Green budgeting is a concrete, practical tool that governments, at all levels, can use to mainstream climate and environmental action within budgetary decisions and broader policy making, and to monitor progress towards achieving environmental and climate goals.

Fiscal policy is one of the most powerful and effective tools that policy makers have at their disposal for resourcing and implementing co‑ordinated policy action to address climate change, biodiversity loss, and environmental degradation. This new study, part of a joint OECD-European Commission project on “Measuring and Enhancing Subnational Government Finance for Environment and Climate Action in OECD and EU Countries”, looks at the potential of green budgeting for subnational governments to help achieve environmental and climate objectives.

Climate change, biodiversity loss, and widespread environmental degradation are imminent threats to our planet and societies. Addressing these threats requires unprecedented co‑ordination of policy action among and within all levels of government. Fiscal policy is one of the most powerful and effective tools that policy makers have at their disposal for resourcing and implementing co‑ordinated policy action. Green budgeting is defined by the Paris Collaborative on Green Budgeting (PCGB) as “using the tools of budgetary policymaking to help achieve environmental and climate objectives. Therefore, it can help governments to mainstream climate and environmental action within budgetary decisions and broader policy-making, and to monitor progress towards achieving environmental and climate goals (OECD, 2020[1]). As such, it also contributes to “making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development”, a central objective of the Paris Agreement (UNFCCC, 2015[2]).

AbstractGreen budgeting is a concrete, practical tool that subnational governments can use to integrate climate and environmental considerations throughout the budgetary process, from the initial drafting phase through to the budget vote and ex-post reporting. Integrating environmental and climate concerns fully into the budgetary process effectively complements the range of environmental and climate tools available at the subnational level. Green budgeting presents several opportunities for subnational governments, while also posing a number of challenges that need to be anticipated and addressed.

After a brief history of green budgeting, this chapter describes existing green budgeting frameworks and green budgeting tools that are commonly used at the subnational level. Such tools including green budgeting tagging, environmental tax reforms, climate and environmental impact assessments and green budget statements. A diversity of green budgeting practices has emerged in the past two decades at both national and subnational levels. Concurrently, international organisations working on the topic, including the OECD, have introduced frameworks to support governments in implementing green budgeting.

In recent years, as an ever-growing number of regions and cities have set ambitious climate and environmental targets, the interest in subnational green budgeting has also grown steadily as has the number of subnational governments implementing green budgeting practices. A stocktake of existing subnational green budgeting practices in OECD and EU countries found that green budgeting encompasses a variety of practices including carbon budgets, ecoBudgets, climate budgets, environmental and climate impact analyses, and more. Among the countries identified in the stocktake as having subnational green budgeting exercises, France stands out for having a large number of green budgeting exercises at all three levels of subnational government. Other interesting exercises were identified in Austria, Italy, Norway, Spain and the United Kingdom.

The stocktake of existing subnational green budgeting practices in the OECD and EU, and the two case studies of Brittany and Venice, provide valuable insights into the prerequisites and mechanisms necessary to develop and implement a green budgeting practice. These insights helped to develop a set of six key guidelines for regions and cities to use in developing and launching their own subnational green budgeting practice. They are accompanied by recommendations for supranational bodies, national governments, and subnational governments as well as by a self-assessment tool that subnational governments can use to assess their strengths and potential gaps for launching a green budgeting practice.

The French region of Brittany began working on developing its own green budgeting practice at the end of 2020. These efforts led to the development of a climate budget tagging methodology that was piloted on the region’s 2020 closed accounts and is now being consolidated in order to be applied to the 2023 draft budget. The exercise has highlighted the operational, methodological, political, and organisational challenges for implementing green budgeting at the regional level as well as key elements necessary to achieve success.

The city of Venice, Italy is working towards further integrating climate and environment considerations into its budget. Though not currently engaged in a green budgeting practice, the municipality has shown interest in developing new budgeting practices and increasing links between climate and environmental science, indicators, and the budgetary decision-making processes. However, there are some considerable challenges faced by the municipality due to its unique climate change vulnerabilities and financial constraints. Any green budgeting approach must therefore be closely linked with other ongoing regional and national climate initiatives that the municipality is a part of, to enhance synergies and avoid creating additional human and financial resource burdens.

This self-assessment tool (SAT) has been developed in the framework of the joint OECD and European Commission (DG REGIO) project Measuring and Enhancing Subnational Government Finance for Environment and Climate Action in OECD and EU Countries. The SAT tool is available as a downloadable Excel file on the Subnational Green Budgeting page (https://www.oecd.org/regional/snggreenbudgeting.htm) of the OECD’s Subnational Government Climate Finance Hub (https://www.oecd.org/regional/sngclimatefinancehub.htm).