Governance as an SDG Accelerator

Annex C. Case studies on the effective use of budgeting and public procurement tools

Denmark: Green Public Procurement

In 2006 the Ministry of the Environment and the three largest municipalities, Copenhagen, Aarhus and Odense entered into a Partnership for Green Public Procurement. Since then other municipalities and regions have joined the partnership. It now includes 12 municipalities as well as two regions, a Danish water and wastewater company and the Ministry of the Environment and Food. The Danish municipalities are responsible for the majority – approximately two thirds – of public procurement. The Partnership is based on joint, mandatory procurement objectives and the main stimulus behind it is the potential impact it can have on the market: the more partners involved, the greater the procurement volume and the greater the impact on the market. Using the same green criteria is also designed to make it easier for the market to meet the procurement needs of the contracting bodies. The obligations under the Partnership are:

• To follow jointly specified green procurement objectives.

• To have a procurement policy in which environmental concerns play a significant part.

• To publish the procurement policy on the respective authority’s website.

The partnership regularly sets up working groups that update old purchasing targets or develop new ones. Some of the topics covered include: disposable packaging and plastic products, world goals as an innovation tool in purchasing, advice for purchasers, operators and tender consultants who provide operation or establishment of green areas, and how to create a circular economy through public procurement.1

Egypt: Piloting performance-based budgeting

Egypt is gradually undertaking a process of managing the transformation from a line-item budget to programme and performance-based budgeting. The transition to programme and performance-based budgeting (currently being piloted in 16 ministries) aims to overcome the existing challenges in linking the national budget to the SDGs. In order to facilitate the implementation of programme and performance-based budgeting, the Ministry of Finance has developed a unified template, which is to be accompanied with each project proposal. Furthermore, the Ministry of Finance has prepared a draft decree to establish a unit in charge of programme and performance-based budgeting under the auspices of the Deputy Minister of Finance.

Additionally, the Ministry of Planning, Monitoring and Administrative Reform has introduced an integrated electronic planning, monitoring, and evaluation system which links all public investment projects submitted by public entities to the SDGs. The system also requires all public investment allocation requests to outline the expected social, environmental, and economic impact of the project and enables decision-makers to prioritise projects that have a positive impact. The system aims at improving the efficiency and transparency of the planning, monitoring, and evaluation system. It became obligatory in November 2018 for public investment projects in the 2019/2020 national plan and replaced the former paper-based method.

While Egypt is working diligently to manage the transition from line-item budgeting to programme and performance-based budgeting, there appears to be a lack of data and performance indicators as well as limited capacity and skills in line ministries, which poses challenges to an effective transition. Furthermore, the existing challenges in determining the cost of service delivery; conducting value for money analysis; and performance auditing may undermine implementing programme and performance-based budgeting in an efficient manner.

European Union: Tracking climate and biodiversity expenditure in the budget

To help achieve its climate goals, the EU decided to integrate climate action into its budget. The EU has agreed to make at least 20% of EU expenditure climate-related in 2014-2020 and climate change mitigation and adaptation has been integrated into all major EU spending programmes. The EU is broadly on track towards its 20% target, but further efforts are needed. Programmes under cohesion policy, agriculture, research and innovation and the Connecting Europe Facility currently account for more than 90% of EU climate-related spending.

In its communication of May 2018 (European Commission, 2018[1]), the Commission proposes to build on the positive experience with climate mainstreaming and further strengthen climate action in the next EU long-term budget. The communication highlights that “more broadly, in line with the Paris Agreement and the commitment to the United Nations Sustainable Development Goals, the Commission proposes to set a more ambitious goal for climate mainstreaming across all EU programmes, with a target of 25% of EU expenditure contributing to climate objectives”.

