GOVERNANCE GOVERNANCE EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT Technical Annex: Overviews of Climate Expenditure Tagging Frameworks February 2021 © 2021 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org Some rights reserved. This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Nothing herein shall constitute or be considered to be a limitation upon or waiver of the privileges and immunities of The World Bank, all of which are specifically reserved. Rights and Permissions This work is available under the Creative Commons Attribution 3.0 IGO license (CC BY 3.0 IGO), http:// creativecommons.org/licenses/by/3.0/igo. Under the Creative Commons Attribution license, you are free to copy, distribute, transmit, and adapt this work, including for commercial purposes, under the following conditions: Attribution—Please cite the work as follows: 2021. “Technical Annex: Overviews of Climate Expenditure Tagging Frameworks” EFI Insight-Governance. Washington, DC: World Bank. Translations—If you create a translation of this work, please add the following disclaimer along with the attribution: This translation was not created by The World Bank and should not be considered an official World Bank translation. The World Bank shall not be liable for any content or error in this translation. Adaptations—If you create an adaptation of this work, please add the following disclaimer along with the attribution: This is an adaptation of an original work by The World Bank. Views and opinions expressed in the adaptation are the sole responsibility of the author or authors of the adaptation and are not endorsed by The World Bank. Third-party content—The World Bank does not necessarily own each component of the content contained within the work. The World Bank therefore does not warrant that the use of any third- party-owned individual component or part contained in the work will not infringe on the rights of those third parties. The risk of claims resulting from such infringement rests solely with you. If you wish to reuse a component of the work, it is your responsibility to determine whether permission is needed for that reuse and to obtain permission from the copyright owner. Examples of components can include, but are not limited to, tables, figures, or images. All queries on rights and licenses should be addressed to World Bank Publications, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; e-mail: pubrights@worldbank.org. Graphic Designer: Diego Catto / www.diegocatto.com 2 >>> EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT >>> Acronyms CPEBR Climate Public Expenditure and Budget Review CPEIR Climate Public Expenditure and Institutional Review EU European Union GCF Green Climate Fund GEF Global Environment Facility Grupo de Financiamiento Climático para América Latina y el Caribe GFLAC (the Climate Finance Group of Latin America and the Caribbean) GHG Greenhouse Gas ICT Information and Communications Technology IDFC International Development Finance Club IFMIS Integrated Financial Management Information System IPCC Intergovernmental Panel on Climate Change MDB Multilateral Development Bank MRV Monitoring, Reporting, and Verification NDC Nationally Determined Contribution ODI Overseas Development Institute OECD Organisation for Economic Co-operation and Development PFM Public Financial Management SGB Sovereign Green Bond SNG Subnational Government SOE State-Owned Enterprise UNDP United Nations Development Programme UNEP United Nations Environment Programme UNFCCC United Nations Framework Convention on Climate Change WRI World Resources Institute 3 >>> EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT >>> Technical Annex: Overviews of Climate Expenditure Tagging Frameworks Bangladesh CPEIR. A CPEIR was conducted in 2012 by the General Economics Division under the Plan- ning Commission of the Ministry of Planning, funded and facilitated by UNDP. At the time of the review, the chart of accounts of the government of Bangladesh had over 13,500 administrative, operational, and functional budget codes, of which 19 referred directly to climate change. The review identified climate-relevance codes based on a broad definition of “any expenditure in- curred to take measures to reduce risks, mitigate or address the impacts of climate change.” An indicative list of adaptation investments was elaborated based on climate variables, their impact, and the interventions required to address them. Mitigation expenditure was identified based on the OECD Rio marker definition. The review covered development (investment) and non-development (recurrent) budgets. It iden- tified programs and expenditures with some form of climate dimension, even if climate change was not the main focus and only some activities were directly relevant. In total, 849 codes were identified as climate relevant. Codes were attributed a weight (a share of budget considered cli- mate relevant), depending on the location of the project, the vulnerability context, and the project activities. This was largely based on expert judgment. Codes were then classified into bands of relevance (1–4), depending on the share of budget allocated to the climate activity. Expenditures under each code were then finally weighted by the (weighted) average share of budget attributed to climate change within their band of relevance. The review suggested that a functional (or pol- icy) climate change code be incorporated under the revised chart of accounts, aligned with the themes of the national climate change policy. It also recommended the introduction of a climate marker into the mid-term budgetary framework (similar to the gender and poverty tags). Context. The climate public finance tracking methodology was finalized at the end of 2018 by the Ministry of Finance’s Finance Division, supported by UNDP and the World Bank. The 2012 CPEIR provided the basis for climate expenditure tracking but did not directly inform the design of the current methodology, which differs markedly in the definition of climate relevance, the weighting applied, and the budget system used. The tracking methodology is linked to the Ban- gladesh Climate Change Strategy and Action Plan (2009–2018). Objectives. The stated objectives of tracking climate-relevant public funding are to “report on climate finance flows aligned with national climate strategies and plans, improve the governance of climate finance, facilitate the assessment of results from climate investments and support bet- ter project design.” The overall purpose is to report financial flows, build trust and accountability, and monitor trends and progress in climate-related investment. Expected benefits include: align- ment of climate finance with national climate change policy; ability to report on climate finances (allocation and expenditure) and determine financing gaps and policy review/adjustment needs; 4 >>> EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT and enhanced awareness on the part of policy makers and Roles. The Finance Division of the Ministry of Finance led the planners. Climate tracking is a component of the climate fiscal development of the tagging methodology. It was supported framework and is described as part of a broader package of by the project team of the Inclusive Budgeting and Financ- reforms to operationalize national climate change policies. As ing for Climate Resilience Project (UNDP). Consultations on such, the methodology has a clear national focus. Climate rel- the methodology were held with national stakeholders and evance is defined according to national policy documents (see through two focus group discussions in a particularly vulner- below), and results cannot be aggregated across countries. able coastal community. Suggestions from these processes were integrated into the design of the methodology. Tagging is Coverage. Bangladesh tracks expenditure across all sec- applied automatically based on the information in the integrat- tors. In the latest Climate Budget Report, 25 out of 45 minis- ed budgeting and accounting system. A unit within the Ministry tries reported climate-relevant expenditure. For the next year of Finance reviews ministries’ annual budgets and tags the (2020/21) this will be expanded to 30, covering the principal relevant programs and projects. Line ministries are required entities engaged in climate action. The tagging covers both to integrate climate change into their mid-term budget frame- development (investment) and operational (recurrent) bud- works and annual budgets. gets. The latter includes funds transferred from the center to local government entities. Off-budget expenditures (including Budget process. According to the climate budget report, donor funding not channeled through the treasury) and expen- “modifications in the format of the Budget Circular (BC) [have diture on SOEs are not tracked. been made] to provide guidance to the budget desk officials of the relevant Ministries/Divisions to be able to provide in- Definition. The definition of climate relevance is based on the formation related to climate change priorities and actions in themes and programs identified under the national climate their MBFs (Ministry Budget Frameworks).” The budget tem- change policy. This includes six thematic areas (food security, plates for ministries include a chapter asking budget entities social protection, and health; comprehensive disaster man- to assess the impact of ministry projects/programs on climate agement; infrastructure; research and knowledge manage- change. Tagging is part of a broader reform effort under the ment; mitigation and low-carbon development; and capacity country’s 2014 climate fiscal framework to better integrate cli- building and institutional strengthening) and 44 specific pro- mate change considerations into the budgeting process (e.g., grams (marked by four-digit codes), distinguishing adaptation costing and prioritizing climate actions, integrating climate and mitigation. Expenditure is considered climate relevant if policy with mid-term planning and budgeting, etc.). The data it contributes to one of the specific programs or falls under generated from the tagging support the monitoring of progress one of the thematic areas. Under each specific program, the under the National Climate Change Action Plan. methodology provides an indicative list of climate-relevant projects/activities. However, there is no exhaustive “positive Tagging method. Based on the line ministries’ annual devel- list” of eligible expenditures, nor is there is a “negative list” of opment programs, a unit within the Ministry of Finance enters non-climate-relevant expenditures. Activities with harmful cli- the climate-relevant projects and programs into the integrat- mate change impacts are neither defined nor tracked. ed budgeting and accounting system climate change module. The climate-relevance criteria assigned correspond to the Estimation. Bangladesh applies a climate-relevance weight 44 priority programs (four-digit code) and six thematic areas to all relevant expenditures. The weight is defined in the cli- (two-digit code) under the national climate change policy. An mate public finance tracking methodology. For each intended additional criterion covers “non-climate finance” expenditures. climate intervention, the difference between the expenditure’s Climate-relevance criteria (“tags”) and corresponding weights climate change relevance (percentage) and its share under a are assigned to projects and programs. When budget officers business-as-usual scenario is calculated. The weight for the within the line ministries add project expenditures into the overall program (four-digit code) is given by subtracting the system, the climate relevance and weights are assigned au- sample standard deviation from the maximum intervention tomatically. For operational (recurrent) expenditures, climate weight. Up to three climate-relevance criteria can be assigned relevance is established based on the climate relevance of the to each program. For programs addressing more than one rel- overall portfolio of projects and programs under the respective evance criterion, the program relevance weight is calculated administrative unit. Transfers to local government entities are by applying the weighted reciprocal rank formula to distribute included in the ministries’ operating budgets. expenditure among the criteria (for three criteria, the weights are 0.55, 0.27, and 0.18; for two criteria, 0.67 and 0.33). Validation. There is no independent verification mechanism in place. 5 >>> EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT Tracking. Tagging is integrated into the integrated budgeting 573 projects were identified, including donor-funded projects. and accounting system. Expenditures are tracked, and reports Programs were then classified according to their relevance include information on actual expenditures as compared to ini- (high=climate resilience or mitigation as a clear primary objec- tial budget allocations. There are no specific climate budget tive; medium=resilience as a secondary objective; low=indi- execution reports at the line ministry or program level. rect adaptation and mitigation) based on a standard typology for different program types (e.g., forestry projects were to be Publication. The Ministry of Finance presents both a compre- classified as highly relevant, eco-tourism as medium relevant, hensive annual Climate Finance Report and a simplified an- livelihood improvement as less relevant, etc.). Finally, projects nual citizens’ climate budget. Annual financial statements and were weighted according to their climate relevance: a weight budget briefs present information according to administrative of 80 percent was applied for highly relevant projects, 50 per- and economic functions only and do not cover climate budgets cent for medium relevance, and 25 percent for low relevance. specifically. The Climate Budget Report provides information The CPEIR recommended the introduction of an annual Cli- on the allocation, revised allocations, and actual expenditure mate Change Monitoring Report to provide updates on policy overall by ministry, program, and thematic areas (overall and and climate expenditure. It proposed a refined classification by ministry). Actual expenditure rates are calculated against system to better account for directly climate-relevant expen- the revised annual budgets. The Ministry of Finance (with diture within larger programs. The CPEIR acknowledged that support from UNDP) produced the citizens’ climate budget re- the budget process and functional classifications did not per- ports for 2018/19 and 2019/20, providing a concise overview mit the analysis of recurrent expenditures. of climate budget allocations for the current and next fiscal years, as well as information on actual expenditures of pre- Context. Following the 2012 CPEIR, the Cambodian Ministry vious budget cycles. Civil society organizations produce their of Economy and Finance started conducting annual climate own citizens’ budget reports based on data made available by public expenditure reviews, with support from the National the government. Council for Sustainable Development and the (donor-funded) Cambodia Climate Change Alliance program under the Minis- Audit. Performance audits have been conducted for two cli- try of Environment’s Climate Change Division. The methodol- mate-relevant projects. A manual and criteria for climate per- ogy follows the initial CPEIR. Tagging is linked to the Cambo- formance audits have been developed. dia Climate Change Strategic Plan (2014–2023) and sectoral climate change action plans. References Bangladesh, Government of. Ministry of Planning. 2012. “Ban- Objectives. The annual climate public expenditure reviews gladesh: Climate Public Expenditure and Institutional Review.” do not specify the overall objective and purpose of tracking Public Expenditure in Climate Change. General Economics climate change expenditure. However, based on the infor- Division, Planning Commission, Ministry of Planning, Dhaka. mation provided in the reports, the main focus appears to be ———. Ministry of Finance. 