) process.
Thomas Weise (2020)5: CSRs are oft
-related economic policy on Moving away from catch-all headings would add focus and improve CSRs towards being a better basis for actual sectoral policies. The political price of not following recommendations should be increased, which can best be done by increasing transparency in Brussels and thus media attention also back home.
Manuela Moschella (2020)6: By directly linking reforms addressing the CSRs (or Semester guidance) to financial support, the RRF provides an instrument that can potentially enhance the implementation prospects of EU advice under the Semester.
Matthias Duwe and Eike Karola Velten (2016)7: Implement a specific follow-up process on recommendations and involve public stakeholders in the process of drafting documents including the country specific recommendations.
Xavier Ragot (2017)8: Provide a hierarchy of CSRs: •
The recommendations could start with the ones with strong spill-overs or with injunctions based on legal requirements, then with recommendations with some spill-overs (such as the ones about fiscal stance) and then with recommendations with small or no spill-overs.
Systematically add CSRs about environmental issues and possibly energy policy, as these recommendations tackle issues with externalities: •
Among these recommendations, a systematic assessment of the country regarding greenhouse gas emissions, renewable energy or more generally the assessment of progress for the achievement of the Paris agreement, would be useful.
Add a temporal dimension to recommendations, with a possible medium-run time horizon. This horizon does not exclude yearly assessment of the advances. It would help distinguish between intermediate steps and final goals.
European Court of Auditors (2020)9: Strengthen the link between EU fund and CSRs: •
The Commission should strengthen the link between EU funds supporting reform processes in Member States and Country Specific Recommendations.
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CSRs should be taken into consideration in the different stages of budgetary processes.
Improve the formulation of CSRs: •
The Commission should ensure that individual CSRs deal with one common policy challenge at a time, include measurable targets and a realistic timeframe (annual or multi-annual), and provide fully documented reasoning behind their prioritisation over other issues not included in CSRs.
Longer-term perspective Hagelstam, K., Dias, C., Angerer, J. and Zoppé, A. (2019)10: The Semester could include a set of long-term objectives (going beyond the Europe 2020 strategy), indicators to measure progress, and annual or multiannual policy recommendations on a variety of policy objectives (e.g. green investment, social inclusion, education systems, public administration, labour productivity, etc).
Greening national budgets CAN Europe (2021)11:
t use public money to pay for damages that polluters should pay (Polluter Pays Principle). Calculate the green investment gap: Reports on macro-economic imbalances should assess the investment gap of each Member State to deliver ambitious NECPs. Such assessments can only be estimates, but they can provide an indication that may be useful to support national decision-makers. At the moment, the data included in NECPs is either partial or highly questionable, each country using its own methodology, which translates in inconsistent results. For investment needs concerning the circular economy and biodiversity, calculation is even more difficult. Elaborating a consistent methodology across Member States could be considered.
Reforming the EU fiscal framework Ludovic Suttor-Sorel (2021)12: Prioritise long-term environmental and social sustainability over short-term fiscal sustainability. •
Create a Social Imbalances Procedure (SIP) and an Environmental Imbalances Procedure (EIP). o
These new procedures would rely on the existing monitoring of related indicators (i.e. SDGs and social scoreboard). Breaching certain thresholds would launch a procedure requesting the Member State to correct the related environmental or social imbalance. The procedures could also clarify under which conditions green and social public spending could be exempted from the fiscal rules.
Ollivier Bodin (2020)13: Continue to impose a progressive reduction of the public debt ratio for those countries with a level above 60%, but instrumental rule will be simplified. •
A limit would be imposed on the growth of non-interest expenditures, after deduction of unemployment expenditures and net of new measures affecting the revenues.
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A flexibility clause would be introduced but its activation would depend on an independent economic view and not on further sensitive and complex calculations.
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However, this does not appear to be sufficient to fully take into account the needs under the European Green Deal.
Each country would have public debt and expenditure targets adapted to its particular situation. •
In addition, this proposal should be amended with a clause to favour investments in the ecological transition.
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This ambitious approach would also be a good opportunity to reflect further on economic policy objectives, considering alternative indicators to production which take into account the sustainability, wellbeing and environmental perspectives.
