Integrating green into the budget cycle: A primer

Organisation for Economic Co-operation and Development
Unclassified English - Or. English
Integrating green into the budget cycle: A primer
April 2023
This paper considers how green budgeting can be integrated into budget processes. It is a primer for the
development of a paper based on the presentations and discussions at the OECD Paris Collaborative on
Green Budgeting meeting the 17 and 18 April 2023.
Please contact: Margaux Lelong (margaux.lelong@oecd.org)
OFDE
This document, as well as any data and map included herein, are without prejudice to the status of or sovereignty over any territory, to the
delimitation of international frontiers and boundaries and to the name of any territory, city or area.

2 
Table of contents
Introduction 3
1 Budget planning 4
2 Budget preparation 10
3 Budget approval 13
4 Budget execution 16
5 Budget reporting and oversight 20
References 23
Figures
Figure 1. Components of the budget cycle that are relevant to climate considerationsError! Bookmark not defined.
Figure 2. Budget planning 4
Figure 3. Budget preparation 10
Figure 4. Budget approval 13
Figure 5. Budget execution 16
Figure 6. Budget reporting and oversight 20
Boxes
Box 1. Examples of institutional arrangements in green budgeting 6
Box 2. Integrating climate considerations in medium-term policy 6
Box 3. The GreenREFORM initiative in Denmark 7
Box 4. The Medium-Term Expenditure Framework in the Netherlands 8
Box 5. Estimating the cost of extreme weather events in the United States 8
Box 6. Green bonds and budgeting 9
Box 7. A green dimension in spending reviews in Austria 11
Box 8. Incorporation of green in performance settings in France 12
Box 9. Green analyses by the Congressional Budget Office of the United States 14
Box 10. Civil society engaged in green budgeting process 15
Box 11. Green budget statement in Spain 17
Box 12. Evaluating green expenditure proposals 18
Box 13. Green analysis at the Danish Economic Councils 21
Box 14. Developments in sustainability reporting 22

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Introduction
1. Climate and environmental considerations are an increasingly significant feature of governmental
budget processes. In 2022, two-thirds of OECD countries had implemented green budgeting (24 out of 36
countries) to use budgetary policy-making tools to progress climate and environmental objectives (OECD,
Forthcoming[1]). The OECD has analysed the implementation that has occurred across the 24 countries
based on the OECD Green Budgeting Framework and the data from the OECD Green Budgeting Surveys.
The findings show that climate and environmental considerations are relevant to each stage of the budget
cycle.
2. In this paper, the budget cycle is defined by five stages (planning, preparation, approval, execution,
and oversight) and it focuses on the aspects in each stage that are particularly relevant to green budgeting
(Figure 1). The purpose of the paper is to focus on the implementation experiences of countries at each
stage of the budget cycle in order to support collaboration on the lessons and insights from these
experiences. The paper identifies the progress and challenges that ministries of finance and other
stakeholders experience when designing and implementing reforms that integrate climate and
environmental considerations into budgeting.
3. The material applies the OECD Green Budgeting Framework to the budget process and highlights
how ministries of finance operationalise the framework, based on findings from the OECD Green Budgeting
Survey and consultations with ministries of finance (OECD, 2020[3]) and (OECD, 2021[4]). The following
sections of this paper:
 Discuss how green budgeting can be integrated into budget processes.
 Identify the potential benefits and challenges of incorporating green into budgeting.
 Illustrate examples on how to effectively implement green budgeting into the budget cycle.
Figure 1. Components of green budgeting that are relevant to the budget cycle
1. Planning 2. Preparation 3. Approval 4. Execution 5. Oversight
Institutional
arrangements
Alignment
with medium-
term priorities
Macro-fiscal
projections
Medium-term
expenditure
framework
Capital
budgeting
framework
Baselines
Analyse
proposals
Performance
settings
Budget
negotiations
Parliamentary
process
Parliamentary
budget offices
Budget
transparency
Monitoring
and reporting
Evaluation
Budget
flexibility
Oversight
institutions
Financial
reporting
Fiscal risk
management

4 
4. Budget planning refers to the way in which ministries of finance frame the parameters of the
budget. This is demonstrated through the government’s budget framework, which is applied to the policy
objectives and priorities that the government has established through coalition agreements, policy
strategies and similar documents. Budget planning involves setting medium- and long-term budgetary
objectives in the context of economic and fiscal conditions. It includes the limits (or ceilings) that are to
apply within the budget framework. The budget planning process can involve contributions from across
government.
5. Integrating green considerations into budget planning helps to ensure the budget has regard for
climate and environmental objectives, priorities, and potential impacts during the budget process. It does
so by incorporating green consideration into the government’s top-down budget arrangements. The
integration of climate and environmental considerations into budget planning is relevant to five areas of
budget planning (Figure 2):
Figure 2. Budget planning
6. Key challenges for integrating climate and environmental considerations into the five components
identified in Figure 2 are:
 Institutional arrangements
o Assigning roles and responsibilities for climate change, as it is not a matter for environmental
ministries alone.
o Identifying the co-ordination arrangements for cross-governmental priorities.
 Alignment with medium-term priorities
o Aligning policies within the fiscal constraints of the government’s budget framework.
o Avoiding a duplication of resources when implementing cross-governmental priorities.
Institutional
arrangements
Alignment
with medium-
term priorities
Macro-fiscal
projections
Medium-term
expenditure
framework
Capital
budgeting
framework
Fiscal risk
management
1 Budget planning

