What is green budgeting?

April 26, 2023

How Green Budgeting leads to the European Green Deal transition 

The European Green Deal is one of the main goals of the European Commission (EC). The ambition of the European Green Deal is to transform the European Union into the world’s first “climate-neutral bloc” by 2050. Its goals cover many different sectors, such as construction, biodiversity, energy, transport, and food.

The European Green Deal is a growth strategy that aims to transform the EU into a fair and prosperous society, with a modern, resource-efficient and competitive economy where there are no net emissions of greenhouse gasses in 2050 and where economic growth is decoupled from resource use.”

National budgets play a key role in the transition. By utilising green budgeting methods more frequently, we can shift public spending, taxation, and investment toward green goals. This will enable evaluation of and to which extent the environmental issue and risks are considered in annual budgets and medium-term fiscal planning. 

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BUILDING BLOCK 1 – STRONG STRATEGIC FRAMEWORK

The priorities and the objectives set out by the government should be related to the environment and the climate; this will help to have effective fiscal planning. These strategies and plans serve as a roadmap for deciding how much to tax and spend to accomplish the national goals.

BUILDING BLOCK 2 – TOOLS FOR EVIDENCE GENERATION AND POLICY COHERENCE

It is crucial to collect evidence regarding the effects of budgetary changes on environmental and climate goals. Governments can ensure the coherence of budget decisions with strategic aims by using the information acquired by different tools to enable analysis and better-informed budget decisions. The tools used by each country should build on the existing Public Financial Management framework, but may include:

  • Green budget tagging – dividing budget plans into groups based on how they affect the climate and/or the environment.
  • Environmental impact assessments – requiring new budgetary measures to be accompanied by environmental impact evaluations.
  • Ecosystem services, including carbon pricing – putting a cost on environmental externalities, including greenhouse gas emissions, commonly through taxes and emissions trading schemes, can contribute to achieving national climate and environment goals.
  • Green perspective to spending review – incorporating efficiency factors with a focus on how actions would affect national environmental and climate goals.
  • Green perspective in a performance setting – including performance goals relevant to governmental environmental and climate goals.

BUILDING BLOCK 3 – REPORTING TO FACILITATE ACCOUNTABILITY AND TRANSPARENCY

Adequate reporting to relevant stakeholders (e.g. parliament and civil society) facilitates scrutiny of the quality and the impact of green budgeting. For example, a key reporting tool is a Green Budgeting Statement accompanying the budget, helping to provide an overall picture of how the budget is aligned with green objectives in any given budget year. A statement such as this can be used by stakeholders, such as the parliament and citizens, to help them input into budget deliberations.

BUILDING BLOCK 4 – AN ENABLING BUDGETARY GOVERNANCE FRAMEWORK

Green budgeting is supported by a contemporary budgetary framework that offers a stable enabling environment. A financial framework with connections between strategic planning and budgeting, outcome and evidence-based budget processes, and strong collaboration with parliaments and civil society are all included in this.

Strong political leadership, clearly defined roles and responsibilities within the government, a well-planned implementation chain, internal mechanisms that are appropriate for the task, and the capacity building and experience among civil employees, promote the implementation of green budgeting.

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The Green Budgeting Reference Framework

The Green Budgeting Reference Framework (GBRF) complements well the framework mentioned above by the OECD. The OECD framework addresses broader aspects of green budgeting and policy-making, reflecting a more thorough definition of green budgeting, whereas the GBRF presents a more practical view of green budgeting. 

The GBRF not only aims to help a country start from scratch but also provides a guide to answer some obvious operational questions, such as: Where to start from? What steps to take first? But also it can be used by countries that already have a national GBF in place; the GBRF provides guidelines to develop them further. 

The Green Budgeting Reference Framework (GBRF) can serve a double purpose. On the one hand, it seeks to provide a basic toolkit for Member States willing to either embark upon implementing green budgeting or upgrade their current practices, thereby serving as guidance for national green budgeting frameworks (GBFs).”

Key elements of the GBRF

The GBRF has elements that are considered to be essential for putting in place green budgeting at the national level. These elements are as follows: 

  1.   Coverage: A complete national GBF should preferably include all of the major environmental goals, every cost unit in the budget, and a very large subset of public sector entities.
  2.   Methodology: A methodology for determining whether financial decisions are consistent with long-term environmental goals should be included in a national GBF. 
  3.   Deliverables: The objective and schedule for green budget deliverables should be specified in a national legal or administrative document.
  4.   Governance: The allocation of necessary administrative and human resources should be ensured by the national green budgeting frameworks, as well as the clear definition of each player’s roles and responsibilities.
  5.   Transparency and accountability of the process

The GBRF outlines three levels of development. The degrees of ambition and thoroughness across the five above-mentioned criteria differ according to each level.

  • Level 1 – “essential” green budgeting framework
  • Level 2 – “developed” framework
  • Level 3 – “advanced” framework

The table below provides a comparative overview of the three levels.

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Green Budget at the organisation level

In addition to the implementation of green budgeting on a national level, organizations can also contribute to the goals of the European Green Deal. Local businesses can be inspired by the above frameworks and downscale them in their realities and budgets. 

Key phases of the path to an organisation’s green financial budget can be simplified as follows:

  • An analysis of costs and their specification by environmental impact
  • The definition of a clear and measurable green strategic objective
  • The setting of annual operational objectives and activities to achieve green strategic ambitions
  • The definition of a green financial budget by securing the resources required to achieve green objectives (and limiting the activities that have negative impacts on climate with a smaller scope of the available resources)

The organisations can base their budget decision on the following characteristics: 

  • The impact on the environment
  • The contribution to desired environmental results
  • The purpose of a decision

An example of Green Budgeting in a European project of Future Needs

With more than 600,000 post offices worldwide, the postal sector operates the largest physical distribution network on Earth. About 660,000 vehicles, 250,000 motorcycles, and countless planes, that travel billions of kilometers annually, are used daily to deliver mail.

Future Needs, as a partner in the GreenPosts Erasmus+ programme, will support Postal Services in four European countries in building organisational capacity in Climate Change mitigation and adaptation strategies. The GreenPosts project aims to create training material for posts’ staff on how to put the European Green Deal into practice at the local level and respect the UN Sustainable Development Goal 13.

In particular, Future Needs will develop training material for Green Financial Management and Budgeting.  This training material will be used to train more than 80 post office employees, in Cyprus, Greece, Bulgaria, and Croatia, on how they can green their operations through their organisations’ budgets.

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