The tracking of the financial commitments is done using EU climate markers, which are adapted from the ‘Rio markers’ developed by the OECD to provide quantified financial data for tracking development assistance. The markers reflect the specific features of each policy area and assign a weighting to activities based on their contribution towards climate objectives: significant (100%), moderate (40%) or insignificant (0%). The assessment is based on the programme statements in the context of the annual budget procedure. Around 80% of the EU budget is managed by Member States. They report on climate spending under the five European structural and investment funds using an established methodology.

Additionally, an internal process for biodiversity tracking, based on the same methodology, was used in the 2014-2020 budget, to ensure biodiversity mainstreaming and support the achievement of the international commitments under the Convention on Biological Diversity (CBD). The biodiversity tracking methodology is largely based on the ‘Rio markers’ established by the OECD, whilst taking into account the specificities of each policy area. The total contribution to mainstreaming biodiversity2 is expected to be EUR 13304,2 million in 2019 (or 8,2% of proposed total commitment appropriations) compared to EUR 13074,1 million in 2018 (or 8,3 % of total commitment appropriations).3

France: Comprehensive climate analysis and reporting

The French Low Carbon Strategy is supported by comprehensive reporting on environmental and climate measures in the general budget. Up to now, this reporting structure includes the Transversal Policy Document on the Fight Against Climate Change, which is annexed to the annual budget law and provides a cross-sectoral overview of all important measures in the general budget implemented in support of France’s climate goals. The report, referred to as an “Orange Book” (“orange budgétaire”) constitutes the main policy document with regard to integrating the green perspective into the budgeting process. Information feeding into the report is provided by various sources. The “Ways and Means Report” for example offers an assessment of all revenue sources, including information on revenues from most energy and environmental taxes. The “Landscape of Climate Finance” gives a comprehensive ex-post assessment of domestic financial flows in favour of climate and the broader energy transition in France (I4CE, 2018[2]). In addition, two specific reports are also annexed to the budget each year to inform the Parliamentary debate, a first one on financing the energy transition and a second one on the financial contribution for the protection of nature and environment. Both are referred to as “Yellow Books” (“oranges budgétaires”).

From 2019 on, in order to align and improve the overall impact of public finance measures on the ecological transition, France is planning to streamline and enrich this and other existing documentation for better overview, accessibility and improved use of information. A first step of this process will be the development of a comprehensive and easily readable new “Yellow Book” that provides an overview of relevant policies and highlights their alignment with France’s climate objectives for the 2020 budget.4 The document consolidates and replaces the three previously mentioned reports and adds new information, in particular on public and private environmental expenditure in alignment with environmental targets and fiscal policy, including information on environmental tax revenue, environmental tax expenditure and the economic effect of environmental taxes on households and firms. The document is being developed in coordination with a high-level mission with experts from the Ministry of Finance and Ministry of Ecological and Inclusive Transition and reflects France’s commitment made at the One Planet Summit in 2017 to implement green budgeting. It will be published in October 2019.5

Indonesia: Low Carbon Development Strategy in the framework of the SDGs

Since the adoption of the Sustainable Development Goals in 2015 and the ratification of the Paris Agreement in 2016, Indonesia has shown strong commitment in Low Carbon Development, including linking climate change targets and SDGs indicators to the national mid-term development plan (RJPMN) as well as the long-term strategy or the so-called Indonesia Vision 2045.

Since 2017, the Government of Indonesia, led by Bappenas, has proceeded to build a strong foundation for the next planning cycles that is data-driven and based on scientific analysis. It adopted a strategic framework to integrate environmental policy into the development agenda without compromising growth and poverty reduction efforts. The processes have involved extensive participation from experts, government representatives and non-state actors. The analysis refers to the government’s development plans, exploring options to achieve a set of development goals while take into account limiting factors and carrying capacity such as water availability and quality, energy scarcity, biodiversity and GHG emissions. It also provides some policy options for six main sectors: Energy (SDG 7); Forestry and Peatland (SDG 15); Agriculture (SDG 2); Plantation, particularly palm oil development (SDG 9); Marine and Fishery (SDG 14); and Waste (SDG 12).

