is being spent?
is being spent?
Monitoring climate-related expenditures allows governments to have a better understanding of whether their climate goals are being financed.
A number of tools and studies have been developed to articulate where climate finance, both international and domestic, is going within a country. These range from one-time snapshot assessments such as UNDP’s Climate Public Expenditures and Institutional Review to systems that are consistently updated to monitor climate finance spending.
Which Countries Are Monitoring Climate Finance Today?
As of 2022, approximately 50 countries have created some sort of process to assess how funds are being spent on climate action within their borders. These are mostly developing countries (see Table 1 and Figure 1). Developed countries have built systems to track the funds they have contributed to developing countries as part of the UNFCCC process.
How Are Countries Tracking Climate Finance?
To track climate finance, one must first define what needs to be tracked and what does not. This question can be tricky to answer, particularly for adaptation finance. Many categories have emerged, including adaptation, mitigation, loss and damage, and just transition finance, but there is no universally accepted methodology to track these categories. However, several methods do exist to track finance for climate mitigation and adaptation. The OECD DAC Rio Markers is the most prominent of these, while the multilateral development banks and some national development banks follow the Joint MDB Methodology for Tracking Climate Finance.
What Is Climate Budget Tagging?
Climate budget tagging is an important tool that countries can utilize to better understand how their budget allocations are supporting their climate goals. Climate budget tagging is a process through which a government tracks its budget allocations and identifies the portions that are climate relevant. The practices behind climate budget tagging build on similar initiatives in the field of public financial management, including gender-responsive budgeting and budget tagging related to the sustainable development goals. As of 2023, there are approximately 23 countries that have a climate budget tagging system in place or are in the process of designing one. The following table provides examples of climate budget tagging across different geographies (Table 1) and Figure 2 provides a specific example of the results of tracked climate finance at a country level.
Table 1 | Approaches for Climate Budget Tagging and Reporting
Tag at the operational unit level across economic classification.
The proportion is determined based on CPEIR relevance index but assigning more specific percentages.
|Annual budget documents along with a simplified Citizens Climate Budget published by the Ministry of Finance.
|Establish a reporting system for off-budget donor funds using their aid management platform with tagging based on donors’ own reporting and with no further validation.
|Annual Climate Public Expenditure Reviews analyzing budget data and donor funds published by the Ministry of Economy and Finance.
|Tag at an activity level, all sectors with an impact on climate change and all government levels. Tag adaptation, mitigation, and cross cutting, and direct and indirect finance toward climate change.
|TOnline platform managed by the National Planning Department.
Tag at the program level.
Highly relevant: Above 60% of expenditures allocated to climate activities.
Neutral: below 20%
|Annual report published by the Ministry of Finance.
Tag at an activity level, all sectors and government levels. Only domestic resources, including loans. Tag adaptation, mitigation, and cross cutting, and direct and indirect finance toward climate change.
Public Expenditure on Climate Change Classifier within the Financial Administrative Information System.
|Online platform managed by the Ministry of Economy and Finance.
Tag at the activity level.
The proportion of the expenditure that is climate relevant is subjectively estimated by policy managers.
|Annual report published by the Ministry of Finance and annual climate budget briefs for key agencies.
Source: WRI authors
Components of an Effective Climate Budget Tagging Program
Methodology: Countries need to develop a transparent methodology to determine what qualifies as finance to be counted, and how to classify, tag and report the data.
Procedures and tools: Finance agencies must determine how and where data will be stored, then select a tool that suits their country’s needs. Information can be drawn from an annual report based on systematized data or could involve integrating data into a national financial management system.
Commitment and capacity to develop and keep budget tagging systems updated: Entities’ roles and responsibilities need to be formalized through an inter-institutional agreement, legal framework, or other means that allows enforcement and tracking of tasks.
Institutional arrangements and strategic frameworks: Entities involved in the tagging and reporting process must be clearly identified to ensure sufficient capacity and financial resources.