Green budget

Context :

“Green budgeting” covers a variety of practices aimed at identifying and evaluating the components of the public budget impacting one or more dimensions of the environmental action of the public authorities. Today, there is no universal definition of green budgeting. Most green budgeting exercises cover environment-compatible public spending, but some also include harmful expenditure, such as fossil fuel subsidies; others also analyze government revenues. 

What is the purpose of green budgeting? Several objectives are generally attached to green budgeting : it supports budget management and especially the assessment of the consistency of public spending with a country’s environmental and climate targets ; it improves the transparency of government action for parliamentarians, civil society and citizens. Finally, green budgeting contributes to increasing the skills of public administrations : how budget specialists address environmental dimensions, and how environmental experts understand budgetary issues. 

France carried out its first green budgeting exercise in 2019 (see our publication, and the report by the Inspection Générale des Finances (IGF) and CGEDD on this topic), and indicated its intention to consolidate and perpetuate these practices through the publication of a document annexed to the budget bills. 

This willingness to engage in green budgeting can also be seen at the territorial level. Local authorities in France have expressed their wish to have a shared framework to analyze their budgets in order to be able to identify what, in their budgets, contributes to and undermines the ecological transition. Some of them are carrying out their first climate budget assessment exercise to support discussions on their next budget. 

In other parts of the world, green budgeting has been experimented and implemented for some time. Some countries, such as Indonesia or Ecuador, have been using “environmental markers” for several years now, and many others have benefited from the support of ‘international actors such as the UNDP, the World Bank or the Inter-American Development Bank to monitor the climate impacts of annual government expenditure. 

Green budgeting is also attracting a lot of attention on the international scene, as an especially salient tool for Finance Ministries to act on environmental matters. Thus, the fourth of the six founding principles of the Coalition of Finance Ministers for Climate Action, which has 52 member countries (as of September 2020), is to “take climate change into account in macroeconomic policy, fiscal planning, budgeting, public investment management, and procurement practice”. 

Objectives :

This work program on green budgeting covers the national, international and subnational levels and is organized around several research questions. 

At the national level, I4CE has supported the publication of the government’s first green budget by releasing in 2019 a 360-degree climate assessment France’s State budget. I4CE is now working on identifying historical trends in climate-compatible expenditure, and on assessing what the national budget should look like in order to align with the national low-carbon strategy. 

At the local level, I4CE is working on the co-construction of a climate budget assessment framework in collaboration with five metropolitan areas and cities, the French energy agency ADEME, the Association of French Mayors, Climate KIC and France Urbaine. An additional component of this framework lays the groundwork for assessing the extent to which climate change adaptation is taken into consideration in local authorities’ budgets. 

At the international level, I4CE is currently collaborating with the French Development Agency, as part of a project to support the government of Costa Rica in setting up its own budget markers. The first part of the project is based on an analysis of various South American green budgeting exercises, to identify national choices on certain structural methodological points. The second part of the project will focus on identifying critical success factors: it will involve a closer study of the institutional contexts and of the budgetary processes in place in the countries under consideration. 

Period :

2020-2021