The initial results have shown that the current development path needs to be leveraged. Without considering the carrying capacity, the economic growth is projected to increase gradually to around 5.7% in 2045. However, in the long run economic growth will decline as natural capital has decreased. Hence, it is important to shift the development trajectory onto a more sustainable path in order to maintain stability economically and environmentally. Nevertheless, to leverage low carbon development, a fundamental leap needs to be made. The government budget only will not be sufficient to achieve the SDGs and NDC targets by 2030. Promoting innovative financing and participation of the government at all levels, the private sector, civil society and academics is urgently needed.

The Government of Indonesia is also currently working to enhance the transparency framework that will enable the country to keep track of progress in the implementation of low carbon development. The system is expected to be able to capture information about the efforts undertaken, financial disbursement and the implementers, which ultimately could provide adequate feedback for the next planning cycle.

Mexico: Identifying the link of the current national planning with the 2030 Agenda

In 2018, Mexico introduced alignment of budget parameters with the SDGs. To do so Mexico used three basic elements of its institutional architecture system: 1) national planning; 2) the programmatic structure based in budgetary programmes; and 3) performance evaluation.

Mexico’s programme budget structure already provided a good base for the linkage to the SDGs as it links resource allocations to the objectives of the National Development Plan by budget programmes. Hence, to enable that the matching of budgetary programmes automatically render the alignment with the SDGs, Mexico first analysed the linkage between the SDGs and the National Development Plan. Budgetary programmes would then contribute to the SDGs either directly, when the contribution to a target or sub-target is direct, or indirectly, when the allocation generates conditions to achieve the target or sub-targets. Finally, the performance evaluation system allows objective assessment of programme performance through the assessment of the achievement of the pre-established targets and goals, based on indicators (Matrix of Indicators for Results (MIR)).

The new system enables Mexico to create a link of the current national planning with the 2030 Agenda and the SDGs in the long run and to identify which existing programmes contribute to achieving the SDGs. This way, the Mexican government has the necessary instruments and inputs for implementing a long-term strategic planning towards the 2030 Agenda, as well as for monitoring its advances and results. Public policy decisions and budget allocations can be made based on an initial diagnosis of how much is currently invested in each SDG and what actions are done at the time. To guarantee the institutionalisation of the process and allow its sustainability over time, the defined methodology was implemented as part of the programming and budgeting process for 2018, both in norms and in the e-systems. Furthermore, the National Planning Law was reformed to make the implementation of the new system sustainable in the long run.6

Norway: Lessons from green budgeting

The following up of the SDGs in Norway is integrated in the government’s ordinary political processes. Each of the 17 SDGs is assigned to one coordinating ministry that reports annually in its budget report on progress made. The Ministry of Finance sums up the main points in a chapter in the national budget. The indigenous peoples’ assembly, the Sámediggi (Sami Parliament), is involved through dialogue with the line ministries and formal consultation mechanisms (Government of Norway, 2016[3]). The information provided facilitates the accountability towards Parliament and civil society (Hege and Brimont, 2018[4]).

Green ambitions in the budget proposal

With respect to the Government’s overall climate and environment efforts, the Ministry of Climate and Environment has the overarching cross-sectoral responsibility for coordination and development of environmental and climate policies. In the budget proposal, the Climate and Environment Ministry summarises all relevant policies, including relevant efforts by other ministries, and describes the Government’s climate priorities. The chapter also includes estimates of impacts of selected expenditures on the environment.

Measuring climate impacts of state budget measures

Norway’s Climate Change Act, adopted in 2017, introduced a regular reporting mechanism on the status and progress in achieving the climate targets under the law. This includes obligatory information on the expected effects of the proposed budget on greenhouse gas emissions (Norwegian Ministry of Climate and Environment, 2017[5]). The Norwegian Government has appointed a Technical Committee on Methodology related to Climate Change Mitigation, which will propose methods for calculating the expected effect of Norway’s national budget on greenhouse gas emissions. This includes methods for estimating the effect on emissions of changes in revenues and expenditure in the budget, and in addition, methods of estimating the mitigation effect and cost of policy instruments that are not included in the national budget. A first annual report on its activities and advice is planned to be delivered in 2019.

