Green budgeting: The next step for Bangladesh

In an age when sustainability is the key, incorporating quantitative measures of environmental aspects in the fiscal policy is no longer a choice, but an imperative strategy. 

Many policy narratives significantly evaluate the global phenomenon of addressing environment-related costs through a proper framework. 

Green budgeting is one of the newest narratives that can include environmental and climate considerations into a fiscal policy. 

However, the narrative of green budgeting is mostly misinterpreted as the concept of climate budgeting. Despite both narratives approaching a sustainable future, each has a very different purpose, and seeing the difference is key to how we approach policy. 

Green budget is a public finance mechanism that systematically marks and assesses government revenues and outlays as green. It integrates fiscal policy (spending, taxation and investments) with specific climate and environmental goals, making budgetary decision-making more transparent, accountable and coherent. 

Green budgeting is not complicated, as it follows the same mechanism of annual financial planning with a motive to efficiently use natural resources and preserve the environment for future generations. While monetary value is the primary aspect of financial budgeting, green budgeting relies on the narrative of environmental protection, which includes the preservation of environmental and energy-related resources. 

Climate budget is a narrowed-down subsidiary topic of the green budget. A climate budget is a fiscal tool that embeds climate goals in the public budget. It would expend money towards mitigation and adaptation projects across sectors, including biodiversity, pollution control, water management, circular economy and climate action, renewable energy, emissions reductions, and resiliency infrastructure and clean energy, setting targets and accounting for spending to make sure it complies with national climate goals.

While both aim for a greener future, the climate budget, as the name suggests, solely focuses on emissions and climate-specific initiatives: mitigation and adaptation measures such as emissions pricing, clean energy subsidies, and resilience infrastructure planning. 

Several countries have adopted measurable and enforceable climate budgeting approaches by setting clear, quantifiable emission reduction targets. For instance, Oslo aims to cut emissions by 95% by 2030, Germany's Climate Protection Act mandates a 65% reduction, and Australia's Climate Change Act 2022 sets a 43% target — all by 2030. 

These legally binding goals provide a strong accountability framework, demonstrating how numeric climate targets can drive effective budgetary alignment with environmental commitments. However, its focus remains limited, since it overlooks broader environmental crises, including deforestation and plastic waste pollution.

On the other hand, the green budget takes a wider lens. It readdresses public and private spending toward all ecological priorities: clean water, wildlife protection, soil health, and pollution control, instead of just counting carbon. At its core, the green budget is about monetary coherence: matching expenditure, investments, and taxation to wider environmental goals as much as to emissions cuts alone. 

It is a multi-faceted environmental budget, not only capturing a holistic concept of financing ecosystem restoration (wetlands, biodiversity, recycling) but also a flexible method tailored to local needs, for instance, urban air quality, drought-resistant agriculture. and a long-term attempt tied to sustainable development imperatives, including the UN's Sustainable Development Goals.

The green budget not only facilitates climate finances, leadership, public awareness and engagement, private sector involvement, but also strengthens institutions like the Ministry of Environment, Forest and Climate Change (MEFCC).  Thus, it is vital to incorporate it in administrative sectors to bring about actual changes for sustainable development.

Bangladesh mostly focuses on climate budgeting. In terms of acknowledging climate change in national planning, Bangladesh has made admirable progress. The Climate Budget Report and the Climate Fiscal Framework from the Ministry of Finance are positive moves. However, these mechanisms frequently function independently, unrelated to sectoral goals and more general financial decisions. 

Most of the functions are based on adaptation and mitigation measures, which do not provide a holistic approach towards the environment.  The majority of green budgeting is still project-based rather than systemic, and only a small portion of development spending reflects expenditures that are climate-sensitive.

Furthermore, the mainstreaming of environmental indicators is constrained by a lack of coordination and capacity within ministries. While preparing budget recommendations, sectoral agencies often fail to internalise ecological costs, and many public officials lack familiarity with environmental impact assessment procedures. 

The classification and monitoring of green expenditures are made more difficult by the lack of a generally recognised green taxonomy. A proper framework is required to address this new narrative more comprehensively. 

To advance green budgeting in Bangladesh, a range of targeted policy measures can be introduced. These include imposing entry fees or eco-visas at major tourist sites like the Sundarbans and St Martin's to curb pollution and fund mitigation. The government could also issue sovereign green bonds for ecosystem restoration, mandate a 10% green loan quota for banks, and establish green deposit accounts for environmentally focused investments. 

Green budgeting should be integrated with gender equity by allocating quotas for women-led green enterprises. Fiscal tools like vehicle quotas with tax brackets, urban air quality taxes for polluting vehicles, and a construction material tax that penalises harmful materials while incentivising green alternatives can drive sustainable behaviour. Bangladesh must revise the tax base and coverage to maximise the impact of green budgeting.

From the climate budget framework, an introduction to direct spending on green infrastructure and clean energy access would be a noteworthy addition. Ambitiously, Bangladesh can adopt the model sovereign environmental investment fund to reinvest in sustainable and disaster-resilient infrastructure. 

Providing subsidies and incorporating the amount in the national budget with proper green procurement guidelines would be an effective fiscal measure to mitigate the impact of climate change. Additionally, requiring eco-rating disclosures for urban real estate would promote energy-efficient housing and influence greener consumer choices. 

National climate budgeting must be incorporated into the annual budget cycle. Climate spending must be tracked, and department-level climate expenditures accounted for. Fiscal policy instruments, including taxes and subsidies, should be progressively adjusted to reflect climate-related considerations and provide countervailing incentives for climate-friendly investment and behaviour.

Although Bangladesh has set itself up as a leader by introducing the globe to climate budgeting, this strategy is still quite narrowly focused. Although climate resilience has received much of the attention, a more comprehensive green budgeting framework that incorporates environmental sustainability into all areas and involves all stakeholders — from financial institutions to local communities — should be the true call. 

The government must strengthen its commitment, institutionalise green fiscal practices, and make sure that budgeting reflects not only climate adaptation but also a thorough shift towards a more equitable and environmentally friendly economy in order to go beyond token gestures.

MD Shiyan Sadik is a lecturer and Saiyeda Humayara Maisha is an undergraduate student in the Department of Environmental Science and Management at North South University.

Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the opinions and views of The Business Standard.