Transformative Mindset Course

Module 10.

Greening national budgets and sending the right price signals

Author:

Evangelia Michalaki

Institution:

Kokkalis Foundation

Objectives of the training module include:

To gain understanding of the European Growth model on green public investments in the context of the quality of public finance
To introduce key features and gain understanding on tax reforms and their relation to economic growth and resilience to climate shocks
To introduce key features and gain understanding on green budgeting tools and how to integrate green priorities while developing national budgets
To introduce key features and gain understanding on relevant State aid guidelines including the environmental and energy State aid guidelines

Content of the Module:

European Growth Model for a green resilient economy
Greening taxation
Green budgeting
State aid for climate, environmental protection & energy

Teaching methods: lectures, case study, quiz, self-study of additional materials
Duration: 2.5 hours

Glossary

Green budgeting. OECD defines green budgeting as a form of ‘priority budgeting’, aimed at aligning resources and incentives towards a government’s specific priorities. Green budgeting includes all efforts to align the budgetary process with environmental goals.

‘Polluter pays’ principle. The costs of measures to deal with pollution should be borne by the polluter who causes the pollution.

'Cap and trade' principle. A cap is set on the total amount of certain greenhouse gases that can be emitted by installations covered by the system. Within the cap, companies receive or buy emission allowances which they can trade with one another as needed.

Teaching

Material

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Case Study 1:

Green budgeting practices in the EU – Italy

In Italy green budgeting reports are presented by activity of environmental protection (CEPA) and of resource management (CReMA), which complement each other and allow for a detailed monitoring of the environmental goals

The CEPA classification includes activities related to prevention, reduction and elimination of pollution
The CREMA classification includes activities related to preserving and maintaining the scope of natural resources and their safeguarding against depletion

A weight (a percentage) is assigned, first, to each action of a programme and then to each specific objective, to account for different contributions to an objective.

For example: only 39% of the investments for forestry activities to protect against wildfires are considered as contributing to the environmental objective, out of which about 40% contribute to forest management (CReMa), about 40% contributes to protection of soil, biodiversity and landscapes (CEPA).

Budget structure

Italy’s budget is divided in 34 missions which capture the main functions and strategic objectives of public spending.
Each mission is composed by programmes, which for the Budget 2020 amounted to 103, with 1 to 13 programmes per mission.
Each programme and its funds, are assigned to a unique “accountability centre” with the exception of two programmes which are shared among several centres due to their strategic importance.
Accountability centres correspond to the first level of internal organisation of each ministry, defined as “Department” or “Directorate General” depending on the ministry
Each programme is also assigned to a second level of functional classification in order to facilitate data transmission and international comparison.
Funds allocated to each programme are divided into actions, which further specify the expenditure typology, with the purpose of further clarifying the corresponding activities, policies and services.

The screening of expenditure items for the “green- eco” budget report includes the following steps:

Identification of actions that
- exclude environmental expenditure with certainty
- include environmental expenditure with certainty, distinguished in exclusively environmental expenditures and expenditures that pursue environmental and other purposes
- include environmental and non-environmental expenditures
- include expenditures whose final purpose is not certain.
Analysis of the operating costs for those expenditures whose final purpose is not certain, to dissect what can be reclassified into environmental expenditure. When the responsibility centre has no clear evidence of how the funds have been spent, no environmental expenditure is assumed.
Re-classification of the actions that include environmental expenditures in accordance to the CEPA-CReMA classification. Flagging of multi-scope items
Assigning two kinds of percentages: the share of resources dedicated to environmental expenditure and the percentage of environmental expenditure attributed to the CEPACReMA categories and sub-categories.