Guntram Wolff and Zsolt Darvas (2021)14: A general relaxation of EU fiscal rules: •
Would not provide direct incentives to increase green public investment
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Would create risks of excessive deficits in good times
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Additional fiscal resources could well be used for recurrent consumptive spending given the political economy reality. Going beyond existing flexibility in the fiscal rules would thus not necessarily increase green investment
Green Golden Rule: •
Allowing green investment to be funded by deficits that would not count in the fiscal rules would provide a positive incentive to maintain and increase green investment during the consolidation phase, because such investment would be excluded from the consolidation requirements.
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Has been rejected in the past: difficult to define what constitutes 'investment' with positive future returns
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Might create distortion: favoured investments preferred over other forms of capital or current spending that might also be beneficial over the long run
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Also the question of what is green, what the scope is (but arguably less complicated with goal of carbon emission reduction)
Centralised EU capacity to fund green investment, possibly via EU borrowing: •
Centrally fund all EU climate expenditure, for example via a permanent dedicated NGEU-type borrowing mechanism
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Advantage: approval of national green investment plans by the Commission and the Council, thereby ensuring consistency with EU goals
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However, such a fund would need to amount on average to 1 percent of GDP over the next decade(s) and would thus be much larger than NGEU
Grégory Claeys (2019)15: If an agreement cannot be found to reform thoroughly the European fiscal rules to make them more investment-friendly in general, a reform focused on authorising deficit-financed green investment during
flexible in order to exempt from the fiscal rules public investment that mitigates or adapts to climate change. Two safeguards to avoid overuse of exemption : •
Maximum amount of green investment exempted could be related to level of green investment gap in each country (would be discussed and determined each year as part of the Semester)
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Clear accounting rules would be needed to separate investment in the low-carbon transition from other expenditures (EU Taxonomy + clear rules concerning the issuance of green bonds)
Atanas Pekanov and Margit Schratzenstaller (2020)16: Additional green public investment at the Member State level, at least partially debt-financed, will be needed to address the climate emergency as a central priority for the current EU political cycle. The fiscal framework will need to be reformed to better accommodate green public investment to achieve this goal. Three different approaches to amend the current fiscal framework to better address climate challenges and ensure the necessary green public investment offer themselves: •
expansion of the investment clause in the Stability and Growth Pact to include green public investment
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a benchmark for green public investment amounting to a pre-determined share of the government expenditures
At least one of these approaches should be followed through to enable the flexibility of national budgets to ensure a level of green public investment which together with private resources is sufficient to close the existing green investment gaps. Resilience and Recovery Programs prepared to receive funds from the COVID-19 EU Recovery Instrument. A balanced approach between the two implementation strategies should be pursued.
A green taxonomy specifying areas and projects for green public investment should be elaborated as the basis for such a coordinated approach.
CAN Europe (2021)17: Debt sustainability needs to take into account medium to long-term climate related risks. The EU fiscal framework needs to encourage Member States to spend to mitigate those risks, and disincentivize fiscal positions that are exacerbating future costs by failing to address climate-related risks. The risk generated by climate and environmental shocks to the economy should immediately be taken into account in the framework of the assessment -economic imbalances. To incentivize green public spending and investments, expenditures to climate actions should get a favourable treatment, i.e. escape from the calculation of the deficit rule to a certain extent (green investment rule). To benefit from such exemption, Member States should commit to implement the reforms needed in order to deliver their commitment under the Paris Agreement, as translated in updated and robust National Energy and Climate Plans (NECPs).
More visibility and inclusion Céline Charveriat & Eloïse Bodin (2020)18: Making the process more visible and accessible would increase the likelihood of greater public support and would enhance the accountability of the Commission and Member States to citizens.
Thomas Weise (2020)19: The RRPs, with their specific and targeted projects and the related dialogue with the Commission, can help bring about important reforms. •
Author suggests four different types of dialogues or hearings that would bring together the policy makers from Commission and Member State(s) concerned. This would bring into the open what the actual development of a certain project or plan are, what issues appear to be causing problems, and how to hopefully resolve them.
