From Theory to Practice: Key Success Factors in Green Budgeting Implementation
Tips on green budgeting: an effective tool for using the financial resources governments already have in a climate-friendly way
2024 saw global greenhouse gas emissions reach a new record, with the world’s 10 most costly climate disasters causing $229bn in damages Countries around the world are facing new challenges on their climb to address the climate crisis, amidst global uncertainty, rising public debt, shifting political priorities and pressures on public budgets. Financing gaps remain one of the most crucial barriers, particularly for developing countries with high debt burdens and a lack of access to affordable climate finance.
In developed economies, aligning budget decisions with climate goals can play an important role in developing investment and financing plans needed for national climate action plans (NDCs). Green budgeting tools enable governments at all levels to use more responsibly the financial resources they already have in their fight against rising temperatures.
Through Next Generation Budgets, 11 state and regional governments in our Under2 Coalition network from Europe and North America receive technical training to green their budgets with the best available knowledge and tools and take part in a community of practice to improve and learn ways to unlock finance and investment for their climate projects. Collectively, our participating governments have a combined budget of US $428.1 billion on a yearly basis – larger than the GDP of Denmark (US $407 billion) showing tremendous greening potential of their overall budgets.
We support regions with their specific green budgeting needs together with our technical partners, Expertise France and the institute for Climate Economics. As the Next Generation Budgets Green Budgeting Course draws to a close, our final module focused on five best practices for successful green budget tagging practice (for a recap on what green budget tagging is please read our previous article). We then heard updates from participating governments on their green budgeting implementation agendas building on the training they’ve received through the course. This was complemented by a presentation from the Danish Ministry of Climate, Energy and Utilities, outlining their integrated approach to environmental impact assessments that combine socio-economic analysis with budget planning.
Tip 1. Get the governance right
Clear institutional roles are critical at every stage of the tagging process, with a three-fold approach. Prior to tagging, responsibility must be defined for developing methodologies, tools, and training. During tagging, competent entities must carry out classifications, oversee quality assurance, and ensure compliance. Post-tagging tasks include aggregating results, updating methods, and planning the next cycle. A decentralised governance model enhances ownership and internal transformation but requires strong coordination whilst centralised models may support reporting more efficiently, but risk limited institutional engagement.
Tip 2. Make it part of the existing budget cycle
Green budget tagging must be embedded in the broader budget process to influence resource allocation in the long run. We looked at:
- Ex-ante tagging (during budget preparation) supports strategic decision-making and aligns with planning cycles but requires robust tools and coordination.
- Ex-post tagging (on final accounts) is easier to implement but offers limited influence on current-year decisions.
- Hybrid models (see break-down below) combine both, providing policy insights and reporting value. Integration should be matched to data availability and institutional capacity, ensuring tagging outputs inform actual fiscal choices.
Tip 3. Define scope and level of analysis
Implementation should begin with a manageable scope, targeting sectors or agencies with high environmental relevance. The level of analysis must balance precision with feasibility. Programme-level tagging may initially be enough, while budget-line tagging allows deeper insights if supported by adequate data. Applying thresholds (e.g. targeting lines that cover 80% of total spending) ensures efficient use of resources and focuses efforts on impactful areas. Gradual expansion over time enables refinement and scaling.
Tip 4. Say no to greenwashing
To maintain credibility, green budget tagging must be based on transparent, scientifically sound methods. All classifications should be justified and recorded. Training should enable stakeholders to distinguish types of environmental impact (e.g. emissions, biodiversity). Regular reviews of classifications and consistent methodologies across cycles help ensure comparability and build trust. Misclassified or weakly evidenced tags risk undermining the integrity of the entire framework. Most importantly, green budget tagging approach must include plans to redirect brown or unfavorable expenditures to climate favorable ones over time.
Tip 5. Think about your government purchasing power
Procurement presents specific tagging challenges due to limited data and tracking into supply chains. Expenditures should be analysed either by the nature of the good/service (e.g. renewable energy vs. fossil fuels) or by the intended policy objective (e.g. health, transport). In the absence of clear environmental criteria, tagging should default to environmentally unfavourable to highlight areas needing policy revision. Procurement data must be aligned with green budget tagging classification grids to capture its substantial impact effectively.
With these technical tips in mind, let’s hear how different subnational governments have started putting green budgeting into action. Here are some examples of the progress taskforces have made since the project began.
What have you done to progress on green budgeting since the start of the project?
“A review of the Rio markers methodology (our current labeling method) has been completed and an analysis of the current situation has been conducted, and we are considering a new methodology to label undefined, negative (brown), and green expenditures (weighted or typological approach).”
What implementation steps will you take by the end of 2025?
“Establish an interdepartmental working group between the Department of Economy and the Office of Climate Change”
Our states and regions are progressing from reviewing methodologies to taking practical steps in their green budgeting journeys as part of our Next Generation Budgets project. Building on this foundation from the Green Budgeting Course, participants will now start the second component of the project: a Community of Practice (CoP) focused on learning ways to increase financing and investment for climate action, starting in June 2025 in partnership with the Institute of Climate Economics.
In our Next Generation Budgets-project, 11 state and regional governments from Europe and North America, all part of Under2 Coalition network, focus on greening their budgets. They’re trained with the latest knowledge and tools, learn from peers, and unlock finance and investment for their climate projects.