Environmental Budget Assessment: Let’s complete them

The French government has just published the environmental budget assessment, or ‘Green Budget’ of its 2022 draft budget. Morgane Nicol of I4CE and Michel Colombier of IDDRI offer insights into these exercises, which are becoming more popular in many countries and local authorities. They highlight that the environmental budget assessment does not dispense with an Ecological Transition Strategy. Instead, it must be used to draw up a financing plan for this transition.

Environmental Budget Assessments have become increasingly popular. France, Ireland, Nepal and Ecuador and some more 45 countries have all conducted a climate assessment of their budgets. Local authorities in France have already published the results of their respective exercises. Lille and Strasbourg, the Bourg-en-Bresse community, the Betton and Montmorot communes, the Mayenne Department, and Occitanie are all among them.

The publication of an environmental budget assessment : one piece of the puzzle

As a result of these assessments of public budgets, it will be possible to see the resources allocated to ecological transition, as well as those still working against it. Apart from the goal of transparency in public action, these exercises contribute to building a shared language on these issues beyond the circle of environmental experts and are therefore essential to making the ecological transition a reality for everyone.

The publication of an environmental budget assessment however should not be viewed as an end in itself, but as part of a public decision-makers toolkit. Environmental budget assessments alone, int their current design, cannot indicate whether a budget aligns with environmental objectives, or whether the means available to achieve those objectives are adequate and well-allocated. Two conditions need to be met for progress to be made: the environmental budget assessment must be based on a strategy compatible with long-term environmental objectives and it must lead to the definition and management of a financing plan for the ecological transition.

Combining environmental budget assessments with an Ecological Transition Strategy

Having an environmental budget assessment does not negate the need to define a strategy and have an action plan for the ecological transition of the territory. It allows for better identification of the ecological measures included in the budget, however on its own it does not provide any insight into the aims to be achieved and the means to achieve them.

Defining a strategy means identifying the transformations necessary to achieve the long-term objectives, in particular the objective of carbon neutrality by 2050. In the short term, 5 to 10 years, operational action plans must be constructed specifying the responsibilities and means of the various departments (at the territorial level) and ministries (at the national level) to achieve the objectives set.

Various tools are available to support the development of these strategies at the national level (for example the Deep Decarbonization Pathways initiative) and France has had a National Low Carbon Strategy since 2015, updated every five years. At the local authority level, it is important to mention the Carbon Budget, sectoral trajectories to 2030 and monitoring of the effectiveness of measures carried out by the city of Oslo for its territory.

The first challenge is to bring the two approaches together; to develop a strategy that makes it possible to align public action with long-term issues and an  environmental budget assessment that makes it possible to identify the resources allocated in all public policies that contribute to the implementation of this strategy.

A third element is necessary: the financing plan for the transition

However, strategy and “green budget” alone do not say whether the means included in the budget are properly allocated and sufficient to achieve the objectives included in the strategy. For this, it is first necessary to have a budgetary target, i.e. to translate the strategy and the action plan into a trajectory of means to be deployed. In other words, define a medium-term financing plan for the ecological transition. This will set out the resources to be allocated to actions contributing to the transition – whether the transition is their main objective or a co-benefit – and in a cross-cutting manner whatever the ministries, operators or services concerned. It will also present their sources of financing, including in particular objectives for reducing expenditure which are incompatible with the transition strategy.

Although the strategy and environmental budget assessment have already been drawn up by various public players, no financing plan for the ecological transition has – to our knowledge – been defined to date. At national level, this financing plan could be formalised in the framework of a multi-year programming law for the ecological transition, similar to the military, research or justice programming laws in France. At the territorial level, the investment component of this financing plan could be included in the multiannual investment programme.

Having carried out a environmental budget assessment exercise facilitates the construction of this financing plan. Indeed, the various budgetary measures having a positive or negative impact on the achievement of the ecological transition objectives, which are by nature very scattered, have been identified and summarised in a single document. This makes it easier to translate the strategy and the operational and sectoral actions into objectives for the resources allocated to each department and programme and into financing objectives.

Using the ‘Green Budget’ formula to create a real impact

As soon as the multi-annual financing plan of the Ecological Transition Strategy is known, the  environmental budget assessment exercise can be used to track the implementation of these medium and long-term objectives. Do the budgets negotiated each year – the Finance Bill for the French State and the primitive budgets for local governments – accurately reflect the means negotiated in the financing plan? If not, why not? For budget construction, the operational administrations and services will have a framework to refer to. It will be much easier for both elected representatives and civil society to use the results of the environmental budget assessment to feed into the budgetary debate.

It is this triad – environmental budget assessment ; strategy; financing plan – that will have a real impact on the alignment of public budgets with environmental objectives and allow it to go beyond a simple communication exercise. Although an ever-increasing number of stakeholders have defined a strategy and drawn up an environmental budget assessment, they have yet to bring the two elements together. It will then be necessary to embarked on the third building block which is the definition of a financing plan, as it is essential for the budgetary management of the ecological transition.