Budgeting for climate change action: Lessons from Georgia

A growing number of countries are considering climate budget tagging (CBT) as an important tool for identifying, measuring, and monitoring what governments spend on climate-related activities. CBT is not just pro-forma reporting, it requires setting clear objectives; determining whether allocated government resources are climate-informed and aligned with national climate change action strategies, short- and mid-term priority areas, targets and international commitments; and help mobilize external resources to reach them.

What's in the (Name) Tag?

To better understand how public expenditures align with key priorities like the Sustainable Development Goals, gender equity, and climate action, Georgia’s Ministry of Finance (MOF) has started tagging budget sub-programs in its 2023 eBudget system. Georgia, an upper-middle income country with aspirations to join the European Union, maintains a strong national Climate Change Strategy (CCS) focused on climate change mitigation, and a clearly defined action plan for its implementation. The country is also preparing a national adaptation plan (NAP) for its climate adaptation measures. Knowing how public sector finance contributes to implementing the CCS and NAP and learning from international experience are crucial for steering Georgia’s climate agenda and aligning sectoral strategies, budgeting, and spending to meet these ambitious targets.

With this aim, the MOF and the Ministry of Environmental Protection and Agriculture (MEPA) have asked the World Bank for assistance in synthesizing and sharing global experiences and analyzing selected country cases most relevant to Georgia based on OECD and EU guidance. This analysis explored both how the CBT data is generated and how it is used.

While investments in environmental protection, or "green" action, often contribute to climate change mitigation and adaptation, they can also be ineffective. CBT requires classification of activities to clearly distinguish between those that are “green” and “climate” action in the country-specific context of Georgia and effectively align them with national climate action targets and strategies.

With a pipeline of projects addressing various development priorities, identifying, tagging, and classifying projects with respect to their share of financing dedicated to climate change adaptation or mitigation helps Georgia measure how well existing funding is performing against set targets. It also helps mobilize new funding, especially from international sources, and supports informed decision-making to prioritize programs and their specific components based on their contributions to national climate action targets.

Realizing a Greener Georgia

To ensure that its climate-informed budgeting is effective, comprehensive, and sustained, the Government of Georgia is taking a proactive learning-by-doing approach and taking practical lessons from the global frontier of budgeting for climate action—with the CBT exercise serving as a preliminary step.

While Georgia’s CBT aims to tag all its nearly 1,500 sub-programs recorded in the eBudget, the initial pilot focused exclusively on the 2023 MEPA budget of roughly $302.5 million, which covered 15 parent programs and 61 sub-programs.

This pilot has made finance officials more conscious and systematic in thinking about budget tagging, which was clear during a recent two-day workshop organized outside Tbilisi for 30 heads of finance units representing MEPA and its subordinate entities. The “learning by doing” exercise helped identify guidance needed to make a credible assessment of each program's effectiveness against climate targets and determine how this process can be replicated by other agencies working within the eBudget system. Above all, the exercise established a basis for building the country's ownership of CBT and mainstreaming it throughout the budget process, and it started creation of a national public finance climate taxonomy. Based on the successful initial exercise at MEPA, the government aims to replicate climate tagging across all line ministries, with MEPA staff acting as coaches.

Georgia’s experience suggests three lessons:

• Kickstarting Climate-Informed Budgeting: CBT is key to getting climate-informed budgeting right by assessing the delivery of strategic climate-action priorities, including domestic, regional, and global climate action commitments.
• Mainstreaming Climate-Informed Budgeting: Relying solely on CBT to deliver climate action benefits is unlikely to be effective or sustainable. Strategic planning, program-based budgeting, government financial management information systems, and, ideally, law also need to be established. Such a “digital mainstreaming” approach to climate change expenditure tracking is being supported through a new World Bank Development Policy Operation. Climate-informed budgeting as a new field also requires building complementary skills and awareness among public financial management and sector specialists. Georgia is starting off with a clear, positive climate action focus that could be expanded to cover regular and tax expenditures that are counterproductive to climate action targets.
• Climate-Informed Budgeting Taxonomies and Coverage: As data are increasingly used for decision-making and accountability, having strong taxonomies and evolving guidance is critical. The National Bank of Georgia leads the charge by having developed a Sustainable Finance Taxonomy with “Green” and “Social” categories, which the central bank plans to refine further.  The World Bank is also providing technical assistance to Georgia in introducing CBT to classify mitigation and adaptation activities and develop a country-specific taxonomy for climate change expenditures in public sector as a living resource. Using the Green Taxonomy as a starting point, this database will focus on climate-relevant activities, which differ from a broader green taxonomy database, and will consider relevant national and international methodologies and guidelines translated to Georgia’s context.

The Georgia climate-informed budgeting effort is supported by the World Bank's Strengthening Government Capacity to Lead the Green Transition under the Europe and Central Asia region-wide Whole-Of-Economy Approach to Climate-Change and South Caucasus Regional Climate and Environment Program.