 5
 Macro-fiscal projections
o Managing limitations with the data that is relevant for forecasting purposes.
o Co-ordinating across ministries and scientific bodies on environmental information and
assessments.
 Medium-term expenditure framework
o The medium-term expenditure frameworks rely on the quality of information that contributes to
the decision-making processes.
o The accountability arrangements within a medium-term expenditure framework are for
ministries to manage within baselines.
 Fiscal risk management
o Identifying and quantifying fiscal risks from extreme weather events, and the government’s
potential fiscal exposure.
 Capital budgeting framework
o Applying the government’s capital framework consistently across budget processes, climate
mitigation funds and sovereign green bonds processes.
o Establishing the requirements to monitor the implementation of initiatives when funded by
sovereign green bonds to ensure the reporting is co-ordinated across government and contains
information that is relevant to investors.
Institutional arrangements
7. The OECD Green Budgeting Framework identifies the institutional arrangements as the first
building block that is necessary to adopt green budgeting (OECD, 2020[2]). The institutional arrangements
refer to such things as, the legal basis for the budget, governance arrangements for the roles and
responsibilities that ministers and ministries hold to prepare the budget, and the public financial
management requirements that are to apply to the budget.
8. Green budgeting is not a separate budget from the government’s main budget, nor is it a separate
budget process. Fiscal policy should align with green objectives as shown in Box 1. The key aspect of
green budgeting refers to the way in climate and environmental considerations are integrated into the
government’s budget processes and practices. Effective integration starts with the institutional
arrangements.
9. The integration of green considerations in the institutional arrangements can include:
 Establishing in law that climate and environmental objectives are relevant policy objectives and
priorities to consider when allocating public resources through the budget.
 Determining which ministers and ministries are responsible for integrating climate and
environmental considerations into the budget, and at which stages of the budget process.
 Identifying the accountability arrangements across government on progressing climate and
environmental objectives when making use of public resources.

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Box 1. Examples of institutional arrangements in green budgeting
Finland: The 2022 national climate and energy strategy, ‘Carbon Neutral Finland’ contains measures
that are to achieve targets to reduce greenhouse gas emissions by 60% by 2030 and be carbon neutral
by 2035. The strategy was prepared by the Ministry of Economic Affairs and Employment in
collaboration with other ministries across government. The strategy illustrates the roles and
responsibilities of the ministry in relation to climate change and the coordination that is required across
government to bring climate change considerations into budgeting.
Spain: The Climate Change and Energy Transition Law (7/2021) provides the mandate for the
government to prepare reforms on climate change and energy transition in the State Budget. The
government’s National Recovery and Resilience Plan also refers to green budgeting green budgeting
to support the prioritisation of climate initiatives in the annual budget process.
Alignment with medium-term policies
10. Nearly all OECD countries have prepared climate mitigation strategies and similar documents to
articulate how the commitments in the 2015 Paris Agreement are to be progressed nationally. The
strategies identify the relevant climate, economic and social considerations to take forward initiatives that
will reduce greenhouse emissions. Many of the strategies contain milestones to help measure progress
and assign responsibilities for the implementation of the initiatives. The strategies are relevant to
budgeting, as they set top-down priorities for government.
11. In the planning stage of the government’s budget, the alignment with medium-term policies informs
the criteria that is to apply when preparing the budget. Examples of alignment can include climate mitigation
strategies, but it can also refer to:
 Legislation on climate and environmental commitments that the government has enacted.
 Limits set on emissions in specific sectors such as those contained in carbon budget (Box 2).
 Reports tabled in parliament that report on the progress achieved relative to governmental
commitments (Box 2).
Box 2. Integrating climate considerations in medium-term policy
Ireland: Ireland’s first carbon budget programme, comprising three five-year economy-wide carbon
budgets, was approved by the Government in 2022. The carbon budgets were approved by both
Houses of the Oireachtas. The total emissions allowed under each budget is set out below, as well as
the average annual reduction for each five-year period:
 2021-2025: 295 million tonnes of CO2 equivalent. This represents an average reduction in
emissions of 4.8% per annum for the first budget period.
 2026-2030: 200 million tonnes of CO2 equivalent. The represents an average reduction in
emissions of 8.3% per annum for the second budget period.
 2031-2035: 151 million tonnes of CO2 equivalent. The represents an average reduction in
emissions of 3.5% per annum for the third provisional budget.