Norway introduced a tax on GHGs already in 1991. After several Green Tax Commissions and other climate policy reviews, more than 80% of GHG emissions are either covered by the GHG-tax and/or EU ETS (Emissions Trading System). The ordinary GHG-tax rate is about 50 EUR. Moreover, Norway reports on all policies and measures and their estimated GHG mitigation impact (in kt CO₂ eq) in its reports to the UN (Norwegian Ministry of Climate and Environment, 2017[5]).

Fiscal risk of the climate transition

In 2017, the Norwegian Government appointed an expert commission to assess climate-related risk factors and their significance for the Norwegian economy. The Commission submitted its report to the Ministry of Finance in December 2018. In the report, the Commission describes the climate challenge, and defines two main types of climate risk: physical risk and transition risk. It recommends a reporting framework, based on TCFD (Task Force on Climate-related Financial Disclosures) principles, for maintaining and accumulating knowledge on climate risk faced by the Norwegian economy. The Commission recommends a set of general climate risk management principles for both the private and the public sector. A proper understanding of climate risk should be better integrated into decision-making processes, with expanded use of scenario analyses as a key measure. For Norway, it is of particular relevance to perform stress testing of fiscal policy and the petroleum sector.

One of the Commission's recommendations for the public sector is that the Government should establish and maintain a set of scenarios for oil and gas prices, and carbon prices. It should stress test public finances for climate risks and make sure that the fiscal policy is robust to climate-related shocks and disturbances. Norway's national wealth should also be stress tested for climate risk.

Joining the Paris Collaborative on Green Budgeting

In 2018, Norway joined the Paris Collaborative on Green Budgeting. The Collaborative brings together experts from international workstreams on environmental policy, budgeting and tax policy to identify research priorities and gaps, design innovative green budgeting tools and advance existing methods. It furthermore provides a coordinating platform to share data and best practices.

Paraguay: Aligning annual budgets with strategic policy objectives

Paraguay has developed interesting practices to ensure alignment of annual budgets and capital expenditures with strategic policy objectives, such as the formulation of the National Development Plan (NDP) and its long-term planning horizon, reforms to the budget structure and setting annual targets at the institutional level. Despite these improvements, the country faces challenges respecting the sustainability of such reforms and the need to complement them with more developed performance-budgeting and medium-term budget frameworks.

Improving the quality of public finance management to optimise the achievement of strategic national development objectives is a key challenge in Paraguay, as it is in many countries. Paraguay has implemented several reforms in this field, most notably the formulation of a national development plan with a long-term planning horizon, reforming the budget structure, and setting annual targets at the institutional level.

The Government of Paraguay has made significant efforts to restructure the budget to strengthen the link with the Government’s strategic objectives. In 2014, the Government began implementing a “results-based planning system” (Sistema de Planificación por Resultados - SPR), where results are placed upfront in the planning process and provide the basis for defining the combination of inputs, activities and productive processes best needed to obtain these results. The SPR is the Government’s main instrument for pursuing the NDP’s sustainable development goals. The Government has also been working since 2016 to advance the alignment of the National Expenditure Budget (PGN) with the NDP and the SDGs.

Slovak Republic: Integrating the SDGs into the budget process

The role of the Ministry of Finance is crucial for integrating the SDGs into the budget process. National budget programme-spending allocations/decisions need to be made as a function of SDG-related strategic priorities and targets. Results-based spending allocations/decisions can also strengthen accountability mechanisms by holding governments accountable for their SDG-related commitments and establishing clear connections between public spending and outcomes.

