France’s Green Budget: What’s Next ?
A few days after the publication of France’s 2021 budget bill, and before any debates in parliament, the government released an environmental assessment of it. This assessment, often referred to as the “green budget”, is an important step forward for the transparency of public action, according to Marion Fetet and Sébastien Postic from I4CE. Nevertheless, they suggest improvements to be made to the scope of the budget analyzed or to the classification of certain expenditures. And they call for making the green budget a real tool for greening the budget.
A new step for budget transparency
France is not the first country to take an interest in the environmental impacts of its budget, as I4CE pointed out in a previous post on the experiments carried out in this area for nearly fifteen years in some fifty countries. But France stands out by integrating spending that is damaging to the environment and by analyzing not one but six environmental dimensions: climate mitigation and adaptation, land use, management of water resources, waste and biodiversity. It is also one of the few countries to publish the environmental analysis of its finance bill before it is discussed in parliament, which provides key information for MPs to to vote on a budget to make it more consistent with national commitments.
The efforts made to produce this green budget should not be underestimated and should be commended. It is the result of a work that began several years ago, with the publication in 2006 of a Budget “Jaune” (yellow), which retraces the efforts made by the State for the environment. The assessment method proposed in 2019 by the French General Inspectorate of Finance (IGF) and the General Council for the Environment and Sustainable Development (CGEDD) was a turning point, with several major advances, such as the inclusion of expenditures damaging the environment and the extension of the scope of analysis to government operators and agencies.
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A scope of analysis that needs to be broadened
France’s green budget nevertheless still offers prospects for improvement: it is presented as a first draft that is expected to evolve as of next year. Many of the improvements to be made concern the scope of the budget analyzed. The authors of the evaluation regret that, due to a lack of sufficient data, they were unable to properly analyze the operating expenditures (heating, travel, lighting, maintenance) of the ministries and the State’s real estate assets. Nor have they been able to analyze the allocations to local authorities. A “hole in the snowshoe” far from being anecdotal: these allocations are close to 50 billion euros. The actions of local authorities themselves should be analyzed on the basis of their own green budget.
In addition, other area for improvement should be added to those identified by the administration. The first concerns “unclassified” fiscal expenditures, which are currently excluded from the analysis. This leads, in fact, to the exclusion from the debate of sensitive subjects such as the absence of taxation on kerosene for aircraft, a niche whose cost to public finance is between 3.6 and 6.2 billion euros depending on the calculation method, or the tax advantage of diesel fuel over petrol, the cost of which is estimated at 3.5 billion euros. Taking into account these two tax niches would lead to a doubling of the Climate-damaging expenditures identified in the green budget.
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It is also regrettable that taxation is not analyzed in the same way as exependitures. Although the current green budget has the merit of addressing the tax issue, one would like to have an analysis that clearly indicates the environmental dimension(s) impacted by taxes, whether in a positive or negative way.
Generally speaking, the scope of the analysis selected still seems too narrow. This choice leads to the exclusion from the analysis of satellite accounts used, for example, for the supply of petroleum products to the State and the Army or for the industrial operations of aeronautical workshops. It also leads to analyzing only the expenditures of the State towards its operators (such as the National Forest Agency (ONF) or the Water Agencies) and not all the expenditures of the operators.
A classification that raises questions
France’s next green budgets will hopefully broaden the scope of the analysis. Let us also hope that they will discuss the classification system chosen.
At present, for example, the aid granted to the automobile and aeronautics sectors as part of the recovery plan is considered as “neutral”, i.e., having no environmental impact. The eco-conditionalities attached to these aids are used to justify this choice, but given the intense debate on the seriousness of these conditionalities, it is questionable to say the least. The “neutral” category, on the other hand, mixes both “truly” neutral expenditures and expenditures that could not be analyzed for lack of data: the latter should be set aside to cover the remaining grey areas.
The category “environmentally friendly” also raises questions. While France has adopted a national climate reference scenario, the National Low Carbon Strategy (SNBC), the green budget did not choose it as a reference for its own exercise. Thus, any expenditure that allows for an improvement over what already exists is considered climate-friendly, even if this improvement is insufficient to reach the SNBC. This is particularly salient in the case of the automobile conversion premium, which is considered environmentally friendly in France’s green budget. While this premium enables a household to acquire a new car that is often less polluting than the old one, but the fact remains that cars that do not meet the SNBC emission thresholds are eligible for this premium, which contributes to putting cars on the road that will emit non-negligible quantities of CO2 throughout their life cycle. It would be opportune, as recommended by the IGF and the CGEDD and as I4CE had done in its own climate assessment of the budget, to differentiate at least two categories of “environmentally friendly” expenditures: those clearly compatible with an ambitious national scenario (such as the SNBC for climate), and those whose medium-long term impact is ambiguous.
Finally, any classification is debatable, which is why making the results available in an “open data” format would be welcome. The current format for presenting these results does not allow parliamentarians and civil society to question the categories chosen or to construct new ones. If only because they are too aggregated to be reconciled with other budget public annexes.
From “green budget” to “greening the budget”.
France now has an environmental analysis of its budget. What to do with it? If it is only used to communicate on the increase in environmentally-friendly spending or, worse, to compare environment-friendly spending with environment-damaging spending, then the exercise will be a failure. The purpose of a green budget is to open the debate on the merits of each expenditure and to initiate new reforms.
This concerns environmentally friendly spending: their increase in 2021 thanks to the stimulus plan is certainly good news, and I4CE welcomed it, but they must be regularly questioned about their effectiveness and coherence, to ensure that every euro spent is useful for the ecological transition. The same applies to damaging expenditures, which are mainly total or partial exemptions from energy taxes for several sectors of the economy: are they justified, for example, in terms of preserving the competitiveness of these sectors? Are there no other ways to support them? What can be expected is that the government and parliamentarians explain which damaging expenditures they intend to reduce and on what timetable. They will not disappear overnight, and some of them may even be sustainable. But in any case, by putting the finger on these damaging expenditures, France’s green budget should lead the government and parliamentarians to clarify their strategy towards them. Last year, the Assembly’s Finance Committee came out in favor of eliminating environmentally damaging niches within 10 years, a call that had not been heard. Will it be the same this year?
Let’s finish by recalling that the green budget exercise is to be replicated every year. This is excellent news because it will make it possible to track the evolution of “green” and ”brown” expenditures over time. However, we will have to be very vigilant about methodological developments, which could blur annual comparisons and lead to misinterpretations. For example, this year, a 10% drop in brown expenditures has been announced, which is in fact mainly due, not to budgetary reforms, but to a reduction in the scope of the expenditures analyzed (abandonment of certain tax exemptions analyzed by the IGF-CGEDD report). Changing the analysis methodology while ensuring the comparability of results from one year to the next will certainly require a great deal of work, but this is the price to pay for an effective management of the greening of France’s budget.
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“Green budgeting”: paths to creating real added value
Climate chapter of the French recovery plan: Off to a good start but let’s see where it lands