2018. “Climate Public Finance on accountability and transparency, the integration of climate Tracking in Bangladesh. Approach and Methodology.” Inclu- change into planning and budgeting, and the mobilization of sive Budgeting and Financing for Climate Resilience (IBFCR) international funding to address financing gaps. Project. Ministry of Finance, Dhaka. Coverage. The scope of the climate public expenditure re- views has gradually been expanded. The latest available re- Cambodia port (FY2017) covers the 15 ministries and agencies that have a Climate Change Action Plan in place. Although they cover a wide range of sectors and a significant part of government spending, not all government expenditures are included. The CPEIR. A CPEIR was conducted in 2012 by the ODI, financed review covers development (investment) and operational (re- by UNDP with the participation of the Ministry of Environment current) expenditure. External finance is reported by donors and Ministry of Economy and Finance. The CPEIR used the through a dedicated database. OECD (Rio marker) definitions for mitigation and adaptation. The review identified six priority sectors for climate-related Definition. The definition of climate relevance is based on expenditure based on an assessment of vulnerabilities: ag- the OECD (Rio marker) definitions for adaptation and mitiga- riculture, water resources, rural infrastructure, energy, for- tion. Expenditure figures are presented both jointly (climate estry, and health. Twenty-five (out of 33) budgetary entities relevant) and separately (adaptation/mitigation). The defi- were classified as having at least some climate relevance, and 6 >>> EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT nition does not include expenditures with a negative impact Publication. Climate expenditures are not identified in budget on climate. Although there is no exhaustive positive list of cli- documents. The Ministry of Economy and Finance produces mate-relevant expenditures, a typology of 20 program types an annual climate public expenditure review. The NGO Fo- has been developed. This typology also serves as a guide for rum, a Cambodian civil society organization, published the the allocation of weights to the various types of expenditure. first citizens’ climate budget in 2020. The methodology does not provide a negative list of non-cli- mate-relevant expenditures. Audit and evaluation. There are no specific audit and evalu- ation arrangements in place for climate-relevant expenditures. Estimation. Relevant expenditures are categorized as of high, medium, and low relevance based on a standard typolo- References gy of 20 program types. However, the typology is not binding; Cambodia, Government of. Ministry of Environment and Min- for example, a program that would usually be considered of istry of Economy and Finance. 2012. “Cambodia: Climate medium climate relevance may be highly relevant if it is imple- Public Expenditure and Institutional Review.” Ministry of Envi- mented in a particularly vulnerable community. Expenditures ronment and Ministry of Economy and Finance, Phnom Penh. are weighted according to their relevance (high 80 percent, medium 50 percent, low 25 percent). ———. Ministry of Economy and Finance. 2019. “Climate Public Expenditure Review 2017.” Ministry of Economy and Roles. The Ministry of Economy and Finance conducts the Finance, Phnom Penh. annual Climate Public Expenditure Reviews, with support from the National Council for Sustainable Development and the (donor-funded) Cambodia Climate Change Alliance program Colombia under the Ministry of Environment’s Climate Change Division. There appears to be no involvement of line ministries in the re- view of climate expenditures. It is not clear to what extent the CPEIR. A CPEIR was conducted in 2018, after the prepara- findings of the review are disseminated beyond the Ministry of tion of the national tracking methodology. The CPEIR was Economy and Finance and the Ministry of Environment. prepared by KPMG under the donor-funded GCF Readiness Programme led by UNEP, UNDP, and the WRI, with the Na- Budget process. Guidance on climate change has been in- tional Planning Department as the government counterpart. cluded in annual budget circulars since 2017. This provides a The CPEIR applied the 2016 tracking methodology and does general discussion on the needs for climate change adapta- not make further methodological recommendations. tion. There are no instructions on tagging, and expenditures are not tagged in the budget preparation process. An annual Context. The climate tagging methodology was developed in ex post expenditure review is conducted. 2016 by the Financial Management Committee of the National Climate System and the National Planning Department, with Tagging method. Projects and programs are assessed ex support from the WRI. The methodology provides the frame- post through dedicated annual climate public expenditure re- work for periodic reviews of climate public expenditure. It is views. These reviews analyze budget data provided by the linked to monitoring and reporting requirements under the Ministry of Economy and Finance. Off-budget development UNFCCC and the Paris Agreement. Colombia has already finance is reported by donors through the official development used thematic budget tags to identify expenditures related to assistance database. Donors tag their funds with climate displaced persons, victims, peace agreement commitments, markers in the database; however, this is not done consistent- ethnic minorities, and poor households. These tags constitute ly, and the review includes a manual assessment of projects a significant burden on national and subnational entities in based on their descriptions. terms of monitoring and reporting. Line ministries tend to view thematic tagging as an additional reporting requirement rather Validation. There is no validation mechanism. than a tool to improve their planning and budgeting. The Na- tional Planning Department is unable to review and validate all Tracking. Actual expenditures are not tracked. The bud- of the tags applied, and the quality and robustness of the data get settlement law is presented using the economic classifi- are therefore variable. This has impacted the development of cation. There is no information on actual expenditure of the climate tagging. The methodology was applied in three con- climate-relevant projects. The preparation of annual climate secutive years at the national level (2015–17) with the support public expenditure reviews is not automated. Programs and of donor-funded external consultants. The National Planning projects are mapped manually. Department has limited capacity to continue annual reviews. 7 >>> EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT All thematic tags will be reviewed under an ongoing PFM re- Estimation. All relevant activities are weighted at 100 per- form project supported by the World Bank. cent. However, activities that are not explicitly aimed at cli- mate change are marked as “associated activities.” In the Objectives. In its 2015 NDC, Colombia committed to creat- case of recurrent expenditures, the share of climate-relevant ing a monitoring system for climate financing. The declared investment is applied to the recurrent budget. objective was to “guide the analysis of financing linked to cli- mate change mitigation and adaptation actions in Colombia, Roles. A consultation on the CPEIR methodology took place from public, private, national and international sources, for its in 2016 with the participation of government institutions, aca- classification and measurement.” The framework referred to demia, the private sector, and civil society. The methodology reporting obligations as a component of the national monitor- was developed under the auspices of the National Planning ing, verification, and reporting system under the UNFCCC and Department and the Financial Management Committee of the the Paris Agreement. It was intended to identify funding gaps National Climate Change System. The Ministry of Finance and options for the reallocation of funds, as well as investment was not actively involved in the design and preparation of the opportunities. The definition of climate relevance is based on expenditure reviews, which were instead conducted centrally both international definitions and national policies. by the National Planning Department, with external consul- tants playing an important role in application. This has result- Coverage. The methodology covers 11 sectors that are con- ed in a lack of ownership of the results and limited impacts on sidered most directly linked to mitigation and adaptation ac- planning and budgeting. The methodological guide provides tions: energy, environment and natural resources, agriculture, the framework for the climate public expenditure reviews, cov- transport, housing, education, health, industry, waste, tour- ering the different levels to be undertaken by different actors ism, and disaster risk management. The methodology also (SNGs and line ministries). There is limited awareness of the includes a “transversal” sector covering actions that do not reviews and limited ownership of the methodology among key fall under one of the 11 sectors. The methodology covers na- government agencies. tional, regional, and local expenditures, recurrent (operation- al) and investment (development) budgets, and expenditures Budget process. Climate expenditure tagging is not part of financed from royalties. Both budget allocations and actual the budget process. expenditure are accounted for, but only actual expenditures are considered when quantifying the climate-relevant spend- Tagging method. The methodology provides a framework for ing. Off-budget and SOE expenditures are not included. The the climate public expenditure reviews and as such, no climate government is currently considering harmonization with the tag is applied in the budget or chart of accounts. The method- taxonomy for private sector activities. ology analyzes expenditures by administrative entity (ministry or subnational entity) and program/activity. Relevant activities Definition. The definition of climate relevance is based on are identified in a three-step approach: select the level of anal- an adaptation of the OECD Rio markers and the GFLAC ysis (national, regional, or local); identify entities susceptible and does not refer explicitly to national climate policies. The to being engaged in climate-relevant work (limited to one of methodology distinguishes four categories of climate-relevant 11 sectors and transversal activities); and extract budget data actions: those explicitly aimed at climate change in general; for the selected entities and screen for climate-relevant ac- those linked to mitigation, either explicitly or implicitly, inde- tivities through the IFMIS, the information system of the sin- pendent of the intent; those linked to adaptation, either ex- gle territorial form (for subnational entities), the database on plicitly or implicitly, independent of the intent; and those that autonomous regional corporations, and/or the unified system produce both mitigation and adaptation impacts. An indicative of public investment and finances, depending on the level of but non-exhaustive positive list of 310 climate-relevant actions analysis. Given the fragmentation of budgets and financial (classified as mitigation, adaptation, or both) is grouped under management information systems, the tagging methodology 35 subsectors. Activities with a disproportionately negative ef- cannot be completely standardized. fect on the environment and/or society are to be excluded, even if they contribute to significant emissions reduction or Validation. There is no validation process. The methodology have adaptation benefits. Activities to be excluded include nu- encourages those preparing climate public expenditure re- clear plants, large-scale hydroelectric power plants, and frack- views to: review national climate change policies to verify if ing. However, expenditures with an adverse impact on climate the objective of the activity is aligned with them; cross-check change are not defined or tagged. budget figures with the National Administrative Department of Statistics, which conducts detailed budget reviews; or verify climate relevance through interviews with resource persons. 8 >>> EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT Tracking. There is no automated tagging or tracking process. principal, significant, and not targeted. These were weighted The methodological framework provides the basis for periodic according to their relevance using a continuous scale. climate public expenditure reviews. The methodology covers both planned and actual expenditures. Data for reviews are Context. Climate change and environmental issues are rel- generated by the budget and accounting systems but ana- atively new on the policy agenda. Ecuador ratified the Paris lyzed manually. Agreement in 2017, passed the Environment Code (Código Orgánico de Ambiente) in 2017, and submitted its first NDC in Publication. The national budget and citizens’ budget pre- 2019. Climate budget tagging was introduced in 2016 by the pared by the Ministry of Finance and Public Credit do not pres- Ministry of Economy and Finance. In addition to climate-rele- ent climate change expenditure. A dedicated climate finance vant expenditures, it covers other environmental issues (bio- MRV platform provides interactive maps to visualize data on diversity and natural resource management). As an environ- public climate expenditure by sector, implementing entity, mental budget classifier, it complements the equality classifier subnational unit, and origin of funding. Raw data can also be that had been introduced earlier (covering expenditures re- downloaded. The portal includes data for 2011–17 but does lated to gender, disability, migration, children, youth, and the not present narrative or analytical reports. Colombia’s Third elderly). A stand-alone climate budget tagging methodology is National Communication (2018) under the UNFCCC includes currently under development with support from UNDP. a detailed discussion on climate change expenditures using data generated through the reviews. Objectives. The declared objective of the environmental bud- get tag is to verify the extent to which program activities are Audit and evaluation. There are no specific audit and eval- aligned with strategic national targets and integrated into the uation arrangements in place for climate-relevant expendi- budget and to facilitate the monitoring of budget execution. tures. The methodology acknowledges that the impact of the climate-relevant actions is not assessed. Coverage. Tagging is applied across all public sector entities, including SNGs and SOEs. Both recurrent expenditures and References investment (development) budgets are covered. Payroll ex- Colombia, Government of. Comité de Gestión Financiera, De- penditures are excluded from the tagging system because it partamento Nacional de Planeación. 2016. “Guía Metodológi- is difficult to determine the share of time that government em- ca para Clasificar y Medir el Financiamiento Asociado con ployees spend on tasks linked to specific themes. Off-budget Acciones de Mitigación y Adaptación al Cambio Climático en expenditures are not included. Colombia.” Financial Management Committee, National Plan- ning Department, Bogotá. Definition. A definition of climate-relevant expenditures has been developed based on national policies and international conventions to which Ecuador is a party. There are 15 cate- Ecuador gories of environmentally relevant expenditures (including the nine categories of Eurostat’s Classification of Environmental Protection Activities), with three–six activities specified under CPEIR. A CPEIR was conducted in 2017 by the Ministry of each category as a positive list. Climate change is included as Environment with support from UNDP. At the time, the domes- one of the 15 categories covering “protect the air, the climate tic climate tagging system was already in place. The CPEIR and the ozone layer, including the implementation of measures was described as a complementary tool to specifically analyze for climate change mitigation and adaptation.” A transversal the consistency of public policies with climate priorities and category covers efforts to “Promote and strengthen state insti- government commitments. The CPEIR selected two priority tutions and public policies for the environment.” Activities with sectors for mitigation (energy, land use, land use change, and adverse climate change impacts are not included. There is a forestry) and adaptation (agriculture, livestock and fisheries, negative list of budget items to which the thematic tag cannot and water resources) for further analysis. Climate-relevant be applied (drinking water, irrigation, infrastructure, furniture, programs and expenditures were identified based on a list travel costs, audit costs, office supplies, etc.). of descriptors (such as resilience, renewable, emission, sus- tainable). A number of budget items were explicitly excluded Estimation. No weighting is applied. (including debt service, financial investments). Relevant ex- penditures were categorized as mitigation, adaptation, or both Roles. The methodology was designed by the Ministry of and classified according to the OECD Rio methodology into Economy and Finance in close collaboration with the Ministry 9 >>> EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT of Environment and in consultation with other key agencies public access to real-time information. Final expenditures are in the environmental sector (water, forestry, natural resource not reflected in budget settlement reports. management). The process is decentralized; each public enti- ty/ government agency tags its activities following the standard Audit and evaluation. There are no specific audit and evalu- methodology when entering them into the IFMIS. The Ministry ation arrangements in place for climate-relevant expenditures. of Economy and Finance, through its National Directorate for Fiscal Equity, consolidates the data and publishes thematic References budget reports. Although public interest in environmental and Ecuador, Government of. Subsecretaría de Cambio Climático, climate change issues has been growing in recent years, it Ministerio del Ambiente. n.d. “Análisis del Gasto Climático en is still at a low level and there is little demand for information el Ecuador.” Presentation. Undersecretary of Climate Change, from civil society organizations. Ministry of the Environment, Quito. Budget process. The annual budget circular requires agen- ———. Ministerio de Economía y Finanzas. 