Green Budget Tagging

Annex A. Country snapshots

This annex provides a snapshot of green budget tagging practices in select countries, framed around the ten principles outlined in this report. Specifically, it highlights experiences from four countries (in alphabetical order):

• France

• Ireland

• Nepal

• the Philippines.

The diversity of objectives, methods and approaches highlight how country approaches are rooted in national contexts. The experiences of these countries indicate that there is no “silver bullet” to developing a green budget tagging approach – each serves to demonstrate that green budget tagging is still a relatively new practice, with countries continuing to develop their approaches over time. Recent reviews of climate change expenditure tagging have shown that challenges still remain (World Bank, forthcoming[2]). Therefore, it is important to see these snapshots as “guiding posts” (and not an end goal) for designing and implementing an approach to green budget tagging.

France

In light of France’s commitment to the global Paris Climate Agreement, France is further prioritising its efforts to address climate change. As a founding member of the OECD Paris Collaborative on Green Budgeting, greater consideration has been given to how to ensure that environmental impacts are taken into account throughout the budget process. In 2018, the French National Assembly and the Senate decided that the French government needed to enhance its reporting on the overall impact of public finance measures on the ecological transition. Since then, France, for the first time, developed a more comprehensive and updated version, known as the “Green Budget”, to provide an overview of relevant policies and highlight their alignment with France’s green objectives. This looks across policy strategies and budget information covering both public and private spending (investments and current spending) as well a strategy for the country’s plans for ecological transition. Following an initial set of pilots with a small subset of ministries and an initial methodological report in 2019 (which did not include harmful budget measures), the government published its full report as part of the 2021 Budget in October 2020. The “Green Budget” includes information on fiscal policy alignment with environmental targets; environmental tax revenue; environmental tax expenditure; and the economic effect of environmental taxes on households and firms.

France has worked on a comprehensive classifications system for environmentally friendly, neutral and potentially harmful budget measures. The approach looks at six different environmental aspects: climate change adaptation, mitigation, biodiversity, the circular economy, water and air quality. It also assesses the potentially negative or positive spill-over effects from one environmental sphere to another. This methodology has been applied for the first time for the budget law 2021 (projet de loi de finances) and a new updated “Green Budget” was delivered in late September 2020 preceding parliamentary debate on the 2021 finance bill.

Institutional arrangements have been developed to ensure adequate oversight and engagement. Most notably, the country established the High Council for the Climate (Haut Conseil pour le Climat) to provide independent expertise to the government on climate-related public policies.

Table 2. France’s green budget tagging “at a glance”

1.	Driven by national priorities	France’s commitment to the Paris Climate Agreement and ecological transition.
2.	Aligned to country-specific green goals	The green budget tagging approach identifies budget measures along six green objectives (in line with the EU taxonomy regulation): climate change adaptation, climate change mitigation, biodiversity, the circular economy, water resource management and pollution.
3.	Weighting system	Binary weighting. Tagged budget measures that impact the climate and environment are counted in full.
4.	Work towards tagging both positive and negative budget measures	Tag expenditures that have a positive, neutral and negative impact on the environment and climate. Categorisation ranges from favourable (direct), favourable (indirect), favourable (but controversial) and neutral to unfavourable.
5.	Political commitment, leadership and clear roles/responsibilities	France is a founding member of the OECD’s Paris Collaborative on Green Budgeting. Addressing the environment and climate is one of key priorities of the French government. The Ministry for the Economy and Finance and the Ministry for the Ecological Transition provide joint leadership on green budgeting and the tagging process.
6.	Guidance and process for review and validation	Tagging is conducted by a cross-governmental working group including the Ministry for the Ecological Transition’s General Commission for Sustainable Development, the Budget Department, the Tax Legislation Department and the Treasury Department, with validation conducted by line ministries.
7.	Tagging coincides with other tools that support green budgeting
8.	Supported by modern budgetary governance framework	France has a performance budgeting system where both summary and detailed information on performance objectives, indicators and results for each government programme are published each year for accountability purposes. A medium-term expenditure framework reflects targets for total spending at each level of general government within three- or five-year periods.
9.	Presented in green budget statement or citizens’ budget	The “Green Budget”, containing information on environmental measures in alignment with environmental targets and budgetary policy, is presented each year to feed the parliamentary debate on the budget.
10.	Budget coincides with other public policy interventions	The state reviews tax measures that are harmful to biodiversity and will propose new tools to allow a gradual transition to a tax regime that will better suit new environmental challenges (the Planning Act of the Environment Round Table and National Biodiversity Plan).

