The “Climate Change Budget Tagging: A Review of International Experience” provides an in-depth examination of how various countries implement climate budget tagging (CBT) systems. It reviews methodologies, practices, and lessons learned from 19 countries that have adopted CBT to align public expenditures with climate goals and enhance fiscal accountability.
Key Highlights:
- Purpose of Climate Budget Tagging:
- CBT helps governments identify, measure, and monitor climate-related expenditures, facilitating alignment with climate change mitigation and adaptation goals.
- The system supports resource mobilization, enhances transparency, and strengthens accountability in budget allocations for climate priorities.
- Methodologies:
- Countries employ diverse tagging approaches, including objective-based definitions (aligned with Rio Markers) and policy-based definitions linked to national climate strategies.
- Several countries, including Indonesia, have extended their tagging systems to track investments related to both mitigation and adaptation activities.
- Institutional Roles:
- Successful implementation relies on collaboration between central finance agencies, line ministries, and environmental agencies.
- Quality assurance mechanisms ensure that tagging methodologies are consistently applied and accurately reflect climate-relevant activities.
- Benefits and Challenges:
- CBT promotes transparency, facilitates international reporting on climate finance, and supports the issuance of sovereign green bonds.
- Challenges include “greenwashing,” lack of compliance by line ministries, and limited integration of tagging data into actual expenditure reviews.
- Lessons Learned:
- Effective CBT requires integration into the broader budget process, capacity building for stakeholders, and the development of robust reporting mechanisms.
- To strengthen climate outcomes, tagging should cover adverse climate impacts and support resource allocation decisions.
Note on Preparation
This report benefited from contributions by Hari Purnomo, Arun Arya, and Derek Hung Chiat Chen, who shared valuable insights from Indonesia’s climate budget tagging experience. Their input was instrumental in shaping the report’s practical recommendations, based on lessons learned from implementing CBT in Indonesia.