2016. “Clasi- cies to apply the thematic tags. Activities are tagged when en- ficadores Orientadores de Gasto en Políticas de Igualdad y tered into the IFMIS. Unlike the previously introduced equality Ambiente.” Ministry of Economy and Finance, Quito. tags (in particular for gender and disability), which are well established and anchored in law and in which civil society plays a role in demanding accountability, the environmental Ethiopia tags have so far remained underutilized by line ministries. The environmental tagging system has not yet been sufficiently disseminated within the central government and at subnation- CPEIR. A review of climate finance (following the CPEIR ap- al levels, and there is limited commitment and ownership from proach) was conducted in 2014 by researchers from ODI and the line ministries. Even though tagging is mandatory, not all the University of Addis Ababa. The review analyzed expendi- institutions tag their budget submissions, and overall, the level tures in the federal budget but did not exhaustively examine of reported environmental expenditures is very low. However, each one. Instead, it adopted a “prioritized” approach, iden- agencies have become more aware of environmental issues tifying sectors that are most likely to have climate-relevant and have started to develop specific project proposals. expenditures, then determining corresponding government agencies, and finally analyzing expenditure items in the re- Tagging method. Tagging requires an initial review linking spective budgets. The selection of priority sectors is based on program objectives to the themes under the environmental an analysis of the likely impacts of climate change in Ethio- tagging system. The tag is applied by all public entities (e.g., pia. Eight sectors and 23 corresponding agencies were iden- line ministries, independent agencies) at the activity level tified. Individual expenditure lines were reviewed manually. during budget preparation when the activity is entered into the Climate-relevant items were classified as high (clear focus on system. A six-digit thematic code is applied in the electronic climate change adaptation or mitigation), medium (secondary IFMIS. The first two digits classify the expenditure as either objective related to climate change), or low (indirect adaptation equality or environment related. The second two digits identify and mitigation benefits) relevance. Projects were individually the category of the expenditure (see “Definition” above), and weighted, using 10 percent intervals. Highly relevant projects the last two digits refer to the type of activity. were weighted at 75 percent and above, medium between 26 and 74 percent, and low between 10 and 25 percent. The per- Validation. The tagging information received from public enti- centage of the recurrent budget of the sub-agency was also ties is validated by budget analysts and the Equity Directorate estimated based on the relevance of the activities (50 per- during the preparation of the annual budget documentation cent, 30 percent, and 10 percent, respectively). The purpose and the biannual reports. of weighting the climate-relevant expenditure was to provide an approximation of the spending that is directly relevant to Tracking. Tagging is integrated into the IFMIS. Climate-relevant climate change. Expenditures were classified as either miti- expenditures can be tracked during budget implementation, and gation or adaptation, following the OECD (Rio marker) defini- expenditure execution progress can be monitored in real time. tion. The report does not call for the establishment of a track- ing system. It highlights the need for a better understanding Publication. Data generated from tagging are to be made of international climate funds, off-budget financing, and sub- available on the website of the Ministry of Finance (https:// national financing and more effective implementation of cli- www.finanzas.gob.ec/reportes-de-equidad/), which allows mate actions. 10 >>> EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT Context. The tagging methodology was developed in 2017 by Estimation. Following the OECD Rio marker methodology, the Climate Resilient Green Economy Facility under the Min- climate-relevant projects and programs are marked as prin- istry of Finance and Economic Cooperation. The methodology cipal, significant, or not targeted. Principal projects are those refers to the CPEIR approach and summarizes the findings of that are explicitly undertaken to address climate change as- the 2014 review. Its approach is similar in identifying priority pects. Significant projects are those that would have been sectors first. However, it differs markedly when it comes to undertaken anyway but that still contribute to climate change weighting expenditures: in the CPEIR, the relative weight of action (such as sustainable agriculture). Programs and proj- climate-relevant expenditures within a project budget was es- ects in which more than 75 percent of the budget is allocated timated based on expert judgement, and in the national meth- to climate-relevant activities are considered highly relevant; odology, each line item was separately classified as climate those with less than 25 percent as marginally relevant. Only relevant or not. The tagging methodology was developed in relevant line items are included in estimates for climate-relat- the context of the national Climate-Resilient Green Economy ed expenditures. Strategy and Ethiopia’s NDC. Roles. There is no information on who conducts the CPEIR, Objectives. The tagging methodology was developed to “en- at what frequency, or based on what data. There is also no able a comprehensive assessment of baseline climate finance mention of stakeholder engagement or the involvement of line invested between 2011-2015, project climate finance flows ministries. and climate related investment, and design [an] appropriate Climate-Resilient Green Economy Strategy (CRGES) financ- Budget process. The budget circular is not available online ing strategy.” The objective was to provide information on the or in English. relative contributions of government and nongovernment sec- tors and forecast the balance between the flow of climate fi- Tagging method. Climate-relevant expenditures are identi- nance and the future investment demand. The methodology is fied at the program or project/activity level. Expenditures are for the preparation of periodic expenditure reviews. not tagged in the budget system or the chart of accounts. The methodology provides the basis for an ex post CPEIR. Coverage. The methodology covers climate-sensitive sectors Validation. There is no verification mechanism. in line with the Climate Resilience and Green Economy Strat- egy and sectoral climate-resilience strategies. As a second Tracking. There is no automated tagging or tracking process. step, it proposes to analyze climate-relevant expenditures in The methodology provides guidance for manually analyzing sectors not covered under those strategies. Both planned and project and line items as part of the CPEIRs. The methodology actual expenditures are considered. There is no information covers the review of planned and actual expenditures. on the coverage of subnational and off-budget expenditures, and it is not clear whether recurrent expenditures are covered Publication. It is not clear whether the methodology has al- and if so, according to which methodology. There is also no ready been applied. No reports are available online. information on SOEs. Audit and evaluation. There are no specific audit and evalu- ation arrangements in place for climate-relevant expenditures. Definition. Climate-relevant expenditures are defined as fi- nancial flows that contribute to financing adaptation and/or References mitigation interventions. The definition of adaptation and mit- Eshetu, Zewdu, Belay Simane, Gebeyehu Tebeje, Workneh igation is based on the definitions used by the IDFC, which Negatu, Aklilu Amsalu, Abeje Berhanu, Neil Bird, Bryn Wel- in turn are based on the OECD (Rio marker) definitions. This ham, and Nella Canales Trujillo. 2014. “Climate Finance in definition is linked to national strategies and sectoral plans. Ethiopia.” Report, Overseas Development Institute and Addis Activities and programs identified as climate relevant are Ababa University, London and Addis Ababa. classified as adaptation, mitigation, adaptation and mitigation together, or supporting areas. There is no positive list of cli- Ethiopia, Government of. Ministry of Finance and Economic mate-relevant activities and programs, but the methodology Cooperation. 2017. “Climate Finance Tracking and Projection refers to relevant national policy documents where indications Approach and Methodology in Ethiopia.” Ministry of Finance on climate-relevant programs are provided. There is no neg- and Economic Cooperation, Addis Ababa. ative list of ineligible expenditures, and expenditures with ad- verse climate effects are not included. 11 >>> EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT France pact on the environment or for which sufficient information to determine an environmental impact is not available. Negative expenditures either directly impact the environment or incen- CPEIR. No CPEIR was conducted. tivize environmentally harmful behaviors. Context. The 2019 Energy and Climate Law requires the gov- Expenditure for general social transfers, unconditional trans- ernment to report to parliament on the positive and negative fers to private companies, civil servant salary costs (with the effects of the budget bill on climate change. In September exception of staff directly employed for environmental pro- 2019, the General Council on Environment and Sustainable grams), the levies on receipts destined for the EU, uncondi- Development and the General Inspectorate of Finance pre- tional transfers to local governments, and expenditures for sented a methodology to identify fiscal measures and expen- the armed forces and internal security, as well as ministries’ ditures that have a significant impact on the environment. On recurrent operational costs, are all considered neutral. Expen- this basis, the General Commission for Sustainable Develop- ditures to support the nuclear sector are classified as positive ment under the Ministry of Ecological and Inclusive Transition on the climate mitigation axis but negative on the waste man- and the Budget Department, Tax Legislation Department, and agement axis. Treasury Department under the Ministry of Economy, Finance and Recovery in September 2020 presented the Green Bud- Estimation. The methodology distinguishes “green expendi- get for 2021. ture” (positive on at least one axis without being negative on any other), “mixed expenditure” (positive on at least one axis Objectives. The main objectives are to enhance the transpar- but negative on at least one other), and “negative expenditure” ency of environmental information. The analysis of the state (negative on at least one axis without being positive on any budget’s environmental impact is also intended to support other). Expenditures are not weighted. decision making, in line with the government’s objective of greening the state budget. Roles. The state budget is analyzed centrally by an inter-min- isterial working group comprised of members of the General Coverage. The methodology covers all central government Commission for Sustainable Development under the Ministry expenditures, including budgetary credits, capped earmarked of Ecological and Inclusive Transition and the Budget Depart- taxes, and tax expenditures. Transfers to SNGs (collectivités ment, Tax Legislation Department, and Treasury Department locales) are also covered, as well as the levies on receipts under the Ministry of Economy, Finance and Recovery. destined for the EU. Transfers from the central government to SOEs (in the form of subsidies, transfers, or earmarked Budget process. The analysis is conducted based on the to- tax revenues) are covered, but not total SOE expenditure. A tal government expenditure objective included in the finance number of expenditures are considered neutral without further bill for the following fiscal year. analysis (see “Definition” below). Overall, less than 10 percent of the total budget is considered to have an environmental Tagging method. The budget is analyzed manually. Expendi- impact (positive or negative). tures are classified at the action or sub-action level for each of the six environmental axes. Definition. Environmentally relevant expenditures are defined as those with a positive, negative, or neutral impact on at least Validation. No validation process is included in the current one of six environmental axes: 1) climate change mitigation, methodology. 2) climate change adaptation and disaster risk prevention, 3) water resource management, 4) circular economy, waste, and Tracking. So far, actual expenditures of climate-relevant prevention of technological risks, 5) pollution abatement, and items are not tracked separately. 6) biodiversity and protection of natural, agricultural, and for- est areas. Publication. The comprehensive findings of the budget anal- ysis are published in a detailed and separate analytical report Positive expenditures are defined as those with a principal or (“Report on the Environmental Impact of the State Budget”) significant environmental objective, those with a strong indirect and are publicly available. environmental benefit, and/or those with a short-term positive impact but that also may have a long-term risk of technological Audit and evaluation. There are no specific audit procedures lock-in. Neutral expenditures are those with no significant im- for environmentally relevant expenditures. 12 >>> EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT References at the policy objective level in line with the National Climate Alexandre, Sylvie, Florence Tordjman, Dorian Roucher, Louis Change Policy. However, it is based on the new policy areas Stroeymeyt, and Claire Waysand. 2019. “Green Budgeting: and budget codes introduced after the CPEIR took place. The Proposition de Méthode pour une Budgétisation Environne- weighting applied also differs from the CPEIR, which did not mentale.” General Council for the Environment and Sustain- consider expenditures with low climate change relevance. able Development and the Inspectorate General of Finances, Paris. Objectives. The objective is to “identify and track climate rele- vant interventions and associated expenditure to secure better France, Government of. 2020. “Rapport sur l’Impact Envi- understanding of publicly funded climate change actions.” The ronnemental du Budget de l’État.” Republic of France, Paris. tool seeks to enhance tracking, monitoring, decision making, and budgetary allocations for climate change–related activi- ties. The tool should contribute to increased transparency and Ghana support of climate action. Coverage. The methodology covers national (ministries, de- CPEIR. A CPEIR was conducted in 2015 by a team from ODI partments, and agencies) and subnational (metropolitan, mu- and the Institute of Statistical, Social and Economic Research nicipal, and district assemblies) budget allocations and actual of the University of Ghana, supported by the Ministry of Fi- expenditures. The methodology does not include off-budget nance. The methodology followed five steps. First, identifi- expenditures or those of SOEs. cation of sector ministries and institutions involved in climate change–relevant activities. A total of 19 ministries, depart- Definition. The methodology identifies a positive list of cli- ments, and agencies were identified as relevant, and budget mate-relevant policy objectives. Climate relevance is defined data were available for 16 of them. Second, identification of as “the extent to which the expenditure supports an action climate change–relevant expenditures in these ministries’ identified in the National Climate Change Policy.” The method- budgets for the period from 2011 to 2014 (allocated budgets, ology distinguishes mitigation (defined as reduced GHG emis- not actual expenditures). Climate change–relevant expendi- sions) and adaptation (defined as reduced risks posed by the ture was identified at the policy objective level (five-digit bud- consequences of climate change). The methodology does not get code). Third, further classification of these expenditures identify expenditures with adverse impacts on climate change. as of high or medium relevance to climate change (five pol- There is no negative list of non-climate-relevant expenditures. icy objectives were considered of high relevance and 39 ob- jectives linked to actions under the National Climate Change Estimation. Expenditures on climate-relevant operations and Policy of medium relevance). Fourth, weighting of the expen- activities are grouped in three categories (high, medium, and ditures according to their climate relevance. High-relevance low relevance). Operations and activities with a clear focus expenditures were weighted at 100 percent and medium at 50 on climate change adaptation or mitigation were classified percent. Fifth, classification of the activities as adaptation or as highly relevant and weighted at 100 percent; those with mitigation. The CPEIR recommended the development of re- links to climate change objectives are considered of medium porting frameworks on actual spending at both the central and relevance and weighted at 50 percent; and those related to subnational level. It also proposed the creation of a national the medium relevant expenditures but not directly linked to tracking tool for climate change finance under the Ministry of climate change are considered low relevance and weighted at Finance to capture end-of-year outturn expenditures. 