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Ireland’s Climate Action Plan 2023 contains implementation plans for the carbon budgets, sectoral
emissions ceilings, and a roadmap to reduce emissions by 2030 and reach net zero emissions by 2050.
The Action Plan illustrates the way in which climate considerations can inform medium-term planning.
Macro-fiscal forecasts
12. The integration of green considerations in medium-term macro-fiscal forecasts is to estimate the
potential effects of a green transition on economic and fiscal aggregates. The forecasts can inform budget
planning through economic indicators, government debt projects and changes in the possible composition
of public revenue and expenditure.
13. The integration of green considerations into macro-fiscal forecasts does not require a separate
forecast, unless it is for the purposes of a forecast scenario. It is that the green considerations can have a
material impact on growth and public finance over the medium-term, for example from a change in the
composition of tax revenue from carbon taxes and fuel excises. Similarly, for public expenditure from the
cost of extreme weather events and changes to the delivery of public services as the government
transitions to a low-carbon footprint.
14. The preparation of macro-fiscal forecasts and projections that include climate and environmental
considerations are likely to increase awareness of the fiscal risks to government. Such risks may result in
updating the fiscal risk management framework to explicitly include climate and environment fiscal risks.
Box 3. The GreenREFORM initiative in Denmark
Denmark has developed a macro-fiscal model to bring climate and environmental policy variables into
its macroeconomic projections. The model, referred to as GreenREFORM, assesses the potential
macroeconomic and fiscal impacts of climate and environmental policies. The model takes a long-term
perspective, with the projections extending to 2100. The power of the model is its dynamic approach to
identify potential macro-fiscal impacts from policy changes on such things as emissions and waste
management. In doing, so, the model can look at the potential interaction of policy variables on
Denmark’s macro-fiscal outlook.
Source: (OECD, 2021[5])
Medium-term expenditure frameworks
15. Medium-term expenditure frameworks establish the parameters on public expenditure for the
forthcoming budget year and the 3–5-year period following that budget year. The frameworks support
effective fiscal management by establishing limits (or ceilings) on expenditure and provide certainty for
budget planning and the government’s operations.
16. Climate and environmental considerations are relevant to medium-term expenditure frameworks
as climate policies are implemented progressively and the fiscal implications can therefor increase over
time. For instance, under the Paris Agreement, Nationally Determined Contributions are to be increasingly
ambitious over each of the five-year periods the contributions are prepared.
17. In order to lower the government’s carbon footprint, ministries are preparing proposals to transition
to low-carbon operations. In many instances, proposals are implemented over several years and typically

8 
not all benefits are realised from the first year of implementing a new initiative. Such proposals underscore
the relevance of medium-term expenditure frameworks so baseline funding positions can vary in line with
the expected results from the new proposals.
Box 4. The Medium-Term Expenditure Framework in the Netherlands
The medium-term expenditure framework in the Netherlands is prepared during the formation of the
government. It applies for the four-year term of the government. Accordingly, the medium-term budget
estimates have the status of political agreements among the elected parties and ministers. Ordinarily,
changes to the composition of the framework are permitted only if they are offset by changes in other
line items. Budget proposals that respond to the climate change are no different from other proposals.
A cabinet decision is required before the proposals can be included in the medium-term expenditure
framework. This approach applies a budgetary constraint to the level of government expenditure.
Fiscal risk management
18. Fiscal risk management frameworks are a core component of budgeting in OECD countries
(OECD, 2019[5]). The main area where climate considerations have been integrated into fiscal risk
management is from the estimated cost that governments can incur from the damage caused by extreme
weather events. The estimated cost of such events needs to be quantified to askes that are specific to
government and that take account of insurance and other variables. The estimate of an extreme weather
event is not of itself the fiscal risk to government (Box 5).
Box 5. Estimating the cost of extreme weather events in the United States
In the United States, the Office of Management and Budget (OMB) estimated in 2022 that the cost to
the US federal budget will be an additional USD 2 trillion per annum by the end of the century from
extreme weather events, such as floods, droughts and wildfires. The fiscal impact on public expenditure
and revenue is estimated as:
 Public expenditure: The United States government may need to spend between USD 25-128
billion per annum more on coastal disaster relief, and flood insurance and crop insurance.
 Public revenue: The loss of taxation is estimated at around 7% per annum due to lower
economic output from extreme weather events that are brought about by climate change.
The estimates contribute to distinguishing between changes to medium-term forecasts, spending
pressures and fiscal risks.
Capital budgeting framework
19. The government’s capital budgeting framework is a prominent consideration in green budgeting
as climate mitigation initiatives frequently require capital investment for the transition to net-zero emission
goals. The government’s capital budgeting framework establishes the parameters and the mechanisms
the government will use to manage its capital and balance sheet requirements effectively to support fiscal
sustainability and a green transition over the medium and long term.

