How green is the European Semester process?

1. How green is the European Semester process? Patrick ten Brink Senior Fellow and Head of Brussels Office, IEEP with thanks for inputs by Sirini Withana, IEEP, & Building, inter alia, on the study for the Greens/EFA Group of the European Parliament by: Withana, S., Kretschmer, B., Farmer, A. (2013) Environmental policy in the European Semester: Assessing progress to date. IEEP: Brussels. 24 November 2014

2. Presentation Structure I. Key insights on mainstreaming environmental issues in the European Semester – overview • Annual Growth Surveys (AGS) • Country-specific recommendations (CSRs) II. Inputs to the European Semester: • Studies on EHS, ETR & EPR III. Conclusions and Next Steps

3. Overview of environmental issues covered in AGS 2014

4. AGS : Recurring environment-related themes • Completion of the internal energy market and the economic benefits associated with it (e.g. enhanced security of supply, lower energy prices) as well as improving energy efficiency with potential employment and competitiveness effects • Infrastructure in the energy and transport sectors as growth-inducing investment, stimulating jobs in the short term and laying the foundation for future growth • Reforming taxation by phasing out EHS and stimulating job markets by shifting taxes away from labour and towards less distorting taxes, e.g. environmental taxes • Resource efficiency as well as the need to improve waste and water management • The growth and job potential associated with the green economy • Environmental issues seen as facilitators for growth, economic and labour market recovery • Clear focus on consolidating budgets and creating growth and jobs rather than on the wider goals set out in the Europe 2020 Strategy

5. CSRs: Recurring environment-related themes • Environmental tax reform • Energy (and electricity) infrastructure • Transport infrastructure • Renewable energy and energy efficiency • Better energy market design (completion of the internal market, implementation of the Third Package) • Progress towards greenhouse gas emission reduction targets • Limited number of recommendations on water and waste management

6. Assessment of CSRs • CSRs mirror AGS and their focus on fiscal consolidation and stimulating growth • Environmental coverage mostly in relation to climate change and energy • Resource efficiency not considered per se apart from ETR and limited references to water and waste management • No full account taken of the growth-stimulating potential of environmental policy measures such as improved resource efficiency

7. Developing Inputs to the European Semester: Examples of studies on EHS, ETR and EPR Fedrigo-Fazio, D., Withana, S., Hirschnitz-Garbers, M., and Gradmann, A. (2013). Steps towards greening in the EU, Monitoring Member States achievements in selected environmental policy areas - EU summary report, prepared for DG Environment. Brussels. 2013. http://ec.europa.eu/environment/enveco/resource_efficiency/pdf/Greening.pdf Oosterhuis F., Ding H., Franckx L., P. Razzini et al. (2014). Enhancing comparability of data on estimated budgetary support and tax expenditures for fossil fuels. A report by IVM, Bio, VITO and IEEP for the European Commission – DG Environment. Final Report. Brussels. 2014.   Withana, S., ten Brink, P., Franckx, L., Hirschnitz-Garbers, M., Mayeres, I., Oosterhuis, F., and Porsch, L. (2012). Study supporting the phasing out of environmentally harmful subsidies. A report by the Institute for European Environmental Policy (IEEP), Institute for Environmental Studies – Vrije Universiteit (IVM), Ecologic Institute and VITO for the European Commission – DG Environment. Final Report. Brussels. 2012. http://ec.europa.eu/environment/enveco/taxation/pdf/report_phasing_out_env_harmful_subsidies.pdf Eunomia and Aarhus University (2014) ‘Study on Environmental Fiscal Reform Potential in 12 EU Member States - Final Report to DG Environment of the European Commission’, http://ec.europa.eu/environment/integration/green_semester/pdf/EFR-Final%20Report.pdf