20 percent. Estimations distinguish programs related to adap- tation and mitigation and allow the expenditures to be split (at Context. The tagging methodology (CLIMFINTRACK) was re- 50 percent each) when they support both objectives. vised in 2018 and replaced a methodology (CLIMATRONIC) established in 2016. CLIMFINTRACK was developed by the Roles. The methodology was prepared by the Ministry of Natural Resources, Environment and Climate Change Unit Finance, which then presented it in consultative stakehold- under the Economic Strategy and Research Division of the er workshops to test its viability. Government stakeholders Ministry of Finance. The tool is a guide for “sector planners, have access to the data generated by the tool. The Ministry budget officers, research, statistics and information manage- of Finance leads the process of integrating climate finance ment officers” to identify climate change–relevant expendi- into the annual budget and planning processes and oversees tures in their budget documentation. The tool builds on the the mainstreaming of the tracking tool. A steering committee CPEIR methodology, identifying climate-relevant expenditures oversees the application of the tracking tool. The Environ- 13 >>> EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT mental Protection Agency (under the Ministry of Environment, Ghana, Government of. Ministry of Finance. 2018. “Climate Science, Technology and Innovation) is mandated to verify Change Budget and Finance Tracking Manual.” Ministry of Fi- the data generated by the tool before the final reports nance, Accra. are published. Budget process. The mid-term budget preparation guidelines Honduras (2020–23) refer to the tagging tool: “Climate Change: MDAs [ministries, departments, and agencies] are to mainstream cli- mate change activities into their programmes and budget for CPEIR. A CPEIR was conducted in 2016 jointly by UNDP, the climate change activities using the CoA. The revised Climate General Directorate of Public Investments of the Ministry of Change Finance Tracking Tools developed should be used to Finance, and the National Directorate of Climate Change of capture relevant end-of-year expenditures relating to climate the Natural Resources and Mines Secretariat (MiAmbiente). change. MDAs will be expected to use the tool to track budget The methodology first identified 10 priority sectors for further allocations including grants disbursement.” analysis and then established a typology of climate-relevant activities for each sector. Each activity was classified as adap- Tagging method. Climate-relevant expenditures are identi- tation, mitigation, or climate disaster related or a combination fied based on the policy objectives and operation codes of thereof. Based on the level of climate relevance, the activi- the chart of accounts. All the budget codes were assessed for ties were assigned to four groups (completely relevant, very their climate change relevance. relevant, quite relevant, and relevant) and weighted accord- ingly (90–100 percent; 60–80 percent; 30–50 percent; and Validation. The definition of climate-relevant policy objec- 10–20 percent). tives, operations, and activities is based on a review of sector and agency budgets. This definition was validated in a training Context. A climate change tag was introduced into the national and validation workshop with the budget and planning officers budget system at the end of 2016. The General Directorate of of the sector agencies. The revised methodology of the “Inte- Public Investments of the Ministry of Finance and the National grated MRV Climate Change Finance for Ghana” tool lays out Directorate of Climate Change of the Natural Resources and the validation procedures. Mines Secretariat (MiAmbiente) led this initiative, with support from UNDP, GEF, and the Swiss Agency for Development Tracking. Tagging is automated. The budget codes of policy ob- and Cooperation. The climate change tag was developed jectives and operations are marked for their climate relevance in parallel with the CPEIR and uses the same methodology in the chart of accounts and tagged in the IFMIS. Climate-rele- and definitions. vant expenditures can be tracked during implementation. Objectives. The use of a climate budget tag and the anal- Publication. The climate budget is not presented in budget ysis of climate-relevant expenditure are framed in the con- documents, the citizens’ budget, or in a separate report. An text of the UNFCCC and the National Climate Change interactive tool (CLIMFINTRACK) allows government officials Strategy. Climate-related budgets are presented as honoring to view, import, modify, and share data and generate reports commitments made under international climate change frame- on climate-related expenditures in real time. The Ministry of work conventions. Finance intends to generate biannual climate tracking reports at the national level. Coverage. The general budget provisions mandate all public sector institutions that implement institutional programs and Audit and evaluation. There are no specific audit and evalu- investment projects to apply the climate change tag at the ac- ation arrangements in place for climate-relevant expenditures. tivity level. Both investment and recurrent expenditures are included at the national level as well as expenditures by de- References concentrated entities (such as provincial sector departments). Ankomah Asante, Felix, Simon Bawakyillenuo, Neil Bird, Nel- SOEs, such as the national power company, also tag their ex- la Canales Trujillo, Cynthia Addoquaye Tagoe, and Nicholas penditures. Local government expenditure is not covered. Ashiabi. 2015. “Climate Change Finance in Ghana.” ODI Re- port, Overseas Development Institute and University of Gha- Definition. The methodology identifies three categories of na, London and Accra. climate-relevant activities: adaptation, mitigation, and man- agement of climate-related disasters. Adaptation is defined as 14 >>> EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT “the process of adapting to the current climate and its effects, Budget process. The budget circular (decreto presupuestar- as well as human interventions to facilitate the adjustment of io) contains two explicit climate change considerations. First, natural systems to future climate effects.” Climate-related di- it “authorizes” the General Directorate of Public Investments saster management covers expenditures linked to reducing to consider climate change indicators (along with disaster risk the impact of natural hazards and environmental disasters, management, gender equality, women’s projects, and human including structural (i.e., hardware) and non-structural (i.e., rights) as part of the prioritization process for new invest- administration, capacity building, organization) measures. ments. It also obligates all public institutions to identify and Mitigation is defined as a reduction in GHG emissions and tag their climate-relevant activities in the programmatic budget an increase in GHG sinks. The definition also includes other structure. Funds may be reallocated between climate-relevant emissions with indirect climate impacts (such as black carbon budget lines during the mid-year budget review to other cli- and hydrofluorocarbons). Climate-relevant activities are clas- mate-related activities or to cover expenditures for climate-re- sified under one of 10 sectors; for each sector, a list of eligible lated emergencies. activities is specified. Activities that are considered climate relevant but are not on the list are tagged as “transversal” Tagging method. The tagging is applied at activity level or “other.” Expenditures can be assigned to more than one s during budgeting preparation by assigning: climate relevant ector and activity. Activities with adverse climate impacts are sectors, activities, and objectives (adaptation, mitigation, or not included. disaster management); the level of relevance weighting; and source of financing (national treasury, own resources, exter- Estimation. Climate-relevant expenditures are estimated us- nal credit, external grant, budget support). The climate change ing four weight categories applied to each activity: relevant tag is integrated into the IFMIS. Activities are tagged when (limited climate change contribution, 10–20 percent of expen- they are entered into the system. ditures); quite relevant (significant and indirect climate change contribution, 30–50 percent); very relevant (climate change Validation. There is no validation mechanism. as a secondary objective, significant and direct contribution, 60–80 percent), and completely relevant (climate change as a Tracking. The methodology allows for tracking actual and principal objective, 90–100 percent). accrued expenditures. Information generated by the tagging system is used to inform budget reallocation decisions. At mid- Roles. The General Directorate of Public Investments of the year, budget allocations are shifted from non-performing cli- Ministry of Finance and the National Directorate of Climate mate projects to those with stronger implementation progress. Change of the Natural Resources and Mines Secretariat (Mi- Ambiente) developed the tagging methodology through a se- Publication. Climate budgets are presented in a separate ries of consultative workshops with representatives of all gov- analytical report, including the detailed budget tables of all cli- ernment institutions. For the initial CPEIR, which provided the mate relevant activities (the most recent available report is for basis for the tagging system, small teams (budget analyst, cli- 2019). There is no separate citizens’ climate budget. mate change specialist, planning officer) were formed in each government institution to revise and tag all ongoing projects. Audit and evaluation. There are no specific audit and evalu- The tagging system has strengthened coordination between ation arrangements in place for climate-relevant expenditures. the Ministry of Finance, the Ministry of Environment, the Na- tional Electricity Utility, and the National Forestry Institute. The References Ministry of Environment advises other government agencies Honduras, Government of. Secretaría de Finanzas and Sec- on the design of climate-related projects. According to the retaría de Energía, Recursos Naturales, Ambiente y Minas. methodology, budget entities are responsible for tagging their 2015. “Metodología para la Revisión del Gasto Público own activities; in practice, however, the Ministry of Finance para el Clima en Honduras.” Secretariat of Finance and Sec- tags activities in the financial management system, and there retariat of Energy, Natural Resources, the Environment and is some resistance among line agencies to the increased Mines, Tegucigalpa. workload entailed in assuming this responsibility. Nonethe- less, the tagging system has increased the knowledge and ———. Secretaría de Finanzas. 2018. “Metodología del awareness of climate change issues across government insti- Gasto Público para el Clima y Revisión Institucional (CPEIR) tutions and increased consideration of these issues in project de Honduras, Marcaje de Presupuesto.” Presentation. Secre- design. Since the introduction of the tagging system, climate tariat of Finance, Tegucigalpa. budget allocations have increased each year. Transfer of the responsibility for tagging to line ministries is foreseen for 2021. 15 >>> EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT Indonesia Conservation and Biodiversity Management program, forest fire control activity has five climate-relevant outputs, includ- ing the number of established forest fire control points and CPEIR. A CPEIR was conducted in 2012. The report and increases in staffing for bushfire control. Each output is tagged methodology are not available. separately. No weighting is applied to the tagged outputs, and all expenditures are considered climate relevant. Context. The Fiscal Policy Agency and the Directorate Gen- eral of Budget under the Ministry of Finance, with support Roles. The tagging methodology was designed by the Ministry from UNDP, developed a budget tagging manual for climate of Finance’s Fiscal Policy Agency and the Directorate General change mitigation in 2016. It is framed in the context of the of Budget, with support from UNDP. Within the line ministries UNFCCC, the Paris Agreement, and the National Action Plan that are mandated to tag their expenditures, tagging is applied for Greenhouse Gas Emissions Reduction. Since 2018, adap- at the level of technical directorates (Echelon II units). There tation expenditures have also been tagged. is a climate change working group in each ministry. However, the tagging of the climate budget in the corresponding ICT ap- Objectives. The objective of the budget tagging is to iden- plication is done by staff from each ministry’s planning bureau tify climate change mitigation–related outputs in the budget, (since they are the ones with access to work on the planning to evaluate activities that have been implemented, and to application), rather than the technical teams. identify the amount of funds used to finance climate change– related interventions. Climate change–relevant expenditures Budget process. Tagging is applied by line ministries’ tech- are identified based on the National Action Plan for Climate nical directorates (Echelon II units) within the program-based Change Mitigation. Budget tagging provided the basis for the budget at the output level and integrated into the budgeting issuance of a green sukuk (Islamic SGB). Proceeds are allo- system. During the reconciliation period of the budgeting pro- cated to projects identified through the tagging system, and cess, the Ministry of Finance meets with the relevant minis- tagged expenditures were identified as the underlying assets tries and agencies to discuss the tagged expenditures, which when issuing the bond. Tagging may be used to earmark ex- may be adjusted thereafter. Decisions from these reconcilia- penditures from a future carbon tax. tion meetings are formalized in a document of agreement list- ing the tagged outputs, which then serve as the basis for the Coverage. The tagging is applied only in sectors and is done budget tagging within the system. Without a clear incentive by the corresponding ministries of the central government and concrete benefit provided by the Ministry of Finance, the budget that fall under the National Action Plan for Greenhouse tagging constitutes an additional burden for line ministries. In Gas Emissions Reduction: agriculture; forestry and peatland; certain cases, compliance is an issue, and expenditures are energy and transportation; industry; and waste management. not tagged at the planning system stage but only later after Both operational (recurrent) and development (investment) reminders from the Fiscal Policy Agency, which has prepared budgets are covered. The methodology does not include a guidance book and delivered annual trainings on the tag- off-budget or SOE expenditures or subnational entities’ bud- ging methodology to strengthen ownership and compliance. gets. However, a preparatory study to expand tagging to the Tagging is beginning to have an impact on future budget allo- subnational level and to earmarked transfers is ongoing. cations, though this benefit is not yet fully realized due to the lack of a monitoring and evaluation system for climate-related Definition. The tagging methodology only covers outputs expenditures. There is also a weak government commitment associated with either the reduction of GHG emissions, car- to allocate budgets based on past results through the imple- bon sequestration, and/or the stabilization of carbon stocks. mentation of performance-based budgeting. Line ministries An indicative list of relevant activities is presented in the Na- have used the information generated through the tagging to tional Action Plan for Climate Change Mitigation. Activities assess whether their investments are on track to achieve the with adverse climate change impacts are not included in the NDCs and to secure additional resources if allocations are in- methodology. Since 2018, adaptation-related expenditures sufficient to achieve the targets. have also been tagged according to the same approach but based on the definition contained in the National Action Plan Tagging method. Tagging is done at the output level within for Adaptation. the activities of Echelon II units/technical directorates. Climate change mitigation is one of various thematic tags integrated Estimation. Tagging is applied at a low level of the budget into the budget planning system of ministries and agencies. structure, the output level of programs (outcome>activity>out- Tagged expenditures appear with a check mark in the IFMIS. put>sub-output>component). For example, under the Forest 16 >>> EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT Validation. Tagging is verified in reconciliation meetings be- reporting of climate related expenditure through the exche- tween line ministries/agencies and the Climate Change Sec- quer.” Ireland launched an SGB in October 2018, under the retariat of the Ministry of National Development Planning. Tag- terms of which the government must report to investors annu- ging is validated for consistency with