Embarking on subnational green budgeting

At the end of 2020, in the middle of a global pandemic, the French region of Brittany adopted a new approach to climate action: green budgeting. They did this by tagging the climate adaptation and mitigation impact of their regional spending for 2020. They are now replicating the exercise by applying it to their 2023 draft budget and expanding it to include spending from more regional government departments.

Brittany is not alone in this green budget maiden voyage. Within the OECD, they are one of a growing number of municipalities and regions that have begun to adopt innovative green budgeting practices. These include Andalusia in Spain, Glasgow in Scotland and Oslo in Norway.

Green budgeting making a splash

Within governments, the departments of Finance and Environment often exist in silos, operating by different policy goals and incentives. However, green budgeting can help align their efforts, prioritise low-carbon and resilient investment projects and harness the power of government expenditure and revenues to promote a green recovery. It can also help improve the transparency, accountability and trust in government climate action and unlock access to more public and private climate finance.

The interest in green budgeting among regional and local governments is growing rapidly as more and more regions and cities set ambitious climate and environmental targets and look for ways to deliver on them.

OECD, 2023.

In 2019, subnational governments accounted for 63% of climate-significant public expenditure and 69% of climate-significant public investment, on average, in 33 OECD and EU countries (OECD, 2022). However, green budgeting recognises – and seeks to measure – the impact of their broader spending, investment and revenue-raising decisions have on their climate ambitions.

The stocktake conducted by the OECD shows that most practices focus at this stage on climate change adaptation and mitigation, and less on broader environmental objectives such as biodiversity or water and air pollution. It also shows that there is no one-size fits all approach to green budgeting.

A variety of new practices are emerging including linking local carbon budgets to financial budgets (also called “climate budget approach” like in Oslo), ecoBudgets (an environmental management system designed for local governments to budget natural resources like financial resources which has been deployed by the Municipality of Växjö in Sweden), climate budget tagging (also called “Climate Budget Assessment methodology” like in French municipalities and regions), environmental and climate impact analyses, and more.

Finally, some practices also combine green budgeting with other priority budgeting approaches such as SDG budgeting, social objectives and gender budgeting.

Green budgeting is most effective when used alongside other tools that subnational governments have at their disposal, such as regulatory policies or environmental and land-use planning tools.

Not all smooth sailing

However, subnational governments face four main many challenges in developing green budgeting practices : methodological, operational, resource and political. A key methodological challenge is lack of proven methodologies adapted to the specific budgeting contexts of subnational governments.

Resource challenges can be further categorised into human and financial resources challenges. A key operational challenge that subnational governments may face in implementing a green budgeting practice is establishing a dedicated organisational structure based on horizontal coordination amongst departments.

Ensuring sustained, high-level support for green budgeting from both administrative and elected officials, involving territorial stakeholders (citizens, businesses, partners, etc.) and reconciling social and green objectives are key political challenges. The last challenge is the need to ensure that green budgeting practices continue over time and not become a one-off exercise.

Full steam ahead

To help overcome these challenges, and further foster and disseminate green budgeting among regional and local governments, the OECD has developed a set of six guidelines, with concrete detailed recommendations, that regions and cities of all sizes and types can use.

Key among these guidelines is: conducting a diagnostic of local environmental and climate challenges before starting a green budgeting practice; ensuring strong, high-level involvement and support from both the administrative and elected sides of government; ensuring the practice has a robust and shared scientific basis; adopting a step-wise approach and integrating the green budgeting practice into existing public financial management procedures.

Finally, include revenues within the scope of the green budgeting practice to ensure the entire budget aligns with green objectives. This last guideline is particularly challenging and – to date – no existing subnational green budgeting practices has yet included a comprehensive revenue analysis.

To Brittany and beyond

Brittany’s exploratory voyage into the relatively uncharted waters of subnational green budgeting provides many lessons and insights for other subnational governments.

First, start small. Brittany started with a focus on only the climate adaptation and mitigation impacts of a portion of their budget spending.

Second, make it a team effort. The regional departments of Finance and the Environment were responsible for the overall co-ordination of the project, but they invited four other departments to join them in piloting the methodology.

Third, don’t forget where you came from. Brittany evaluates the climate mitigation and adaptation impact of their budget in relation to regional climate objectives including those adopted from BreizhCOP, the region’s version of the Conference of Parties, launched in 2017.

Most importantly – there is no time like the present. Brittany recognised that green budgeting was a tool that they could make use of today to drive real climate action at the regional level.

Finally, learn from others. Overcoming the different challenges faced by regional and cities also requires developing international and inter-governmental collaboration and increasing the sharing of best practices, methodologies, and knowledge, both within subnational administrations and through global platforms.

The green budgeting expedition has only just begun, and to navigate a post-COVID, green transition our pioneering regions and cities must work together to share lessons and chart a course for others to follow.

To share these lessons and the many more that will come as more examples of subnational green budgeting emerge, the OECD has launched the new Subnational Government Climate Finance Hub. It features work on green budgeting, including a stock-taking of existing practices and methodologies, two case studies (Brittany regional and the City of Venice), a set of six guidelines which in turn include a series of concrete recommendations for international organisations and national and subnational governments.  A self-assessment tool for subnational governments to assess their strengths and weaknesses for launching, or enhancing, green budgeting exercises is also available on the Hub.

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Graduated of Sciences Po Paris, Dominique holds a postgraduate diploma in "Administration and Public Management" from the Sorbonne. She worked in the banking sector for about twenty years, first as a risk manager at Dexia Crédit local where she specialised on French and international public subnational governments and public utilities and then, as a Senior Methodologist on the Basel 2 reform in Dexia Group Risk Management.  She has been an independent consultant for the last 15 years, and has developed a consulting and training activity as a specialist of subnational governments. She has carried out numerous support missions for leading financial institutions, professional associations of elected representatives and for local authorities. At the same time, she teaches at the university and in major schools such as Sciences Po Paris, Dauphine, INSP (ENA) on topics related to her consulting activity.

Head of the “Decentralisation, Subnational Finance and Infrastructure Unit” at OECD Centre for Entrepreneurship, SMEs, Regions and Cities (CFE) | + posts

Isabelle is the Head of Unit “Decentralisation, Subnational Finance and Infrastructure” at the OECD Centre for Entrepreneurship, SMEs, Regions and Cities. Her work covers several topics related to multi-level governance and regional development, including decentralisation and territorial reforms, subnational government finance, subnational climate finance and infrastructure investment. She is co-author of several thematical and country multi-level governance reviews, and is the OECD coordinator of the World Observatory on Subnational Government Finance and Investment.

Prior to joining the OECD, Isabelle worked at Dexia Crédit Local’s Research department and Caisse des Dépôts et Consignations and was also an independent consultant. Graduated from the French “Ecole Normale Supérieure of Fontenay-Saint Cloud” (ENS), Isabelle holds an "agrégation" in geography.

Master's student at University College London | + posts

Kate is currently a master’s student at University College London where she is pursuing an MSc in Energy Systems and Data Analytics. Prior to this, she spent two years as a Young Associate at the OECD Centre for Entrepreneurship, SMEs, Regions, and Cities conducting research on subnational climate finance, climate policy, subnational finance, and multi-level governance. Kate holds a BSc in Economics and Global Health from the University of Toronto.