Ireland

One of Ireland’s central priorities is to lower greenhouse gas emissions and promote climate-resilient development, in line with the Paris Agreement within the United Nations Framework Convention on Climate Change. In line with this commitment, the Minister for Public Expenditure and Reform and the Minister for Finance committed to implement green budgeting as part of the budgetary and estimates process. Building on existing processes for budgeting for other high-level priorities (e.g. equality budgeting), the Department of Public Expenditure and Reform committed to tracking climate-related expenditure for the 2019 Revised Estimates for Public Services. Driven in part by its purpose on facilitating the country’s commitment and use of green bonds, the government adopted ICMA (International Capital Markets Association) standards for classifying climate-related expenditures. As such, the scope of tagging only covers programmes (at the multi-million euro level) which significantly support emissions reductions. This conservative classification approach helps withstand accusations of “greenwashing” by stakeholders. Tagged expenditures are analysed and presented as a table under the Revised Estimates for Public Services, presented to parliament. This helps to promote greater transparency and to serve as an input for decision makers on how to keep Ireland on track towards its climate and environmental commitments. The country aims to iterate its approach with plans to develop a tagging system for negative impact and tax expenditures in subsequent budget years.

Table 3. Ireland’s green budget tagging “at a glance”

1.	Driven by national priorities	Ireland’s commitment to reduce greenhouse gas emissions and promote climate-resilient development (Paris Agreement). Additionally, the National Treasury Management Agency launched the country’s first Irish sovereign green bond where proceeds raised can only be devoted to “green” expenditure which is then reported to investors.
2.	Aligned to country-specific green goals	The Irish government has committed to an average 7% per annum reduction in overall greenhouse gas emissions from 2021 to 2030 (a 51% reduction over the decade), to achieving net-zero emissions by 2050, and to enshrine these commitments in law. The National Mitigation Plan called on the Department of Public Expenditure and Reform (DPER) to monitor and report climate-related expenditure through the exchequer. In addition, a tagging system needed to be in place to facilitate reporting for investors in sovereign green bonds.
3.	Weighting system	Binary weighting. Adopted a conservative classification approach where only those programmes where it is evident that all, or at least the majority, of investment in question supports Ireland’s transition to a low-carbon, climate-resilient and environmentally sustainable economy are tagged.
4.	Work towards tagging both positive and negative budget measures	Captures only positive expenditure. Plans are under development to introduce reporting on negative expenditure in future budget years.
5.	Political commitment, leadership and clear roles/responsibilities	Ireland became a member of the OECD’s Paris Collaborative on Green Budgeting in 2018. Climate change and the environment remain key political priorities for the government, with several references in the Programme for Government published in June 2020. The DPER plays a key leadership role in relation to green budgeting and the tagging process.
6.	Guidance and process for review and validation	A team of experts within the DPER conducts the initial tagging process, in close co-ordination with the Department of Environment, Climate and Communications. Validation is conducted bilaterally between the DPER and line ministries.
7.	Tagging coincides with other tools that support green budgeting	A national biodiversity expenditure review is underway to estimate expenditures on biodiversity. This will help assess progress towards government commitments on biodiversity and track spending across sectors and departments, non-governmental organisations, and the private sector.
8.	Supported by modern budgetary governance framework	Ireland presents budget information by programme, and already has a system of performance budgeting in place. The budget document (REV) includes output targets alongside financial allocations. An annual performance report shows performance information for each ministry, although these are not yet linked to an overarching performance framework. A medium-term expenditure framework includes three-year rolling ceilings, consistent with fiscal rules.
9.	Presented in green budget statement or citizens’ budget	Information from tagging is presented in a table within the Revised Estimates for Public Services, presented annually to the parliament.
10.	Budget coincides with other public policy interventions	The DPER has also worked with government departments receiving funding from carbon tax revenues to develop ex ante performance metrics for programmes that have received added funding from carbon tax increases. Plans are in place to undertake ex post assessment of performance against selected metrics.

