Green budgets: how regional governments are turning climate ambition into spending

States and regions are increasingly using their budgetary powers to drive climate action. They’re aligning public spending with climate targets and sharing lessons across borders through a growing network of sub-national governments worldwide. 

The Under2 Coalition is the largest global network of states and regions pursuing net zero emissions by 2050. It counts more than 270 members representing over half of world’s GDP, with the nonprofit Climate Group  serving as its secretariat.

Climate Group’s executive director Champa Patel points to the high degree of autonomy states and regions  have when it comes to making impactful decisions.

“State and regional governments in Europe, as in many other regions in the world, often have quite a lot of devolved powers,” she explains. “Whether that’s fiscal, regulatory, financial, technical; there are many policy areas where they can make most decisions themselves.”

“They’re not necessarily reliant on national governments to set the direction. They can actually set more ambitious targets,” Patel says.

Next Generation budgets

To help turn that ambition into action, Climate Group launched its Next Generation Budgets project over two years ago. 

Bringing together 11 states and regions across Europe and the United States, the project aimed to integrate climate considerations into the budgetary processes of these subnational governments, and bolster climate finance and private investment.

Budgets, Patel argues, reveal governments’ true priorities. “That’s really where ambition becomes implementation. If you want to know what people really want to do, look at what they spend their money on.”

“The intention of the project was firstly to help governments to have budgets in place that made their net zero commitments real, but also to enable governments to learn from each other so they can share best practices.”

One important way to align a government’s expenditures with its climate targets, is addressing a potential disconnect at the policymaking level. 

“Climate goals and decarbonisation policies are competences of the ministries of climate and environment, but important budgetary decisions that can actually help achieve these goals are made by the ministry of finance or the treasury,” Patel points out.

“So the goal is to get those colleagues in the room together,” she continues. “How do you actually ensure that all the machinery of government can get behind and achieve those climate targets?”

Green budgeting

Concretely, as part of the Next Generation Budgets project, the 11 participating governments received technical training on how to ‘green their budgets’.

In practice, green budgeting means ensuring that governments spend money in a way that supports, rather than undermines, their climate commitments.

“It’s a mistake is to think that they’re asking for more budget,” Patel explains. “It’s a reallocation or the redistribution of the existing budget.”

A key green budgeting tool is the tagging system, which labels state expenditures on a spectrum from highly favourable to unfavourable. The ‘green’ tags identify spending that supports climate goals, such as investment in renewable energy or sustainable transport, while ‘brown’ tags flag spending that actively works against them, such as subsidies to polluting sectors.

“It’s a process of organising the information, to look at where the gaps are and how budgets may need to be reworked to better meet those gaps. It enables better decision making and more intentional budgeting.”

The Basque Country offers a great example of a region developing its own green budgeting tool, with a unique methodology to track expenditures. In 2024, its government introduced a law requiring at least 2.5 percent of its annual budget to be allocated to climate action measures.

“Our climate budget methodology allows for the identification of favourable and unfavourable energy and climate transition items, and analysis of how they can be progressively redirected towards objectives that are more aligned with resilience, neutrality, and fair transition goals,” explains Josu Bilbao, deputy minister of environment for the Basque country.

Thanks to that methodology, the Basque government was able to measure that climate-related public spending rose from 1.5 percent of its budget in 2023 to 1.9 percent in 2025. Still short of the legal target, but with a clear trend to close the gap. 

“The main advances have been concentrated on mitigation efforts in the fields of energy efficiency, renewables, and sustainable mobility,” Bilbao says.

‘Community of Practice‘

The economic make-up, political constraints, and spending priorities of one state can of course differ vastly from another. Each state or region has its own specific context and will therefore have to work out their own green budgeting methodology. 

A central pillar of the Next Generation Budgets project, however, is the community of practice it has fostered. It’s a space where states and regions share their methodologies, compare what’s working, and learn lessons from each other’s experiences.

Bilbao highlights its importance for the Basque country: “The main value of this community of practice is that it allows us to learn faster and with lower risk, drawing on other regions’ experiences, each with its own characteristics, priorities, and degrees of progress.” 

“For a region embarking on this process, interdepartmental collaboration and analysis of existing methodologies are fundamental to selecting those that best fit the available information,” Bilbao concludes.

Private investment 

Aside from reallocating public money, green budgeting can also be used as a signal to markets and attract private money. 

“You first have to identify the sector where you want to shift from brown to green spending, or where a lack of investment is stopping it from being green,” Patel explains.

“Then you need to find out what the specific issue is,” she continues. “Is it a policy issue? Is it a financing issue? What’s the thing that is stopping the [green] investments, and then what’s the financial engineering needed to bring that money together?”

Scotland offers a good illustration of what this can look like in practice. In January 2025, the Scottish government launched a project to develop an Ecosystem Restoration Code; a mechanism for issuing “nature credits,” tradeable units representing independently verified improvements to ecosystems such as healthier species or habitats.

The credits could be sold to private companies seeking to meet their own biodiversity targets or offset development impacts, unlocking private capital to sit alongside public spending.

The EU’s Green budgeting framework

At the EU level, the European Commission published its Green Budgeting Reference Framework (GBRF) in 2020 – a toolkit for member states willing to either embark on green budgeting or upgrade their existing practices. 

“The EU architecture is primarily focused on national governments, but there’s quite a complex hierarchy of government underneath that,” Patel points out.

She argues that the EU’s GBRF should go beyond the national level, as well as recognise that the implementation ecosystem is multileveled. 

“In Europe, states and regions are really big players. They control 55 perent of all investments. And some of these subnational governments are really big economies just in their own right,” Patel says. 

“So I think it’s about recognizing the power of that level of government and just how influential they are in terms of public spending, and ensuring that the EU’s guidance supports those subnational governments too.”

This stakeholder article is paid for by a third party. All opinions in this article reflect the views of the author and not of EUobserver.