Evidence over recent decades has highlighted the profound impact climate change, biodiversity loss and environmental degradation have had on our planet, society and global economy. Rising emissions, sea levels and droughts in communities across the world represent one of many challenges countries are working to address as they develop a more sustainable future in the coming decades. This urgency to act has catalysed efforts by countries to develop a set of national goals to protect the environment and mitigate climate change. Furthermore, the commitments made under the Paris Agreement highlight the seriousness with which countries are working to keep themselves accountable to track progress against stated goals under the Nationally Determined Contributions (NDCs).
Green Budgeting in OECD Countries
Abstract
As budgets play a core role in prioritising and resourcing government action, they can have significant implications on society, the economy and the environment. Tax policies shape business decisions and influence people’s choices to work, invest and consume whilst public expenditures on areas from infrastructure to education can represent a significant lever on economic activity. As a central policy document of government, the budget touches upon all policies of the government to be used as a lever to address systemic objectives. As such, countries have identified the budget as a key element to use in tackling higher-level objectives such as gender equality and wellbeing. The emergence of “Green Budgeting” in recent years represents countries seriously incorporating environmental and climate change objectives to the broader budget process (see Box 1.1).
Green budgeting is a practice which uses the tools of budgetary policy-making to help achieve ‘”green” objectives, i.e., those relating to the climate and environmental dimensions such as biodiversity, air quality and water. There is no one-size fits all approach to green budgeting. Any approach should build on a country’s existing public financial management (PFM) framework and thus be attuned to the strengths and limitations of the existing budgeting process. While by itself, green budgeting does not change existing policies, it provides decision-makers with a clearer understanding of the overall environmental and climate impacts of budgeting choices. It brings evidence together in a systematic and co-ordinated manner to allow more informed decision-making on how to optimise revenue-raising and resource allocation in order to fulfil national and international commitments.
This publication sets out the results from the first joint OECD-EU survey of green budgeting. It provides an overview of green budgeting practices across OECD countries and/or plans for future development. Where green budgeting practices are in place, it provides a better understanding of the design of these practices, their implementation and the remaining challenges. The survey provides information on the extent to which countries have the key elements of an effective approach to green budgeting in place, as set out in the OECD Green Budgeting Framework.
The OECD Green Budgeting Framework is composed of four “building blocks”. Each “building block” helps to ensure approaches are linked to the larger budget process such that efforts are sustained and remain effective over the medium and long-term (Figure 1.1). The OECD Green Budgeting Framework does not prescribe a particular approach to green budgeting, but instead provides an analytical framework to understand the commonalities and differences in country approaches.
Source: (OECD, 2020[1])
A strong strategic framework (Building Block 1) should provide information on national environmental and climate objectives. The decision to use green budgeting as one of the tools to help meet these objectives is bolstered when it is underpinned by high-level political commitment, or through budget law requiring green considerations to the budget process. A strong strategic framework will also include clear institutional arrangements for the leadership of green budgeting.
The green budgeting tools and methods (Building Block 2) implemented by each country varies, but should aim to help gather evidence on the alignment of budgetary polices with environmental and climate objectives set out in the strategic framework (Building Block 1). Tools and methods, ranging from green budget tagging to carbon assessments of budget measures, should provide information that allows improved decision-making at all stages of the budget cycle.
Efforts to promote accountability and transparency in relation to green budgeting help to ensure its credibility (Building block 3). This might be achieved through publishing information which facilitates impartial scrutiny of the information collected through green budgeting. Stakeholders such as the Parliament and other oversight institutions (independent fiscal institutions and supreme audit institutions) can play an important role in scrutinising the information to ensure that government efforts are effective.
Lastly, an enabling environment (Building block 4) helps ensure efforts to implement green budgeting deliver results. This may include capacity development within government ministries, departments and agencies as well as making sure efforts are supported by a modern performance budgeting framework, with elements such as strong links between planning and budgeting and programme budgeting being particularly helpful.