Project and Country-specific context:

Green Budgeting aims to align national budgets with sustainability objectives by systematically identifying, assessing, and reporting expenditures and revenues that impact climate and environmental goals. This reform initiative enhances transparency, policy coherence, and informed decision-making, supporting the transition to a sustainable and resilient economy.

The reformed EU Economic Governance Framework, which entered into force in April 2024, aims to ensure sound and sustainable public finances while promoting inclusive and sustainable economic growth. The reform introduces medium-term fiscal structural plans, requiring Member States to outline fiscal, structural, and investment policies over a 4–5-year horizon, with a macroeconomic outlook spanning up to seven years for reforms and investments. This framework aligns public finances with country-specific challenges and EU priorities, including the European Green Deal.

The recently adopted EU Directive 2024/1265^[1] and the new EU Economic Governance Framework emphasize the importance of aligning fiscal policies with sustainability and climate objectives. The Directive requires Member States to report on macro-fiscal risks arising from climate change, climate-related contingent liabilities, and fiscal costs of disasters.

The Green Deal Communication, the Fit for 55 package^[2], and the reformed EU Economic Governance Framework set an ambitious policy context for addressing climate change, emphasizing the need to align public finances with climate and environmental objectives. Green Budgeting is critical to achieving these goals.

Between 2021 and 2024, the Commission implemented the Green Budgeting Training Programme^[3], a multi-country technical support project under the Technical Support Instrument (TSI). This program, based on the European Union Green Budgeting Reference Framework, provided capacity-building in Green Budgeting to 23 Member States. It consisted of four modules covering foundational principles, tagging methodologies, environmental impact assessments, and peer-to-peer exchanges. The program:

·       Trained approximately 1,200 participants.

·       Enabled Member States to develop and implement Green Budgeting frameworks at the national level.

·       Fostered cross-border collaboration and established a community of Green Budgeting Practitioners among public officials across the EU.

Implementing Effective Green Budgeting practices

These technical support needs shall be addressed in the framework of this new project for Implementing Effective Green Budgeting practices. The Beneficiary Authorities are facing unique challenges in implementing green budgeting practices. Each country has its own specific challenges, such as developing tagging methodologies, institutionalizing green budgeting, and integrating environmental impact assessments into budgeting processes. Despite progress made, each country require technical support to address gaps in capacity, governance, and data management, and to refine methodologies for identifying and categorizing green expenditures. The countries will benefit from the action through tailored support as well as common activities to share experiences, develop and strengthen methodologies, and foster cross-border collaboration.

Croatia, Czech Republic, Cyprus, Denmark, France, Ireland, Portugal, Slovakia, Slovenia and Spain have requested support from the European Commission under Regulation (EU) 2021/240 establishing a Technical Support Instrument ("TSI Regulation").  The request for technical support was assessed by the European Commission in accordance with the criteria and principles referred to in Article 9 of the TSI Regulation and was selected for funding.

The national authorities that requested technical support and will benefit from this Project are:

·       Ministry of Finance of the Republic of Croatia (Ministarstvo financija)

·       Ministry of Finance of Cyprus

·       Ministry of Finance of the Czech Republic (Ministerstvo financí České republiky)

·       Ministry of Finance of Denmark (Finansministeriet)

·       General Direction for Public Finances and Budget Directorate, Ministry of Economics, Finance and Industrial and Digital Sovereignty (Direction Générale des Finances Publiques (DGFiP) and Direction du Budget (Ministère de l’Économie, des Finances et de l’Industrie)

·       Department of Public Expenditure and Reform, Department of Finance of Ireland (An Roinn Caiteachais Phoiblí, Bonneagair, Seirbhísí Poiblí, Athchóirithe agus Digiteachaithe)

·       Office for Economic Policy and International Affairs, Ministry of Finance (Gabinete de Planeamento, Estratégia, Avaliação e Relações Internacionais (GPEARI) – Ministério das Finanças)

·       Ministry of Environment of Slovakia (Ministerstvo životného prostredia Slovenskej republiky)

·       Ministry of Finance of Slovenia (Ministrstvo za finance)

·       Ministry of Ecological Transition and the Demographic Challenge of Spain (Ministerio para la Transición Ecológica y el Reto Demográfico)

This project has two strands of technical support:

1. Five Standalone Requests: These focus on tailored technical support for implementing Green Budgeting practices at the national level in Cyprus, Czechia, Denmark, France (sub-national), and Portugal. The support includes developing methodologies for tagging climate-relevant expenditures, enhancing governance frameworks, and building capacity within national ministries.

2. Civil Servants Exchange: This component facilitates knowledge-sharing and capacity-building among Member States. It includes participation from the five standalone project beneficiaries (Cyprus, Czechia, Denmark, France, and Portugal) as well as Croatia, Ireland, Slovakia, Slovenia, and Spain.

France

France has made it mandatory for local authorities with more than 3,500 inhabitants to prepare a "green budget", in the form of an appendix to their annual accounts, in application of the Decree of July 16, 2024 taken in application of article 191 of law no. 2023-1322 of December 29, 2023 on finances for 2024. The objective of this Green budget is to identify and measure the environmental impact of local authority capital expenditures in line with the six objectives of the European taxonomy. The current decree mandates only capital expenditure. This exercise requires technical skills and human resources within local authorities, in order to set up a management dialogue on the environmental impact of expenditure, to adopt a harmonized evaluation methodology adapted to the specificities of the local public sector, and to complete the now mandatory appendix, which will be aggregated at national level.

While the framework will be implemented very gradually until its generalization, scheduled for 2028 (for accounts produced for the 2027 financial year), a preliminary phase will begin as early as 2025 (for accounts produced for the 2024 financial year), for a reduced number of capital expenditures and a single axis of the European taxonomy: Climate change mitigation. By 2026, local authorities will be required to add the biodiversity axis to their analysis of the environmental impact of capital expenditure (for accounts produced in 2025).  The key challenge currently is the deployment of the tagging methodologies at the local level and strengthening the skills of local authorities. Indeed, the methodologies are being developed (if not already completed for certain parts) and the challenge will therefore be more one of its local deployments than its design.