8. Overview of needs for subsidy reform identified

9. EHS Fossil Fuels Study – a further input • Direct budgetary support to energy users: EU ~ EUR 1 bn/yr. • The largest single items identified are the tax reimbursements for energy intensive industries in Austria and Germany, and the Fuel Allowance in Ireland. • Direct support to producers (inc. public infrastructure)~< 5 bn/yr. • The main support schemes are for coal production (in Germany and Poland) and the Italian ‘CIP 6/92’ mechanism (mainly benefitting cogeneration). • Tax expenditures in excise taxes (using the benchmark of the tax rates as proposed in Energy Tax Directiveproposal)~< 28 bn/yr • For most Member States, the estimated support levels are between EUR 100 mln and several billions of euros per year. • Tax expenditures: using alternative benchmark highest prevailing rate per unit of energy in the MS. ~> 200 bn/yr in EU • This benchmark leads to much higher estimated amounts (more than EUR 10 billion per year in several Member States). • VAT reductions: fossil fuels &/or fossil-based electricity - few MS. • Total amounts particularly significant in UK (> EUR 4 bn/yr) & Italy (>EUR 1 bn/yr). • Tax expenditures: corporate income tax and royalty schemes: • Estimates available only for two countries: Germany and the UK: royalty reductions available ~EUR 350 MEUR/yr in each of them.

10. ETR: Eunomia et al., I and II Eunomia and Aarhus University (2014) ‘Study on Environmental Fiscal Reform Potential in 12 EU Member States - Final Report to DG Environment of the European Commission’, http://ec.europa.eu/environment/integration/green_semester/pdf/EFR-Final%20Report.pdf

11. European Policy Review, EPR • Advice and recommendations • Economic, fiscal and financial elements • Budgetary expenditure • Market-based instruments • Environmentally harmful subsidies • State aids • Waste management • Support to SMEs • Air quality Source: Fedrigo-Fazio, D., Withana, S., Hirschnitz-Garbers, M., and Gradmann, A. (2013). Steps towards greening in the EU, Monitoring Member States achievements in selected environmental policy areas - EU summary report, prepared for DG Environment. Brussels. 2013. http://ec.europa.eu/environment/enveco/resource_efficiency/pdf/Greening.pdf

12. Conclusions and next steps

13. Conclusions… • Mainstreaming of environmental issues limited so far • Overriding concerns are growth, jobs and fiscal consolidation as apparent all along the process • Where environment is mentioned, focus is on classical win-win options such as ETR, energy and transport infrastructure etc. • Exploitation of win-wins not comprehensive and key EU policy areas ignored: • Biodiversity and ecosystem services (evidenced economic importance) • Important Europe 2020 topics side-lined such as recycling, eco-innovation • Range of initiatives inputting to the European Semester • European Semester part of a context for resource efficiency

14. The European Semester in (ETR) Context Legal approaches across the European Union Legal approaches for a subset of EU Member States: Enhanced cooperation Political intention to promote ETR: Open Method of Coordination (OMC) Diversity to coordination to harmonisation Multi-country cooperation and coordination National, regional and local approaches & Learning from others (copy-catting) Withana, S., ten Brink, P., Illes, A., Nanni, S., Watkins, E., (2014) Environmental tax reform in Europe: Opportunities for the future, A report by the Institute for European Environmental Policy (IEEP) for the Netherlands Ministry of Infrastructure and the Environment. Final Report. Brussels. 2014. http://www.ieep.eu/work-areas/environmental-economics/market-based-instruments/2014/06/environmental-tax-reform-in-europe-opportunities-for-the-future

15. …and next steps - recommendations • Future AGS: wider interpretation of priority areas and/or separate priority area for the environment • Future CSRs: wider coverage of environmental issues in support of Europe 2020 Strategy (biodiversity, ES, water, air etc.) • Increase ownership and engagement of MS, e.g. through regular exchanges between MS on best practices • Engage the European Parliament • Civil society and other stakeholders: take Commission’s ‘fact finding missions’ to MS as an opportunity to input

16. Thank you for your attention Contact: Patrick ten Brink, ptenbrink@ieep.eu Reports citations: See links throughout. IEEP is an independent not for profit institute dedicated to advancing an environmentally sustainable Europe through policy analysis, development and dissemination. New Book! Paying the Polluter - Environmentally Harmful Subsidies and their Reform  by F. Oosterhuis and P ten Brink (eds). http://www.ieep.eu/news/2014/05/new-book-out-now-paying-the-polluter-environmentally-harmful-subsidies-and-their-reform