This report provides an overview of green budgeting practices across OECD countries based on the 2022 OECD Green Budgeting Survey, as well as the index methodology for the Survey. It takes stock of OECD countries’ progress in bringing climate and environmental considerations into budgeting frameworks and processes. Green budgeting involves a systematic approach across all stages of the budget process, including financial reporting and budget oversight. The growth in green budgeting in OECD countries, as shown in the report, demonstrates the key role of budget offices in ensuring that policy priorities relating to climate change and the environment are taken into account when allocating resources through the budget process.
Green Budgeting in OECD Countries 2024
Abstract
Executive Summary
Changes to climate temperatures are increasing at a faster rate than first estimated by the United Nations Intergovernmental Panel on Climate Change and the impact on economies and societies is greater than first estimated, for instance the costs from the damage caused by extreme weather events. All OECD countries have made commitments under the 2015 Paris Agreement to reduce greenhouse gas emissions, and green budgeting is an approach that helps governments to better consider climate and environmental implications when making planning, preparing, executing and reporting on budgets.
Many OECD countries have introduced green budgeting into their public financial management frameworks, policies and practices to help pursue climate and environmental objectives. In 2022, two-thirds of the OECD countries surveyed (24 of 36 countries) had implemented green budgeting measures. This compares to 14 countries that had implemented green budgeting in 2020, according to a similar survey. The proportion of OECD countries that were using green budgeting in 2022 shows the strong interest that governments have in integrating climate and environmental objectives into budget processes.
In this report, the OECD compares the use of green budgeting initiatives across countries. It shows that countries have adopted multi-initiative approaches to green budgeting. The differences in the approaches among countries can relate to factors such as the number of years green budgeting has been in place, differences in climate and environmental policies, the resources directed to green budgeting, and the existing budget frameworks.
This report was developed through the OECD Paris Collaborative on Green Budgeting which provides resources to governments to support developments in green budgeting practices. The OECD Survey on Green Budgeting is based on the four building blocks in the OECD Green Budgeting Framework: 1) institutional arrangements, 2) methods and tools, 3) accountability and transparency, and 4) the enabling environment in budgeting.
In 2022, the OECD strengthened its survey methodology on green budgeting to include the latest green budgeting practices that had been adopted in OECD countries. Examples include the relevance of net-zero emission strategies in budgeting, the integration of climate objectives into medium-term budgeting tools, and the inclusion of climate and environmental consideration into the functions of oversight institutions, such as fiscal councils.
The 2022 Survey results highlight areas where green budgeting practices have become stronger. Improved practices include the following:
OECD countries have strengthened the institutional arrangements that define and guide the application of green budgeting, as demonstrated by the use of national strategies on climate mitigation and adaptation to inform budget priorities, and guidance resources that explain how ministries are to bring climate and environmental considerations into budget processes.
The methods and tools used in green budgeting have broadened to include environmental impact assessments, and environmental cost benefit analyses. OECD countries have started to review tax expenditure that is harmful to the environment and introduce green perspectives into macro-fiscal projections. The use of these methods and tools in budgeting supports better informed decisions on the allocation of resources.
Transparency and accountability arrangements continue to progress as governments make more information available through budget and financial reporting. Guidance on financial reporting disclosures received greater attention relative to previous surveys, and oversight institutions, such as independent fiscal institutions and supreme audit institutions are now reporting on green spending and investment initiatives.
The enabling environment in budgeting, such as programme and performance budgeting and capacity development, has demonstrated that the integration of climate and environmental perspectives into budgeting can apply to many of the existing components of budget frameworks.
At the same time, the dialogue on the 2022 Survey results, revealed challenges when designing and implementing green budgeting. These challenges highlight areas for future work, specifically addressing the following gaps:
Insufficient resources to develop green budgeting approaches across government ministries and agencies, including guidance materials and ways to measure the results and impacts of green budgeting.
A lack of relevant knowledge or technical expertise on how to integrate climate and environmental considerations into the budget process.
Limited data on the impact of climate change and environmental sustainability relative to the reporting requirements within budget processes.
