Governments around the world have spent huge sums on economic recovery following the pandemic. Many of these recovery packages address climate action and provide support for example on renewable energy or adaptation measures. A key question from the effectiveness purpose is which spending is accepted as contributing to climate – and whether it really mitigates the climate change or helps to adapt to it.
Recovery spending following the pandemic coincides with growing concerns over the future global threats, including the climate crisis. Many governments’ stimulus packages are thus geared to supporting the transition towards a carbon-neutral economic system. For example, the European Union decided that at least 37% of the Next Generation EU recovery instrument amounting to EUR 750 billion should be used to support climate actions.
A key question is how to ensure that the funding really contributes to climate: are funds allocated in line with the climate objectives and are the actions effective? To support this examination, the National Audit Office of Finland commissioned a report from the Institute of European Environmental Policy (IEEP), which is an independent sustainability think tank. This report provides an analytical review of existing practices to track climate-related expenditure, identifying a range of areas where current tracking systems differ in their practical application. The report analyses climate tracking approaches and key methodological questions based on nine case studies from Canada, France, Ireland, the European Union, Norway, Nepal, Chile, Mexico and the World Bank.
Besides targeted spending also harmful subsides should be identified
The objectives of climate finance tracking methods vary from meeting quantitative climate finance commitments to mainstreaming climate policy by making it relevant to different sectors. It can also improve understanding of the gap between current investment and the level of investment believed to be required. Depending on its level of ambition, the tracking method may also seek to evaluate the effectiveness of finance.
Identifying funding that has a negative impact on climate objectives would also be essential. Only this way can we gain an overall understanding of the budget’s climate impacts. Essential aspects of climate finance tracking methods include the extent to which indirect impacts are accounted for, and whether taxation is also included, rather than funding only. Moreover, the EU taxonomy for sustainable economic activity regulating private investors provides here an interesting approach, as it contains the principle of doing no harm, according to which climate actions should not hamper the achievement of other environmental objectives.
The report helps auditors and researchers to verify how climate finance is realised and to better assess its effectiveness, while also providing decision-makers and the wider public with important information on appropriate use of budget funding. This increases transparency on whether climate expenditure is focused on those areas capable of addressing climate challenges most effectively.
Report is available on the website:
Review of approaches to tracking climate expenditure (ieep.eu)