Training Module
Mainstreaming Climate Change
Module 6
Mainstreaming climate change in the budgetary process
Ms Isabelle Mamaty
Senior Expert
Climate Support Facility
An initiative of the ACP Group of States funded by the European Union

 Learning objectives : o To better understand the budget formulation process o To learn about the best entry points for integrating climate change into the budgetary process at national level o To provide a brief introduction of existing external sources of finance
 Expected outcomes: o Increased knowledge on potential entry points for mainstreaming climate change into the national budget process o Increased awareness on importance of ensuring that climate change is included in the budget according to national policy
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Why mainstreaming climate change in the budgetary process ?
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Domestic
Revenues
External
Revenues including
Subsidies and Loan
Revenues
Investmentconsolidated budget
4
Expenditures
Debt
Salaries
Operational
Transfer including
International dotations

 Climate change is a cross cutting issue and will impact on all sectors
 any prevention measure in the national budget will have major economic benefits while the cost of inaction may be very high and set back national economies for many years or even decades
 avoiding the costs associated with climate change impacts liberates national budgets for other development priorities such as education, health…
……However for that to happen there is a need to:
 raise awareness of all the ministries on the importance of climate change impacts
 Inform all the ministries on how to define the costs of climate change related measures to be submitted to the budget office
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 Mainstreaming CC in the budgetary process allows to: o ensure that adequate resources are allocated to high priority mitigation and adaptation measures; o raise additional revenues from taxes, tariffs, and pollution charges related to climate change response measures; o ensure that the unintended effects of budgeted activities in non-environmental sectors don ’t exacerbate climate change problems; o balance internal and external sources of funding for climaterelated activities
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 increasing or introducing climate-based taxes and charges (like a carbon tax or pollution charges);
 increasing climate-based subsidies (e.g. for investment in renewable energy) and budget allocations for those subsidies;
 removing or redesigning perverse taxes and subsidies that exacerbate climate change;
 increasing budget allocations and tax rebates for activities with favourable climate effects;
 stipulating climate-based limits or goals as budget rules to govern resource allocation
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Implications of climate-related policies and measures for public revenue and expenditure
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+
-
Carbon tax
/ Taxes on highemission activities
Taxes on economic activities related to climate adaptation
R
& mitigation
E measures
V
Foreign grants & other financial transfers related to adaptation & mitigation activities that
E
Reduced taxes on
N
U shrink or fail to
E develop as a result
S of adaptation or mitigation policies
Growth effects from increased competitiveness
Revenues
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+
-
Subsidies for adaptation & mitigationrelated activities
Reduced subsidies for fuel consumption and other highemission activities
Current expenditures in relation to adaptation &
R
E maintenance
E
Public investment
(capital expenditure) in adaptation and/or mitigation-related infrastructure
Expenditures result of successful adaptation measures
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Linking the budget to policy objectives and expected results
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Formulation Macro-economic basis
Budget policy outline
Adoption
Execution
Preparation of revenue and expenditure targets
Submission of sector plans within those ceilings
By Parliament
By sector Ministries
Control, audits Auditor general or similar agencies
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National objectives and strategies
Medium-term sector plans
Medium-term budget perspective or expenditure framework
Annual budget
Implementation & service delivery
Performance monitoring
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 A forward-looking budgetary planning tool covering a 3 to 5-year period o systematically links strategic objectives (national/sectoral) and related outputs/outcomes with actions required to achieve them, corresponding expenditures and resources o supports the prioritisation of expenditures and the predictability of resources o facilitates performance monitoring
 Can be established at the national level (intersectoral allocations) as well as the sectoral level
(intra-sectoral allocations)
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 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
What is the practice in your respective countries?
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Entry points for climate change mainstreaming
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 Are budget planning and expenditures being directed toward the appropriate priorities in view of adaptation and mitigation?*
 Do recent changes in budget allocations and expenditures provide evidence of increased attention to adaptation to climate variability, disaster preparedness, low-emission development options?
 Do public investment decisions consider geographical distribution of climate risks and vulnerabilities?**
 How can the revenue-generating, budget planning and allocation, and expenditure management systems be improved and/or revised to enhance the contribution of relevant economic sectors to adaptation, climate-resilient and low-emission development while supporting poverty reduction?
Source: UNDP-UNEP (2011) & World Bank (2008)
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 The mainstreaming of climate change requires: o reallocating funding to more vulnerable and/or priority sectors and regions o providing funding for adaptation- and/or mitigationspecific plans or activities o adding climate change considerations to the criteria for screening and selecting projects and investments o making room for ‘cross-sectoral’ activities (e.g. DRR)
 This process typically involves a mix of topdown and bottom-up processes
Source: OECD (2009a) 18

