Most OECD countries have adopted Net Zero Emissions commitments, and set ambitious targets to reduce their greenhouse gas emissions and combat climate change. Reaching these targets will require important government support and will impact public revenues and expenditures. In addition, the frequency and cost of climate related events is rising, also impacting government budgets.
Green budgeting
Green budgeting refers to the use of budgetary policy-making tools to better understand environmental impact of spending choices, and ensure public budgets are aligned with climate and environmental objectives.
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Key messages
Green budgeting is designed to help governments address the challenges caused by climate change and related costs. Green budgeting uses budget policymaking tools to integrate climate and environmental perspectives into budget frameworks and practices, to better inform budget decisions. Green budgeting is relevant to all stages in the budget cycle, specifically budget planning, formulation, approval, implementation and oversight.
The OECD Paris Collaborative on Green Budgeting was launched at the One Plane Summit in Paris in 2017 to share experiences and developments in green budgeting. It provides a multi-dimensional perspective and a forum for exchanging by bringing together senior officials from ministries of finance, ministries of environment/climate change, independent fiscal institutions, independent climate institutions, tax authorities, and other expert bodies.
Context
Most OECD countries have introduced green budgeting practices.
The number of countries introducing green budgeting practices is increasing fast, from 14 countries in 2020 to 24 countries in 2022.
Countries can choose from a wide variety of green budgeting methods and tools.
There are different ways to integrate environmental issues in public budgets. Which one is best depends on the desired objective. For example, environmental impact assessments ensure that all policy proposals take into account their possible externalities on environment. Green budget tagging allows to measure public spending on green goals, but does not provide information about the impact of the expenditure on these. Other tools such as carbon assessments of budget measures provide a more direct link between public expenditure and carbon emissions. Integrating green considerations in macro-fiscal projections or in fiscal risk analysis helps to evaluate the impact of climate change transition and climate mitigation policies on public finances (for example increases in catastrophe spending, or the structure of public budgets).
Paris Collaborative on Green Budgeting
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