Terms
Terms
Terminology
Building blocks are the economic sectors, such as energy, transport or industry, and cross-cutting areas, such as finance, innovation, and lifestyles, in which transformation is needed to achieve a climate neutral society by 2050, and across which ECNO tracks progress.
Building block assessment
Acceleration factor
Or the ‘required change in speed’ is the ratio of the required change versus the past change on a given indicator. This results in the example formulation: ‘We need to increase our annual emission reductions to at least 4.9 Mt CO2e per year – or 2.6 times faster than the 1.9 MtCO2e per year achieved in the past’.
Benchmarks
Future reference points against which progress for each indicator is compared. ECNO derives benchmarks from official EU sources, such as directives, regulations, strategies, and action plans, including their related impact assessments. Benchmarks often come in the form of quantified policy goals or targets.
Climate neutrality
Stands for the objective of achieving net zero greenhouse gas (GHG) emissions. This means that emissions are brought down as close to zero as possible, with remaining, difficult to abate emissions balanced by GHG removals within a given country or region.
Enablers
The supporting conditions and underlying changes needed to meet the objectives in a given building block. They are the opposite of barriers or inhibitors.
Historical data
Includes, but is not limited to, statistics from Member States harmonised and provided by Eurostat or the European Environment Agency (EEA) as well as from international organisations such as the OECD, FAO, or World Bank.
Indicators
Track the historical development and status of enablers and objectives based on quantitative data. An assessment of indicator progress compares the trend against the required development to meet a future reference point, where data and relevant benchmarks are available.
Objectives
Describe what needs to be achieved in each building block to reach climate neutrality.
Required change
The change that underlies a pathway that meets the identified benchmark or target. Where benchmarks are missing, the required change indicates a direction and speed of change.
Trend
The development of an indicator over time based on historical data. ECNO’s trendline is a straight, best-fit line that smooths out the variation in historical developments based on all data points, providing a sense of the general progress over time.
Finance
Redirecting financial flows towards clean products and services is essential to put the EU on track to achieve climate neutrality by 2050. This includes both public and private investment flows.
OVERVIEW:
Progress on finance was heading in the wrong direction
The EU global financial flows are not on track to limit global warming to 2°C or less. The EU therefore fails to contribute to Article 2.1.c of the Paris Climate Agreement. The climate investment gap that needs to be filled to enable the EU to reach its climate objective by 2030 is still significant. Due to the lack of an annual climate investment gap assessment, it is not possible to ascertain the required increase in annual public and private investments in the EU. The closest estimate is that public and private climate investments in the Union should be 50% higher than they are now, to bridge the average annual gap of EUR 360 billion assessed by the European Investment Bank. Public intervention is essential to enable the redirection of private financial flows, but the EU and its Member States do not seem to be headed in the right direction in this regard. Fossil-fuel subsidies granted by EU Member States skyrocketed in 2021 and 2022, and no path of phase-out has been adopted yet. Environmental taxation is still well below what is targeted by the EU. Finally, it is difficult to assess the progress of the private financial system towards climate neutrality financing as no relevant indicators are currently available. This lack of traceable data may lead to an implementation gap in the EU's sustainable finance aspirations.
INSIGHT TWO
Need for an effective public intervention towards climate neutrality
To redirect financial flows towards a climate neutral economy, the EU needs more effective and efficient public interventions, such as greater climate subsidies, an immediate phase-out of fossil-fuel subsidies, or a strengthening of its environmental taxation.
INSIGHT THREE
Increase transparency on the alignment of the financial system with the Paris Agreement
There are currently no available indicators at EU level that assess the alignment of the financial system with the Paris Agreement. At EU level, the Corporate Sustainability Reporting Directive (CSRD) and the incoming Corporate Sustainability Due Diligence Directive (CSDDD) aim to compel financial institutions to publish a transition plan but uncertainties remain on the content of these plans, their timing of publication, and the sanctions that may prove necessary to ensure proper implementation of EU law.
BRIEFING
Is European cleantech on track for net zero? A question of finance
NOVEMBER 2023. This briefing examines the current state of EU cleantech from lab to market. The ECNO flagship progress report found that progress in the cross-cutting sector of cleantech has so far been too slow. The briefing's author, ECNO expert Ciarán Humpreys, sheds light on the role of finance in accelerating progress to become in line with the EU's 2050 climate neutrality target.
