Green Budgeting in OECD Countries

Executive Summary

Climate and environmental considerations have become pressing priorities for governments in recent years. International commitments such as the Paris Agreement, the Aichi Biodiversity Targets under the Convention on Biodiversity (CBD) and the Sustainable Development Goals (SDGs) have spurred momentum across the OECD to prioritise green objectives to policy-making processes. As these efforts require systematic considerations across all parts of government, countries have identified the budget process as playing a key role in ensuring that priorities relating to the environment and climate change are part of the policy-making process. Thus, there has been an emergence of “green budgeting” practices across the OECD.

Green budgeting uses the tools of budgetary policy making to provide policy makers with a clearer understanding of the environmental and climate impacts of budgeting choices, while bringing evidence together in a systematic and co-ordinated manner for more informed decision making to fulfil national and international commitments.

Responses to the 2020 OECD and European Commission – Joint Survey on Emerging Green Budgeting Practices show that more than a third of OECD countries (14) practice some form of green budgeting, with an additional 5 countries (Chile, Greece, Latvia, Poland and Slovenia) indicating plans to introduce green budgeting in the future. Furthermore, initiatives such as the European Green Deal by the European Union and other political commitments across the OECD suggest that interest in green budgeting will continue to grow in the near future.

The OECD Framework for Green Budgeting sets out four key “building blocks” to help ensure approaches are linked to the larger budget process and so that efforts are sustained and remain effective over the medium and long-term:

• A strong strategic framework with clear linkages between environment and climate strategic priorities and objectives are in place to inform fiscal planning;

• Tools for evidence generation and policy coherence to gather evidence on the impact of budget measures on environmental and climate objectives;

• Reporting to facilitate accountability and transparency, which can facilitate scrutiny of the quality and impact of green budgeting

• An enabling budgetary governance framework to sustain green budgeting practices over time.

The OECD has used this framework as a basis for the survey. Some key results are as follows:

Strategic framework for green budgeting

• Green budgeting is most often rooted in high-level political commitment: In most OECD countries where green budgeting is practiced, its introduction has been driven and underpinned by high-level political commitment in pursuit of national and international goals.

• Central Budgetary Authorities play an active leadership role: In most OECD countries, Central Budgetary Authorities play a leading role alongside the environment ministry and line ministries as responsible authorities for green budgeting, suggesting a co-ordinated approach across government stakeholders.

Tools and methods of green budgeting

• There is wide variation in green budgeting practices: There is no “set” model of green budgeting across OECD countries. Existing practices vary in nature and are largely driven by linkages with the country’s unique commitments and motivations.

• Green budgeting is usually made up of more than one tool or approach: A majority of OECD countries (12 out of 14 practicing green budgeting) employ more than one tool or method in the implementation of green budgeting. The two most common tools for green budgeting are ex ante or ex post environmental impact assessments and environmental cost-benefit analysis, suggesting that existing tools for environmental policy analysis are being incorporated into the budget process.

Accountability and transparency

• Countries are taking efforts to ensure accountability and transparency around green budgeting: Most OECD countries (13 out of 14 practicing green budgeting) have processes in place to provide accountability and transparency for their green budgeting practice. However, types of reporting vary, ranging from publications that highlight specific impacts of the budget (e.g. carbon emissions) to the publication of information gathered through green budgeting on an open data portal. Efforts like green budget tagging can be a useful practice to help facilitate reporting on the budget’s contribution towards country green objectives to key stakeholders.

Enabling environment

• Green budgeting efforts tend to be supported by clear guidance and training: 11 out of 14 OECD countries practicing green budgeting have indicated that the practice is supported by clear guidance, detailed instructions in the annual budget circular or training and skills development within the CBA.

• Green budgeting practices are held back by a lack of methodologies and resources: The greatest impediment to implementing green budgeting has been the lack of methodologies and resources. Many OECD countries are just starting their implementation of green budgeting and are identifying and iterating the best approach suited for their national context. In this process, the OECD is supporting countries identify appropriate approaches to green budgeting such as implementing green budget tagging or integrating climate modelling to the budget process.