 9
20. Of specific relevance to the capital budgeting framework is the way in which governments can
allocate funds from carbon taxes and emission trading schemes to capital investment for a green transition.
Within the OECD, examples of the use of revenue in this way include New Zealand and Switzerland.
21. The issuance of sovereign green bonds provides resources for public green investment. Over half
of OECD countries have issued sovereign green bonds and have a green bond programme to support the
ongoing investment that is required for reduce greenhouse gas emissions (Box 6).
Box 6. Green bonds and budgeting
Since 2017, there has been a significant increase in the mobilisation of funding in government for green
purposes. Prominent examples include debt funding from the issuance of sovereign green bonds and
revenue from carbon taxes. In December 2016, Poland became the first OECD country to issue a
sovereign green bond followed by France in January 2017. By 2021, over half of OECD countries had
issued a sovereign green bond, including in Belgium, Chile, Colombia, Denmark, France, Germany,
Ireland, Italy, Latvia, Lithuania, Luxembourg, Mexico, Netherlands, Poland, Slovenia, Spain, Sweden,
and United Kingdom. Total amount of green bonds issued by OECD sovereigns exceeded USD 170
billion as of 2021. From a budgetary perspective, the issuance of sovereign green bonds can fund
initiatives that meet the requirements of the financing frameworks. The frameworks should work within
the capital expenditure ceilings set by the government.
Source: (Blazey, A. and Lelong, M., 2022[2])

10 
22. Budget preparation is the process of determining the allocation of public resources to enable the
government to progress its policy priorities. It requires careful analysis of policy proposals to ensure that
scarce resources are allocated well and are within the government’s fiscal parameters. Budget preparation
involves administrative and political processes within the budget cycle.
23. Integrating green considerations into the preparation of the budget can allow governments to
include climate change policy objectives in budget decisions. The integration of climate and environmental
considerations into budget preparation involves each of the components in Figure 3.
Figure 3. Budget preparation
24. The challenges from integrating climate and environmental considerations into the preparation of
the budget, as shown in Figure 3 include:
 Developing a baseline
o Understanding the existing baseline from a green perspective
 Analysing proposals
o Analysing spending proposals with methods and tools that include green perspectives.
o Accurately estimating costs in the context of uncertainty.
 Establishing green indicators in the performance settings
o Identifying how green performance indicators can be included in the existing performance
budgeting architecture.
 Integrating green considerations into the budget negotiations
o Conducting budget negotiations in a manner that prioritises green outcomes relative to budget
objectives.
Develop a
baseline
Analyse
proposals
Establish
performance
settings
Integrate into
budget
negotiations
2 Budget preparation

 11
Developing a baseline
25. Baseline expenditure starts with the medium-term expenditure framework. The baseline for a
ministry may differ from the previous year because of changes to the mix of policies the ministry is to
implement from one year to the next. However, the baseline expenditure as set out in the medium-term
expenditure framework can also change during the budget preparation process, as a result of changes to
the policies that the government may want to put forward in its budget. This may mean stopping or scaling
back some policies and commencing new ones. The changes can include decisions the government has
taken from spending reviews and policy evaluations.
26. The identification of the baseline, and any potential changes to it, is a core function of the central
budget authority in the ministry of finance. It can involve multiple interactions with line ministries to
determine the range of considerations that need to be included in budget preparation process.
 Determining any changes to the scope and purpose of the existing budget baseline, including from
macro-fiscal projections.
 Analysing budget proposals from the relevant ministry.
 Ensuring information from spending reviews and evaluations are brought into the budget
preparation process.
Almost all OECD countries conduct spending reviews to help ensure public resources are allocated to the
areas of greatest need relative to the government’s priorities. Increasingly, the spending reviews include a
green dimension to assess the way in which ministries are progressing the government’s climate and
environmental objectives (Box 7).
Box 7. A green dimension in spending reviews in Austria
The Austrian Recovery and Resilience Plan which was created as part of the European Recovery and
Resilience Facility, includes Spending Reviews. The reform, which has been ongoing since the end of
2021, consists of five modules that build on each other and focus on "green transformation", as well as
one on the topic of "digital transformation". Module 1 focuses on the subsidy and incentive landscape
with regard to climate and energy policies at the federal level. The aim is to examine the cost-effective
use of funds and the efficient use of existing levers of the public sector to achieve the environmental
and climate goals.
Analyse proposals
27. A core function of a ministry of finance is to analyse the merit of budget proposals to inform the
government’s prioritisation on which proposals to include in a budget. Green budgeting does not change
the need to analyse proposals, but it does change the range of variables that contribute to the analysis.
For instance, the methods and tools that are used to analyse policy proposals, such as cost benefit
analysis, can be adapted to include climate change. The change can include adding the shadow price of
carbon to the analyses, or the estimated changes from differences in consumption patterns. The latter
refers to such things as changes in the demand for public transport or the uptake of online public services.
28. The addition of climate and environmental considerations is challenging as it is a new field of
expertise and the specific requirements can vary by sector, for instance understanding climate change
implications in the agricultural sector relative to the transport sector. The experience of OECD countries