The Slovak Ministry of Finance has yet to reflect fully the SDG agenda: this would require integrating the SDGs into its planning and monitoring processes. However, it has a number of relevant instruments at its disposal: the Ministry of Finance’s main reference document for whole-of-government strategy is the National Reform Programme, which presents macro fiscal policy scenarios and identifies the financial priorities to be addressed in any given three-year period. The Ministry of Finance monitors the execution by line ministries of international commitments falling within their remit, including all EU directives and international treaty obligations. Beginning in 2019, the National Reform Programme planning document is supposed to begin to reflect the SDG agenda.

Whilst there are tools that may support the integration of the SDGs into the budget process, there are currently no official documents or statements that suggest that the Ministry of Finance or line ministries will use the SDGs to define their programme headings in the programme-oriented budget framework. The policy drivers are in effect much more likely to be driven by the Europe 2020 strategy than the SDGs. In this regard, the OECD has pointed out that integrating the SDGs into the budget process would require high-level political direction for the Ministry of Finance.

A whole-of-government consensus on which strategic goals should be used by line ministries, along with political direction from the top, could be a first and important step to ensure that the SDGs are reflected in the budget. The Ministry of Finance Financial Policy Institute could play an important role in reviewing ways of integrating the SDGs into the budget process given that it regularly meets with line ministries to identify gaps and propose new achievements to reach the EU 2020 goals. Integrating the SDGs into the budget process would require line ministries to develop Key Performance Indicators around the SDGs.

References

[1] European Commission (2018), EU Budget for the future - Communication from the Commission to the European Parliament, the European Council, the Council, the European Economic and Social Committee and the Committee of the Regions: A Modern Budget for a Union that Protects, Empowers and Defends The Multiannual Financial Framework for 2021-2027.

[3] Government of Norway (2016), Voluntary National Review presented at the High-Level Political Forum on Sustainable Development (HLPF), https://sustainabledevelopment.un.org/content/documents/10692NORWAY%20HLPF%20REPORT%20-%20full%20version.pdf (accessed on 5 November 2018).

[4] Hege, E. and L. Brimont (2018), “Integrating SDGs into national budgetary processes”, No. 05, Institut du développement durable et des relations internationales (IDDRI), http://www.iddri.org (accessed on 26 October 2018).

[2] I4CE (2018), Landscape of Climate Finance in France, https://www.i4ce.org/go_project/landscape-of-domestic-climate-finance/landscape-climate-finance-france/ (accessed on 5 July 2019).

[5] Norwegian Ministry of Climate and Environment (2017), Norway’s Seventh National Communication under the Framework Convention on Climate Change, https://www.regjeringen.no/contentassets/52d65a62e2474bafa21f4476380cffda/t-1563e.pdf (accessed on 5 November 2018).

Notes

← 1.  This case study is based on: http://www.sppregions.eu/fileadmin/user_upload/Resources/Denmark.pdf.

← 2.  http://ec.europa.eu/budget/library/biblio/documents/2019/SoE2019%20with%20covers.pdf.

← 3.  This case study is based on the European Commission’s EU budget 2021‑2027, https://ec.europa.eu/clima/policies/budget/mainstreaming_en (accessed on 29 November 2018); Biodiversity tracking in the EU budget, Presentation at the OECD Green Budgeting Workshop, 22.05.2018.

← 4.  Decided by the National Assembly and the Senate (Law number 2018-1317 of 28th December 2018).

← 5.  This case study is based on presentations and discussions at a series of events convened by the OECD Paris Collaborative on Green Budgeting during the period (18/05/2018 – 29/04/2019). For further information, see http://www.oecd.org/environment/green-budgeting/.

← 6.  This case study is based on presentations and discussions at a series of events convened by the OECD Paris Collaborative on Green Budgeting during the period (18/05/2018 – 29/04/2019). For further information, http://www.oecd.org/environment/green-budgeting/ and “Investing for Sustainable Development: How Does Mexico Invest in the Sustainable Development Goals” https://www.transparenciapresupuestaria.gob.mx/work/models/PTP/Presupuesto/Documentos_anteriores/SDG_mexico.pdf.