Green Budgeting

Green budgeting is a financial strategy that integrates environmental and climate considerations into the budgetary process of governments and municipalities. The goal is to ensure that public funds are allocated in ways that support environmental sustainability and climate resilience.

The European Commission defines green budgeting as follows:

“Green budgeting means using the tools of budgetary policymaking to help achieve climate and environmental goals.

Green budgeting is a process whereby the environmental contributions of budgetary items and policies are identified and assessed with respect to specific performance indicators, with the objective of better aligning budgetary policies with environmental goals.” Green budgeting in the EU – European Commission (europa.eu)

Green budgeting, a brief history on national level

The term “green budgeting” first emerged in 1987 from the Brundtland report. This was followed by the experimental integration of environmental considerations into public financial management in countries such as Norway and France (around 1989). In 1999 the Parliament in Italy instructed the national government to highlight all environment-related resource allocations in the annual budget to produce an environmental budget. In the late 1990s and early 2000s, a handful of subnational governments in Europe began experimenting with linking environmental considerations to their budgetary processes. Green budgeting remained relatively unexplored until the early 2010s, when several national and subnational practices emerged. In 2017, the OECD launched the Paris Collaborative on Green Budgeting. In 2019, the Coalition of Finance Ministers for Climate Action was launched to foster collective engagement for a transition toward low-carbon and resilient development.

The EU is also committed to this goal. Since 2017, the European Commission has required Member States to submit reports on government environmental spending and spending on resource management activities. The EU Green Deal has at least enshrined legally binding targets for climate-related spending in many parts of the EU Commission’s multiannual financial framework. The 2019 European Commission’s Green Deal Communication highlights that “a greater use of green budgeting tools will help to redirect public investment, consumption and taxation to green priorities and away from harmful subsidies” (https://economy-finance.ec.europa.eu/economic-and-fiscal-governance/green-budgeting-eu_en#tools )

The report Green Budgeting in OECD Countries 2024 (OECD 2024) shows that many “OECD countries have introduced green budgeting into their public financial management frameworks, policies and practices to help pursue climate and environmental objectives. In 2022, two-thirds of the OECD countries surveyed (24 of 36 countries) had implemented green budgeting measures. This compares to 14 countries that had implemented green budgeting in 2020, according to a similar survey. The proportion of OECD countries that were using green budgeting in 2022 shows the strong interest that governments have in integrating climate and environmental objectives into budget processes.” (OECD 2024: Executive summary)

While being a relatively new practice, the interest in green budgeting is obviously growing on national side. But how does the situation look on the municipal side?

Green budgeting in cities and regions

Green budgeting on subnational level “is new but progressing” (OECD 2023, p4). The status and adoption of green budgeting vary across different cities and regions, but there is a growing momentum globally because “green budgeting is particularly relevant for regional and local governments given the important role that they play in tackling climate change and catalysing the transition to a carbon-neutral economy.” (ibid) A stocktake of existing green budgeting practices shows that there is “no one-size fits all approach” (ibid) because budgeting and accounting systems differ considerably both from country to country and at different levels.

Nevertheless “Green budgeting is a concrete, practical tool that regions and cities 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. Fully incorporating environmental and climate concerns into the budgetary process complements the range of tools available to subnational governments for concrete climate action”. (OECD)

In brief:

• Green budgeting is a powerful tool for municipalities to align their financial strategies with environmental sustainability goals.
• By integrating environmental considerations into every stage of the budgeting process, municipalities can ensure that public funds are used effectively to address climate change, protect natural resources, and promote a sustainable future.