A STEP-BY-STEP GUIDE (EN, ES, FR)
This reform-oriented practical Guide is a step-by-step approach to identify opportunities for green fiscal policy (GFP). The main target audience is policymakers and government officials from ministries of finance and other key ministries, regulatory bodies (environment, energy, water), but it may also be useful for revenue authorities, researchers, and other relevant stakeholders in Low- and Middle-Income Countries (LMICs). The Guide aims to provide practical hands-on advice on the process of identifying opportunities to implement GFPs to tackle environmental challenges while delivering win-win outcomes for economic, fiscal, or social policy priorities. The Guide looks primarily at the strategic elements of the GFP process, while providing some technical context. It aims to be accessible and easy to use and to provide practical tips and pointers for policymakers to build consensus using a strategic approach to green fiscal policymaking.
This Guide covers the three mechanisms of GFP: tax policies, subsidies and expenditure, as well as regulatory instruments with fiscal components (see part C for tables displaying examples for each mechanism). Environmental taxes reflect the key role of domestic revenue mobilization (DRM) in financing for development and contribute to addressing the challenge of constrained fiscal space faced by many LMIC governments. Green subsidies aim to support a just transition and have the potential to boost growth, creating further fiscal space, and regulatory instruments focus on reducing environmentally harmful behaviour. GFPs thus have the potential to be part of the solution to the challenge of tight fiscal space, while reducing environmental challenges within a country.
Besides GFP, complementary measures can further help to integrate green objectives within the broader fiscal framework, including green budgeting, environmental expenditure tracking, and the reform of environmentally harmful subsidies (e.g., fossil fuel subsidies). However, these measures do not form part of the present guide as they are not a direct mechanism of GFP.
Working through the six steps described in the Guide can provide a starting point for policymakers to evaluate opportunities for GFP and prepare the ground for subsequent in-depth analyses, feasibility studies, policy impact assessment, and the design, implementation, and monitoring of GFP instruments.
This publication was produced with the financial support of the European Union and the German Federal Ministry for Economic Cooperation and Development (BMZ). Its contents are the sole responsibility of GIZ and do not necessarily reflect the views of the EU or the Federal Ministry for Economic Cooperation and Development.