12 
has shown that including climate considerations into analyses is complex and may require successive
attempts to keep improving the approaches.
Establishing green indicators in performance settings
29. Almost all OECD countries conduct performance budgeting and have practices in place to prepare
and assign performance indicators to government programmes. Establishing green performance
indicators in budget settings is comparable to measuring other dimensions of performance, such things as
the quality of public services, which are well established aspects of reporting on the use of budget
resources. To include green performance indicators in budget performance, governments should:
 Establish targets to meet those targets by assigning responsibility for achieving the green goals
and establish accountability measures.
 Monitor progress through reporting by ministries, including information on the actions taken in
response to the performance information.
 Use performance information to inform progress towards green goals, and future budgeting
decisions.
30. Various tools can be used to integrate green initiatives in the budget negotiations, such as the
finance law and the requirements for green performance indicators in the budget circular (Box 8). Because
many OECD countries already have performance measurement and reporting in place, climate and
environmental considerations can be added to the existing reporting arrangements and do not necessarily
require separate reporting. However, there are challenges on what to report and whether the data is readily
available. For instance, measuring emissions can be more difficult than measuring the use of energy.
Box 8. Incorporation of green in performance settings in France
Since 2022, France has integrated performance indicators into its green budget. The performance
approach informs the evaluation of public spending. The aim is to focus the attention of decision-
makers, managers, and public agents on the very design of policies financed by the State and on how
to improve the choice of levers for action, and not just on the lever of increasing or decreasing
resources. The green indicators presented in 2023 represent 6% of the total indicators, and mainly
relate to expenditure that has been rated favourably in the budget relative to climate goals.
Source: (Ministry of Finance of France, 2023[7])
Integrating green into budget negotiations
31. Integrating green into the budget negotiations is crucial if climate and environmental issues are to
be considered when allocating resources. However, negotiations have to consider many matters and
require trade-offs. The purpose of establishing the institutional arrangements, aligning the budget priorities
with medium-term strategies as well as the other steps in the budget planning phase contributes to the
basis for prioritising climate and environmental initiatives in the budget. A few OECD countries have also
considered whether climate proposals should be decided jointly between the ministers of climate change
and finance, or within a group of ministers, for example in Finland and New Zealand. In other instances,
the budget initiatives are subject to negotiation across the coalition members of a government, as in Ireland
and the Netherlands.

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The budget approval is where the executive’s proposed budget is submitted to parliament for approval
(enactment) into law. The budget approval stage recognises the democratic separation of powers between
the executive and the legislature. During the approval stage, the proposed budget can be varied to increase
(or decrease) expenditure as part of the processes that provide for the budget law can become an act of
parliament.
32. The majority of OECD countries have parliamentary budget offices which helps to ensure that
independent resources are available to budget committees in parliament in relation to analysing and
interpreting the information in the proposed budget. A key aspect of supporting the approval process is to
ensure a high degree of transparency on the information that is available to parliament regarding the
resource allocations in the budget. These aspects form critical components in the budget approval process
are shown in Figure 4.
Figure 4. Budget approval
33. Challenges that are relevant to green budgeting for the approval process and parliamentary budget
offices include:
 Debate and approval in parliament
o Providing parliament with accessible information on green budgeting
o Explaining how green budgeting brings climate and environmental considerations into the
proposed allocation of public resources.
 Parliamentary budget offices
o Understanding the data needs of parliamentary budget offices.
 Budget transparency
Parliamentary
process
Parliamentary
budget offices
Budget
transparency
3 Budget approval

14 
o Deciding the balance between adding climate and environmental considerations to existing
budget reports, and preparing additional reports, such as a green budget statement.
Debate and approval in parliament
34. The parliament plays a crucial role in green budgeting, as parliaments ratified the 2015 Paris
Agreement. Approving the government’s budgeted resource allocations is a year-by-year mechanism that
can help to progress the commitments in the Paris Agreement.
35. Prior to approving the government’s budget proposal – with or without amendment – parliaments
analyse and debate the provisions in a budget. The debates and votes are by parliamentary majority, not
whether the budget is green. The climate and environmental considerations that are included in budget
bills and reports may increase the relevance of the material for other parliamentary committees, as is the
case in the United Kingdom for the Environmental Audit Committee.
36. Parliamentary budget offices perform an important role in analysing budget reports and related
material for the benefit of members of parliament. The analysis is relevant to parliamentary budget
committees as well as members of parliament generally (Box 9).
Box 9. Green analyses by the Congressional Budget Office of the United States
The Congressional Budget Office (CBO) provides budgetary and economic information to budget
committees in the Senate and House of Representatives. The CBO prepares environmental analysis
at the request of committees and in line with the CBO’s mandate. The CBO prepares information that
estimates the cost of green initiatives and policy options that include the financial cost and the
macroeconomic impact of green initiatives.
Examples of the CBO’s climate and environmental analysis include:
 Budgetary Effects of Climate Change and of Potential Legislative Responses to It,
https://www.cbo.gov/publication/57019.
 Expected Costs of Damage from Hurricane Winds and Storm-Related Flooding,
https://www.cbo.gov/publication/55019.
CBO is enhancing its capability to analyse the effects of climate change legislation
on the economy and the federal budget. In 2021, the CBO reorganised its functions to give greater
emphasis to climate change. In 2023, CBO plans to increase its expertise and modelling capability in
climate change and energy policy.
Source: (Cameron, S., Lelong, M., Von Trapp, L., 2022[8])
Budget transparency
37. Increasing budget transparency on green budgeting allows policymakers and citizens to be
informed about the purposes and uses of public resources in the government’s budget. It also contributes
to decision making and trust in government institutions. To increase budget transparency, government
should:
 Consider ways to engage stakeholders, including the public, in the green budgeting process to
ensure it is inclusive, equitable, and accountable.

