Module 7 Mainstreaming in the budgetary process Country-led environmental and climate change...
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Transcript of Module 7 Mainstreaming in the budgetary process Country-led environmental and climate change...
Module 7Mainstreaming in the budgetary process
Country-led environmental and climate change mainstreaming
Implications of environment- and climate-
related policies and measures for public
revenue and expenditure
Implications of environment- and climate-
related policies and measures for public
revenue and expenditure
2
Implications of integration on the revenue side
REVENUES
3
Revenues
+
-
Taxes on economic activities related to environmental
and climate adaptation &
mitigation measures
Foreign grants & other financial
transfers related to environment
and climate change
Growth effects from increased
competitiveness
Reduced taxes on activities that shrink or fail to develop as
a result of environmental and/or climate change policies
Environmental Fiscal ReformPayment for Environmental Services
Carbon taxes /
taxed on polluting and high-emission activities
Implications of integration on the expenditure side
REVENUES
4
Expenditures+
-
Subsidies for environmentally
-sound and adaptation & mitigation-
related activities
Current expenditures in
relation to environmental
and climate change
(adaptation/mitigation) measures
Public investment (capital
expenditure) in environmental and/or climate
change (adaptation/ mitigation) -
related infrastructure
Reduced subsidies for
fuel consumption
and other high-emission activities
Reduced spending on health care, infrastructure
replacement etc. as a result of
successful adaptation and environmental
measures
Elimination on perverse
subsidies that promote
environmentally damaging activities
Linking the budget to policy
objectives and expected results
Linking the budget to policy
objectives and expected results
5
Linking spending to policy and results, with a medium-term outlook
National objectives and strategies
Medium-term budget perspective or expenditure
framework
Medium-term sector plans
Annual budget
Implementation & service delivery
Performance monitoring
6
The medium-term expenditure framework (MTEF)
• A forward-looking budgetary planning tool covering a 3 to 5-year period• systematically links strategic objectives (national/sectoral) and
related outputs/outcomes with actions required to achieve them, corresponding expenditures and resources
• supports the prioritisation of expenditures and the predictability of resources
• facilitates performance monitoring
• Can be established at the national level (inter-sectoral allocations) as well as the sectoral level (intra-sectoral allocations)
7
In practice
• MTEFs are rather sophisticated tools, and few countries have full-fledged MTEFs
• The preparation of medium-term projections of national and/or sector expenditures is a good starting point
• The uncertainties associated with projections and forecasts should be recognised
8
What is the practice in your respective countries?
Entry points for environmental and
climate change mainstreaming
Entry points for environmental and
climate change mainstreaming
9
Basic conditions for influencing the budget
• Understanding the budgeting process and finding the appropriate entry points
• Coordinating with related policy processes- engaging with the actors who drive the budget
• Mobilising civil society
• Coordinating with donors- potential under General Budget Support
• Advocacy of appropriate financing to sector and subnational bodies
10
Environment and climate change at the resource allocation stage
• Mainstreaming environment/climate change requires:
- reallocating funding to more vulnerable and/or priority sectors and regions
- providing funding to environmental measures
- providing funding for adaptation- and/or mitigation-specific plans or activities
- adding environmental and climate change considerations to the criteria for screening and selecting projects and investments
- making room for ‘cross-sectoral’ activities (e.g. DRR)
• This process typically involves a mix of top-down and bottom-up processes
Source: OECD (2009a) 11
Key stages in budget preparation and related entry points (1)
Key stages Key actors
1. Determination of macroeconomic outlook
Min. of Finance/Planning, statistical office, central bank
2. Multi-year strategic planning: medium-term fiscal strategy, medium-term expenditure framework
Cabinet, Min. of Finance
3. Determination of next year’s:-expected revenues-acceptable level of deficit-global level of expenditures
Min. of Finance (Budget Dept, Macroeconomic Dept), Cabinet
4. Pre-allocation of expenditures among line ministries, according to policy priorities
Cabinet, Min. of Finance (Budget Dept)
12
Impacts of CC on economic activity &
growth; Value of ecosystem services
Impacts of enhancing state of environment +
CC adaptation/mitigation on economic activity &
growth
Extra costs of measures
Extra resources required / pledged
Extra revenues / cost savings
Re-allocation of funds in support of environmental and adaptation/mitigation
objectives
Green accounting
Key stages in budget preparation and related entry points (2)
Key stages Key actors
5. Preparation/Circulation of budget circular & expenditure ceilings
Min. of Finance (Budget Dept)
6. Costing of sectoral policies, submission of bids
