Climate Group launches Next Generation Budgets Project to aid governments to green their public budgets and unlock climate finance.
Ahead of COP29, Climate Group has launched Next Generation Budgets, a two-year-long technical training project on green budgeting for state and regional governments from Europe and North America. Governments will share learnings to improve ways to unlock climate finance and private investment for their territories.
The project, funded by Stiftung Mercator and in partnership with the Government of North Rhine Westphalia, brings together eleven participating states from Europe and North America; Baden-Württemberg, Basque Country, Catalonia, Colorado, Emilia Romagna, Hawaii, Lombardy, Maryland, North Rhine-Westphalia, New York State, and Wales. In the first phase of the project, governments have formed Next Generation Budgets taskforces to convene key experts and voices from both Climate and Finance Ministries, fostering a collaborative approach and flow of information across departments.
With this group of participating governments, Next Generation Budgets can ‘green’ state and regional budgets to the tune of 551 billion USD combined (figure based on latest available budgets), training and inspiring policymakers and officials to align public spending with net zero emissions goals.
“How governments use climate finance is critical,” explains Climate Group’s Champa Patel, Executive Director for Governments and Policy, “As this can be a powerful tool to cut emissions. Subnational governments often have regulatory, legislative and budgetary autonomy, and control key policy levers to boost efforts against climate change. Although not universal, many have the legal and purchasing power to instigate real change and spur others on to do the same.”
The project, led by Climate Group, started in June 2024 and will end in February 2026. Reaffirming Baden-Württemberg’s commitment to “ambitious climate goals and achieving climate neutrality by 2040”, Dr Danyal Bayaz, State Minister of Finance, speaks on the potential of green budgeting.
“By joining the Next Generation Budgets initiative, we combine efforts with strong partners to stay on course for net zero. We seek to unlock the potential of Green Budgeting to better align the budget with our climate goals. As a first step, we aim to refine our existing approach to climate tagging and implement it as early as possible in the budgeting process. Additionally, we aspire to develop other analytical tools and Green Budgeting practices. For Green Budgeting to be broadly accepted, it is essential that the bureaucratic burden is kept as low as possible.”
Bayaz sees the benefit from “cutting-edge technical training for staff members” and is enthusiastic about sharing knowledge and experiences from other regions through a “transatlantic network.”
Climate action and transitioning to net zero by 2050 hinges on green financing. Subnational governments play a critical role in turning commitments to measurable actions by implementing green budgets. Next Generation Budgets uniquely brings together finance and economic specialists with climate ministers and departments, ensuring different perspectives and approaches are brought to the conversations.
“Implementing green budgeting will make it possible to harness the powerful leverage of public spending and investment to consolidate the green economy,” explains Lombardy’s Minister of Environment and Climate, Giorgio Maione.
“By joining Next Generation Budgets project, Lombardy can benefit from training and international peer learning to align the budget and its positive effects in terms of increased transparency, accountability and monitoring of expenditure.”
The participating governments were surveyed on their current use of green budgeting techniques and tools to unlock climate finance. The results showed that many regions across Europe and the United States are integrating climate goals into their budgetary processes and assessing the fiscal impact of their environmental commitments, yet challenges remain. Most states and regions do not yet have a distinct green budget in place, though sustainability goals are often embedded within broader financial strategies. Governments are faced with challenges in developing clear techniques for tagging and assessing environmental impacts and integrating green budgeting into existing budgeting processes. On increasing financing and funds for their projects, governments mentioned challenges around establishing public-private partnerships, how to make business cases to invest in their territories and staff capacity constraints.
There is a strong momentum to evolve the green budgeting process, data-driven decisions and integrating climate neutrality into budgeting. However, most participating governments do not currently take part in national or international initiatives on green budgeting and climate finance, while only a few governments already have internal task forces or teams for green budgeting between climate and treasury colleagues before the project started.
Climate change and extreme weather conditions pose a serious threat to islands like Hawaii. Reports suggest that Hawaii could lose 40% of its beaches by 2050. Climate action is needed urgently. Hawaii’s Governor, Josh Green states the significance of adopting a green budgeting process.
“As an island-state, Hawaii is ground zero for climate change. Adopting a green budgeting process is a pivotal step toward a sustainable future. This approach aligns our fiscal policies with climate action to ensure that every dollar we spend contributes to a healthier and more resilient Hawaii. We are excited to join this project to enhance our green budgeting strategies, secure sustainable financing, and attract private investment. Together, we can create a stronger pathway to decarbonization for Hawaii." Governor Josh Green, M.D, Hawaii
States and regions part of Next Generation Budget will take a leading role within the Under2 Coalition in shaping the global climate finance discourse and mainstreaming green budgeting practices.
“Effective green finance holds the key to the transition to net zero by 2050 and a world of greater prosperity for all. This project provides an opportunity for states to explore ways to increase climate finance and attract much needed investment to enable them to meet their climate goals this decade. This project is a step in the right direction, learning ways to ensure sufficient funds are directed towards net zero activities and are directed away from environmentally harmful ones,” said Patel.
Philipp Wesemann, Project Manager at Stiftung Mercator added: “The transition to net zero is one of the central drivers of future economic growth and competitiveness. But to capitalise on the opportunities, climate action needs to be mainstreamed into a coherent and ambitious economic, fiscal and financial policy framework on every political level. Subnational Governments play a decisive role in creating enabling environments for green infrastructure investments and business models. Hence, Stiftung Mercator is delighted to cooperate with the Climate Group and the Government of North-Rhine Westphalia on the Next Generation Budgets project and to create and share knowledge on how states and regions can raise climate finance and green budgeting.”