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 Identify how to best provide information in budget reports on climate and environmental initiatives,
relative to the government’s strategies and policy objectives in each area.
38. Several OECD countries have included civil society into the green budgeting process as shown in
Box 10.
Box 10. Civil society engaged in green budgeting process
Canada: The Green Budget Coalition brings together 21 Canadian environmental organisations, to
present an analysis of the most pressing issues regarding environmental sustainability in Canada and
to prepare a consolidated set of recommendations.
Denmark: The Danish “borgerting” was established under the Climate Act, which is a body that has 99
members who are representative of the Danish population. The “borgerting” debates and presents its
opinions on the problems occurring on the path to reaching climate targets.
Lithuania: Decarbonisation groups formed by line ministries are responsible for making collaborative
proposals on the prioritisation of the actions to reach the goal of carbon neutrality by 2050. These
groups include social partners, non-governmental organisations, experts, and work in five sectors
(energy, industry, transport, agriculture, and circular economy).
Sweden: Major decisions are preceded by public inquiries which are tasked with consulting those
concerned central authorities, the business community and civil society. Before a decision is made, a
public consultation is carried out. The scope of consultation includes climate and environmental
impacts.
Source: (OECD, Forthcoming[1])

16 
39. Budget execution is the process of implementing, monitoring, and reporting on the initiatives within
the approved budget. This stage of the budget process refers to disbursing funds to ministries and
government agencies, monitoring results, and ensuring compliance with laws, and other requirements. It
involves managing risks, assessing the effectiveness of the budget, and making corrections as needed.
40. Green budgeting is to ensure that the climate and environmental considerations that were applied
to the planning and preparation of the budget are also part of the execution of the budget. This can mean
monitoring and reporting the progress of implementation based on milestones and risk assessments that
are relevant to green budgeting. Also relevant are to conduct evaluations to understand whether the budget
initiatives are meeting expectations and/or could be applied across government. All budget initiatives are
implemented with a control environment that provides some flexibility for changes in circumstances. The
flexibility arrangements are needed for climate and environmental initiatives as much as other initiatives in
the budget. These three areas are depicted in Figure 5.
Figure 5. Budget execution
41. The challenges that can apply to green budgeting in the execution stage of the budget process
are:
 Monitoring and reporting
o Identifying the needs of the users of monitoring reports.
o Managing within the limitations of timely data.
o Co-ordinating across government when initiaitives involve more than one ministry.
 Evaluation
o Including provision for evaluation in budget proposals.
 Budget flexibility
4 Budget execution

 17
o Ensuring the flexibility does not breach any terms of funding for sovereign green bonds, where
applicable.
o Ensuring that initiatives that are linked to funding from an emissions trading scheme or similar
instrument does not prevent the carry forward of expenditure if a project is delayed.
Monitoring and reporting
42. Budget execution is the process of monitoring and reporting how the approved budget has been
spent and what has been achieved from the use of those resources. Monitoring and reporting are best
performed by the ministry or agency that is responsible for the execution of the budget in conjunction with
oversight by the ministry of finance. In the case of climate change and environmental initiatives, the
oversight also extends to the ministries for climate change and the environment.
43. The monitoring green expenditure can involve a variety of approaches:
 Tagging expenditure
 Reporting on results
 Reporting on impacts
44. The various approaches can be used separately or in combination. In general, monitoring
arrangements in green budgeting are an emerging area of work across OECD countries as the challenges
from the identification and availability of data relative to decision making, can create uncertainty for the
investment in monitoring capacities. The features within financial management information systems can
also create constraints on monitoring processes, notably where performance data are not accessible
alongside financial data.
45. Monitoring and reporting are challenging areas of work within green budgeting as the needs of the
users of monitoring reports are evolving, there are limitations on the availability and timeliness of data and
the reporting should align with the accountability arrangements of a ministry. Experiences to date, highlight
the importance of identifying the monitoring requirements at the beginning of the budget cycle, as illustrated
in Spain (Box 11). Of note, the requirements to monitor the implementation of a sovereign green bond may
differ from the requirements to monitor implementation or service delivery. Co-ordination for cross-
governmental reporting is still evolving.
Box 11. Green budget statement in Spain
In 2022, the Government of Spain prepared a Green Budget Statement in response to its obligations
under its Climate Change and Energy Transition Law and its National Recovery and Resilience Plan.
The Statement summarises the government’s initiatives to comply with European Union law and it
contains an analysis of the composition of public expenditure relative to climate change objectives.
The report is comprehensive (132 pages), identifies the alignment to the Sustainable Development
Goals and specifies the allocation of funds in the government’s budget. Of note is the disaggregation
of expenditure on the basis of specific objectives, such as climate mitigation, climate adaptation, and
the prevention of pollution. The data provides a basis for measuring performance relative to the results
achieved and provides a basis to build on the data and measures identified in the first Green Budget
Statement.