All ministries & government agencies
7. Review of sectoral bids, testing of cost estimates, finalisation of budget estimates
Min. of Finance (Budget Dept), Cabinet
8. Negotiations, followed by endorsement of budget
Min. of Finance, other Ministries/agencies, Cabinet
9. Preparation of appropriation bill and budgetary documents
Min. of Finance (Budget Dept)
10. Submission of budget to Parliament – Discussion & adoption
Min. of Finance, Parliament
13
Instructions on costing environmental and cc
(adaptation/mitigation) policies & measures
Costing & integration of environmental and climate change
policies & measuresUse of
environmental and climate risk screening
proceduresPrioritisation of environmental and
climate change policies & measures
Discussion of environmental and climate change policies &
measures
Keeping track of environment- and climate-related expenditures
• During budget preparation, implementation, monitoring and reporting, ‘keep track’ of main environment- and climate-related public expenditures- Adapt the budget classification- ‘Flag’ incremental environment- and climate-related
expenditures embedded in ‘non-environment’ and ‘non-climate’ programmes
• This is important for:- monitoring the implementation of environment- and climate-
related measures in national and sector strategies - reporting to the UNFCCC (national communications)- securing eligibility for funding from specific climate
adaptation/mitigation and environmental funds
14
Monitoring environment and climate finance: environment and climate markers
• Statistical codes developed by the OECD (DAC) to monitor the amount of aid resources targeted at environment and climate change
• Could be adapted for application to the national budgets of OECD and non-OECD countries
• e.g. Kenya is introducing an Electronic Projects Monitoring System (e-PROMIS) for capturing more ‘comprehensive and structures project information’ that will make it easier to identify climate change finance
15Sources: OECD-DAC (2011); Norrington-Davies and Thornton (2011)
Public Expenditure Review (PER)
Public Environmental Expenditure Review (PEER)
Climate Public Expenditure and Institutional Review
(CPEIR)
Public Expenditure Review (PER)
Public Environmental Expenditure Review (PEER)
Climate Public Expenditure and Institutional Review
(CPEIR)
16
Public expenditure reviews (PERs)
• A tool for analysing how budget resources are planned, allocated and actually spent across competing claims, objectives and priorities
• PERs can be used as a tool for supporting the mainstreaming of climate change- Track adaptation- and mitigation-related expenditures- But also, importantly: focus on public expenditure’s overall
contribution to climate-resilient, low-emission development outcomes
• For environmental spending, it can take the form of a Public Environmental Expenditure Review (PEER)
17
Public Environmental Expenditure Review (PEER)
• Common aspects addressed:1. Levels and trends in environmental expenditure2. Disaggregation of environmental expenditure by type of activity3. Distribution of environmental expenditures in relation to env’tl
priorities4. Efficiency and effectiveness of environmental expenditures5. Government capacity for budget execution6. Fiscal decentralisation7. Sustainability of the environmental budget8. Ratios: current/capital expenditures & salary/non-salary expenditures9. Links between funding sources and environmental expenditures, and
potential for increasing revenues10. Institutional capacity for environmental planning and management
18
A way of systematically assessing the equity, efficiency and effectiveness of public environmental
spending. (Markandya et al, 2006)
Source: Markandya et al (2006)
PEER example: Rwanda
• 2009 PEER:• Identified low degree of environmental expenditures• Recommended MINECOFIN increase resource
allocation to ENR sector
• 2013 Public Expenditure Review for Environment and Climate Change 2008-2012• Since 2004 expenditure on environment and cc
increased from 0.4% to 2.5%• MINECOFIN reintroduced annex on environment and
cc in National Budget Call Circular
Climate Public Expenditure and Institutional Review (CPEIR)
• UNDP tool currently piloted in Asia-Pacific countries
• Review:
- how national climate change policy aims were reflected in public expenditures
- how institutions might be adjusted to ensure that financing a response to climate change is delivered in a coherent way across government
20
Entry points for mainstreaming climate-related aspects in a PER
Aspect Issues to consider
Budget planning process
Role of climate-related considerations in allocation decisions
Expenditure trends and categories
Actual spending on vs. allocations to: * adaptation- and mitigation-friendly measures* development programmes with a focus on climate risk management, climate-resilient / low-emission developmentAvailability of recurrent funding vs. capital investment for climate risk monitoring and management
Budget financing Level of and trends in allocations to climate-relevant sectors and agenciesOrigin of such allocations (internal vs. external funding)Possibility of increasing resources for climate-resilient development
21Sources: UNDP-UNEP (2011), World Bank (n.d.) GN4
Complementing with awareness raising tools
• Findings of public expenditure reviews (PERs, PEERs, CPEIRs) can be complemented with ‘awareness raising’ tools to inform budgeting, e.g.
