SEF-ERA Evaluation Tool for Own Resources Proposals
The quest for a cohesive fiscal policy within the European Union (EU) underscores the need discovered in the course of my research for an evaluative model capable of assessing the multifaceted nature of legislative proposals, with particular reference to EU’s New Own Resources Proposal (NORP). As the EU institutions and member states arm-wrestle over the ambitious objectives encapsulated within the June 2023 NORP, a clear analytical lacuna manifested — a common objective framework for evaluating such policy initiatives’ viability and feasibility. This gap, marked by the absence of a universally accepted evaluative tool, presents a challenge to the EU’s capacity to holistically gauge and communicate the potential and implications of fiscal proposals.
As one example of the content of this 2023 NORP, the Interinstitutional Agreement on Budgetary Discipline , binding the European Council, the European Parliament, and the European Commission, nominally endeavours to integrate a corporate profits levy among the innovative strategies for bolstering the EU’s budget. Despite the ostensibly unified front expressed in the Interinstitutional agreement, where all member states agreed NORPs should address corporate profits in the EU as a means of revenue, a dissonance emerges as the Commission’s overtures towards meeting these aspirations are consistently met with institutional rebuff. The Council of the EU almost always blocks these proposals out of hand in the Working Party of the Budget Committee (BUDG), often because of the unanimity rule required for this portfolio. The existing evaluation mechanisms, primarily rooted in disparate political and fiscal ideologies, fail to offer a balanced or uniform basis for appraisal.
This “evaluative disjuncture” calls for an approach (the outline of which I propose below): a Strategic Evaluation Framework for EU Resource Allocation (SEF-ERA). Such a framework would harmonise the diverse perspectives-whether those envisioning a federalist ideal or, a confederalist ideal, or merely those adhering to a staunchly numerical and zero-sum standpoint-under a comprehensive model. This model’s genesis lies in the recognition that a proposal’s assessment must extend beyond mere numerical metrics or ideational aspirations to encapsulate a broader range of characteristics that present a true reflection of the proposal’s merits and faults. Even if the model were not to be used by member states for their own assessments, the model could guide those left flailing on the outside to understand where and why a proposal would fly, or not, as many observers are with the now basically dead 2023 NORP.
To operationalise this, the SEF-ERA would incorporate a structured, tabular approach, akin to a calculator model, facilitating a systematic examination of the various factors influencing a proposal’s viability and feasibility. This instrument would allow policymakers, stakeholders, and the academic community to traverse objectively the complex landscape of EU fiscal policymaking with greater clarity and consensus.
In SEF-ERA’s implementation, the primary step would involve delineating the evaluation criteria reflective of the many impacts a fiscal policy may engender. Such criteria would span the spectrum of economic, social, environmental impacts, revenue potential, administrative feasibility, political acceptability, and legal soundness. Each criterion, defined by specific indicators, would serve as a metric for assessment, ensuring a comprehensive analysis beyond one-dimensional fiscal projections.
A scoring system would be integral to SEF-ERA, assigning quantitative or qualitative values to each criterion, thereby facilitating an objective comparison across proposals. This scoring system would reflect a gradient of impacts, from markedly adverse to unequivocally positive, allowing for a nuanced evaluation of each policy initiative.
A Synthesis of Multidimensional Analysis
SEF-ERA would require the examination of each new own resource proposal against these criteria. Such analysis would draw from an extensive base of data, scholarly research, and expert opinion, ensuring a grounded and empirically substantiated evaluation. If the institutions would allow it, even putting the model and proposals before something like multi-stakeholder focus groups to give their assessments collectively. This process could also be subject to the Delphi method to seek expert assessment convergence. This multi-layered analysis would culminate in a comparative overview, delineating the strengths and weaknesses inherent in each proposal, and providing policymakers with a distilled and comparable essence of each initiative’s potential.
An optional, yet potent, component of SEF-ERA could be a sensitivity analysis. By varying the underlying assumptions and parameters, policymakers can gauge the resilience and robustness of each proposal under different economic and social conditions, providing a dynamic assessment tool responsive to the EU’s fluctuating fiscal environment. Additionally, weighting of the criteria might be a crucial next step, because, for example, political and philosophical concerns tend often to be the hill on which NORPs die, not technical or administrative hills.