OBJECTIVES
Objectives describe what needs to be achieved in each building block to reach climate neutrality.
Objective 1
Financing climate change mitigation
Climate change mitigation financing is progressing too slowly. Annual climate investments have increased in recent years but are still far below what is required for the EU to achieve its climate objectives by 2030. The EU must multiply its climate investments by at least 1.5 compared to those made today.
Climate investment gap
The climate investment gap measures the gap between the investments made between 2011 and 2020, and the investment needs required to achieve the 2030 climate target. The European Investment Bank (EIB) estimates a climate investment gap of EUR 360 billion per year requiring an increase of current climate investments by at least 1.5 times. The climate investment gap must be closed immediately.
The climate investment gap corresponds to the difference between real-economy climate investments that are currently made in the EU and the investments that are needed to reach EU climate targets.
Objective 2
Phasing-out climate hostile finance
There are currently no EU-wide aggregated datasets available on all EU financial flows that contribute to significant GHG emissions. However, it seems very likely that the EU is going in the wrong direction in the phasing out of climate-hostile investments.
Climate-hostile financial flows
There is currently no EU-wide aggregated data available on EU financial flows that contribute to significant GHG emissions. However, it seems very likely that the EU is not on track in the phasing out of climate-hostile investments.
All financial flows that contribute to significant GHG emissions.
ENABLERS
Enablers are the supporting conditions and underlying changes needed to meet the objectives in a given building block. They are the opposite of barriers or inhibitors.
Enabler 1
Channelling public funds away from fossil fuels and towards climate neutrality
Public climate subsidies
For now, there is no EU-wide aggregated data on public climate subsidies.
The sum of public subsidies from the EU, its Member States, and their local authorities, going towards climate investments.
Fossil-fuel subsidies
This indicator shows past development in EU Member States fossil-fuel subsidies in comparison to the EU target of phasing-out these type of subsidies by 2025. The data show an annual increase of EUR 1.5 billion between 2015 and 2020. To meet the target, fossil fuel subsidies need to decrease by approximately EUR 9 billion every year between 2020 and 2025. The indicator is therefore going in the wrong direction.
Subsidies that are given by all the Member States and the EU to fossil fuel spendings and investments.
Enabler 2
Modifying market prices through public intervention
Share of GHG emissions covered by a carbon market price or tax
This indicator shows past development in the share of EU GHG emissions that are covered by a carbon price scheme.
The data show a decrease from 47.7 % of EU GHG emissions coverage to 43.5 % between 2017 and 2020, followed by an increase to a coverage of 53.8 % in 2021. This increase in 2021 is mainly due to the launch by Germany of its National ETS for heating and transport fuels. No expert consensus currently exists but increasing the share puts the EU on track to incentivise emission reductions.
Share of EU GHG emissions covered by a carbon pricing or taxation scheme, i.e., the EU ETS and national schemes.
EU and Member States revenues from environmental taxation
This indicator shows past development in the revenues from environmental taxation. The share of environment taxes revenues in total taxes revenues stands at 5.4 % in comparison to the EU target of reaching 10 % share in total taxes revenues in 2020.
The data show an annual decrease of 2.3 % between 2016 and 2021, while it should almost double as soon as possible. The indicator is therefore going in the wrong direction.
Revenues generated by environmental taxation in the EU and Member States including energy taxes, transport taxes and pollution and resource taxes.
Enabler 3
Climate alignment of the financial system: Shifting private finance towards climate-friendly financing
Share of banks that have a sound transition plan
For now, there is no EU-wide aggregated data on the share of banks that have a sound transition plan. The publication of banking transition plan should become mandatory from 2025 with the implementation of the CSRD and CSDDD at the EU level.
The indicator shows how many banks of total banks have a transition plan. The share is weighted by the size of the bank’s balance sheet.
Share of new banking loans that are aligned with the Paris Climate Agreement
For now, there is no EU-wide aggregated data on the percentage of new banking loans that are aligned with the Paris Climate Agreement.
Share of new loans issues each year that are aligned with the Paris Agreement (including both mitigation and adaptation objectives).
report
State of EU progress to climate neutrality
The assessment of progress towards climate neutrality shows that the EU is moving in the right direction, but the pace is too slow. The transition to climate neutrality is essential for ensuring a liveable future.
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