17 November 2022

Nature Restoration and Fundamental Rights

National budgetary sovereignty as a constraint to EU legislative competence

Last year, the EU COVID-19 package was the topic of fierce constitutional contestation in Finland. This year’s most heated topic is likely to be the Commission’s recent proposal for nature restoration (COM(2022) 304 final). As I have explained before, Finland has a model of national decision-making in EU affairs that gives extensive participation and information rights to the Parliament. The debate has engaged the masses, and since both the government memo, its legal analyses and expert contributions to parliamentary committees are publicly accessible, the people know what to debate. When a broad protest against EU institutional agendas emerges, it is difficult for the government to bypass, no matter how committed it may be to the Union cause and a green transition. Before the proposal for nature restoration reached the Constitutional Law Committee (CLC), a significant share of government MPs had already voted against the Government’s critical but constructive position in two parliamentary committees. This nearly led to government resignation when facing an interpellation by the opposition questioning how the government had defended vital national interests in EU politics.

While nature restoration has an innocent sound, the matter actually involves a broad spectrum of constitutional issues. In this debate, political (un)desirability has turned into claims about the EU’s lacking competence in regulating forests and a general failure to respect the principle of subsidiarity. The Swedish Parliament – which is active in subsidiarity claims in general – has opposed the proposal on subsidiarity grounds, while the Finnish Parliament – which has only used this option three times – did not, despite fairly similar concerns. From a fundamental rights perspective, the proposal involves a balancing exercise between environmental rights and in particular the right to property under the Constitution – and presumably also under the EU Charter of Fundamental Rights.

Last Friday the Parliament’s Constitutional Law Committee approved an interesting statement of principle, which is likely to affect the country’s stance on EU (fiscal) integration far beyond the question of nature restoration. In short, the CLC established that the EU legislature must respect national budgetary sovereignty when approving EU legislation. Both from the perspective of EU law and constitutional law this seems to constitute a novel situation of interpretation.

In the statement, budgetary sovereignty was tied to a potential infringement of fundamental rights and a failure to conduct a proportionality test.

Nature restoration – a win-win objective?

Under the Commission proposal, the Regulation lays down rules to contribute to:

(a) the continuous, long-term and sustained recovery of biodiverse and resilient nature across the Union’s land and sea areas through the restoration of ecosystems;

(b) achieving the Union’s overarching objectives concerning climate change mitigation and climate change adaptation; 

(c) meeting the Union’s international commitments. 

2.This Regulation establishes a framework within which Member States shall put in place, without delay, effective and area-based restoration measures which together shall cover, by 2030, at least 20 % of the Union’s land and sea areas and, by 2050, all ecosystems in need of restoration.

The legal basis of the proposal is Article 192(1) TFEU and its objectives are closely tied to the Union’s environmental policy. They are cross-border in character and closely related to the fulfilment of the Union’s international climate obligations. The proposal builds on existing EU legislation relating to for example habitat, birds and water quality, but strengthens Member States’ obligations in these areas. In fact, it remains somewhat difficult to evaluate what is new and what is old in the proposal.

From a fundamental rights perspective this proposal is not a great masterpiece. The Commission argues that

The proposal respects the fundamental rights and in particular observes the principles recognised by the Charter of Fundamental Rights of the European Union. It contributes to the right to a high level of environmental protection and to improving the quality of the environment in line with the principle of sustainable development laid down in Article 37 of the Charter. 

This is, however, not the only fundamental right affected by the proposal. It is unavoidable that restoration measures will affect the right to property and the freedom to engage in commercial activity. They will also create a need for remedies for those whose rights are affected by the restoration measures – none of which are mentioned in the Commission proposal. This should not only be a concern under the Finnish Constitution, since also Article 16 of the Charter recognizes the freedom to conduct a business. The following Article protects everyone’s “right to own, use, dispose of and bequeath his or her lawfully acquired possessions. No one may be deprived of his or her possessions, except in the public interest and in the cases and under the conditions provided for by law, subject to fair compensation being paid in good time for their loss.” However, instead of engaging in a proportionality and balancing exercise as required by Article 52 of the Charter, the Commission proposal focuses on winners – there are no costs and no losers.

If fair compensation is to be paid, the regulation will also bring about significant costs. The Commission approaches the cost aspect narrowly, from the perspective of human resources in the Commission services and the European Environment Agency, even though it recognizes that funding can also be directed from existing Union programmes. However, the most important budgetary implication is only touched upon in the preamble to the Regulation:

To ensure the achievement of the targets and obligations set out in this Regulation, it is of utmost importance that adequate private and public investments are made in restoration, Member States should integrate expenditure for biodiversity objectives, including in relation to opportunity and transition costs resulting from the implementation of the national restoration plans, in their national budgets and reflect how Union funding is used.

Therefore, the main costs flowing from the regulation will be carried by the Member States from their national budgets in terms of compensating for the consequences of the restoration measures.

It is not unusual that EU legislation brings about costs for the Member States. Often, they are limited to various administrative costs, which seldom create particular discussion. However, in this case the costs are considerable. They are brought about by an EU regulation decided in the ordinary legislative procedure, by qualified majority in the Council. This means that small Northern countries whose environment will be affected by the regulation and who would be responsible for covering a significant share of its costs can easily be outvoted in the Council. This is a novel issue in EU law.

