Green budgeting refers to the use of budgetary policy-making tools to progress climate and environmental objectives. It involves assessing the climate and environmental impact of budgetary and fiscal policies and aligning them with national and international commitments. Green budgeting comprises four building blocks applicable throughout the budget cycle: 1) institutional arrangements; 2) methods and tools; 3) accountability and transparency; and 4) enabling environment in budgeting (OECD, 2020). In 2022, 5 of the 12 surveyed countries in Latin America and the Caribbean (LAC) region (Chile, Colombia, the Dominican Republic, Honduras and Mexico) reported implementing green budgeting (42%). Argentina also has plans to introduce green budgeting and five others are actively considering it (Figure 6.1). In contrast, the majority of OECD countries – 24 of the 36 surveyed (67%) – implement green budgeting, a figure that has almost doubled between 2021 and 2022 (OECD, 2023).
The 2022 OECD Green Budgeting Index measures the degrees to which countries have adopted green budgeting. It is based on the four building blocks of the OECD Green Budgeting Framework, which helps policy makers design and develop green budgeting. Of the five LAC countries with green budgeting, Mexico scores highest overall (0.43). As with OECD countries, the highest average scores among LAC countries are for the enabling environment in budgeting (0.14) and institutional arrangements (0.12). The widest gap between OECD and LAC countries is in methods and tools: OECD countries score 0.12 on average, while LAC countries score 0.07. The exception is Mexico, which makes widespread use of green budgeting tools and scores 0.14 in this area (Figure 6.2).
A number of green budgeting tools that are widely used in OECD countries are not as common in LAC countries. Three out of the five LAC countries that practise green budgeting (60%) use carbon pricing instruments and green budget tagging, while 92% of OECD countries implementing green budgeting use carbon pricing instruments. Mexico is the only LAC country using environmental impact assessments (Figure 6.3). The gap between OECD and LAC countries is also shown in the use of emerging tools: although 25% of the OECD countries (6 out of 24) incorporate green perspectives into spending reviews (OECD, 2023), no LAC countries have yet done so (Figure 6.3).
The scope of green budgeting covers investment spending in four LAC countries, and operational spending in three. Only Colombia includes discretionary and mandatory spending. Notably, none of the countries include tax expenditure (Online Figure F.3.1). All LAC countries set the requirements for green budgeting through circulars, guidance notes or similar, while Chile and Mexico have also incorporated them into budget laws alongside other relevant legislation. Ministries of finance are responsible for implementing the green budgeting frameworks in four of the surveyed LAC countries. In Colombia and Mexico, the Ministry of Environment is also responsible for the implementation, alongside the Ministry of Finance (Online Figure F.3.2).
