Environmental protection expenditure

Indicator	EU indicator past trend	Selected objective to be met by 2020	Indicative outlook for the EU meeting the selected objective by 2020
Environmental protection expenditure in Europe (deflated absolute value)		Increase in public and private sector funding for environment- and climate-related expenditure — 7th EAP
Environmental protection expenditure has increased over the years and this seems likely to continue to 2020, strengthened by the EU's decision that at least 20 % of its 2014-2020 budget should be used on climate change activities. For further information on the scoreboard methodology please see Box I.3 in the EEA Environmental indicator report 2018

Setting the scene

The 7th EAP calls for an increase in both public and private sector environment- and climate-related expenditure to achieve environment and climate objectives (EU, 2013). This briefing presents trends in Environmental Protection Expenditure. Promoting activities and technologies aimed at preventing pollution and environmental degradation can reduce the environmental and climate impacts of economic activity. These activities and technologies can themselves have a positive impact on economic development and create business opportunities and jobs in the environmental goods and services sector (AIRS_PO2.12, 2018). However, increased spending can also reflect responses to growing environmental pressures and impacts on the environment.    

Policy targets and progress

The 7th EAP Priority Objective 6 (to secure investment for environment and climate policy and address environmental externalities) identifies the need to increase both public and private sector environment and climate-related expenditure. This is key to the achievement of the 7th EAP Priority Objective 2 (to turn the Union into a resource-efficient, green and competitive low-carbon economy), the monitoring of which this briefing contributes to. It is for this reason that EPE is examined here.

EPE has grown over the 2006-2017 period by 9 % in real terms and in 2017 it reached an estimated amount of EUR 292 billion (deflated to 2010 prices) (Figure 1). The shares of public sector (i.e. government), industry and specialised producer (a mixture of public and privately run environmental specialist services such as waste and wastewater companies) expenditure remained relatively constant over the period. In 2017, specialised producers accounted for about 50 % of total EPE, the public sector for 36 % and industry for 14 %. Almost all of the increase in total EPE over the 2006-2017 period was driven by specialised producers. Their contribution, deflated to 2010 prices, increased by EUR 27 billion over the period. The public sector’s contribution to the overall EPE remained relatively stable while the contribution of the industry sector dropped by around EUR 2 billion between 2006 and 2017.

Figure 1. Environmental protection expenditure by institutional sector and as percentage of GDP, EU  

Note: 
1. Values are deflated to 2010 prices by the EEA using the GDP deflator.
2. Data correspond to the national expenditure on environmental protection data.

The share of overall EPE in GDP decreased by 0.05 percentage points, from 2.11 % of GDP in 2006 to 2.06 % of GDP in 2017. The share slightly increased during the period of the 2008 economic downturn, reaching a peak of 2.19 % in 2009. This was because public expenditure increased during and immediately following the economic downturn as governments in EU Member States tried to stabilise their economies by increasing investments, including green investments (Görlach et al., 2014). 

Figure 2. Environmental protection expenditure by environmental domain, EU

Notes:
1. Values are deflated to 2010 prices by the EEA using the GDP deflator.
2. The domain ‘Other’ includes the following environmental protection activities as classified under the Classification of Environmental Protection Activities: ‘protection and remediation of soil, groundwater and surface water’, ‘noise and vibration abatement’, ‘protection of biodiversity and landscapes’, ‘protection against radiation’, ‘environmental research and development’ and ‘other environmental protection activities’.  
3. Data correspond to the national expenditure on environmental protection data. 

Figure 2 shows EPE estimated levels (deflated to 2010 prices) at EU level broken down by environmental domain in the same 2006-2017 period. Most expenditure was on waste management, followed by waste water treatment. Growth in EPE was driven primarily by growth in waste management expenditure (absolute values), although expenditure on air and climate increased by 31 % during the 2006-2017 period compared with a relative increase of 19 % for expenditure on waste management.  

EPE only partly captures climate-related expenditure. Nevertheless, since the EU decision that at least 20 % of its 2014–2020 budget will be used on climate change activities (EC, 2013), it seems likely that environmental protection expenditure will increase by 2020.

Country level information

Examining the 2014 and 2015 (Eurostat, 2018) country data, it can be seen that the EPE-to-GDP ratio varies greatly across countries. While on average in the 2014-2015 period, EU EPE was about 2 % of GDP, in Bulgaria, the Czech Republic and Estonia, for instance, it was more than 3 %, and in Luxembourg and Finland it was about 1 %. The wide gaps reflect differences in economic structure (e.g. type of industry, type of energy source used). However, comparison between counties should be interpreted with caution due to discrepancies in the coverage of the full range of environmental protection activities.

Outlook beyond 2020

Progress towards a circular economy will require increases in investment and current expenditure in the waste management sector, but also within the business sector as a whole, to close resource loops. The EU intends to invest EUR 5.5 billion of structural funds on accelerating the circular economy (EC, 2015). This could also provide a catalyst for expenditure by the public sector and businesses in Member States up to and beyond 2020.

The EU’s agreed long-term target (EC, 2014) for further reducing greenhouse gas emissions (a 40 % reduction compared with 1990 by 2030) also implies additional investments, not all of which will be captured by the EPE indicator — given the definition and scope of the EPE. The air pollutant emission reduction commitments for 2030 that were adopted under the new National Emissions Ceiling Directive (EU, 2016) could also lead to an increase in EPE beyond 2020. Additional efforts will be needed beyond 2020 to achieve the water quality targets of the Water Framework Directive (EU, 2000), which are also likely to be reflected in an increase in EPE.

About the indicator

The environmental protection expenditure indicator uses data from the environmental protection expenditure account (EPEA), which is one of the European environmental economic accounts. Environmental economic accounts analyse the interaction between the economy and the environment by organising environmental information in a way that is consistent with national accounts. EPE measures investments aimed at preventing, reducing and eliminating pollution and environmental degradation. The EPE indicator estimates country spending on these activities in deflated prices (2010 is used as the reference year) in euros and as a percentage of GDP.

EPE data are available by environmental domain (protection of ambient air and climate; waste water management; waste management; protection and remediation of soil, groundwater and surface water; noise and vibration abatement; protection of biodiversity and landscape; protection against radiation; research and development; and other environmental protection activities). EPE data are also available by institutional sector (public, industrial and specialist producers, which can be a mixture of public and privately run specialist environmental services such as waste management companies etc.). EPE can also be split between investments and current (ongoing) expenditure (Eurostat, 2017).

Regulation 691/2011 establishes the European environmental economic accounts. From 2017, reporting of data on the EPEA is mandatory and standardised and it is therefore expected that this will further improve the quality of the data. Before 2017, data were reported by countries on a voluntary basis. Eurostat has been producing estimates at EU level through gap filling and early estimates.  

Although the EPE includes investment in reducing air pollutants (including greenhouse gases), it does not capture investment in renewable energy and energy efficiency as EPE does not cover resource management activities or any form of climate adaptation. Therefore, other data sources should be mobilised in order to fully capture expenditure with a view to achieving climate policy objectives.