The current trend is green, at least in Europe and especially in France. The French government has made the environmental transition a key element of its recovery plan, following the lead of the European Commission and of Germany. Of the €100 billion of the recovery plan, €30 billion are allocated to the environmental transition, with the aim of reaching carbon neutrality by 2050 (although environmental NGOs were expecting more). The government did not stop there: it unveiled a green budget for the coming year.
What does this green budget entail? Is it good news for the environment? Does it mean that France is on the right track to reaching the Paris Agreement objectives, as well as leading the way for other countries? Here are a few answers.
Green budgeting à la française
September was an eventful month in France: Jean Castex, the new French Prime Minister, unveiled the much-awaited national recovery plan, and, a few days later, the Finance Minister and the Public Account Minister presented the draft annual budget law for 2021.
For the first time in the world, they said, attached to the draft was an evaluation of the national budget’s projected environmental impact. This was a long-awaited step as, back in December 2017, President Macron announced at the One Planet Summit that he was launching, jointly with Mexico and the OECD, the Paris Collaborative on Green Budgeting aimed at “designing new, innovative tools to assess and drive improvements in the alignment of national expenditure and revenue processes with climate and other environmental goals“.
In other words, green budgeting is supposed to be another tool for countries to align their national budget with the Paris Agreement objectives. How so? Mostly by assessing the anticipated environmental impacts of existing spending and revenue policies, as well as any new policies or measures being introduced in the budget (direct spending, grants, loans, taxes, resource royalties, other non-tax revenues, tax expenditures, etc.). A few countries are currently working on such methods, more or less in line with the Paris Agreement and the Sustainable Development Goals, including Norway and Mexico. However, in comparison, France, who is committed to reducing its emissions by 27% by 2028 as compared to 2013, and by 75% before 2050, does seem to be a few steps ahead in terms of green budgeting.
France has been working for a long time on an accurate evaluation of its incomes and expenditures, including its projected investments for the years to come (which now includes the recovery plan). The “green budget” unveiled in September is the joint effort between the Inspectorate-General of Finances and the General Council for Environment and Sustainable Development. This is good news, as a collaboration between two bodies that usually only follow distinct paths had been much awaited and needed. This allows for all environmental aspects to be encapsulated in an accurate economic analysis. These two State bodies have elaborated 6 different criteria through which to rate each State expenditure and income. These criteria do not only take into account the impact on climate change, as is often the case; on the contrary, the scope is rather large:
- Fight against climate change,
- Adaptation to climate change and natural risk prevention,
- Water resources management,
- Circular economy, waste and technological risk prevention,
- Fight against all kinds of pollution,
- Protection of biodiversity.
Then, each expenditure or income is stamped either:
- “Green” or “favorable to the environment”,
- “Mixed” – it is favorable to the environment according to one of these criteria but unfavorable according to another one,
- “Neutral” – meaning that it does not hinder or improve the current state of the environment,
- “Brown or “unfavorable”.
Of the €488,4 billion that were analyzed, €42,8 billion are considered to be “green” (investments in favor of the development of renewables, for instance) and €10 billion are “brown” (fuel tax cuts, spending in favor of air transport for instance). €4,7 billion are considered to be “mixed” (investments in the transport sector mostly).
All in all, 90% of France’s projected budget for 2021 is neutral in terms of its impact on the environment. Yet, the fact that France went for a “green recovery” following the worldwide sanitary crisis, means that, compared to the previous year, green expenditures will rise by 30% whilst brown expenditures will fall by 10%, according to the Finance Ministry, which can be praised.
However, the actual effects of this recovery plan on climate change may be questioned. Let us take, for instance, the government’s efforts towards energy efficiency in buildings, to which €6,7 billion have been allocated. It is most welcome as it is the second most emitting sector in France after the transportation sector. Yet, money is not enough to slow down emissions: the measures implemented these last few years, to improve the energy efficiency of the building sector, have had a relatively weak impact on France’s carbon print. This is what the recovery plan should have addressed, instead of injecting more money into already-existing but not very efficient programmes.
An example to follow?
There are three reasons why this green budgeting is to be welcomed:
- This evaluation is based on a draft budget, which means it has not yet been adopted by Parliament and thus is subject to discussion. The MPs will have all the information in hand when voting for the 2021 national budget and we can only hope that part of the debate will take this green budgeting into consideration.
- The government has acknowledged that the methodology applied to this green budgeting needs to be improved – the inventory of the “green“, “neutral“, “mixed” and “brown” expenditure and income is the first step towards a concrete assessment of their effects on the environment. Besides, given the fact that green budgeting will be a yearly exercise, we will be able to compare budgets from one year to another (even though, if new criteria are introduced, comparisons will have to be made with caution). Furthermore, the method will slowly get standardized, which will further encourage France’s trajectory towards environment protection.
- It answers calls for more transparency from civil society and political actors, and might encourage a healthy public debate around these issues, based on concrete facts.
For all these reasons, France might be an example to follow, for other States already engaged on this path, as well as others. They could use the already-existing evaluation grid and perfect it, of course, so as to match both their budget evaluation process and their sustainable development and climate goals.
A drop in the ocean?
This green budgeting comes at a strange time: the sanitary crisis has hindered France’s economy (starting with a dramatic rise of the unemployment rate), whilst the planet continues to heat up (with civil society calling for more actions from the government and companies, whether it be the youth or bodies such as the Citizen’s convention for climate).
Reconciling the end of the month with the end of the world has never been more pressing and, yet, never more difficult. The French government has already had to face the strong and long-lasting Yellow Vest movement that started two years ago, triggered by the rise of the carbon tax for vehicles, which then spilled over to denounce larger social inequalities within the French society. At the same time, environmental NGOs, as well as the 150 citizens involved in the Citizen’s convention for climate (Convention Citoyenne pour le Climat), among others, are pushing for even greater actions from the government (a tax on kerosene, action to stop the financing of fossil fuels, etc.).
They believe that this part of the budget is far from being sufficient.
Accompanied by this green budgeting, the recovery plan, which, according to Nicolas Bauquet, Institut Montaigne’s Associate Director for Research and Transformation of Public Policy, “aims to spend a massive amount of public money as quickly as possible to revive the economy, while devising it as a long term investment plan aimed at transforming its infrastructure, its industry, and its public services“, serves this purpose. It might be part of a communication strategy but, then again, a thorough, albeit still incomplete work has been conducted, in order to be able to deliver this green budgeting. Therefore, even if the green budget turns out not to impact the MPs’ vote for the national budget before the end of this year, the tool in itself is out in the public debate now, which is promising. We can only hope that the French State will extend this evaluation to other public expenditures and incomes, starting with that of the local authorities.
In a nutshell, President Macron and his government are in a tricky situation, as they were two years ago when a yellow wave ran over France, and even more so now given the multiple effects of the current sanitary crisis. They have to implement concrete actions to accelerate the environmental transition, whilst finding solutions to dire socio-economic inequalities. A green budgeting is one of many measures to do so, for it opens a door to dialogue with all the actors involved in the environmental transition. Yet, investing money in “green” projects is not enough: efficiency is what ought to be sought.
The blog has been sourced from Institut Montaigne and can be accessed by clicking here