France Shapes Budget to Increase Net-zero-aligned Public Finance

Over the last decade, developing and deploying innovative green finance and investment tools have become priorities in France. Indeed, through pairing robust public financing interventions with a suite of tools for mobilizing increased climate finance, climate investments in the country have steadily risen.

On the public finance side, France has developed a strong reputation for incorporating climate considerations into its annual budgetary process. These efforts took off in 2017, when France committed to the Paris Collaborative on Green Budgeting, an Organisation for Economic Co-operation and Development initiative requiring signatories to “assess the compatibility of [their] public finance trajectories with the Paris Agreement”. This commitment spurred the country to prepare plans for its first “Green Budget,” which was published in 2021 after a cross-government design process. The Green Budget provides an assessment of the “green impact of all State budget expenditures,” rating all expenditures across a variety of criteria, including impact on climate, biodiversity and local air pollution.

More specifically, the methodology rated State expenditures into five categories ranging from an unfavorable (-1) to a very favorable (+3) environmental impact. It used a grid covering six major environmental goals: (i) the fight against climate change; (ii) adaptation to climate change and prevention of natural disasters; (iii) the management of water resources; (iv) the circular economy, waste and the prevention of technological risks; (v) the fight against pollution; and (vi) biodiversity, and protection of agricultural, forestry and other green areas.

Because every governmental expenditure must now be evaluated on this scale, France’s Green Budget ensures that all government line ministries and agencies carefully consider the climate and environmental impacts of each intervention for which they are using national funds. In so doing, these departments are expected to evaluate the extent to which each decision that they make helps — or hinders — progress toward achieving net zero.

France is also exploring means by which to set standards that require minimum environmental thresholds to be met. For instance, France’s 2021 COVID-19 recovery plan required that €30 billion (30% of the full recovery package) be devoted to investments tagged favorably under the Green Budget methodology. These investments included the funding of large-scale energy efficiency and insulation projects, investments in green hydrogen development for storing and transporting energy and more.

France’s Green Budget methodology and minimum requirements for national expenditures are helping to ensure an increase in domestic climate finance. Of course, future efforts must be made to evaluate the extent to which these increased climate investments are driving tangible emissions reductions, creating green development benefits, and promoting a just and equitable transition to net zero.