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.
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).
Related policy issues
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Fiscal frameworks outline the government's fiscal intentions and explain how these will be implemented concretely. Well-designed fiscal frameworks provide clarity and stability in government fiscal operations, ensuring that spending on policy priorities of governments, like healthcare, education, and climate adaptation, are funded and sustainable. Additionally, they build resilience by helping governments prepare effectively for economic challenges.Learn more
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The OECD Network on Fiscal Relations across Levels of Government, also known as the “Fiscal Network”, provides a platform for countries to engage on intergovernmental fiscal relations and fiscal decentralisation policy issues. Its core mission is to improve the efficiency, equity and stability of fiscal systems through cross-country policy analysis and international comparisons. The Network facilitates best practice sharing through high-level meetings and maintaining a comprehensive decentralisation database, informing policymaking and reforms. Through collaborative efforts like workshops and the Fiscal Federalism publication series, the Network enables policymakers to access and contribute to research and insights on managing financial relationships across government levels. Supported by a multidisciplinary OECD team, the Network emphasises concrete outcomes, offering members a structured environment to learn, share and apply successful policy strategies.Learn more
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Gender budgeting is a public governance tool that governments can use to assess how budget decisions impact gender equality. When implemented effectively, gender budgeting helps expose how gender inequalities may have inadvertently become embedded in public policies and the allocation of resources and promotes budget measures that will be effective at closing gender gaps.Learn more
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Without a major policy shift, health spending is projected to outstrip both expected growth in the overall economy and in government revenues across OECD countries. Competing priorities for government spending are also squeezing health budgets. Urgent action is therefore needed to finance more resilient health systems while ensuring the fiscal sustainability of health systems.Learn more
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Our work with parliaments and independent fiscal institutions (IFIs) supports fiscal transparency and accountability. At a time when the sustainability of public finances is under close scrutiny, these oversight institutions play a crucial role in raising the quality of the debate on fiscal policy and ensuring that public budgets are managed effectively.Learn more
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In an environment of budget constraints and high citizen expectations it is necessary to demonstrate that public expenditure is providing value for money and delivering on performance. The availability of good-quality performance information not only assists policymakers in making more informed budgetary decisions but also enables the broader public to hold the government accountable for delivering the outcomes promised to citizens.Learn more