CBAM: The Carbon Border Adjustment Mechanism is the EU's tool to combat carbon leakage (where companies move production to non-EU countries with less stringent climate regulations) by imposing tariffs on carbon-intensive imports like steel and cement. Importers must buy carbon certificates reflecting their emissions. It ensures fair competition, supports the EU’s climate goals, and encourages global emission reductions. CBAM reporting began in 2023, with full implementation from 2026.
Ceilings: The maximum amount that can be spent on programmes within a policy area (heading). Ceilings help budget planning and keep finances under control. The long-term budget defines these limits for the whole EU and for key spending areas (headings) over a seven-year period. There are two types of expenditure ceilings: an annual ceiling for each heading, expressed in commitment appropriations, which are legally binding promises to spend money. Commitment appropriations are not necessarily spent in the same year, but may be disbursed over several financial years. The second is the overall annual ceiling: for commitment appropriations, corresponding to the sum of each heading’s ceilings, and for payment appropriations, where the ceiling indicates the maximum actual amounts authorised for disbursement in a given year.
Cohesion: Cohesion policy is the EU’s main investment framework. It aims to reduce disparities between EU regions by promoting economic, social, and territorial cohesion. It focuses on supporting less-developed regions through funding for infrastructure, innovation, job creation, and sustainable development. The policy is mainly funded through the European Regional Development Fund (ERDF) and the European Social Fund (ESF).
Commitments: Commitment appropriations are the cost of all legal obligations contracted during the current financial year, with possible financial implications for future years.
Conditionality Mechanism: Co-legislators agreed on this new instrument in 2020, in parallel with the negotiations on the current MFF, and it entered into force in 2021. This legislation links access to EU funds with respect for the rule of law and democratic values. If a Member State violates these principles, the EU can suspend or reduce financial support. This mechanism aims to ensure that EU resources are used properly and that Member States uphold core EU values, promoting good governance and accountability across the EU.
Consent procedure: Under the consent procedure, Parliament has veto power, i.e. it cannot modify but may approve or reject a legal act. Without Parliament’s consent, an act cannot be adopted. At the end of the negotiations on the long-term EU budget, Parliament needs to approve the Council Regulation establishing the EU’s next multiannual financial framework (MFF). For the MFF, Parliament’s consent requires a majority of its component members, but this is not standard for the budget process, and other consent votes may require a simple majority.
Consultation procedure: Consultation is a special legislative procedure, an exception to the ordinary legislative procedure applied to files in most policy areas. It requires the Council to request Parliament’s opinion, though the Council is not bound by it. The absence of consultation would make the act illegal and potentially annullable by the Court of Justice. Introducing new own resources under the long-term EU budget requires consultation with Parliament.
Common Agricultural Policy (CAP): The CAP is a unified policy on agriculture in EU countries. Established in 1962, it is the oldest EU policy in operation, accounting for around 31% of the current long-term budget. It aims to provide affordable, safe and high-quality food for EU citizens, and ensure a fair standard of living for farmers while preserving natural resources and respect for the environment. The CAP provides direct support, market measures and support for rural development. In 2024, Parliament approved reforms aimed at easing the administrative burden for EU farmers.
ETS: The EU’s Emissions Trading System (ETS) is a cap-and-trade mechanism to reduce greenhouse gas emissions cost-effectively. It sets a cap, which is progressively reduced over time, on total emissions from sectors such as energy and industry. Companies must buy or receive emission allowances to cover their operations, trading them if needed. This creates a financial incentive to cut emissions, supporting the EU’s climate goals.
Headings: A heading in the EU’s Multiannual Financial Framework (MFF) refers to the broad policy categories that define the EU’s spending priorities for a specific period (usually seven years). Each heading includes resources for different EU programmes and funds.
Headroom: The headroom is the difference between the maximum amount of funds that the EU can request from EU countries to cover its financial obligations (own resources ceilings) and the maximum amount of funds that can be spent in a given period (long-term budget payment ceilings). With NextGenerationEU, the own resources ceiling was temporarily (until 2058) and exceptionally increased to 2% by 0.6 percentage points.
MFF: The MFF (Multiannual Financial Framework) is the name of the EU’s long-term budget and usually covers a seven-year budgetary period. It sets the limits for EU spending – as a whole and for different areas of activity – in this period. It breaks EU expenditure down into broad categories (‘headings’), which correspond to the EU’s priorities and areas of action. For each year covered by the MFF there are fixed expenditure limits, or ‘ceilings’.