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Such dialogues would need to be agreed in the Regulation or an interinstitutional agreement, and could even form a template for similar dialogues under the European Semester, such as in the areas of fiscal policy.
Lorenzo Codogno (2020)20: Stronger involvement of the European Parliament and national parliaments •
May provide a boost to democratic legitimacy and increase the ownership of reforms.
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Moreover, different legal bases seem to prevent an assessment of structural issues/macroeconomic imbalances in the early stages of the national budget process preemptively. As a result, misguided decisions taken in the context of the Budget are effectively left unchecked until they produce their effects on macroeconomic imbalances.
Supported domestic ownership Manuela Moschella21: RRPs could potentially support domestic ownership: •
RRPs contain Member Stat implementation
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Could increase the level of commitment from Member States in following through the proposed reforms and investments
Curious about our proposals to reform the European Semester? Find out more: At Climate & Company, we understand the unique potential of the European Semester for the climate and sustainability transition in the EU. With our project "Greening the European Semester", funded by the European Climate Foundation, we are exploring how the Semester can become a key tool for achieving the European Green Deal and the EU's sustainability goals. Stay up to date by visiting our project page and browsing our knowledge hub and its many valuable resources. For any questions or comments, get in touch with us:
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Reference list 1
Charveriat, C. and Bodin, E. (2020). Delivering the Green Deal – The role of a reformed European Semester within a new sustainable economy strategy, Institute for European Environmental Policy (IEEP). 2 Duwe, M. and Veltne, E-K. (2016). Lessons from the European Semester for effective 2030 governance for energy and climate, Ecologic Institute. 3 Climate Action Network Europe (2021). CAN Europe’s Submission on the Review Of The Eu Economic Governance. 4 Charveriat, C. and Bodin, E. (2020). Delivering the Green Deal – The role of a reformed European Semester within a new sustainable economy strategy, Institute for European Environmental Policy (IEEP). 5 Weise, T. (2020). What role for the European Semester in the recovery plan? In-depth analysis requested by the ECON committee of the European Parliament. 6 Moschella, M. (2020). What role for the European Semester in the recovery plan? In-depth analysis requested by the ECON committee of the European Parliament. 7 Duwe, M. and Veltne, E-K. (2016). Lessons from the European Semester for effective 2030 governance for energy and climate, Ecologic Institute. 8 Ragot, X. (2017). In-depth analysis: How to further strengthen the European Semester? 9 European Court of Auditors (2020). The European Semester – Country Specific Recommendations address important issues but need better implementation. 10 Hagelstam, K., DIAS, C., Angerer, J., Zoppe, A. (2019). The European Semester for economic policy coordination: a reflection paper, European Parliament. 11 Climate Action Network Europe (2021). CAN Europe’s Submission on the Review Of The Eu Economic Governance. 12 Suttor-Sorel, L. (2021). Why and how to reform the fiscal framework, Finance Watch. 13 Bodin, O. (2020). European Semester, fiscal rules and the European Green Deal, Greentervention. 14 Darvas, Z. and Wolff, G. (2021). A green fiscal pact: climate investment in times of budget consolidation, Bruegel. 15 Claeys, G. (2019). The European Green Deal needs a reformed fiscal framework, Bruegel. 16 Pekanov, A. and Schratzenstaller, M. (2020). The role of fiscal rules in relation with the green economy, A study requested by the ECON Committee of the European Parliament. 17 Climate Action Network Europe (2021). CAN Europe’s Submission on the Review Of The Eu Economic Governance. 18 Charveriat, C. and Bodin, E. (2020). Delivering the Green Deal – The role of a reformed European Semester within a new sustainable economy strategy, Institute for European Environmental Policy (IEEP). 19 Weise, T. (2020). What role for the European Semester in the recovery plan? In-depth analysis requested by the ECON committee of the European Parliament. 20 Codogno, L. (2020). Macroeconomic Imbalances Procedure: has it worked in practice to improve the resilience of the euro area? European Parliament. 21 Moschella, M. (2020). What role for the European Semester in the recovery plan? In-depth analysis requested by the ECON committee of the European Parliament.