Governments across the world are increasingly aligning fiscal policies with environmental priorities as climate and ecological pressures accelerate. A new briefing note from the Institute for Energy Economics and Financial Analysis highlights how green budget frameworks are helping countries link public spending with sustainability goals. Ten major insights emerge from the review:
Green budgeting is gaining global momentum as both developed and developing economies incorporate climate and environmental criteria into fiscal planning. This shift supports low carbon growth and improves long term climate resilience, Soni Tiwari, an Energy Finance Analyst with IEEFA India, said.
Climate budget tagging is becoming a crucial starting point, helping governments identify climate positive and climate negative expenditure. The note stresses that tagging must evolve into performance based budgeting and stronger impact assessment frameworks, Gaurav Upadhyay, IEEFA’s Energy Finance Analyst, said.
National context matters, with green budgeting needing to reflect development priorities, climate vulnerabilities, and institutional capacity.
Advanced economies in the EU and OECD are leading adoption, integrating climate performance indicators into core fiscal systems. Mature institutions and data infrastructure allow these countries to embed climate goals directly in budget processes.
Emerging economies are expanding foundational tools such as climate tagging, digital public financial management systems, and climate data platforms. These support transparency and empower subnational entities.
Successful case studies demonstrate measurable impact. France’s tagging in 2021 identified €38.1 billion as environmentally positive spending, rising to €42.6 billion by 2025. Ireland increased its climate aligned budget from €2 billion in 2020 to €7 billion in 2025. Mexico’s climate budget grew from MXN70 billion in 2021 to MXN466 billion by 2025.
Countries like Norway and the Philippines show that green budgeting strengthens accountability, helping governments prioritise critical climate sectors while improving transparency in how funds are allocated.
Integration with wider policy frameworks enhances results. Aligning green budgets with SDGs, green bonds, Just Transition initiatives, and gender responsive budgeting ensures that environmental action supports broader social and economic objectives.
EU member states provide mature models for institutionalisation. France uses a six point scale to evaluate each expenditure and tax measure, promoting public scrutiny. Italy applies climate tagging across ministries, aligning spending with EU mechanisms. Ireland merges climate tagging with gender responsive budgeting and performance based systems for a holistic sustainability approach.
Innovative approaches in countries like Canada, Norway, and Sweden demonstrate the power of fiscal tools. Canada’s climate lens assesses emissions and resilience in major infrastructure projects, while Norway and Sweden use environmental indicators and green taxes to shape behaviour and advance climate goals.
Green Budgeting Progress in the Asia-Pacific Region
Green budgeting efforts in the Asia-Pacific region show how climate expenditure tagging is helping emerging economies integrate environmental priorities into fiscal planning despite limited resources. By identifying climate related spending, governments are improving budget transparency, aligning national plans with climate commitments, and creating pathways to attract targeted climate finance.
Indonesia offers one of the most advanced models, linking climate budget tagging with market-based tools such as sovereign green sukuks. This approach connects fiscal policy with climate finance mobilisation and embeds climate goals across both spending and revenue measures. In the Philippines, the climate change expenditure tagging system supports decentralised climate action by allowing national and local governments to track and plan climate related investments. Its success, however, depends on long term capacity building and institutional support for local governments.
Climate Budgeting and Expenditure Tracking in the Philippines
The Philippines began integrating climate considerations into its national budgeting process in 2013, led by the Department of Budget and Management. To formalise this effort, the government introduced the Climate Change Expenditure Tagging system, which identifies and prioritises climate related programmes within the annual budget. A major shift occurred in 2021 when the General Appropriations Act was amended to significantly expand climate allocations in response to both pandemic and climate risks.
The fiscal impact has been substantial. The climate budget increased by 261 percent, rising from PHP 282 billion in FY2021 to PHP 1,020 billion in FY2025. Climate related spending grew from 6 percent of the national budget in FY2021 to 16 percent in FY2025, marking a strong commitment to resilience and sustainability.
Climate budgeting also strengthened support for priority sectors. Water sufficiency remained a dominant category, driven by investments in flood management to address the effects of El Niño on rainfall and water availability. Sustainable energy allocations expanded, with 38 percent of the FY2025 climate budget directed toward renewable energy and energy efficiency. Climate smart industries received PHP229 billion in FY2025 to help micro, small, and medium enterprises adopt resilient and energy efficient practices. Food security funding also increased sharply, rising 68 percent from FY2024 to FY2025 to support agriculture and fisheries.
France
France introduced green budgeting in 2019 to align national public finances with climate goals under the Paris Agreement. The framework was formally launched as part of the 2021 Finance Bill, making France the first country to adopt a comprehensive environmental budgeting system. It classifies each revenue and expenditure item as positive, neutral, negative, or mixed based on its impact across six EU taxonomy objectives, including climate mitigation, climate adaptation, water management, circular economy, pollution control, and biodiversity.
France’s green budgeting has delivered notable fiscal outcomes. Positive expenditure rose to €42.6 billion in 2025, up from €38.1 billion in 2021, while negative spending remained steady at €4.7 billion. Neutral expenditure fell from €10 billion in 2021 to €8.1 billion in 2025, indicating a shift toward more environmentally aligned spending. Under the 2025 Finance Bill, 228 items are classified as positive, 17 as neutral, and 70 as negative. Total ecological planning expenditure reached €47.2 billion in 2025, reflecting consistent growth.
The model has also supported strong environmental and social gains. The mobility sector received €13.2 billion to advance clean transport, including rail, river, and public transport initiatives. The energy sector was allocated €9.1 billion to support renewable energy and nuclear projects, while shielding consumers and businesses from energy price fluctuations. Buildings received €6.2 billion to accelerate renovation through measures like reduced VAT, zero rate eco loans, and interest exemptions for sustainable development savings.
Norway
Norway adopted a national climate budgeting system in 2022 to align fiscal planning with its commitment to cut emissions by 55 percent from 1990 levels by 2030. The model, first tested in Oslo, was integrated into the national budget as the Green Book. It embeds climate goals into annual fiscal decisions, guided by the Climate Change Act, which mandates yearly reporting to Parliament on progress toward emission targets. Using EU-aligned indicators, the system assigns annual mitigation responsibilities to ministries and local authorities, supported by transparent public reporting, parliamentary oversight, and international cooperation.
The 2025 climate budget highlights targeted investments and regulatory shifts. The government proposes NOK8.1 billion for Enova, including NOK1.2 billion to accelerate the transition to zero-emission heavy vehicles and expand charging networks. Policy initiatives under consideration include emission-free construction site requirements by 2026 and 2030, new food waste legislation effective from 2026, and a potential ban on fossil gas for permanent heating starting in 2028. The government also plans a faster rollout of higher biofuel blending targets while reducing deforestation risks.
Norway will strengthen the CO2 compensation scheme by requiring that 40 percent of allocated funds be directed to climate and energy efficiency improvements. Further support includes zero-emission mandates for ferries from 2025, along with NOK50 million in compensation for municipalities and NOK200 million in new authority for fast boat decarbonisation.
Baburajan Kizhakedath