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Towards green budgeting: a roadmap -- Murray Petrie, New Zealand


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This presentation was made by Murray Petrie, New Zealand, at the Introductory Workshop on Green Budgeting Tools held at the OECD, Paris, on 29 April 2019

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Towards green budgeting: a roadmap -- Murray Petrie, New Zealand

  1. 1. Environmental outcomes and fiscal policy in NZ: need for increased transparency and accountability Murray Petrie IGPS Senior Research Associate Paris Collaborative on Green Budgeting, 2nd Green Budgeting Experts Meeting OECD, Monday 29 April, 2019
  2. 2. Overview I. Problem definition II. Environmental reporting III. Comparative policy governance IV. Integrating environmental stewardship into fiscal strategy and the budget process. V. Concluding observations 2
  3. 3. I. Problem definition i. Degradation of natural capital ii. Limits to economic growth model iii. Policy weaknesses: environmental externalities; setting and implementation of environmental regulations iv. Weak policy governance: • Weaknesses in national environmental reporting. • Lack of requirements for government to set ex ante environmental targets and to report progress ex post • Weak integration in fiscal strategy and budget 3
  4. 4. II. Environmental Reporting in NZ and Australia i. NZ: Environmental Reporting Act 2015: i. A domain report every 6 months, synthesis report every 3 years ii. Published by MfE and Stats NZ iii. Pressure/State/Impact (PSI) framework iv. National data lacking geographic breakdowns v. Parliamentary Commissioner for Environment prepares independent commentaries vi. No formal government response to the reports ii. Australia: i. One comprehensive report every 5 years ii. Drivers and Responses in addition to PSI (DPSIR) iii. Also forward-looking: resilience, risks, outlooks 4
  5. 5. II. Proposed changes to the Environmental Reporting Act 2015 i. Review report design, timing: better balance of frequency, effectiveness. ii. Introduce full DPSIR framework. iii. Require geographical breakdowns for indicators. iv. Require forward-looking information on resilience, emerging risks, and environmental outlooks. v. Require formal government response within specified time to each Synthesis Report stating government’s assessment, its medium and long-term strategies, priority environmental outcomes with interim targets and milestones, and reports on progress in previous period. vi. Change the timing of Synthesis Reports so that each report is published, in the normal course of events, a specific number of months prior to each general election. 5
  6. 6. III. Comparative policy governance Parameter NZ Public Finance Act NZ Reserve Bank Act NZ environmental governance Swedish environmental governance Legislated outcome targets No Yes No [Yes] Targets required Yes Yes No Yes Milestones required Yes Yes No Yes 6
  7. 7. III. Comparing governance frameworks i. Compared to fiscal and monetary policy, for environmental policy there is a lack of legislative requirements for transparency of goals and targets and independent reporting against them. ii. Recognize that environmental outcomes extremely complex, not under government control; central, regional and local governments all play roles; there are formidable measurement difficulties. iii. However, a good case for requiring government to respond to 3-yearly Environment Reports, stating its assessment, strategies, priority outcome targets in short, medium and long term, and to report regularly on progress. 7
  8. 8. IV. Embedding environmental stewardship in fiscal strategy and the budget process Why use the annual budget cycle to achieve better integration of environmental stewardship with government strategy setting? i. No regulatory policy cycle. ii. The budget is government’s key policy instrument. iii. Important interactions between fiscal policy and the environment. iv. Important interactions between fiscal policy and regulation in achieving environmental goals e.g. the adequacy of funding of environmental regulatory functions, and of environmental data collection, monitoring, evaluation and research; - revenue potential of cap and trade schemes, foregone revenues from differential treatment of sectors - interactions between fiscal and regulatory instruments 8
  9. 9. IV. Embedding environmental stewardship in fiscal strategy Incorporate in the strategic phase of the budget: i. Latest data on trends in key environmental indicators, resilience and risks, and policy implications. ii. Current government environmental strategies, targets, recent performance, focusing on critical environmental outcomes. iii. The consistency of government’s environmental targets and announced targets in other policy domains. iv. A discussion of the levels of short to medium term risks around environmental outcomes in the context of fiscal strategy. 9
  10. 10. IV. Outline of proposed new budget document: Fiscal Policy and the Environment i. Evidence on environmental impacts of fiscal policies, potential for fiscal policies to improve environmental outcomes. ii. The anticipated positive and negative environmental impacts of the forthcoming budget. iii. An assessment and, to extent feasible, quantification of economic impact of recent degradation of ecosystem services at the margin in selected priority sector, and estimated cost of restoration. iv. The interactions between fiscal and regulatory policies in terms of environmental outcomes. v. A performance budget report on the environmental sector (outputs, programs, short term and intermediate outcomes). vi. Priorities for addressing gaps in data and monitoring systems. 10
  11. 11. IV Framework for environmental accountability and green budgeting Domestic Accountability Framework Legal requirement to state top priority environmental goals, strategy, targets, report progress Environmental Reporting • Regular technically independent reporting (DPSIR framework) • Outlooks and risk assessment • Mandated government response • Timing aligned with electoral cycle Medium-Term Government Strategy Statement Covers economic, fiscal, social, environmental outcomes, complementarties and trade-offs Periodic Supplementary Reports • Green Fiscal Sustainability Report • Green Balance Sheet • Green M + E Report Annual Budget Documents • Green Budget Statement • Green Budget Benchmarks • Green Performance Budget Report • Green Budget Baseline Analysis • Tax Decarbonisation Scan • Fiscal/environmental regulation interface
  12. 12. V. Concluding observations: avoid system overload 12
  13. 13. V. Concluding observations i. Proposals draw on the full array of budgetary governance tools to lay out a long term framework. ii. Would require long period of phased implementation. iii. Importance of environmental outcomes data. iv. Significant resource and institutional implications. v. Analytical challenges. vi. Proposed approach based on transparency to increase accountability and change incentives on decision makers, an approach that has proven durable in other domains. vii. Is intended to be an evolution of the approach to fiscal transparency over last two decades. 13
  14. 14. References Boston, J. (2018). Investing in New Zealand’s Future Well-being: protecting and enhancing our natural capital. Policy Quarterly, Volume 14, Issue 1, February 2018. Brown, M., R. Stephens, R. Peart and B. Fedder, (2015), Vanishing Nature: facing NZ’s Bio-Diversity Crisis, Auckland: Environmental Defence Society Incorporated. Department of the Environment and Energy, 2016. Australia State of Environment 2016. NZ Ministry for the Environment, 2015. Environment Aotearoa 2015. NZ Ministry for the Environment, 2019. Environment Aotearoa 2019. NZ Ministry for the Environment, 2017. Briefing to the Incoming Minister. November 2017. OECD (2014). OECD Environmental Performance Reviews: Sweden, Paris: OECD. OECD (2017). OECD Environmental Performance Reviews: New Zealand, Paris: OECD. NZ Parliamentary Commissioner for the Environment. The State of New Zealand’s environment: Commentary by the Parliamentary Commissioner for the Environment on Environment Aotearoa 2015, June 2016. Petrie, M, (2018). Reversing the Degradation of New Zealand’s Environment through Greater Government Transparency and Accountability. Policy Quarterly, Vol 14 No 2 (May 2018). NZ Productivity Commission, 2017. Briefing to the Incoming Minister. November 2017. 14