- Economic analyses
- Communication and advocacy strategy and work plan
22
Beyond-GDP and environmental accounting
• Indicators available• e.g. Adjusted Net Savings, Sustainable
Development Indicators, Green Growth Indicators, Human Development Index
Source: http://ec.europa.eu/environment/beyond_g
dp/indicators_en.html
System of Integrated Environmental and Economic Accounting (SEEA)
• SEEA Central Framework - international standard by UNSC (2012)
• Records:• Flows of raw materials from the environment to the economy• Exchanges of these materials within the economy• Returns of wastes and pollutants to the environment
• WAVES (Wealth Accounting and the Valuation of Ecosystem Services)• WB-facilitated global partnership to mainstream natural capital
accounting into national accounting system and development planning
Turning words into action Mainstreaming environment and climate change
in the budgetary process
Using Public Expenditure Reviews (PER), Public Environmental Expenditure Reviews (PEER) and Climate Public Expenditure and Institutional Reviews (CPEIR)
25
What can be done and what are the institutional and capacity needs in your
organisation?
External resources for environment and
climate change financing
External resources for environment and
climate change financing
Main sources: www.climatefundsupdate.org, UNDP-UNEP (2011)
26
Main sources of external financing for climate change (1)
27
Source of funding Activities supported
Development cooperation programmes
Adaptation and mitigation with a focus on dvpt
Least Developed Countries Fund Preparation and implementation of NAPAs)
Special Climate Change Fund Adaptation (priority objective), technology transfers, mitigation in high-potential sectors
GEF Trust Fund’s climate change focal area
Mitigation projects, adaptation demonstration projects and ‘enabling activities’
Adaptation Fund Projects and programmes that reduce the vulnerability of communities and sectors to CC
Green Climate Fund(operations not yet started)
Channel for future multilateral funding for adaptation and mitigation
Clean Technology Fund Demonstration, deployment and transfer of low-emission technologies
Strategic Climate Fund (SCF) - Pilot Program for Climate Resilience
Climate risk and resilience mainstreaming in development planning
Main sources of external financing for climate change (2)
28
Source of funding Activities supported
SCF- Forest Investment Program REDD- related activities, sustainable forest management
SCF - Program for Scaling Up Renewable Energy in Low-Income Countries
Deployment of renewable energy sources
Fast Start Finance (finished 2012) Adaptation and mitigation measures in developing countries
REDD+ (various streams of funding incl. UN-REDD, which promotes the mainstreaming of REDD strategies in national development)
Preparation, pilot implementation and deployment of national strategies for reducing emissions from deforestation/forest degradation
Prototype Carbon Fund Pioneering approaches to mitigation that contribute to sustainable development
BioCarbon Fund Carbon sequestration projects in forests and agro-ecosystems
Main sources of external financing for climate change (3)
29
Source of funding Activities supported
Forest Carbon Partnership Facility Preparation of national REDD strategies, pilot financial transfers based on verified emission reductions from REDD
Carbon Partnership Facility Long-term, post-2012 mitigation projects
Global Energy Efficiency and Renewable Energy Fund
Energy efficiency and renewable energy projects
Global Climate Change Alliance Mainstreaming of CC in poverty reduction and national development strategiesAdaptation, DRR, participation in REDD/CDM
MDG Achievement Fund, ‘environment and climate change’ thematic area
Mainstreaming of environmental issues in national and sub-national policies, planning and investment frameworks
Clean Development Mechanism Mitigation projects in developing countries
Voluntary carbon markets Mitigation projects
Sources of external financing for environment (1)
34
Source of funding Activities supported
ACP-EU Water Facility Supply of water and basic sanitation
EU blending mechanisms: EU-Africa Infrastructure Trust Fund (ITF); Neighbourhood Investment Facility (NIF); Latin America Investment Facility (LAIF); Investment Facility for Central Asia (IFCA); Asia Investment Facility (AIF), Investment Facility for Caribbean; Investment Facility for Pacific
Environmental infrastructure, e.g. water and sanitation, renewable energy, sustainable transport
Global Environment Facility (GEF) Biodiversity, climate change, international waters, land degradation, the ozone layer, POPs
Multilateral Fund for the Implementation of the Montreal Protocol (MLF)
Activities under the Montreal Protocol on ozone-depleting substances, including industrial conversion, technical assistance, training and capacity building
Sources of external financing for environment (2)
35
Source of funding Activities supported
Nagoya Protocol Implementation Fund Activities under the Nagoya Protocol on Access to Genetic Resources and the Fair and Equitable Sharing of Benefits Arising from their Utilization (to the CBD)
Nordic Environmental Development Fund (NMF)
Cleaner production investments, energy-efficiency, environmental investments on farms
Other environmental trust funds
Sources of information on climate-related finance
• www.climatefundsupdate.org
• www.carbonfinance.org
36
Budget support
• The transfer of financial resources of an external financing agency to the National Treasury
