The emergence of “green budgeting” in recent years reflects the importance countries have placed on using the budget process to support the achievement of environmental and climate objectives. Climate change, biodiversity loss and environmental degradation are having a profound impact on our planet, society and global economy. In response, countries have set national goals and made global commitments to protect the environment and mitigate climate change. As budgets play a core role in prioritising and resourcing government action, they can have significant impact on progress towards these objectives. The OECD plays a leading role in green budgeting by helping countries to use budgetary tools to provide policy makers with a clearer understanding of the environmental and climate impact of budget choices.
Green budgeting uses four key mutually reinforcing building blocks: 1) a strong strategic framework; 2) tools for evidence generation and policy coherence; 3) reporting to facilitate accountability and transparency; and 4) an enabling budgetary governance framework (OECD, 2020a). Its implementation involves having national climate change and environmental strategies, budgeting tools such as green budget tagging, the use of green budget statements to inform relevant stakeholders, and a modern budget framework linking strategic planning and budgeting. In 2020, 14 out of 35 OECD countries (40%) reported practising green budgeting (Figure 5.1). This includes countries with longstanding practice such as Italy (since 2000), as well as newcomers such as France, where the first comprehensive green budget (Rapport sur le budget vert) was presented in 2020.
Half of those countries practising green budgeting underpin their strategic framework with high-level political commitment or a budget law (7 out of 14 countries in both cases, 50%), and slightly fewer through administrative practice (6 out of 14, 43%), all of which are effective approaches to green budgeting. OECD countries typically use a variety of green budgeting tools and approaches (Table 5.2). The four most commonly reported tools include ex ante or ex post environmental impact assessments (12 out of the 14 countries, 86%), environmental cost-benefit analysis (10 out of 14, 71%), carbon assessments (10 out of 14, 71%) and carbon pricing instruments (9 out of 14, 64%). Most countries practising green budgeting also have ways to communicate information to the wider public (12 out of 14, 86%).
Country efforts have been sustained through an enabling budgetary governance environment to ensure consistent analysis across all parts of the government in pursuit of green objectives. Within the OECD, 7 out of the 14 countries practising green budgeting have supported their efforts with detailed instructions in the annual budget circular (50%), 6 with training and skills development (43%), and 5 with co-ordination mechanisms across government agencies (35%) (Figure 5.3). The OECD Paris Collaborative initiative continues to drive innovative approaches as more countries consider adopting green budgeting.