the NDC by the Ministry ally on the disbursement of eligible green projects. of Environment and Forestry and endorsed by the Ministry of Finance (Fiscal Policy Agency and Directorate General of Objectives. The principal stated objectives of Ireland’s cli- Budget) during the reconciliation period of the budgeting pro- mate tagging are to 1) increase transparency by giving policy cess, before the budget is submitted for legislative approval. makers and the public insight into government action on cli- mate change; 2) enhance effectiveness by providing better in- Tracking. Expenditures related to program outputs are tagged formation for policy makers on the specific effects of individual in the IFMIS and can be tracked. climate measures; and 3) facilitate the reporting for investors in the SGB. Publication. The Ministry of Finance’s Fiscal Policy Agency publishes analytical reports on climate change budget allo- Coverage. The tagging covers central government expen- cations. Climate expenditures are not reported in a separate diture. Only investment budgets are covered, except for the or specific section in general budget documents and finan- operating expenses of the Sustainable Energy Authority of cial statement reports. Data from the tagging system are used Ireland. Subnational expenditures and SOEs are not covered. for monitoring and reporting progress toward achieving the Environmentally harmful expenditures are not tagged. NDCs. The Fiscal Policy Agency produces analytical reports, although they are not systematically used for deciding future Definition. Climate-relevant expenditures are broadly defined budget allocations. In addition, the agency recently conduct- as “any expenditure which promotes, in whole or in part and ed a joint study with a local nongovernmental organization on whether directly or indirectly, Ireland’s transition to a low car- gender mainstreaming in the climate budget. bon, climate-resilient and environmentally sustainable econ- omy.” This definition is derived from the International Capital Audit and evaluation. There are no specific audit and evalua- Markets Association’s definition for green bonds. However, tion arrangements in place for climate-relevant expenditures. although the tagging methodology recognizes that programs with multiple objectives can be climate relevant, a precaution- References ary approach is used when tagging expenditures. In practice, Indonesia, Government of. 2014. “The Landscape of Public only the programs in which all or the majority of the invest- Climate Finance in Indonesia.” Ministry of Finance and Cli- ment supports improved climate and environmental outcomes mate Policy Initiative, Jakarta. are tagged. ———. Ministry of Finance. 2016. “Budget Tagging Manual for Estimation. No weighting is applied. Complex programs in Climate Change Mitigation.” Fiscal Policy Agency, Ministry of which only certain sub-heads are climate related are excluded Finance, Jakarta. from the tagging, as are programs in which less than half of the investment is climate relevant. ———. 2018. “Green Bond and Green Sukuk Framework.” Republic of Indonesia, Jakarta. Roles. The tagging is led by the Climate Change Unit of the Department of Public Expenditure and Reform. After an initial review of all programs, potentially climate-relevant expendi- Ireland tures are identified. Government departments (i.e., line minis- tries) are then asked to validate the areas of expenditure se- lected, to highlight any items of expenditure that were missed in the initial exercise, and to flag any new areas of climate-re- CPEIR. No CPEIR was conducted. lated expenditure planned for the following year. Context. The Department of Public Expenditure and Reform Budget process. The tagging is applied to the Revised Es- developed a tagging methodology in 2018 as part of Ireland’s timates for Public Services. The Revised Estimates Volume commitment to promote green budgeting as a member of the contains refined estimates of the receipts and expenditure of OECD Paris Collaborative on Green Budgeting. In addition, the state for each fiscal year. It is prepared based on the ini- climate tagging meets a commitment under the National Mit- tial estimates submitted to parliament alongside the budget igation Plan (2017) to develop “proposals for monitoring and 17 >>> EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT as part of the annual budgetary process. The Revised Esti- Environment Management Authority, the National Drought mates Volume includes updated figures and additional details Management Authority, and the Council of County Gover- in relation to the expected allocations. It explicitly permits the nors. The CPEBR covered three sectors: agriculture and ru- inclusion of additional information of public importance, and a ral and urban development; energy, infrastructure, and ICT; table on climate-related expenditure is published as an annex. and environmental protection, water, and natural resources. Climate-relevant expenditures were defined as costs in pro- Tagging method. Tagging is centralized. The Climate Change grams or subprograms that addressed adaptation, mitigation, Unit of the Department of Public Expenditure and Reform or an enabling environment (following OECD Rio marker manually identifies climate-related expenditures at the sub- definitions). Programs and subprograms were tagged when head level of programs. more than 25 percent of expenditures were assessed as con- tributing to increased resilience, reduced emissions, or more Validation. The expenditures identified as climate relevant by awareness. Climate-relevant expenditures were identified in the Department of Public Expenditure and Reform are validat- consultation with line agency technical and financial officers. ed by the relevant government departments. No weighting was applied. The CPEBR reviewed planned and Tracking. Actual expenditures of tagged programs are not actual expenditure for the national budget and three subna- tracked. tional entities (counties). The review did not cover transfers from the treasury to semi-autonomous agencies (parastatals). Publication. Information on climate-related allocations is pub- The CPEBR recommended the finalization of the climate cod- lished annually in an annex to the Revised Estimates Volume. ing and tracking methodology to record and analyze climate The annex provides tables of climate-related expenditure by spending in the national budget through the IFMIS. The CPE- department and program. BR stressed the need to apply the coding system for all gov- ernment budgets under the program-based budget approach Audit and evaluation. The Irish Government Economic Eval- and served as the basis for the tagging methodology. uation Service conducts rolling expenditure reviews. Several climate-focused programs have been evaluated since 2017. Context. The national treasury developed a Climate Change There are no specific audits for tagged programs. Budget Code as provided under the Climate Change Act (2016). The Climate Tracking Methodology Handbook, final- Audit and evaluation. The Irish Government Economic Eval- ized in 2019, was developed by a multi-stakeholder technical uation Service conducts rolling expenditure reviews. Several working group coordinated by the treasury and the Ministry of climate-focused programs have been evaluated since 2017. Environment, with technical and financial support from UNDP. There are no specific audits for tagged programs. The purpose of the methodological handbook is to equip state and non-state agencies with the requisite skills and knowledge References to properly identify climate change elements, to plan, budget, Cremins, Anna, and Laura Kevany. 2018 “An Introduction and mobilize resources, and to code and track expenditures. to the Implementation of Green Budgeting in Ireland.” Staff Paper 2018, Department of Public Expenditure and Reform, Objectives. The objective of the tagging methodology is to Dublin. build climate finance capacity to coordinate resource mobili- zation and track climate change expenditure. Secondary ob- Ireland, Government of. Parliamentary Budget Office. 2018. jectives are to promote evidence-based climate change policy “An Approach to Better Incorporate Climate-Related Consid- formulation and strengthen the accountability and transparen- erations into the Budget Process.” Briefing Paper, Parliamen- cy of public spending and climate finance reporting and veri- tary Budget Office, Dublin. fication. Coverage. The tagging methodology covers all sectors and Kenya expenditures that fall under the IFMIS and the standard chart of accounts. This includes national and county-level expendi- tures and all budget classes (recurrent, development, reve- CPEIR. A CPEBR was conducted in 2016 by the National nue, and deposit). The methodology does not cover off-budget Treasury, with technical support from UNDP, UNEP, and an expenditures, notably, donor funds directly allocated to non- interagency technical advisory committee made up of repre- governmental actors and expenditures by semi-autonomous sentatives from the Ministry of Environment and Natural Re- government agencies that do not use the IFMIS. sources, the Ministry of Devolution and Planning, the National 18 >>> EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT Definition. The definition of climate-relevant expenditures is a new segment in the chart of accounts. The four-digit seg- based on national climate change policies and strategies, par- ment is intended for the analytical and tracking purposes of ticularly the Climate Change Act 2016 and the National Policy expenditures in various thematic areas. The first two digits on Climate Finance. Climate-relevant expenditures must fulfill refer to the subject of tagging (in this case, climate change), four criteria. First, they must address one or all of the climate the third digit shows the focus (adaptation, mitigation, or both/ change risk mitigation or climate-proofing categories: adapta- cross-cutting), and the fourth digit the relevance level (princi- tion, mitigation, or enabling environment (climate awareness, pal, significant, or not-targeted). training, policy, and capacity building) following the OECD Rio marker definition. Second, they must allocate more than Validation. There is no information on a verification and vali- 25 percent of expenditures to one or all of the above climate dation process. risk mitigation or climate-proofing categories. Third, they must demonstrate that incremental or additional financing has been Tracking. The tagging is reflected in the chart of accounts and used for climate change risk mitigation and climate proofing. the IFMIS, enabling tracking of actual expenditures. However, Fourth, they must demonstrate that they have contributed to so far, no implementation reports have been produced. the outcome/output of increased resilience, reduced emis- sions, or increased awareness of climate change. There is no Publication. Climate expenditures are not identified in the positive or negative list of climate-relevant expenditures. How- budget document. There is no report presenting the climate ever, the methodology includes an indicative list of climate-rel- budget and no citizens’ climate budget. evant activities across different sectors. Activities with adverse climate change impacts are not considered. Audit and evaluation. There are no specific audit and evalu- ation arrangements in place for climate-relevant expenditures. Estimation. The Rio marker methodology is applied to clas- sify activities as principal (explicitly stated climate change References objective, primary driver), significant (explicitly stated climate Kenya, Government of, and UNDP (United Nations Develop- change objective but not the primary driver), or not applicable/ ment Programme). 2019. “Climate Finance: Budget Coding, no cause (activity does not target adaptation or mitigation). Tracking and Reporting. A Training Handbook.” National Trea- No weighting is applied. Only expenditure items that allocate sury and Planning and UNDP, Nairobi. more than 25 percent of their budget to climate-related activi- ties are considered relevant and tagged. Kenya, Government of, UKAID (UK Aid Direct), and UNDP (United Nations Development Programme). 2016. “Kenya Roles. The tagging methodology was developed by a Climate Public Expenditure and Budget Review.” Republic of multi-stakeholder technical working group coordinated by the Kenya, Nairobi. National Treasury and the Ministry of Environment and Forest- ry (previously Ministry of Environment and Natural Resources) comprising: the private sector (the Kenya Private Sector Alli- Moldova ance and various civil society organizations, including Trans- parency International and the Pan African Climate Justice Alli- CPEIR. No CPEIR was conducted prior to the development of ance); and representatives of government agencies (National the tagging methodology. Treasury, the Ministry of Environment and Natural Resources; State Department of Planning; Council of County Governors; Context. The tagging methodology was developed in 2016 Kenya School of Government). with support from the Supporting Moldova’s National Climate Change Adaptation Planning Process project, implemented by Budget process. Climate change is not specifically mentioned the Climate Change Office of the Ministry of Environment in in the 2019 budget circular. However, the circular refers to the partnership with UNDP. Tagging was introduced in the context “Big Four” Agenda, the government’s priority plan, in which of the National Climate Change Adaptation Strategy (2014). one of the four pillars is “building a resilient, more productive However, tagging has still not been incorporated into the bud- and competitive green economy.” Linkage to the Big Four Plan get process, neither for planning nor for reporting. is a criterion for prioritizing and allocating resources. Objectives. The objective of the tagging methodology is to en- Tagging method. Tagging is applied to the program-based sure the systematic identification of climate-related programs, budget at the program, subprogram, and activity level, using activities, and projects in the national budget and to support the development of national capacity for fund mobilization, 19 >>> EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT management, and disbursement. Technical planners should climate change relevant and fully counted. For those that do also use the tagging to prioritize climate-related programs, ac- not explicitly address climate change, the percentage of cli- tivities, and projects in sectoral budget proposals. Tagging is mate change–related activities and budget expenditures is intended to support the development of the financial records calculated according to a relevance scale. Components with required to build a climate-financing framework. high relevance (more than 65 percent of activities dedicated to climate-related interventions, specific objectives) are weight- Coverage. According to the methodology, all sectors, gov- ed at 70 percent; those with medium relevance (between 40 ernment ministries, institutions, and agencies are required and 65 percent of activities, secondary objectives or mixed to tag climate expenditures in their annual sectoral budgets. programs) at 50 percent; those with neutral relevance (15–40 Recurrent expenditures are explicitly excluded from the tag- percent of activities, indirect benefits) at 25 percent; and those ging: “in general, financing and recurrent expenditures should with marginal relevance (less than 15 percent of activities, be not counted as climate related expenditure. In certain cas- very indirect and theoretical links) are not counted. es, for example full-time staff hired to conduct climate related research, may be considered a climate-related expenditure Roles. The Ministry of Environment led the development of in the first year and a recurrent expenditure in all following the methodology. Sectoral ministries, agencies, and institu- years.” The methodology does not include expenditures tions are mandated to tag climate change expenditures in the of SOEs. annual sectoral budget proposals. Definition. The methodology builds on the OECD Rio mark- Budget process. The Ministry of Finance is mandated “to ers, requiring adaptation and mitigation expenditures to satisfy include the tagging of climate change expenditures, as well criteria in terms of intent, activity, and context. For adapta- as changes and developments in related policies in the annu- tion-relevant expenditures, the criteria are: the objectives of the al circular on developing proposals and draft budgets to the expenditure are explicitly directed at addressing, or designed central and local public authorities.” The Ministry of Finance’s to address, climate change; the expenditure directly address- Order on Provisions of Budget Preparation, Adaptation and es vulnerabilities, the impacts of climate change, and climate Changes (2017) states that expenditures should be tagged variability or increases adaptive capacity; and the expenditure at the program level. However, in practice, this is not (yet) the is included in the priority list of the National Adaptation Strat- case. Since tagging is not applied, the Ministry of Agriculture, egy or the National Adaptation Plan. For mitigation-relevant Regional Development and Environment plans to conduct an expenditures the criteria are: the objectives of the expendi- expenditure review based on the 2019 budget implementation