Nepal

Extreme weather events such as floods, droughts and changing rainfall patterns have left Nepal’s agricultural system vulnerable to the effects of climate change. Due to limited resources to address many of these challenges, the country underwent efforts to introduce climate budget tagging with a view to this helping it access international climate funds. It was hoped that this could help the Nepali government to finance climate change activities as well as to identify funding gaps for decision makers and stakeholders. Starting from 11 ministries, tagging efforts have since expanded to cover all central government entities. Budget measures are tagged according to their contribution to 11 climate change activities. Measures are classified as either highly relevant (where more than 60% of programme budgets are allocated to one of the climate activities); relevant (where 20-60% of programme budgets are relevant); or neutral (where less than 20% of programme budgets are relevant). Sectoral ministries, in close co-ordination with the Ministry of Finance, tag proposed budgets through the Line Ministry Budget Information System, where it is reviewed and validated by the National Planning Committee. The results of tagged expenditures are presented as an annex to the budget document (Redbook) as well as in an annual citizens’ climate budget.

Table 4. Nepal’s green budget tagging “at a glance”

1.	Driven by national priorities	Climate change is a key policy priority of the government, particularly given its negative effects on the country’s agricultural systems.
2.	Aligned to country-specific green goals	Climate expenditure tagging was introduced as part of the Climate Change Financing Framework, which mapped reforms in the public financial management system needed to improve climate budget accuracy and address sectoral nuances, improve accountability, and facilitate the evaluation of climate investments.
3.	Weighting system	Scaled – simplified approach to weighting. Expenditures are tagged when they are relevant to one of 11 climate activities. Measures are either highly relevant (where more than 60% of programme budgets are allocated to climate activities); relevant (where 20-60% of programme budgets are relevant); or neutral (where less than 20% of programme budgets are relevant).
4.	Work towards tagging both positive and negative budget measures	Captures only positive expenditures.
5.	Political commitment, leadership and clear roles/responsibilities	The National Planning Commission and the Ministry of Finance play key leadership roles.
6.	Guidance and process for review and validation	The National Planning Commission and the Ministry of Finance, as part of the budget process, provide guidelines for budget proposals, including requirements for line ministries to tag relevant expenditures within the budget system (Line Ministry Budget Information System).
7.	Tagging coincides with other tools that support green budgeting
8.	Supported by modern budgetary governance framework	Nepal has a medium-term expenditure framework where tagged projects and programmes present a summary of budget estimations and expenditure projections. Nepal has programme-based budgeting allowing tagging to be conducted at a more granular activity level.
9.	Presented in green budget statement or citizens’ budget	Climate change relevant expenditures are presented as an annex to the budget document (Redbook). A citizens’ climate change budget is also published.
10.	Budget coincides with other public policy interventions

Philippines

The Philippines introduced climate expenditure tagging in 2014, following a Climate Public Expenditure and Institutional Review in the previous year. The work was led by the Department of Budget and Management and the Philippines Climate Change Commission, with technical assistance from the World Bank with financial support from the Australia-World Bank Philippines Development Trust Fund. Climate expenditure tagging was introduced to help mobilise the financing needed to implement the country’s planned Nationally Determined Contributions, in recognition of the need for progressive improvements in transparency in the planning, prioritisation, monitoring and reporting of climate action. Under the government’s approach to climate tagging, expenditure that has climate change adaptation or mitigation explicitly as a main objective is tagged. For activities which partially address climate change, the proportion of the activity budget (relevant for climate change) is included in the tagging system. Expenditure is then further classified according to the country’s National Climate Change Action Plan along sub-objectives and instrument categories.