• Provides extra resources for the national budget• either grants (e.g. EC) or loans (e.g. World Bank)
• National procedures apply to the commitment and disbursement of funds• implementation via the national Public Financial
Management system => reduced transaction costs, increased ownership
37
Budget support and mainstreaming opportunities
• General eligibility conditions:
38
Existence of a well-articulated national or sectoral policy/strategy to which the budget transfer will contribute
Reasonably stable macroeconomic framework
Reliable or improving public financial management
Transparency and oversight of budget
11
22
33
44
Environmentally sustainable and climate-resilient
Potential use of SEA
PER, PEER, CPEIR
Budget support and mainstreaming opportunities
• Inclusion of key environmental and/or climate change indicators for disbursement of:• fixed tranche
• (paid in full as long as eligibility conditions are maintained)
• variable tranche • (paid in full or in part based on actual performance
against an agreed set of criteria and targets)• criteria/targets in principle taken from the PAF associated
with the supported policy or strategy• provides a results-oriented performance incentive
39
Performance assessment indicators on climate change in Bhutan
• Under GCCA a Renewable Natural Resources – Climate Change Adaptation Action Plan mainstreamed into 11th 5-year Plan (2013-2018)• Activities include budgeting exercise for cc adaptation
actions• Conditions for release of variable tranche include on
‘climate change adaptation readiness’ of RNR sector’s monitoring and evaluation system and improvement of RNR statistical systems to allow for reliable collection of climate-related data
National climate and environment funds
• Several countries have established a ‘national climate fund’ and/or an environment trust fund’ to:- channel and manage external funding related to CC and
environment- leverage existing funds and initiatives (incl. those financed with
national resources)- Support mainstreaming into national development strategies
• Expected benefits:- Alignment of external funding with national priorities- Building of national capacities and institutions- Scaling up of the response to climate change and environmental
challenges
41
Turning words into action
Promote mainstreaming through national budgetary processes
Using (EC) budget support to leverage for mainstreaming
42
What can be done and what are the institutional and capacity
needs in your country/sector of responsibility?
Recap – Key messages
• Environment- and climate-related policies and measures can impact the national budget in multiple ways
• There are entry points for mainstreaming environment and climate change at practically all stages of the budgetary process – including at the stage of ex post evaluation (PERs, PEERs and CPEIR)
• It is recommended to set up systems to keep track of environment- and climate change-related expenditures
• Multiple sources of funding exist to support environment and climate change – focus on eligibility and objectives
• Where conditions are met, budget support is a suitable modality for supporting CC mainstreaming efforts
43
Key references• Petkova N. (2009) Integrating Public Environmental
Expenditure within Multi-year Budgetary Frameworks. OECD Environment Working Papers no. 7. OECD Publishing, Paris
• Carbon Finance website of the World Bank: www.carbonfinance.org
• Climate Funds Update: http://www.climatefundsupdate.org/• Markandya, A; Hamilton, K and Sanchez-Triana, E (2006)
Getting the Most for the Money – How Public Environmental Expenditure Reviews Can Help. World Bank Environment Strategy Notes No. 16, September 2006.
• Climate Public Expenditure and Institutional Review: http://www.aideffectiveness.org/CPEIR
44
References
• Carbon Finance website of the World Bank: www.carbonfinance.org
• Climate Funds Update: http://www.climatefundsupdate.org/
• Forest Trends (2013) Maneuvering the Mosaic, State of the Voluntary Carbon Markets 2013. Ecosystem Marketplace & Bloomberg New Energy Finance: Washington and New York.
• OECD (2009a) Integrating Climate Change Adaptation into Development Co-operation: Policy guidance. OECD Publishing, Paris. [Read-only, browse-it edition] Available from: http://browse.oecdbookshop.org/oecd/pdfs/browseit/4309171E.PDF
• OECD-DAC (2011) Handbook on the OECD-DAC Climate Markers. Organisation for Economic Cooperation and Development, Paris. Available from: http://www.oecd.org/dataoecd/56/18/48785310.pdf
• UNDP-UNEP (2011) Mainstreaming Adaptation to Climate Change into Development Planning: A Guide for Practitioners. UNDP-UNEP Poverty-Environment Initiative. Available from: http://www.unpei.org/knowledge-resources/publications.html
45
References
• Norrington-Davies, G and Thornton, N (2011) Climate change financing and aid effectiveness, Kenya case study. OECD, ADB.
• Swanson, A and Lundethors, L (2003) Public Environmental Expenditure Reviews (PEERS), Experience and Emerging Practice. World Bank Environment Strategy Papers No. 7.
• World Bank (n.d.) Mainstreaming Adaptation to Climate Change in Agriculture and Natural Resources Management Projects. World Bank, Washington, DC. Guidance Note #4 – Developing Readiness for Institutional Capacity Development and an Enabling Policy Framework. [Online] Available from: http://climatechange.worldbank.org/climatechange/content/mainstreaming-adaptation-climate-change-agriculture-and-natural-resources-management-project
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