Key stages
1. Determination of macroeconomic outlook
2. Multi-year strategic planning: medium-term fiscal strategy, medium-term expenditure framework
3. Determination of next year ’s:
-expected revenues
-acceptable level of deficit
-global level of expenditures
Impacts of CC on economic activity & growth
Key actors
Impacts of CC
Min. of Finance/Planning, statistical office, central bank
Cabinet, Min. of Finance
Extra costs of adaptation / mitigation measures
Extra resources required / pledged
Min. of Finance (Budget Dept, resulting from adaptation/mitigation
4. Pre-allocation of expenditures among line ministries, according to policy priorities
Dept) support of adaptation/ mitigation objectives

Key stages
5. Preparation/Circulation of budget circular & expenditure ceilings
Key actors
Instructions on costing
Min. of Finance (Budget Dept) measures
6. Costing of sectoral policies, submission of bids
7. Review of sectoral bids, testing of cost estimates, finalisation of budget estimates
8. Negotiations, followed by endorsement of budget
9. Preparation of appropriation bill and budgetary documents
10. Submission of budget to
Parliament – Discussion & adoption
Costing & integration of adaptation/mitigation agencies
Min. of Finance (Budget Dept),
Cabinet screening procedures
Prioritisation of adaptation/mitigation
Min. of Finance, other
Ministries/agencies, Cabinet
Min. of Finance (Budget Dept)
Discussion of adaptation/mitigation

 During budget preparation, implementation, monitoring and reporting, ‘keep track’ of main climate-related public expenditures o Adapt the budget classification o ‘Flag’ incremental climate-related expenditures embedded in ‘non-climate’ programmes
 This is important for: o monitoring the implementation of climate-related measures in national and sector strategies o reporting to the UNFCCC (national communications) o securing eligibility for funding from specific climate adaptation/mitigation funds
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 Statistical codes developed by the OECD
(DAC) to monitor the amount of aid resources targeted at adaptation and mitigation
 Could be adapted for application to the national budgets of OECD and non-OECD countries
22 Source: OECD-DAC (2011)

 An objective of adaptation to CC is explicitly mentioned in the intervention documentation; and
 The intervention contains specific measures targeting the following definition:
Adaptation intends to reduce the vulnerability of human or natural systems to the impacts of climate change and climate-related risks, by maintaining or increasing adaptive capacity and resilience. This encompasses a range of activities from information and knowledge generation, to capacity development, planning and the implementation of climate change adaptation actions.

 The intervention contributes to: o the mitigation of climate change by limiting anthropogenic emissions of GHGs, including gases regulated by the
Montreal Protocol; or o the protection and/or enhancement of GHG sinks and reservoirs; or o the integration of climate change concerns with the recipient countries’ development objectives through institution building, capacity development, strengthening the regulatory and policy framework, or research; or o developing countries’ efforts to meet their obligations under the Convention.
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Do any of the intervention’s stated objectives match “criteria for eligibility” of
Rio Markers?
Yes
Would the activity have been undertaken without this objective?
No Yes
2
CC = principal objective
1
CC = significant objective
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No
0
CC not targeted

