IEEFA Briefing Highlights Global Shift Toward Green Budget Frameworks to Strengthen Climate-Responsive Fiscal Policy

As climate and ecological challenges intensify, governments across the world are increasingly aligning fiscal policies with environmental objectives, according to a new briefing note released by the Institute for Energy Economics and Financial Analysis (IEEFA). The analysis finds that green budget frameworks (GBFs) are emerging as a critical tool to support low-carbon development, sustainable resource use and climate resilience.

The briefing reviews how both advanced and emerging economies are adopting and refining GBFs, drawing lessons from implementation experiences in Europe, the OECD, the Asia-Pacific, Africa and Latin America. It evaluates the tools, institutional mechanisms and innovations that support effective integration of climate objectives into national budgetary processes.

Among the key findings, the note underscores that climate budget tagging is often a practical entry point for green budgeting. However, to achieve meaningful transformation, countries must advance toward performance-based budgeting and comprehensive impact assessments. IEEFA emphasizes that green budgeting approaches must remain tailored to national circumstances, considering development priorities and climate vulnerabilities.

“Advanced economies such as those in the EU and OECD have progressively embedded climate performance criteria into their core budgetary and fiscal planning processes, leveraging mature institutions and data systems,” said Gaurav Upadhyay, Energy Finance Specialist at IEEFA and author of the briefing. “Similarly, many emerging economies are in the process of adopting foundational green budgeting tools such as climate budget tagging, with a strong emphasis on transparency, capacity building, and empowering subnational actors.”

The analysis notes that in developing economies, digital public financial management systems and climate data platforms are increasingly central to building effective green budgeting structures.

The briefing highlights the experiences of countries including France, Ireland and Mexico, which have demonstrated measurable progress through green budgeting tools.

In France, green budget tagging initiated in 2021 identified €38.1 billion (INR 3.89 lakh crore) as environmentally positive expenditure, supporting sectors such as clean transport, renewable energy and energy efficiency. This approach helped shift subsidies away from polluting activities and informed future fiscal planning, with allocations expected to grow to €42.6 billion (INR 4.35 lakh crore) by 2025.

Ireland’s adoption of climate budget tagging has similarly driven an increase in environmental spending—from €2 billion (INR 20,400 crore) in 2020 to €7 billion (INR 71,400 crore) projected for 2025. In Mexico, climate-related budget allocations have increased sixfold, rising from MXN 70 billion (INR 34,300 crore) in 2021 to MXN 466 billion (INR 2.28 lakh crore) expected in 2025.

The note also points to strengthened transparency and accountability in countries such as Norway and the Philippines, where climate budgeting has helped prioritise critical sectors and reinforce the alignment between fiscal planning and national sustainability goals.

Co-author Soni Tiwari, Energy Finance Analyst for South Asia at IEEFA, said integrating green budgeting with broader policy frameworks—including the Sustainable Development Goals, green bonds, Just Transition strategies and gender-responsive budgeting—offers a comprehensive pathway to align climate action with social and economic development.