Justification for a Common Evaluation Model
The establishment of SEF-ERA is not merely an academic exercise but a pragmatic response to the EU’s strategic fiscal needs. Amidst the evolving discourse on new own resources, the discrepancy in evaluation methodologies has led to fragmented policy analyses, communication failures, and divergent conclusions. A common evaluation model would not only streamline the assessment process but also enhance the transparency and objectivity in policy evaluation, fostering a more cohesive and concerted approach to fiscal policymaking within the EU.
I would propose that further research applying it the current basket of New Own Resources, and field testing with stakeholders. SEF-ERA may serve as a helpful tool for bridging the evaluation gap in the EU’s fiscal policy discourse. By providing a common platform for the assessment of new own resources proposals, SEF-ERA enables a multidimensional, impartial, and strategic evaluation, imperative for the effective and sustainable advancement of the European Union’s fiscal objectives. The implementation of such a framework represents a concerted effort to synergise the diverse evaluative perspectives, moving towards a more unified and coherent fiscal policy landscape.
Let’s take a look through my initial attempt to create the matrices that would provide the clarity and transparency around fiscal policy assessment. What would be the criteria? How would we be evaluating proposals against each criterion.
In practice, the model can be deployed using these viability and feasibility criteria on any revenue policy topic, although I only developed it for the NORPs. What follows is a test of the process and its application to the three elements in the 2023 New Own Resource Proposal, starting with the CBAM.
Sample Completed Table: CBAM Own Resource
To assess the feasibility and viability of one of the three proposals in the 2023 NORP, the Carbon Border Adjustment Mechanism (CBAM) against the established criteria, presented herein is a synopsis accompanied by short, informed assessments on its practicality and operational potential. The CBAM is envisaged as an important element in the EU’s green agenda, the strategy to mitigate climate change.
CBAM is designed to level the playing field by imposing a carbon price on imports of certain goods from outside the EU, thus preventing carbon leakage and ensuring that ambitious climate efforts do not lead to an exodus of carbon-intensive industries. This mechanism is intended to complement the EU Emissions Trading System (ETS) by placing a carbon cost on imported goods equivalent to what would have been paid, had they been produced under the EU’s carbon pricing rules. The proposal in the NORP is that revenue from CBAM flow through as revenue to the EU. Let’s attempt to score it:
The evaluation of CBAM using the SEF-ERA process indicates a strong alignment with the EU’s ambitious climate policies, aiming to mitigate carbon leakage and promote global efforts in reducing greenhouse gas emissions. Its implementation, beginning with a transitional phase from October 2023 to December 2025, showcases the EU’s proactive approach towards establishing a ‘carbon tax’ on imports, thus leveling the playing field for EU producers and encouraging international partners to strengthen their climate actions.
While the mechanism faces challenges in terms of administrative complexity, international/trade relations impacts, and potential market distortions, its positive impact on innovation, environmental sustainability, and alignment with existing policies underscores its viability and potential as a pivotal tool in the EU’s climate strategy. The CBAM is designed to be scalable, flexible, and cost-effective, promoting economic stability while driving significant environmental benefits, thus representing a critical step forward in the global transition towards a greener economy.
The revenue flow-through to the EU likely does not, however add up to much revenue in EUR terms. While less controversial with member states than revenues from the Emissions Trading Scheme (ETS), another of the NORP’s elements, its low monetary value means many stakeholders will not spend energy on pushing it through.
Sample Completed Table: ETS Own Resource
To evaluate the EU Emissions Trading System (ETS) based on the defined criteria, below is my conceptual overview with informed judgments on criteria of viability and feasibility. The EU ETS is a cornerstone of he EU’s policy to combat climate change and aims to reduce greenhouse gas emissions cost-effectively by setting a cap on the total amount of certain greenhouse gases that can be emitted by installations covered by the system. Let’s score it:
The evaluation of the ETS showcases it as a foundational element of the EU’s climate policy, instrumental in reducing greenhouse gas emissions through a market-based approach. By setting a cap on emissions and allowing for the trading of emission allowances, the ETS encourages cost-effective environmental protection measures and fosters innovation in green technologies. Its expansion to include maritime transport signifies a broadening scope aimed at addressing carbon leakage and enhancing its comprehensive impact on various sectors. The system’s design balances economic efficiency with environmental effectiveness, leveraging allowance pricing as an incentive for emission reduction.