The Department of Budget and Management along with the Climate Change Commission take lead roles in developing guidance and providing support to line ministries, which are responsible for tagging their expenditures into the budget proposal system. Validation is by the Climate Change Commission. Summary information is provided through briefs as part of the submission of the President’s Budget to Congress.

Table 5. Philippine’s green budget tagging “at a glance”

1.	Driven by national priorities	The frequency and intensity of typhoons, rising sea levels, variation in precipitation and rising temperatures have made the Philippines vulnerable to the impacts of climate change. This has propelled the government to enact the Climate Change Act (Republic Act 9729), which provided the policy framework to formulate strategy, mainstream climate risk into development plans and programmes, identify relevant instruments, and assess vulnerability across sectors. This helped set the basis for the National Climate Change Action Plan setting out national priorities from 2011 to 2028. Furthermore, in 2013, the Philippines, with the World Bank, conducted a Climate Public Expenditure and Institutional Review, where it recommended strengthening the planning, execution and financing framework for climate change; enhancing leadership and accountability through monitoring, evaluation and reviews of policies and activities; and building capacity in the government to manage change, setting the basis for budget tagging.
2.	Aligned to country-specific green goals	Expenditures are tagged in accordance to the National Climate Change Action Plan, which outlines several priorities and sub-priorities (food security, water sufficiency, ecosystem and environmental stability, human security, climate smart industries and services, sustainable energy, knowledge and capacity development, cross‑cutting).
3.	Weighting system	Non-binary weighting. Programmes, activities and projects are counted in full if they primarily address climate change (mitigation or adaptation) as their main objective. For those which partially address climate change (mitigation or adaptation), the commensurate proportion of expenditure dedicated to climate change is counted.
4.	Work towards tagging both positive and negative budget measures	Only positive expenditures are tagged.
5.	Political commitment, leadership and clear roles/responsibilities	The Department of Budget and Management and the Climate Change Commission play key leading roles in taking forward climate expenditure tagging. In addition, the Department of the Interior and Local Government acts as the oversight agency for local climate expenditure tagging.
6.	Guidance and process for review and validation	Guidance is provided as part of the annual Budget Call by the Department of Budget and Management and through training on climate change expenditure tagging conducted by the Climate Change Commission. Validation checks on tagging are conducted by the Climate Change Commission (based on quality assurance review forms submitted by departments and agencies).
7.	Tagging coincides with other tools that support green budgeting	General provisions in the Annual Appropriations Act mandate agencies to ensure that programmes and projects included in the national budget give due consideration to the objectives of disaster risk reduction and climate change mitigation. In addition, the government has adopted a Program Convergence Budgeting approach, whereby government agencies work together to meet common objectives, instead of competing for budgets.
8.	Supported by modern budgetary governance framework	The Philippines introduced performance budgeting through the introduction of Public Expenditure Classification reforms from 2015 to 2018. These reforms helped to align the budget along appropriate programmes and strategies. Annual budgets contain performance information for all government programmes (in line with objectives, target outputs and indicators).
9.	Presented in green budget statement or citizens’ budget	Climate budget reports are published by key climate change government agencies, with climate expenditure tables provided in the annual Budget of Expenditures and Sources of Financing publication submitted as part of the President’s Budget to Congress. The Climate Change Commission also maintains a database on the country’s climate change activities accessible through an online portal (https://niccdies.climate.gov.ph).
10.	Budget coincides with other public policy interventions	Green procurement, whereby public authorities seek to reduce the environmental impact associated with procured good, services and works throughout their life cycle, is currently being mainstreamed through the Philippine Green Public Procurement Roadmap.