Public expenditure reviews (PERs)
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 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 o Track adaptation- and mitigation-related expenditures o But also, importantly: focus on public expenditure ’s overall contribution to climate-resilient, low-emission development outcomes
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Aspect
Budget planning process
Expenditure trends and categories
Budget financing
Issues to consider
Role of climate-related considerations in allocation decisions
Actual spending on vs.
allocations to:
* adaptation- and mitigation-friendly measures
* development programmes with a focus on climate risk management, climate-resilient / low-emission development
Availability of recurrent funding vs.
capital investment for climate risk monitoring and management
Level of and trends in allocations to climate-relevant sectors and agencies
Origin of such allocations (internal vs.
external funding)
Possibility of increasing resources for climate-resilient development
Sources: UNDP-UNEP (2011), World Bank (n.d.) GN4
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Turning words into action
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 Questions and answers
 Mainstreaming climate change in the budgetary process
 Using Public Expenditure Reviews
What are the opportunities to mainstream climate change in the budgetary process in your sector or at your level and what are the institutional and capacity needs in your organisation to do so?
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 Presentation of case studies: identification of best practices of mainstreaming climate change into national budget
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 Exercise: Examination of a real world budget statement and analysis of the extent to which climate change is mainstreamed in relation to national policy
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Securing additional financial resources:
External resources and public-private linkages
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 Climate finance can play a crucial role in assisting developing countries in facing climate change impacts and making the transition to low carbon economies
 The estimates of climate change financing needs of developing countries are as follow * : o mitigation : $500 billion to 1100 billion/year (UNFCC, 2009; World
Bank report 2010; UNDESA (WESS, 2010) o Adaptation : 100$ billion to $ 450 billion/year (UNFCC 2007;
World Bank 2010; Parry et al. (2009)
 Copenhagen Accord (2009) includes** :
 Short term finance of $ 30 billion equally allocated to mitigation and adaptation for 2010-2012 (Fast start)
 Commitment by developed countries of up to $100 billion for 2013-2020 to address developing countries needs

Set up of a Green Climate Fund to help mobilize the committed funding
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 In order to mobilize the existing resources, governments should: o Become familiar with all sources of climate change related funds and set resource mobilization targets for the most promising funds; o Conduct (or request) workshops/seminars on the new sources of funds and the application processes for different ministries; o Consider locating the focal points for external sources of climate funds (such as GEF) in the Ministry of Finance or Planning rather than in a Ministry of Environment; o Issue detailed information to sector ministries on the available funding sources, including accessibility conditions *; and o Ensure that external funds are fully incorporated into national planning processes and not processed as standalone projects.
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Source of funding
Development cooperation programmes
Activities supported
Adaptation and mitigation with a focus on development
Preparation and implementation of NAPAs Least Developed Countries Fund
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)
Clean Technology Fund
Channel for future multilateral funding for adaptation and mitigation
Demonstration, deployment and transfer of lowemission technologies
Strategic Climate Fund (SCF) - Pilot
Program for Climate Resilience
Climate risk and resilience mainstreaming in development planning

Source of funding
SCFForest Investment Program
SCF - Program for Scaling Up Renewable
Energy in Low-Income Countries
Activities supported
REDD- related activities, sustainable forest management
Deployment of renewable energy sources
REDD+ (various streams of funding incl.
UN-REDD, which promotes the mainstreaming of REDD strategies in national development)
Prototype Carbon Fund
BioCarbon Fund
Preparation, pilot implementation and deployment of national strategies for reducing emissions from deforestation/forest degradation
Pioneering approaches to mitigation that contribute to sustainable development
Carbon sequestration projects in forests and agroecosystems
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Source of funding
Forest Carbon Partnership Facility
Carbon Partnership Facility
Global Energy Efficiency and Renewable
Energy Fund
Global Climate Change Alliance
Activities supported
Preparation of national REDD strategies, pilot financial transfers based on verified emission reductions from REDD
Long-term, post-2012 mitigation projects
Energy efficiency and renewable energy projects
MDG Achievement Fund, ‘environment and climate change’ thematic area
Clean Development Mechanism
Voluntary carbon markets
Mainstreaming of CC in poverty reduction and national development strategies
Adaptation, DRR, participation in REDD/CDM
Mainstreaming of environmental issues in national and sub-national policies, planning and investment frameworks
Mitigation projects in developing countries
Mitigation projects