18 
Evaluation
46. Policy evaluation is relevant to multiple stages in the budget process, including budget preparation,
budget execution and budget oversight. The distinction is often characterised through ex ante, ex durante
and ex post evaluation arrangements.
47. The inclusion of evaluation in the budget execution phase does not limit the relevance of evaluation
before implementation and after implementation is completed. Instead, the focus on evaluation in budget
execution highlights the importance of ‘learning by doing’ in a relatively new area of work such as green
budgeting, and one that requires the ability to adapt based on what is working and what is not.
48. Evaluation during the implementation of budget initiatives is not specific to green budgeting.
However, as with all areas of government operations, the evaluation function in ministries has limited
resources. In the case of climate and environmental considerations, the policy agenda is urgent and
evolving, which suggests an increased priority for evaluation relative to other policies.
Box 12. Evaluating green expenditure proposals
In 2017, the Irish Economic Evaluation Service published a report that considered the sources of
funding for climate change research in government. The report reviewed the level of funding for climate
change research in Ireland and considered the priority setting processes for research in selected
government departments. The evaluation in the paper showed that
Irish researchers were sourcing funding from both Irish and European Union sources and were
successful in doing so for certain areas of research but not others. The report recommended
improvements to help strengthen the case for ongoing funding into climate research, specifically:
 A national cross-institutional database to assist policy makers in accessing climate change
information.
 An annual climate change research conference to enhance co-ordination between researchers
and policy makers.
 A Research Prioritisation Plan, on the actions to be taken by departments to align public
research funding to priority areas.
 Mechanisms to disseminate research to policy makers.
The report highlights how evaluation can be applied to improve funding arrangements as well as the
results of programmes.
Source: (IGEES, 2017[9])
Budget flexibility
49. The flexibility of budget appropriations is the ability to move funds between different budgetary
categories, programmes, and outputs. The flexibility provides the control environment as it sets limits the
movement of funds, while recognising that budget arrangements need to allow for changes to the
circumstances in which ministries operate.
50. The flexibility required for green budgeting is the same as the rest of the budget, the
implementation of climate change initiatives can vary as much as any other budget initiative. However, for

 19
administrations where the budget circular contains detailed criteria on the circumstances when flexibility
may be applied, updates to the circular may be required to include climate change initiatives.
51. Challenges that are relevant to budget flexibility on climate initiatives include:
 Ensuring the flexibility does not breach any terms of funding for sovereign green bonds, where
applicable.
 Ensuring that initiatives that are linked to funding from an emissions trading scheme or similar
instrument does not prevent the carry forward of expenditure if a project is delayed.
52. However, flexibility arrangements for climate change initiatives refer to only existing, approved
initiatives are not a means to access funding in case of a shock event, such as an extreme weather event.

20 
53. Budget oversight is the final step of the budget cycle and can involve a range of institutions such
as independent fiscal institutions auditors general, and climate change commissions. Budget oversight
provides assurance on such things as budget sustainability (fiscal councils), the proper use of public
resources (external audit), and climate objectives (climate change commissions). Oversight activities may
include auditing, analysing, and evaluating budget and fiscal data, as well as conducting investigations
and holding hearings.
54. Integrating green budgeting into the budget oversight phase allows oversight institutions to analyse
government green action and to make proposals for improvement. The integration of the environment into
the budget oversight can be divided into different phases (Figure 6).
Figure 6. Budget reporting and oversight
55. The challenges that can apply to green budgeting in the reporting and oversight stage of the
budget process are:
 Financial reporting
o Understanding the disclosure and reporting requirements in the public sector
 The role of oversight institutions
o Ensuring the institutional mandate covers budgetary impacts of environmental policies and
evaluating the effectiveness of environmental expenditure.
o Having access to staff who specialise in environmental and sustainability issues
o Reporting findings within the scope of the institution’s publications.
 Environmental economic accounting
o Satisfying the requirements for robust statistical information.
Oversight
institutions
Financial
reporting
5 Budget reporting and oversight

