Environmental protection expenditure

Indicator	EU indicator past trend		Selected objective to be met by 2020	Indicative outlook of the EU meeting the selected objective by 2020
Environmental protection expenditure in Europe	% of GDP	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 2017

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, 2017). However, increased spending can also reflect responses to growing environmental pressures and impacts on the environment.   

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 2006–2014 period by 9 % in real terms and, in 2014, reached an estimated amount of EUR 281 billion (deflated to 2010 prices) (Figure 1). The proportions of expenditure of the public sector (i.e. government), industry and specialised producers (a mixture of public and privately run environmental specialist services such as waste and wastewater companies) remained relatively constant over the period. The public sector accounted for about 45 % of total EPE, specialised producers for 40 % and industry for 15 %. Most of the increase in total EPE over the 2006-2014 period was driven by specialised producers; their contribution, deflated to 2010 prices, increased by EUR 14 144 million over the period.  The public sector also contributed significantly to the overall EPE increase (it spent EUR 6 717 million more in 2014 than in 2006), while the industry sector contributed as little as EUR 2 317 million to the increase.

EPE experienced a lower growth rate between 2008 and 2009 probably because of the financial crisis. However, the slower growth can be explained by a contraction in industry and specialised providers. Public expenditure increased during and immediately following the crisis as governments in EU Member States tried to stabilise their economies by increasing investments, including green investments (Görlach et al., 2014). However, a slight reduction in public EPE (when expressed in prices deflated to 2010) occurred in 2012 and 2013. The overall increasing trend in EPE in the public sector also protected the environmental goods and services sector in Europe from the economic downturn (AIRS_PO2.12, 2017). However, it should be noted that the main reason for growth in this sector was a continuous increase in renewable energy activities and the EPE indicator does not capture this.

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

Note: Values are deflated to 2010 prices by EEA using the GDP deflator.

The share of overall EPE in GDP increased by 0.09 percentage points, from 2.03 % of GDP in 2006 to 2.12 % of GDP in 2014. The share slightly increased during the period of the economic and financial crisis, i.e. between 2008 and 2009. Since then the growth rates of EPE and GDP exhibited similar trends and therefore the ratio of EPE to GDP remained relatively constant from 2010-2014. 

Figure 2. Environmental protection expenditure by environmental domain, EU

Notes:
1. Values are deflated to 2010 prices by EEA using the GDP deflator.
2. The domain ‘Other’ includes the following environmental protection activities as classified under CEPA (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’.     

Figure 2 shows EPE estimated levels (deflated to 2010 prices) at EU level broken down by environmental domain in the same 2006-2014 period.

Most expenditure was on waste management, followed by wastewater treatment. The growth in EPE has been driven primarily by growth in waste management expenditure.  

The EPE will only partly capture climate-related expenditure. Nevertheless, since the EU took the 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.

Examining the 2006–2014 country data that underpins Eurostat’s publication (Eurostat, 2017a), it can be seen that the EPE-to-GDP ratio varies strongly across countries. In Austria the proportion was over 3 % on average between 2006 and 2014, while in Cyprus, Finland, Greece, Norway, Sweden and the UK, the proportion is lower than 0.75 %. This wide gap reflects differences in economic structure (e.g. type of industry, type of energy source used). In most countries it is the government sector (i.e. the public sector) that provides the waste collection and wastewater treatment services; hence, government expenditure is concentrated on these environmental domains. However, these conclusions should be interpreted with great caution due to gaps in the country data (some countries and/or years and/or breakdown by institutional sector are missing).  

Outlook beyond 2020

Progress towards a circular economy will require increases in investments 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 accounts. Environmental 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; wastewater 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 environmental specialist services such as waste management companies etc.). EPE can also be split between investments and current (ongoing) expenditure (Eurostat, 2017b).

European environmental accounts are established by Regulation 691/2011 on European environmental economic accounts. From 2017, reporting of data on the EPEA will be mandatory and standardised and it is therefore expected that this will improve further the quality of the data. Up to 2017, data collection has been voluntary and carried out by some countries only. Eurostat has been producing estimates at EU level through gap filling  

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