NGEU: NextGenerationEU (NGEU) is the EU’s unique economic recovery package to support member states since the COVID-19 pandemic and its economic consequences. It is sometimes called NextGenEU or referred to as the European Union Recovery Instrument, and totals €806.9 billion. Its funds can be used until 2026.
Own resources: They are the main sources of revenue for the EU budget. The EU long-term budget’s annual expenditure may not exceed its revenue (i.e. it operates a balanced budget). They include customs duties, a portion of VAT revenues and revenues from a plastic tax, and a share of national gross national income (GNI). The EU is exploring potential new sources like digital taxes and carbon border adjustment revenue. (See above.) These resources fund EU policies and programmes, and can alleviate pressure on member state contributions.
Own resources ceiling: The own resources ceiling establishes the maximum amount of own resources the EU can request from member states to finance EU expenditures in the specific budget period. The revenue ceilings are defined in the Own Resources Decision, the legal text that sets the conditions to fund the EU budget. The own resources ceilings are expressed as a percentage of the EU's estimated Gross National Income (GNI), the sum of all the member states' GNI.
Payments: Payment appropriations are the money actually paid out during a given year, including commitments entered into in previous years. For this reason, the level of payments is usually higher in the final years of a multiannual financial framework.
Qualified Majority Voting (QMV): When the Council of the EU votes on a proposal from the Commission or the High Representative for Foreign Affairs and Security Policy, it needs the support of a qualified majority to be approved. This requires two simultaneous conditions: 55% of member states (15 out of 27) must vote in favour, and these states must represent at least 65% of the EU’s total population. A blocking minority must include at least four Council members.
RRF: The Recovery and Resilience Facility (RRF) is a temporary instrument that is the main vehicle for channelling NextGenerationEU funds. The Commission raises funds by borrowing on capital markets (issuing bonds on behalf of the EU). These funds are then available to EU countries as loans or grants based on ambitious reform and investment programs.
Rapporteur: An MEP appointed to steer a legislative or non-legislative file through Parliament’s legislative procedure. Shadow rapporteurs are appointed by the other political groups to work alongside the rapporteur and defend their group’s views. The rapporteur leads Parliament’s negotiation team in talks with the Council of the EU.
Rebate: Financial corrections granted to certain member states to reduce their net contributions to the EU budget. They are designed to ensure fairness in funding and are often negotiated during budget discussions to balance contributions and benefits. Currently, the EU grants budget rebates (also called ‘lump sum corrections’) to Denmark, Germany, Austria, the Netherlands and Sweden.
Regulation: An EU legislative act that is immediately enforceable as law in all EU countries simultaneously. A directive is an EU legislative act that sets out a goal that EU countries must achieve. National legislators can then decide how to achieve these goals through their own legislation.
Single market: Established by the 1992 Maastricht Treaty, the EU single market, often referred to as the ‘internal market’, covers approximately 450 million consumers. It was a precursor to the EU’s monetary union and the adoption of the euro as a single currency. Its core objective is to create a unified economic space, treating the EU as a single territory with free movement of goods, capital, services and people. Four non-EU countries – Iceland, Liechtenstein, Norway and Switzerland – participate in the single market, but with certain negotiated opt-outs.
Special instruments: They are designed to create flexibility in the EU budget. In the case of unforeseen events, the EU budget’s expenditure ceilings can be surpassed to facilitate use of a special instrument. However, even then, the commitment appropriations for the special instruments cannot go beyond the own resources ceiling. The Solidarity Reserve for natural disasters and the Emergency Aid Reserve for humanitarian assistance are two examples of this mechanism.
Subsidiarity: An EU principle that decisions should be made at the most local level possible. It rules out EU intervention – where the EU does not have exclusive competence – when an issue can be dealt with effectively by member states themselves at the national, regional or local level. However, it authorises EU action (even in matters of non-exclusive EU competence) when EU countries cannot achieve objectives better dealt with at the EU level.
Unanimity: The Council must decide unanimously on a number of sensitive policy areas, for instance EU membership, taxation, own resources, the MFF and the harmonisation of social security. The abstention of one or several member states does not prevent a unanimous decision.
Further reading:
Legislative glossary