Despite challenges in international competitiveness and potential market distortions, the ETS’s adaptability, financial stability, and alignment with broader EU policies underscore its strategic importance in achieving the EU’s ambitious climate goals. Its emphasis on transparency and stakeholder support reflects a commitment to an inclusive and dynamic approach to climate change mitigation. The fact the ETS is already operational, and the new own resource is an adjustment only to the direction of the captured funds to the EU, means it is a minor administrative and technical challenge. From this evaluation using the SEF-ERA model, Member State politics are the ETS’ only real Achilles Heel.
Sample Completed Table: Corporate Profits Own Resource
Evaluating the Temporary Statistical Corporate Profits Own Resource as a new own resource proposal for the EU involves considering its potential to provide a fresh stream of revenue while balancing the need for fairness, economic stability, and alignment with broader EU objectives. The idea of anything approaching a “tax” has historically been the third rail of European politics, so we might project that this character alone constitutes a problem.
This levy is intended to be a temporary measure, potentially paving the way for a more permanent solution aimed at enhancing the EU’s financial autonomy. Note that this is what is called a “statistical” measure. This means that there is no direct levying of any change directly on any company. It is instead a calculation of the total corporate profits earned in an economy (financial and non-financial companies), and then a translation of that figure to the percentage of Gross National Income (GNI) (the current funds from member states to the EU) amount paid into the EU. Let’s take a look at that might score:
The Temporary Statistical Corporate Profits Own Resource proposal presents a balanced approach to generating new revenue for the EU, with considerable potential benefits in terms of revenue stability and support for EU policies. While there are challenges related to its economic impact, potential market or fiscal policy distortions, and the need for technological infrastructure, its design as a temporary measure offers flexibility and time for adjustment. It offers also a segue to what the Commission will offer up next as a more permanent response, likely having to be rolled into the next Multiannual Financial Framework (MFF) negotiations since the Commission is very unlikely to issue a revised NORP before then. This corporate profits own resource proposal arises from the signal in the Interinstitutional Agreement that the parties sought ideas and proposals in this direction, and it signifies an innovative step towards financial sustainability for the EU, aligning with broader goals of economic stability and social welfare. Having said that, most EU member states will not support it for political and national fiscal management reasons.
Conclusion
The search for a cohesive fiscal policy within the European Union underscores the need for a comprehensive evaluation model capable of assessing the multifaceted nature of legislative proposals, particularly those related to the NORP. The Interinstitutional Agreement and the ambitious objectives encapsulated within the 2023 NORP highlight the importance of a common framework for evaluating the viability and feasibility of fiscal policy initiatives. The SEF-ERA I propose here aims to bridge this evaluative disjuncture by providing a structured, tabular approach that incorporates a range of criteria reflecting the diverse impacts of fiscal policy on the EU.
SEF-ERA’s implementation involves delineating evaluation criteria that span the spectrum of economic, social, environmental, and administrative impacts, as well as revenue potential, administrative feasibility, political acceptability, and legal soundness. Each criterion is defined by specific indicators, ensuring a comprehensive analysis beyond one-dimensional fiscal projections. The framework’s scoring system assigns quantitative or qualitative values to each criterion, facilitating an objective comparison across proposals.
The evaluation of the CBAM and ETS using the SEF-ERA model demonstrates the framework’s potential in assessing the strengths and weaknesses of these policy initiatives. The CBAM, designed to level the playing field by imposing a carbon price on imports, showcases its alignment with the EU’s climate goals and promotes innovation, environmental sustainability, and cost-effectiveness. The ETS, a cornerstone of the EU’s climate policy, encourages emissions reductions through a market-based approach and drives innovation in low-carbon technologies.
The Temporary Statistical Corporate Profits Own Resource, while facing challenges in terms of administrative complexity and political acceptability, offers a potential source of revenue and supports social programs. The SEF-ERA framework provides a nuanced evaluation of these proposals, highlighting their merits and demerits, and enabling policymakers to traverse the complex landscape of EU fiscal policymaking with greater clarity and consensus.
The establishment of SEF-ERA is not merely an academic exercise but a pragmatic response to the EU’s strategic fiscal needs. By providing a common platform for the assessment of new own resources proposals, SEF-ERA enables a multidimensional, impartial, and strategic evaluation, imperative for the effective and sustainable advancement of the European Union’s fiscal objectives. The implementation of such a framework represents a concerted effort to synergise the diverse evaluative perspectives, moving towards a more unified and coherent fiscal policy landscape.
Originally published at https://www.linkedin.com.