ture are directed at mitigating, or designed to mitigate, climate report by program classification. change; expenditures are related to a range of activities in renewable energy generation, energy efficiency, agriculture, Tagging method. According to the methodology, sectoral forestry and land use, waste management, and transport that ministries, agencies, and institutions are required to tag cli- may lead to a reduction in GHG emissions or improve and mate change expenditures in the annual sectoral budget pro- protect carbon sinks; and the expenditure is included in the posals by submitting a list of tagged programs, activities, and priority list of the Low Emission Development Strategy. The projects and their respective weights. Every tagged expendi- climate-relevant programs, activities, and projects are catego- ture is assigned one of four climate change budget indicators rized into one of four key functions (climate change budget in- depending on the type of activity: policy development and gov- dicators): policy development and governance; research and ernance; research and development; knowledge sharing and development; knowledge sharing and capacity building; and capacity building; or climate response and service delivery. climate response and service delivery. There is a positive list The climate change budget indicators are integrated into the of climate-relevant expenditures for each of the four key func- performance-based budget system under the Ministry of Fi- tions (climate change budget indicators). Additional activities nance. can be proposed to the Ministry of Environment’s (now: Min- istry of Agriculture, Regional Development and Environment) Validation. The tagging methodology provides for a valida- Climate Change Office. Activities with adverse climate change tion process to improve data quality assurance and strength- impacts are not considered. en climate change mainstreaming in the planning, prioritiza- tion, monitoring, and reporting processes. Line ministries and Estimation. The methodology applies climate-relevance agencies are required to submit a quality assurance and re- weights. Programs, activities, and projects whose main ob- view form together with their sectoral budget. The form doc- jective addresses climate change are considered 100 percent uments the rationale for the climate-relevance weighting and 20 >>> EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT the selection of the climate change budget indicator. The form recommended that the authorities give “some consideration lists each tagged program, project, or activity along with its to establishing coding structures that track thematic climate main objective, climate change objective, climate-relevance change expenditure at the point of expenditure” and a com- share, and climate change budget indicator, as well as the mon chart of accounts for the central government, local gov- climate risks it addresses and the climate information used. A ernments, and donors. working group under the National Climate Change Committee reviews the sectoral tagging decisions. This process has not Context. The tagging methodology was developed by the yet been implemented. National Planning Commission in 2012 immediately following the CPEIR, supported by UNDP and UNEP. The methodolo- Tracking. The degree of integration of the tagging within the gy adopted was based on the CPEIR. Nepal had already ap- IFMIS could not be confirmed. Currently, climate-relevant ex- plied thematic budget tags for poverty and gender before the penditures are not tracked. introduction of the climate change tag. The development of the climate tagging methodology is linked to the 2011 Nepal Publication. Climate-relevant expenditures are not presented Climate Change Policy and the Twelfth National Development in published budget documents. Expenditures in the mid-term Plan (FY 2013/14–2015/16). In 2017, Nepal developed a cli- budget framework are presented by sectors, not consolidat- mate change financing framework with a roadmap for PFM ed by transversal thematic areas such as climate change. reforms, including a revised climate tagging system. In 2018, The citizens’ budget does not include information on climate the Ministry of Agriculture and Livestock Development pilot- change expenditures. The methodological framework men- ed an improved tagging method with support from UNDP and tions climate budget analysis, policy development, and budget the Food and Agriculture Organization. The new methodology recommendations as a purpose of the tagging process. No foresees tags to be applied during planning and links climate reports have been produced thus far. change to gender and social inclusion issues. Audit and evaluation. There are no specific audit and evalu- Objectives. The objective of the tagging is to access inter- ation arrangements in place for climate-relevant expenditures. national climate funds to finance climate change activities. Well-documented, transparent, and accountable records of References climate investments are seen as a condition for accessing Yovel, Ephrat. 2016. Methodological Guidelines on Climate these funds. Tagging helps to identify the funding gap for cli- Tagging of the National Public Budget. Support Document for mate action in each sector and to channel funds to where they the Mainstreaming of Climate Change Adaptation into the Na- are required. Allocations to programs tagged as highly rele- tional Budget. Chisinau: Climate Change Office and UNDP. vant to climate change have gradually increased. Coverage. Initially, tagging was applied to only 11 ministries, Nepal those most relevant to climate change, which were required to tag their expenditures. This has since been expanded to CPEIR. A CPEIR was conducted in 2011 by the National cover all federal/central-level government entities. In principle, Planning Commission, with financial and technical support only development (capital) budgets are covered, not recurrent from UNDP and UNEP and the participation of the Minis- budgets. However, ministries can tag recurrent expenditures tries of Finance; Environment, Science and Technology; and that finance development activities. Transfers to subnational Federal Affairs and Local Development. The definition of cli- entities in the form of block grants by the Ministry of Federal mate change was based on the OECD Rio marker definitions Affairs and Local Development are also covered. Off-budget for mitigation and adaptation. The review identified climate expenditures are not included. change programs, cost centers, and projects in eight key ministries. Eighty-three program codes were classified as of Definition. Climate relevance is assessed based on a positive high, moderate, or low relevance. No weighting was applied. list of 11 climate change–related activities defined by the Cli- The review covered the budgeted expenditures (allocations) mate Financing Working Group under the Ministry of Finance for five fiscal years and the actual expenditures for the two and the National Planning Commission. Both mitigation and most recent years. The review did not cover management adaptation activities are included, but no distinction is made functions (recurrent budget). The review identified the funding between the two. Activities with adverse climate change im- sources of climate-relevant programs and the amounts dis- pacts are not considered. The positive list comprises: sus- bursed through off-budget technical assistance. The CPEIR tainable management of natural resource and greenery pro- 21 >>> EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT motion; land use planning and climate resilient infrastructure; late their annual plans, based on inputs from district offices prevention and control of climate change–induced health haz- and departments. The tagging is applied at the ministry level ards; prevention and control of climate change–induced haz- by planning officers in consultation with the concerned officials ards to endangered species and biodiversity; management of of the projects and programs in the departments. The tagging landfill sites and sewage treatment for GHG emissions reduc- methodology is fairly complex and time intensive, and the tion; sustainable use of water resources for energy, fisheries, burden falls primarily on mid-level planning staff, who have irrigation, and safe drinking water; programs supporting food to accomplish multiple tasks during the budget formulation safety and security; promotion of renewable and alternative process. The benefits of the tagging materialize at the higher energy; technology development for emission reduction and level, where authorities use it to review and track allocations. low-carbon energy use; climate-induced disaster risk reduc- tion; information generation, education, communication, re- Tagging method. Planners in the line ministries prepare bud- search and development, and creation of a data base; and get sheets for each program and its activities. Two climate reparation of policies, legislation, and plans of action related change–specific columns have been added to the budget to climate change. sheet format: the first indicates the climate relevance of each activity (yes/no) and the second the budget amount allocated Estimation. A relevance score is assigned at the program to the respective activity. The share of climate-relevant activi- level based on the sum of climate change–relevant activity ties in the overall program budget determines the climate rel- budgets and expenditures. Programs are classified into three evance of the overall program. Tagging is done manually and groups: highly relevant (more than 60 percent of program bud- then entered into the line ministry budget information system. get allocated to climate activities); relevant (20–60 percent); Programs are subsequently tagged accordingly in the general and neutral (less than 20 percent). To estimate the total cost National Planning Commission budget sheet as highly rele- of climate activities, the methodology counts the entire cost of vant, relevant, or neutral. highly relevant programs, half the cost of relevant programs, and none of the cost of neutral programs. Validation. The National Planning Commission validates the tagging proposed by the line ministries before the budget is Roles. An inter-ministerial Climate Finance Working Group submitted to parliament. led the design of the tagging methodology. The working group comprised representatives of the National Planning Commis- Tracking. There is currently no methodology and reporting sion, the Ministry of Finance, the Ministry of Environment, system to track implementation progress. The chart of ac- Science and Technology, the Ministry of Federal Affairs and counts does not make it possible to calculate the activity-wise Local Development, and the Ministry of Forestry and Soil Con- amount based on the climate change coding. However, tri- servation. The National Planning Commission, the Ministry of mestral and annual progress reports are prepared for all pro- Finance, and sectoral ministries/institutions are engaged in grams. the tagging process. The National Planning Commission pro- vides capacity building and elaborates policy and budgeting Publication. Climate change expenditures are presented in guidelines, which has strengthened collaboration between the an annex to the budget document (Redbook), where overall commission and sector ministries. Sector ministries tag devel- and agency-wise climate expenditures are shown. An annual opment programs and projects in their budget proposal, usual- citizens’ climate change budget is published. The mid-term ex- ly in consultation with officials working on those activities. The penditure framework and annual development program also National Planning Commission reviews and validates tagging present tagged projects/programs as well as a summary result in coordination with the Ministry of Finance. The tagging has of budget estimations and expenditure projections. raised awareness and understanding of climate change is- sues among policy makers, planners, and implementers. Audit and evaluation. There are no specific audit and evalu- ation arrangements in place for climate-relevant expenditures. Budget process. The National Planning Commission and Ministry of Finance communicate the budget ceilings and References guidelines for annual plans to the line ministries. The budget Nepal, Government of. National Planning Commission. 2011. ceiling and the guidelines for sectoral ministries/agencies are Climate Change Budget Code. Documenting the National prepared based on the periodic plan and sectoral policies. The Process of Arriving at Multi-Sectoral Consensus: Criteria and guidelines include provisions on emphasizing and proposing Method. Kathmandu: National Planning Commission. programs for adaptation and mitigation. Line ministries formu- Nepal, Government of, UNDP (United Nations Development 22 >>> EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT Programme), and UNEP (United Nations Environment Pro- Impacts. Tagging covers four dimensions of expenditures. gramme). 2011. “Nepal: Climate Public Expenditure and Insti- First, adaptation and disaster risk reduction: actions taken to tutional Review (CPEIR).” National Planning Program, UNDP, support the adaptation of human and natural systems to cur- and UNEP, Kathmandu. rent or future climate effects in order to moderate the dam- age or take advantage of beneficial opportunities. Strategies, policies, and measures aimed at improving the understand- Nicaragua ing of disaster risks, promoting the reduction of, and finan- cial protection from, disaster risks, and improving disaster CPEIR. A CPEIR was conducted in 2015 by consultants and preparedness and response and recovery practices. Second, government officials. The CPEIR recommended the design of losses and damages (ex post): activities related to disaster re- a methodology to tag public climate expenditures to avoid the sponse and post-disaster recovery (for climatic and geological over- or underestimation of climate-related spending. events), including restoring the affected public infrastructure, goods, services, and livelihoods, either temporarily (rehabil- Context. The methodology was developed by the Ministry of itation) or permanently (recovery and reconstruction). Third, Finance and Public Credit and introduced gradually from 2017 climate change mitigation: interventions to reduce sources of onwards. It is linked to the National Environment and Climate GHG emissions or improve sinks. And fourth, general environ- Change Strategy (2010–2015), the National Risk Manage- mental management: activities focused on institutional devel- ment Plan (2010–2015), and the National Policy for Integrated opment and public policies for environmental management; Disaster Risk Reduction (2015). planning, protection, and sustainable use of natural resourc- es; the management of solid and liquid waste and chemicals Objectives. The overall objective of the thematic tag is to and air, water, and soil quality; the management of biodiversity establish a link between the expenditures allocated to envi- and protected areas; and the management of information and ronmental management, climate change, and disaster risk knowledge about the environment, education, awareness, reduction and the resource requirements identified in the re- and social participation (family and community). The meth- spective national plans and policies. Tagging should provide odology provides an indicative list of relevant activities under information to decision makers so they can optimize resource each area. Activities with adverse climate change impacts are allocations to disaster preparedness and reduction, mitigation, not considered. and adaptation. It should also serve as a tool to identify policy objectives requiring additional funding and to mobilize domes- Estimation. No weighting is applied. tic and international resources. Roles. The tagging methodology was developed by the Minis- Coverage. Tagging is applied by all central government in- try of Finance and Public Credit. Tagging has ensured that the stitutions and covers both recurrent and investment expendi- issues of climate change, disaster management, and environ- tures. SOEs, SNGs (municipalities), and off-budget expendi- mental management are placed on the public finance agen- tures are not covered. Tagging is gradually expanded to cover da. A climate finance office within the Ministry of Finance and all central government institutions. In 2019, eight ministries Public Credit has been established to manage climate fund- (the Ministry of Development, Industry and Commerce; Minis- ing. Tagging has raised awareness of climate, disasters, and try of Education; Ministry of Agriculture; Ministry of Transport environmental issues as national priorities across government and Infrastructure; Ministry of Health; Ministry of Environment and encouraged sector agencies to define their role. and Natural Resources; Ministry of Energy and Mines; and Ministry of Family, Community, Cooperative and Associative Budget process. The budget circular requires budget enti- Economy) and three independent agencies (the National For- ties to tag climate-, disaster-, and environment-related expen- estry Institute, Nicaraguan Institute of Territorial Studies, and ditures. Budget entities tag activities in the IFMIS during the National System for Disaster Prevention, Mitigation and Re- budget formulation process. The