 The transfer of financial resources of an external financing agency to the National Treasury
 Provides extra resources for the national budget o either grants (e.g. EC) or loans (e.g. World Bank)
 National procedures apply to the commitment and disbursement of funds o implementation via the national Public Financial
Management system => reduced transaction costs, increased ownership
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 Budget support is provided in the form of: o good governance and development contracts -> support for core government systems and broader reforms o sector reform contracts -> support for sector policies and reforms o state building contracts -> support transition processes towards development and democratic governance
 Joint budget support operations are conducted with other donors where such initiatives exist
 Usually 3-4 year programmes with annual disbursements
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 General eligibility conditions:
1) A well-defined national or sectoral development or reform policy and strategy to which the budget transfer will contribute
2) Stability-oriented macroeconomic framework
3) Credible and relevant programme to public financial management
4) Transparency and oversight of the budget
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 Annual disbursements include two types of
‘tranches’ o fixed tranche: paid in full as long as eligibility conditions are maintained
 provides an element of predictability o variable tranche: paid in full or in part based on actual performance against an agreed set of criteria and targets (as long as eligibility conditions are maintained)
 criteria/targets in principle taken from the PAF associated with the supported policy or strategy
 provides a results-oriented performance incentive
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 Several countries have now established a
‘national climate fund’ (trust fund) to: o channel and manage external funding related to CC o leverage existing funds and initiatives (incl. those financed with national resources) o support the mainstreaming of climate-related programmes and projects into national development strategies
 Expected benefits: o Alignment of external funding with national priorities o Building of national capacities and institutions o Scaling up of the response to climate change
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Many climate change responses, especially in relation to mitigation will involve the private sector (exp. Energy efficiency), therefore government should:
 Involve private sector representatives to the climate change task-force and/or other national committees/councils;
 Involve the private sector in setting amended national standards and codes to respond to the challenge of climate change;
 Assist the private sector to take up climate change responses by providing incentive schemes, and by initiating public-private partnerships
 Identify and seek the support of private enterprise in national climate change initiatives and in particular, the Clean Development Mechanism.
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Turning words into action
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 Accessing external resources to support climate change mainstreaming
 Setting-up public-private partnerships
 Using budget support
What are the opportunities for accessing external resources to support climate change mainstreaming in your sector? Have you being able to set up public-private partnerships? Have you being able to use budget support? and what are the institutional and capacity needs in your organisation to do so?
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 Climate-related policies and measures can impact the national budget in multiple ways
 There are entry points for mainstreaming climate change at practically all stages of the budgetary process – including at the stage of ex post evaluation (PERs)
 It is recommended to set up systems to keep track of adaptation- and mitigation-related expenditures
 Multiple sources of funding exist to support adaptation and mitigation – focus on eligibility and objectives
 Where conditions are met, budget support is a suitable modality for supporting CC mainstreaming efforts
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 Mickwitz et al. (2009) climate policy integration coherence and governance, PEER Report N ° 2
 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
 Petkova N. (2009) Integrating Public Environmental Expenditure within Multi-year Budgetary
Frameworks . Available from: http://www.oecd.org/dataoecd/60/6/42898831.pdf
OECD Environment Working Papers no. 7. OECD Publishing, Paris
 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
 ODI (Oversees Development Institute), Implementing a Medium-Term Perspective to Budgeting in the
Context of National Poverty Reduction Strategies , Good Practice Guidance Note, ODI, London.
 World Bank (2009) The Costs to Developing Countries of Adapting to Climate Change: New Methods and Estimates. The Global Report of the Economics of Adaptation to Climate Change Study,
Consultation Draft. World Bank, Washington DC. useful websites:
 Carbon Finance website of the World Bank: www.carbonfinance.org
 Climate Funds Update: http://www.climatefundsupdate.org/

• Thank you
• Contact: Dr. Pendo MARO, ACP Secretariat pendomaro@acp.int or +32 495 281 494 www.gcca.eu/intra-acp
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