The annual cost for a country like Finland is estimated at 931 million for the next 30 years, which is 12,6  percent of the costs for all States. In proportion to its GDP, the financial burden for Finland is the greatest and derives from measures taken to restore water, forest and peatland to the situation 70 years back. As such, the costs are multiple to the costs of the Recovery and Resilience Package that caused the previous anti-EU reaction. In public debate, the regulation turns Finland into a ‘museum of nature’ that picks up the bill for the EU’s green conscience.

Therefore, the core constitutional question for the CLC became whether the EU legislator can adopt EU legislation that – despite falling broadly under EU competence in substantive terms – involves such a financial burden for individual Member States that it could threaten their budgetary sovereignty as they would need to cater for the significant financial consequences of the package for the next thirty years.

Constitutional Law Committee opinion

The CLC starts by acknowledging that the protection of nature and the environment involves values that reach beyond rights of individuals and also affect the rights of future generations. In this respect, the analysis provided by the government is deficient.

As regards the legal basis, the CLC repeats its doctrine that the assessment of Union competence is not a task that belongs to the Committee under the Constitution but is a question of EU law that is ultimately settled by the Court of Justice. However, the CLC repeats – as is common in matters where questions about the extent of Union competence exist – that the EU legislation should be confined to the EU Treaty structure. As is also common, the CLC also instructs the government to verify the EU’s competence. For the government, this is an empty instruction. While arguments about EU competence can be made during negotiations, and various legal services can be consulted, their views remain mere opinions while discussions are ongoing.

As regards fundamental rights, the CLC underlined the significant effects of the regulation on owners of land and water areas. In case voluntary commitments prove impossible, the regulation enables steering by expertise, contractual arrangements and also binding obligations, which affect the rights of individual property owners and the right to work and the freedom to engage in commercial activity in the areas of forestry and agriculture. There is therefore a need to find the appropriate balance between the right to property and environmental rights under the Constitution.

In this respect, the CLC refers to its own position on to the proposal for a revised directive on energy efficiency, where it found that the proposal enabled infringing the rights of private owners of existing buildings in an unproportionate manner, bringing them significant costs. Since the costs and effects of the proposal on nature restoration have so far only been estimated very generally, it is impossible to evaluate its fundamental rights effects. However, based on the information available it is well possible that the proposed regulation will, because of its broad and long-term effects, infringe the right to property in an unproportionate manner.

Finally, the CLC finds the proposal relevant for budgetary sovereignty. It repeats its old doctrine, developed in the context of various EMU related measures, on the need to safeguard Finnish budgetary sovereignty efficiently, which has highlighted the need to define responsibilities carefully, evaluate the total amount of risks and the likelihood of the risks being realized.  In the current context, it is also important to evaluate not only the costs involved but also their modalities, keeping in mind that the measures aiming at nature restoration are currently funded by public means and primarily from the state budget. The binding obligations envisaged in the proposal would require directing national funds to its implementation, which affects the budgetary powers of the Finnish Parliament.

Finally, the CLC underlines that in this respect the proposal diverges from the usual principle of parallelism that has been applied in the EU, where the EU’s legislative and budgetary powers have been exercised hand in hand. In this respect, the situation requires new assessment but also a detailed, fundamental evaluation of the effects on state budget. Overall, the CLC sees the estimated impact of the proposed regulation as highly problematic for budgetary power and effects because of its large scale and long-term effect. The costs must be significantly reduced since the implementation of an EU regulation cannot create a disproportionate burden on the state budget of individual Member States. For this reason, Finland cannot approve the regulation in the form proposed by the Commission, which places the government under an obligation to aim for a solution that removes the incompatibility with the Constitution.

Conclusion

In the EU, the approval of EU measures with budgetary implications has always required two separate decision-making processes: one for the budget by the budgetary authority, and a second one for the legislative frame decided by the legislative authority. Approval of a legislative act with EU budgetary implications thus presumes both substantive competence allocation for the legislative purpose in the EU Treaties and approval by the EU’s budgetary authority, which may not be identical. Following the same logic, policies falling under the competence of national parliaments’ legislative powers have been funded from national budgets.

In recent years, this pattern has changed. In the NGEU structure, EU funding is directed at national policy objectives on which the EU legislature cannot legislate beyond the broad frame of funding instruments, and which presume a great deal of national legislation to be achieved. The new reading of EU cohesion policy has offered the EU powerful tools to direct Member State policies in all policy areas, irrespective of who exercises legislative competence in the area. While attractive for those seeking to expand the EU’s role, this creates a permanent tension with national parliaments and calls for some explicit choices to be made about the constitutional scope of EU spending.

The proposal for nature restoration represents the opposite scenario: the EU approves detailed legislation on a matter falling its legislative competence but does not fund the measures that it requires the Member States to take even when they infringe on fundamental rights in a disproportionate manner. Looking at the broad negative public reaction in Finland and Sweden, this is not necessarily considered a more solid and legitimate solution.

In established federations, legislative and budgetary powers are exercised at two different levels, each with their own checks and balances and channels of accountability. Competence limitations and budgetary powers still matter – and perhaps even more so. When moving in the direction of deeper fiscal integration it would be good to keep in mind that by respecting the limits of its own competence the EU may in fact protect its own legitimacy.

The author was one of the experts consulted by the Finnish Constitutional Law, Economic Affairs and Environmental Affairs Committees. Thanks to Tuomas Pöysti for many discussions around the theme.


SUGGESTED CITATION  Leino-Sandberg, Päivi: Nature Restoration and Fundamental Rights: National budgetary sovereignty as a constraint to EU legislative competence, VerfBlog, 2022/11/17, https://verfassungsblog.de/nature-restoration-and-fundamental-rights/, DOI: 10.17176/20221117-215649-0.

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