Green budgeting, a critical component of a comprehensive sustainability strategy, is increasingly adopted by nations to align financial policies with climate and environmental objectives. According to the OECD, in 2020, 14 out of 35 OECD countries (40 percent) reported practising green budgeting.
This included countries with longstanding practices like Italy but also newcomers like France. Green budgeting can help us significantly to achieve our climate goals, but what exactly does it mean, and why should all countries utilise this practice? Keep reading to discover what is green budgeting and why it is important.
What does green budgeting mean?
Green budgeting essentially analyses and records the environment-specific and climate-specific negative, neutral, and positive effects of all regulatory, budgetary, and tax policy processes and measures within the public sector. This analysis covers both the assessment of the impact dimension and the financial aspects and offers a decision-making basis for contributions to compliance with international and national environmental and climate-related objectives.
Green budgeting aims to support the greatest possible impact for each Euro invested. The practice involves utilising the tools of budgetary policymaking to assist with meeting these environmental goals. Throughout the process, environmental contributions of budgetary policies and items are identified and assessed concerning certain performance indicators, with the aim of better aligning budgetary policies with climate goals.
Why is green budgeting important?
Greening national budgets is pivotal for the green transition and climate action. This is because budgets are one of the key indicators of how a government intends to carry out its political goals.
The European Commission’s 2019 Green Deal Communication lays greater emphasises on this by stating that utilising green budgeting tools will help to redirect public taxation, consumption, and investment to green priorities and away from dangerous subsidies.
Green budgeting tools
Many green budgeting tools to drive our ability to achieve global environmental goals exist. For instance, the EU Green Budgeting Reference Framework (GBRF), was developed jointly with EU Member States. This Framework acts as a toolkit for Member States willing to upgrade or implement green budgeting practices.
The European Commission has also developed a technical support initiative to empower Member States to build technical and administrative capability for developing a green budgeting framework at a national level. With the help of this training, national green budgeting practices can be brought into compliance with the Green Budgeting Reference Framework developed by the European Commission.
Additionally, the European Commission Green Budgeting Survey aims to compile data on Member States’ current green budgeting practices and their future development plans. The survey aims to gain a better picture of the design of these practices, the remaining challenges, and their implementation in the Member States.
The Commission’s Directorate-General for Economic and Financial Affairs has created two lists of budgetary items whose net environmental impact could be considered as broadly ‘brown’ or ‘green. These are only a few notable examples of largely brown or mostly green measures; they are not exhaustive lists. They can act as a starting point for Member States wishing to create their own green budget tagging methodology.
Summary
The term “green budgeting” refers to the use of financial policy-making instruments to support environmental objectives. This entails reviewing the fiscal and budgetary policies’ effects on the environment as well as their coherence with regard to meeting international and national commitments. It can also contribute to evidence-based and informed discussion and debate concerning sustainable growth.