 21
Oversight institutions
56. Budget oversight institutions include audit offices and independent fiscal institutions that monitor,
review, analyse and report on the activities of governments to ensure compliance with laws and standards,
and provide an expert view on its findings.
57. In OECD countries audit offices and independent fiscal institutions have recognised the
importance of considering climate and environmental considerations when auditing and preparing
comments on the activities of government. Examples include the Office of Budget Responsibility in the
United Kingdom and more recently Economic Councils in Denmark (Box 13).
58. However, as with the government budget process, the integration of climate and environmental
considerations into oversight institutions is not automatic. In addition, co-ordination between oversight
institutions is key. Oversight institutions should work (i) together to develop common methodologies and
standards for assessing the environmental impacts of budget decisions; and (ii) with other stakeholders,
including civil society, to ensure that green budgeting initiatives are informed by public input.
Box 13. Green analysis at the Danish Economic Councils
The Danish Economic Councils are an independent economic advisory body consisting of two
councils, the Economic Council and the Environmental Economic Council. A green perspective is part
of the analysis in the Councils’ three annual reports. The functions of the Councils include:
 Monitoring compliance with green budgeting initiatives
 Economic and fiscal forecasting and scenario analysis with climate and ecosystem
considerations for budget plans
 Costing and programme evaluation with a green perspective
 General research on climate, ecosystems, and the circular green economy
Source: (Cameron, S., Lelong, M., Von Trapp, L., 2022[8])
Financial reporting
59. Governments prepare audited financial statements at the end of each fiscal year. The financial
statements are prepared in accordance with accounting standards and include disclosures and explanatory
notes to increase the value of the information of the statements. Increasingly accounting standards refer
to climate change considerations and sustainability. The standard setters for the private sector have led
developments in this area, but standard setters for the public sector, specifically the International Public
Sector Accounting Standards Board has launched initiatives in this area (Box 14).
60. The development of standards for the public sector is an indication of an institutional response on
the integration climate and environmental considerations into public financial management. However, the
experiences of countries and the consultation processes indicate that the process requires careful
consideration to ensure:
 Disclosures are meaningful and relevant to financial information.
 The degree of specification in the standards needs to allow for different circumstances and scales
of operation.

22 
 The standards allow for continued refinement the information that is relevant for financial reporting
purposes.
Box 14. Developments in sustainability reporting
International Public Sector Accounting Standards Board (IPSASB) - Advancing Public Sector
Sustainability Reporting
The profile of sustainability reporting has increased significantly. In the absence of internationally
recognised guidance on sustainability reporting by public sector entities, individual jurisdictions are
beginning to develop their own requirements. The report developed by the IPSASB focuses on public
sector sustainability reporting guidance drivers, public sector approach and key enablers. In December
2022, the IPSASB completed a global consultation on the report and, based on the submissions
received, will now finalise its initial work to provide guidance on sustainability reporting in the public
sector.
Source: (IPSASB, 2022[10])

 23
References
Blazey, A. and Lelong, M. (2022), Green Budgeting: A way forward, OECD Journal on
Budgeting, vol. 22/2, http://doi.org/10.1787/dc7ac5a7-en.
[6]
Cameron, S., Lelong, M., Von Trapp, L. (2022), More than words: Potential roles for
Independant Fiscal Institutions in Green Budgeting,
http://ec.europa.eu/info/sites/default/files/ifisgreenbudgeting-20220309.pdf.
[8]
IGEES (2017), Climate Change Research and Funding in Ireland, http://igees.gov.ie/wp-
content/uploads/2015/02/Climate-Change-Related-Research-and-Funding-in-Ireland.pdf.
[9]
IPSASB (2022), Advancing Public Sector Sustainability Reporting,
http://www.ifac.org/system/files/publications/files/IPSASB-Sustainability-Reporting-CP.pdf.
[10]
Ministry of Finance of France (2023), Rapport sur l’impact environemental du budget de l’Etat,
http://www.budget.gouv.fr/documentation/file-download/19125.
[7]
OECD (2021), Green Budgeting Survey, http://www.oecd.org/environment/green-
budgeting/paris-collaborative-meetings-and-events.htm.
[3]
OECD (2021), Integrating climate into macroeconomic modelling - Drawing on the Danish
Experience, http://www.oecd.org/gov/budgeting/integrating-climate-into-macroeconomic-
modelling.pdf.
[4]
OECD (2020), Green Budgeting Framework, http://www.oecd.org/environment/green-
budgeting/OECD-Green-Budgeting-Framework-Highlights.pdf.
[2]
OECD (2019), Budget and Public Expenditures in OECD Countries,
http://www.oecd.org/gov/budgeting-and-public-expenditures-in-oecd-countries-2018-
9789264307957-en.htm.
[5]
OECD (Forthcoming), Green Budgeting in OECD countries 2022. [1]

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