Green Fiscal Policy Tools

In recent years, we have observed an increasing number of different green policies to encourage the development and use of green technologies. We see this on the example of an increased share of renewable energy in the countries’ energy mix, which is often incentivized through both direct and indirect government expenditures. Examples of such green fiscal tools include:

• environmental taxes, charges, and subsidies, including energy taxes and subsidies (for example for renewable energy or for fossil fuels);
• fiscal policies or reforms to raise public revenues (including, for example ‘the plastics own resource in the EU’, that has been in place since 2021 and consists of national contributions based on the amount of non-recycled plastic packaging waste);
• fiscal incentives and financial mechanisms that can leverage private financing for green investments, including issuance of green bonds that are supposed fund projects that have positive environmental and climate impacts;
• promotion of sustainable finance through a common classification system establishing what qualifies for environmentally sustainable activities (e.g. EU taxonomy);
• alignment of government expenditure with environmental goals and enhancing the effectiveness of public spending, or mainstreaming climate in the public budget;
• proposing legislation on energy, plastic, pollution, soil etc. to provide incentives for green investments;
• emission trading system.

Experts have highlighted the need for systematically screening public finance for environmental and climate impacts. There is a high interest on topics like green budgeting, carbon pricing, redirecting private finance to green investments (sustainable finance), green bonds, climate finance, green energy transition or just transition. Being a relatively new topic and an increasingly relevant area, the audit risk is high. Auditors need to enhance their knowledge and understanding of how to assess the effectiveness and impact of green fiscal policy tools on environment and climate. Sharing experience and discussing challenges in a form of regular seminars, can provide valuable insights to the SAIs and the WGEA.

The INTOSAI WGEA first addressed the topic of Market Based Instruments for Environmental Protection and Management in 2016 report. This project aims to build on the previous work, while addressing latest challenges and rapidly changing regulatory frameworks. The main outputs include series of short webinars, recorded podcast as well as reference resources including for instance definitions and descriptions of green fiscal policy tools, relevant criteria, and key questions for auditors. The project could also contribute to a better understanding of the impact of the Green Fiscal Policy Tools on energy costs and prices.

There is a possibility of collaboration with the Green Fiscal Policy Network established by a partnership between UNEP, IMF and GIZ.