General Budget Director- sponse) were covered. ate under the Ministry of Finance and Public Credit reviews and approves the tagging. Climate-, disaster-, and environ- Definition. The definition of climate change mitigation and ment-related expenditures are presented in the annual bud- adaptation is based on the 2012 IPCC report (“Managing the get at the program, subprogram, activity, or work level by type Risks of Extreme Events and Disasters to Advance Climate of expense (current and capital) and by source of financing Change Adaptation”) and the UNFCCC Warsaw International (grants, loans, treasury income). Mechanism for Loss and Damage related to Climate Change 23 >>> EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT Tagging method. Tagging is applied at the lowest level of the Objectives. The objective of tagging the climate change rel- programmatic budget structure (activity). Tags are applied in evance share and climate change sensitivity share is to iden- the IFMIS. The programmatic budget structure is linked to the tify the inherent climate mitigation or adaptation benefits of chart of accounts, which associates expenditures with financ- current public expenditure and plan future investments; to ing sources. facilitate the realignment of the objectives of departmental schemes to achieve greater climate relevance in the future; Validation. The Ministry of Finance and Public Credit’s Gen- to predict future loss and damage because of climate change eral Budget Directorate reviews and validates the tagging. given climate scenarios (regional projections) with current ad- aptation and mitigation efforts; and to standardize domestic Tracking. The thematic tag is associated with a budget code, and international climate action and expenditure reporting. which allows automated tracking of relevant expenditures. Tags may be revised during budget execution in the event of Coverage. The Odisha Climate Change Action Plan outlines modifications. There have been no implementation reports, strategies across 11 priority sectors, forming the basis for con- follow-up analyses, or evaluations of expenditures thus far. ducting the Phased Climate Change Impact Appraisal and the tagging. However, due to comparatively low budgetary Publication. Climate-, disaster-, and environment-related ex- allocations, expenditure from the Departments of Industries penditures are presented in the general budget, and general and Steels and Mines has been omitted from this analysis. budget execution reports reflect this spending. The final ex- On the other hand, Panchayati Raj, drinking water, and rural penditures are included in the general budget liquidation re- development have been included, since the expenditures in port, which is subject to audit by the General Comptroller and these departments have far reaching climate change adapta- is submitted to the National Assembly. tion benefits and at the same time are susceptible to climate change impacts. Only schemes are tagged. Audit and evaluation. There are no specific audit and evalu- ation arrangements in place for climate-relevant expenditures. Definition. Discarding the MDB and OECD approaches, Odi- sha seeks a methodology that suitably identifies the climate References change benefits of the state’s existing budget expenditures, Nicaragua, Government of. n.d. “Nicaragua: Clasificador del with indicators that will be helpful for the state in prioritizing cli- Gasto en Cambio Climático, Reducción del Riesgo de Desas- mate actions. This approach takes into account the expected tres y Gestión Ambiental.” Presentation. Ministerio de Hacien- benefits of the schemes/programs and grades them based on da y Crédito Público, Managua. their relative climate sensitivity to arrive at the climate change benefit share. Odisha (India) Estimation. The Phased Climate Change Impact Appraisal approach is applied to expenditures for all the schemes/pro- CPEIR. No CPEIR was conducted. grams across the 11 priority sectors, and the resultant per- Context. The Indian state of Odisha took an early initiative in centages of the climate change relevance and climate change formulating the State Action Plan on Climate Change-I, 2010– sensitivity shares will be imposed on the programmatic ex- 15. The State Action Plan on Climate Change 2018–23 high- penditure of these schemes. This exercise ultimately provides lights the current and future vulnerabilities of Odisha under the overall climate relevance and sensitivity shares of public different scenarios based on scientific assessments. It also expenditure, thereby providing an additional classification in summarizes some major climatic events and their impacts as light of future climate expenditure as well as NDC reporting. well as the state’s potential exposure to any similar events in Only scheme expenditure is assessed and tagged. the future. Odisha recognizes that there is a need to include climate change in planning and budgeting and accordingly Roles. The Forest and Environment Department anchors initiated a Phased Climate Change Impact Appraisal. Eleven the climate budget, and the 11 stakeholder departments pro- stakeholder departments were prioritized based on the climate vide the schemes relevant to climate change. There is a re- change relevance share and the climate change sensitivity search unit in the Forest and Environment Department that share of a majority of the schemes (development programs) determines the schemes’ climate change relevance and sen- of those identified departments. The methodology for tagging sitivity shares. the climate-relevant budgeted expenditure of the 11 priority departments was integrated into the state budget for 2018–19 as a separate chapter and subsequently published. 24 >>> EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT Budget process. It is not integrated into the budgetary pro- Audit and evaluation. Generally, documents, such as the cess and appears to be an exercise carried out independent gender budget, outcome budget, and so forth, that are outside of the main budgeting exercise. the main budget are not audited as part of certification of ac- counts or value-for-money audits. Tagging method. The tagging is carried out in two phases. In the first phase, the climate change relevance share is deter- mined through the following steps: Pakistan • List benefits: Identifying the beneficiaries of the program’s economic, social, and environmental benefits • Identify importance: Marking each benefit with a rank- CPEIR. CPEIRs were conducted in 2015 and 2017, with sup- ing of importance (high/medium/low), applying a score port from UNDP. The CPEIRs covered federal expenditures (where H=3, M=2, and L=1), and providing a response to and the expenditures of the four provinces and three federally the rank assigned to the benefit administered areas. Both recurrent and development (invest- • Outline climate relevance: Describing whether each ben- ment) budgets were covered. The methodology consisted of efit leads to building climate resilience and/or mitigation three phases: identification of expenditures with an adapta- • Highlight the degree of climate relevance: Marking the rel- tion, mitigation, or supporting component; classification of ative importance of climate relevance (full/ high/medium/ climate-relevant expenditures along the themes and tasks low/nil) and applying a score (where F=100 percent, H=75 outlined in the National Climate Change Policy; and rating of percent, M=50 percent, L=25 percent, and N=0) expenditures as of high, medium, low, or marginal relevance and assigning climate-relevance weights. The CPEIR report In the second phase, the climate change sensitivity share is recommended that the authorities integrate climate change determined by following the steps given below: action into planning and budgeting across all relevant sectors • Identify the climate sensitivity of benefits: Describe how and at the provincial level through the development of system- sensitive the benefit is to climate change, rank the de- atic tracking, managing, and reporting procedures, a process gree (full/high/medium/low/nil), and apply a score (where that was underway at the time of this report. F-100 percent, H=75 percent, M=50 percent, L=25 per- cent, and N=0). Context. The proposal for a climate change coding and tag- • Calculate the share of benefits sensitive to climate ging system was developed in 2016 by UNDP-financed con- change. sultants, complemented by a technical note on the climate change expenditure reporting framework. The tagging meth- This methodology attempts to provide the climate relevance odology has been integrated into the Development Planning of public expenditure in step I, while in step II, it highlights the Manual (revised in 2019). The methodology applies the same vulnerability of public expenditure to future climate impacts. definition and classification used in the CPEIR report, and its If the results of both analyses are studied together, it will be coverage reflects the cost centers identified as climate change observed that there are schemes in every sector that provide relevant in the CPEIR. The development of the methodology relatively greater climate benefits than others while also being is linked to the 2012 National Climate Change Policy and the sensitive to climate impacts, hence needing relevant design 2013 Implementation Framework. In 2017, Pakistan devel- considerations to ensure that the benefits are not at risk. Sim- oped a climate change financing framework to systematically ilarly, schemes that are low in providing climate benefits might mainstream climate change into public economic and financial also be low in sensitivity, which could again call for design management. The climate change budget tagging was piloted changes to accrue greater benefits at lower risk exposure. in the 2018/19 budget cycle. Validation. Currently there is no independent verification Objectives. The declared objective of tagging climate-rele- mechanism in place. vant expenditures is to improve the government’s policy man- agement capability, strengthen monitoring, and influence bud- Tracking. The climate budget is stand-alone document like get allocations to align with climate change policy priorities. the gender budget. It is not known whether there are any tracking reports. Coverage. All cost centers that have climate change–related activities as reflected in the National Climate Change Policy Publication. It is part of the budget documents. are covered. The climate change coding and tracking system covers only the federal level. Tagging is applied to both recur- 25 >>> EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT rent and development (investment) expenditures in the annual eral state, provinces enjoy significant autonomy and different budget. Climate tagging has not yet been applied to planning functions. As part of the process of integrating climate change instruments. Autonomous bodies are also covered through into budgeting and planning, the Ministry of Climate Change a special reporting template. Tagging is planned to also be established a Climate Finance Unit to facilitate access to in- rolled out at the provincial level, where work has started in ternational climate finance. There are standing committees on Khyberpakhtunkhwa Province. climate change in the national assembly and in the senate. Efforts are ongoing to develop a climate budget review guide Definition. Climate relevance is assessed based on 11 tasks to support their oversight function. Tagging has raised aware- (sectors) derived from the National Climate Change Policy ness of climate change issues across government entities and and grouped under adaptation, mitigation, and supporting facilitated discussion on the fiscal impacts of climate change activities. Adaptation encompasses water resources; agricul- and the effect on budget allocations. ture, forestry, and livestock; land use changes; industry and manufacturing; and disaster management. Mitigation involves Budget process. The climate change expenditure tagging energy; agriculture, forestry, and livestock; transport; land use was piloted in the 2018/19 budget cycle. That year’s budget changes; industry and manufacturing; and waste manage- brief (review of the federal budget) summarized the method- ment. And supporting areas include capacity building, aware- ology, though in the subsequent budget brief, there was no ness, education, and institutional strengthening; international longer any mention of climate change. The process of tagging and regional cooperation; and finance and technology trans- is fully automated. Cost centers are tagged in the government fer. An indicative list of activities is provided. However, activi- IFMIS. The tags and weights were assigned by a team of ex- ties with adverse climate change impacts are not considered, perts when the climate expenditure tracking system was intro- and there is no negative list of excluded activities. Separate duced. New cost centers are reviewed, tagged, and weighted typologies will be prepared for provinces to reflect their differ- by technical staff at the Ministry of Climate Change. ent functions. Tagging method. Tagging is applied centrally to cost centers Estimation. Relevance weights are assigned to expenditures and programs. The coding structure for climate expenditure is identified as climate relevant. Expenditures are classified as introduced as a special module in the IFMIS. The code pro- having high (75 percent or more), moderate (50–75 percent), vides information on the type of activity (mitigation, adapta- low (25–50 percent), and marginal (less than 25 percent) rel- tion, supporting areas), subsector, funding source (domestic/ evance. The definition of the weight is based on the climate external), and its relevance weight (high, medium, low, mar- change typology in the Manual for Development Projects and ginal). The process is fully automated. Cost centers (part of is not linked to the expenditures on activities that are directly the chart of accounts structure) are tagged in the IFMIS by climate relevant. The methodology provides examples of the staff at the Ministry of Climate Change. The tags and weights different relevance categories. for each program were assigned by a team of experts when the climate expenditure tracking system was introduced. New Roles. The tagging system was designed by the Ministry of cost centers are reviewed, tagged, and weighted by technical Climate Change and the Comptroller General of Accounts staff at the Ministry of Climate Change. For those autonomous (under the Ministry of Finance). The Ministry of Climate bodies that are not integrated into the IFMIS, a special report- Change regularly reviews the definition and relevance crite- ing template has been designed, consistent with the IFMIS ria in consultation with provincial-level counterparts. Tagging reporting template, enabling them to share climate-relevant focal points in the Ministry of Climate Change centrally apply budget and expenditure information with the appropriate line the climate change tag to cost centers created in the IFMIS. ministry. The responsible line ministry consolidates this infor- The Comptroller General of Accounts submits lists of newly mation at the sector level before submission to the Ministry of approved cost centers to the Ministry of Climate Change for Climate Change and Ministry of Finance. tagging. The Ministry of Climate Change prepares an annual report on climate allocations and expenditures, which is in- Validation. All cost centers were initially tagged by a team of cluded as a chapter in the Economic Survey (fiscal perfor- experts. New cost centers are reviewed and tagged by tech- mance and outlook report). The institutional framework has nical staff at the Ministry of Climate Change. There is no vali- posed a challenge to the introduction of climate tagging be- dation mechanism. cause responsibility for budgeting, planning, and accounting is scattered across the Ministry of Finance, Ministry of Planning, Tracking. Tags are applied in the IFMIS, which allows for and the Comptroller General of Accounts. As Pakistan is a fed- tracking actual expenditures and execution progress. Informa- 26 >>> EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT tion on actual expenditures is included in the annual Economic comes and outputs under the 2010 National Climate Change Survey. There are no specific rules for reallocation. Action Plan. Work on the methodology was led by the Depart- ment of Budget and Management and the Philippines Climate Publication. Currently, climate budgets and expenditure re- Change Commission with support from the World Bank and ports are not published. The Comptroller General of Accounts the government of Australia. The methodology follows up on produces annual internal budget execution reports for climate the CPEIR exercise, but the definitions of climate relevance expenditure for the Ministry of Finance. A chapter on climate and coverage and the approach differ. change is included in the economic survey and in the budget brief, but it does not comprehensively present climate expen- Objectives. The initial objective of the expenditure tagging is diture data. Since the tagging is fully integrated into the sys- to lay a foundation for climate budgeting, identify and track tem, budget and expenditure reports can be produced at any climate responsive expenditure, and facilitate a discussion on time and at different levels of detail. performance. Tagging generates statistics and baseline infor- mation for assessing trends, tracking execution, and moni- Audit and evaluation. The supreme audit institution’s Direc- toring physical performance. Today, the system serves as a torate for Environment, Climate Change and Disaster Risk is common framework to identify, plan, prioritize, and monitor the undertaking a pilot climate performance audit in one district. climate change–related expenditures of national government agencies and local government units. References Pakistan, Government of, and UNDP (United National Coverage. All national government agencies tag their re- Development Programme). 2016. “Introduction of Climate spective budgets. Tagging covers expenditures related to Change Coding and Tracking System.” Briefing Proposal. general administration, support to operations, locally funded Unpublished. programs, and foreign-assisted projects. Both recurrent and capital expenditures are covered. Local government units (a total of 1,760) are requested to tag budgets in their annual Philippines investment plans, including investment financed from own re- sources, central-level transfers, and donors. Funding from the central government to SOEs is covered, though their own cli- CPEIR. A CPEIR was conducted in 2013 by the Department mate-relevant expenditures are not. Off-budget expenditures of Budget and Management and the Climate Change Com- are also not covered. mission with support from the World Bank. The CPEIR cov- ered five departments (agriculture, energy, science and tech- Definition. Climate-relevant activities are classified as either nology, environment and natural resources, and public work adaptation or mitigation related. Adaptation related is defined and highways) and their subordinate agencies. Climate-rele- as an activity that intends to reduce the vulnerability of hu- vant programs, activities, and projects were identified based man or natural systems to the impacts of climate change and on a previous tagging effort that linked programs to national climate-related risks by maintaining or increasing adaptive development priorities, one of which was related to sustain- capacity and resilience. Mitigation-related activities are those able natural resource use and climate change adaptation and that contribute to the stabilization of GHG concentrations in mitigation. The list was revised based on the identification of the atmosphere by promoting efforts to reduce or limit emis- activities that fell under the National Climate Change Action sions or to enhance GHG sequestration. Activities are further Plan and in consultation with the departments. The CPEIR classified according to the National Climate Change Action used the OECD Rio marker definitions to classify programs Plan according to the strategic priority to which they contrib- as mitigation or adaptation. Projects or programs contribut- ute (food security, water sufficiency, ecosystem and environ- ing to both objectives were split to avoid double counting. The mental stability, human security, climate smart industries and CPEIR recommended that tagging be used in the budget plan- services, sustainable energy, knowledge and capacity devel- ning and management process throughout the government, opment, cross-cutting programs), the subpriority, and the in- employing updated guidelines for tagging with strengthened strument. A positive list of 247 climate-relevant activities has mid-year and end-year reporting on implementation. been established and is regularly updated. Activities with ad- verse climate change impacts are not considered. Background. The climate change expenditure tagging meth- odology was introduced in 2014 and revised in 2016. Tagging Estimation. For programs, activities and projects whose main established a climate change expenditure baseline for the out- objective (or one of the main objectives) is climate change, 27 >>> EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT the entire budget is tagged as climate-relevant expenditure. If tures are prepared by budget and planning officers, confirmed the main objective does not explicitly address climate change, by chief accountants, and approved by heads of office/agency. only the expenditures on the components that do so explicitly A help desk within the Climate Change Commission supports are tagged as climate relevant. government entities and local governments in the tagging pro- cess. The climate change expenditure tagging typology code Roles. The methodology was developed jointly by the Climate has six digits: the first identifies the activity as either adapta- Change Commission and the Department of Budget and Man- tion or mitigation; the second allocates it to one of the seven agement (Ministry of Finance). National government agencies priorities under the National Climate Change Action Plan; the are responsible for tagging their expenditures when entering third allocates it to a subpriority under the respective strategic them into the budget proposal system. The Climate Change priority; the fourth identifies the type of instrument deployed Commission provides yearly orientation on climate expendi- (policy and governance; research and development; knowl- ture tagging for ministry budget and planning officers, climate edge, capacity building, and training; action delivery); and the change focal points, and SOEs. A module on climate expendi- last two digits identify the specific activity. Climate-relevant ture tagging is integrated into the wider capacity-building pro- programs, activities, and projects are classified according gram for SNGs. to their allotment type (personal services, maintenance and other operating expenses, financial expenses, and capital Budget process. The Budget Call released by the Depart- outlays). Government agencies can submit a request for ad- ment of Budget and Management contains general informa- ditional typology codes to the Climate Change Commission. tion on the budget process as well as the budget preparation Tagging climate-relevant expenditures has helped agencies forms and instructions. The climate change expenditure form identify their climate change priorities. There are limitations is part of the package. Government agencies are asked to in the methodology, however. Only one climate tag from the provide an overview of their climate-relevant expenditures typology is assigned to each program, activity, and project, (previous, current, and succeeding fiscal year). Climate-rele- even if the intervention is relevant to several strategic prior- vant programs, activities, and projects are classified according ities of the National Climate Change Action Plan. Moreover, to their allotment type (personal services, maintenance and the granularity of the data is low because tagging is done at other operating expenses, financial expenses, and capital the program, activity, and project level rather than at the level outlays). Government agencies are required to document the of subcomponents or budget lines. climate objective, outcome, and relevance of the tagged ex- penditure and to summarize and present their climate-related Validation. The climate change expenditure forms prepared by program budget requests in a climate budget brief. The brief budget entities are reviewed by the Climate Change Commis- discusses allocations in relation to previous years, highlights sion to ensure the consistency of tagging over time (previous/ funding gaps with regard to activities identified in the Nation- current/future fiscal year) and the climate responsiveness of al Climate Change Action Plan, and includes recommen- the tagged programs. Programs that do not meet the criteria dations for the technical budget hearings. The briefs inform can be excluded after consultation with the government agen- congressional budget hearings, presidential communications cy. However, compliance with the quality assurance and review on climate change commitments, and the public. A proposed process has been limited, and there was initially a low rate of climate budget is provided as part of the president’s budget return of the corresponding forms. Indeed, the requirement for submission to the Congress. Allocations for climate-relevant agencies to provide additional information appears to have led programs, activities, and projects have increased since the to a decrease in the number of agencies tagging their expendi- introduction of the tagging system. However, this may be due tures. Compliance among local government bodies is poor. Lo- in part to an initial undertagging and to improvements in com- cal government tagging forms are submitted only after the plans pliance over the years. have been approved by local councils, hampering adjustments after review by the Climate Change Commission. Moreover, the Tagging method. Tagging is applied at the program level. Commission’s human resources are insufficient to properly val- Where climate change is not a main objective of the program, idate submissions from a large number of local governments components (projects or activities) that directly address cli- and provide the required guidance and capacity building. mate change are tagged. Each program, activity, and project has its own code in the Unified Accounts Code Structure. Bud- Tracking. Climate-relevant expenditures can be tracked at get entities tag programs, activities, and projects when they four stages: in the budget requests submitted by ministries are entered into the Online Submission of Budget Proposal and agencies; in the amount allocated in the budget proposal; System. Budget proposal forms for climate-relevant expendi- in the general appropriations act (approved budget); and in the 28 >>> EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT actual expenditures reported by ministries and agencies. The relevance, 26–74 percent; low relevance, 10–25 percent); National Climate Budget Brief presents the amounts allocated and classification of expenditure as adaptation or mitigation to climate-relevant interventions in the approved budget. focused. The CPEIR acknowledges that there is no coding for climate change–relevant expenditure in the PFM system Publication. A National Climate Budget Brief is developed and recommends further research to confirm the climate-rele- based on the climate change expenditure tagging and pub- vance criteria developed in the CPEIR. lished. Climate expenditure tagging supports monitoring and reporting on the National Climate Change Action Plan. How- Background. The climate change budget tagging methodolo- ever, the expenditure tagging typology is not completely con- gy was developed in 2018 by the Ministry of Finance, Planning sistent with the Action Plan’s interventions. Data generated by and Economic Development with technical support from the the expenditure tagging system are also made available on World Bank. The methodology does not make any reference the monitoring and reporting website for the Philippines’ com- to the CPEIR, from which it differs significantly. The method- mitments under the Paris Agreement (https://niccdies.climate. ology is based on the National Climate Change Policy and its gov.ph/). costed Implementation Strategy, in addition to other climate change–relevant sector policies. Audit and evaluation. Discussions on the participation of the Commission on Audit in the expenditure tagging system are Objectives. The objective of identifying, classifying, and currently ongoing. tracking climate expenditure is to “assess trends, track budget execution and monitor financial and physical performance.” References The results of the tracking are country-specific and cannot Philippines, Government of. Department of Budget and Man- be aggregated. agement. 2016a. “National Climate Budgeting. A Reference Guide to Climate Budgeting at the National Level in the Phil- Coverage. The tagging was piloted in four ministries and four ippines.” Climate Change Commission, Department of Budget districts in the FY2019/20 budget and is expected to be ex- and Management, Manila. panded to cover all ministries and districts in FY2020/21. Both recurrent and development budgets are covered. Off-budget ———. Department of Budget and Management. 2016b. “Na- and SOE expenditures are not covered. tional Climate Change Expenditure Tagging Typology Code Manual.” Climate Change Commission, Department of Budget Definition. Interventions are adaptation relevant if the objec- and Management, Manila. tive includes a reference to climate change risks or vulner- World Bank. 2013. “Getting a Grip… on Climate Change in the abilities, and mitigation relevant if the objective includes a Philippines. Contributing to the Foundation and Ensuring the reference to GHG reduction or energy efficiency. Definitions Future for a Low-Carbon, Climate Resilient Society through are closely linked to the MDB approach. The MDB positive list the Philippine Climate Public Expenditure and Institutional Re- of eligible activities is used as a reference for mitigation. Cli- view.” Executive Report, World Bank, Washington, DC. mate-relevant programs and projects are classified according to a typology based on the National Climate Change Policy, Uganda which specifies policy objectives, sectors, types of response, and specific strategies (activities). Thirty-two policy objectives and 141 specific strategies are included in the typology. There is no negative list. Expenditures with negative climate change CPEIR. A CPEIR was conducted in 2013 by the ODI and effects are not considered. the Advocates Coalition for Development and Environment (Uganda). Ugandan government institutions were not directly Estimation. No weighting or relevance classification is ap- involved in the exercise. The methodology aimed to classi- plied. All expenditures for climate-relevant programs and proj- fy relevant public expenditure through six stages: identifica- ects are considered to be climate relevant. tion of key policy areas for climate change and the associat- ed ministries and agencies; identification of climate-relevant Roles. The Ministry of Finance, Planning and Economic De- programs and projects; assessment of the climate relevance velopment is responsible for the tagging methodology. It en- of the objectives; assessment of the climate relevance (high, sures the application of the tagging, raises awareness among medium, or low relevance) and geographic location of the ministries, departments, and local governments, reviews the program; assignment of a percentage weighting to each item tagged budget submissions, and generates annual reports of expenditure (high relevance, 75 percent or more; medium 29 >>> EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT on climate change allocations and expenditure. The National Validation. Ministries, departments, agencies, and local gov- Planning Authority reviews climate-tagged investment projects ernments charged with tagging are required to fill in a quality to ensure their alignment with national climate change prior- assurance and review form as part of the submission of their ities and reviews the performance reports of climate change budget proposals. The form provides supporting information projects. The Climate Change Department under the Ministry for the tagging, including on climate-relevant objectives and of Water and Environment advises ministries, departments, outputs. The Climate Change Department reviews tagged ex- and local governments on the application of the tagging and penditures and suggests adjustments based on the forms. also compiles and consolidates information on climate change expenditures to inform budget hearings. Tracking. Actual expenditures can be tracked in the budget system. The annual report on climate expenditure will cover Budget process. Climate change tagging is not considered in both actual and planned expenditures. the budget circular. However, the methodology specifies that budget entities should tag programs and projects during the Publication. Climate-relevant expenditures are to be pre- preparation of the Budget Framework Papers following the is- sented in annual reports by the Ministry of Finance, Planning suing of the first budget call circular. Tagging may be revised and Economic Development. No such report has been during the budget consultations. generated yet. Tagging method. Planners in technical directorates and tech- Audit and evaluation. There are no specific audit and evalu- nical staff, working with climate change focal points at the lo- ation arrangements in place for climate-relevant expenditures. cal government level, identify climate-relevant programs and projects and tag the planned expenditures. Tagging is applied References to outputs and subprograms and is fully integrated into the Tumushabe, Godber, Tony Muhumuza, Edward Natamba, program budgeting system. A five-digit code was created in Neil Bird, Bryn Welham, and Lindsey Jones. 2013. “Uganda that system. Following the climate change typology, the first National Climate Change Finance Analysis.” Overseas De- digit indicates the objective of the National Climate Change velopment Institute and Advocates Coalition for Development Policy; the second and third identify the sector; the fourth and Environment, London and Kampala. specifies the type of policy response; and the fifth identifies the specific strategy/activity. Uganda, Government of, and World Bank. 2018. “Climate Change Budget Tagging Reference Manual.” Unpublished. 30 >>> EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT