Green budgeting^[1] is budgetary tool that helps in identifying government schemes, outlays, expenditures supporting environmental sustainability and climate related objectives. It enables mapping and tracking of of the public expenses towards environment centric programs within the existing budgetary framework.^[2]

The concept of green budgeting was first implied in the ‘Report of the World Commission on Environment and Development: Our Common Future Brundtland Commission Report’^[3] of 1987, which urged central agencies to integrate sustainability into public policy and financial planning.

European countries such as France, Germany, UK, Norway and Italy integrated environmental considerations into fiscal and public finance management^[4]. Many European subnational governments even experimented with methodologies like ecoBudget and City and Local Environmental Accounting and Reporting (CLEAR) to link environmental considerations to budgetary processes^[5]. In the Asia Pacific regions climate budget tagging is more prevalent. Countries like Bangladesh, Nepal, Cambodia, India, Indonesia, Philippines, and Pakistan have emphasised on climate-oriented public financial management^[6].

There are different ways/tools to integrate environmental issues in environmental fiscal responsibility is taxes, pricing, and subsidy shifts to achieve green goals^[7].

Green budgeting is envisaged to have six pillars^[8] :

• Integration of environmental sustainability into existing fiscal space rather than confining them to environmental- specific agencies only.
• Identifying and prioritising budgetary outlays that contribute to sustainability goals, as well as examining the impact of funding for such initiatives.
• Emphasis on inter-departmental collaboration as environmental challenges often cut across administrative boundaries that require assistance from multiple agencies.
• Tracking expenditures, monitoring outcomes against stated environmental targets, and identifying gaps or inefficiencies in resource use.
• Improving the disclosure of information on environment-related public spending and its outcomes to help policymakers, oversight bodies, and citizens understand how public funds are being used to address environmental challenges and whether stated commitments are being met.
• Creating an enabling environment for climate action and sustainable development through policy mechanisms like green budgeting in signalling long-term government priorities to public and private actors.

Climate Tagging

Climate tagging is a subset of green tagging and is specific to climate change activities. Similarly, climate budgeting is a subset of green budgeting wherein climate change activities are accounted for in the annual budget making exercise^[9].

As of 2025, several Indian states and Union Territories have advanced significantly in adopting green budgeting^[10] . Bihar has shown progression and has expanded its green budget more than four and a half times since 2020–21 and tripling the number of schemes included. Assam has also moved rapidly, increasing its green budget by 1.6 times within two years and nearly sixfold in the number of tagged schemes. Puducherry, the first Union Territory to introduce green budgeting, has raised its allocation by 3.6 times between 2022–23 and 2025–26. Alongside these frontrunners, states such as Meghalaya, Odisha, and Rajasthan have initiated their own climate- and environment-focused budgeting processes.

Bihar

Bihar became the first state in India to formally institute green budgeting in FY 2020–21 with an initial mapping of departmental schemes for environmental coexistence. Jal Jeevan Hariyali programme was the prime anchor in establishing this initiative^[11]. Over the subsequent years, the scale of this exercise expanded. As compared to the first cycle (FY 2020-21), in the sixth cycle (FY 2025-26), the number of identified green-relevant schemes/ budget heads have nearly tripled and green budgetary allocations have become four-fold.

The state employed a Rio marker–inspired tagging system, assigning departmental budget codes to schemes and programmes. FY 2025-26, the share of green budget in state's GSDP is 1.42 percent, while the share of green budget in state's total budget is 4.92 percent in 2025-26^[12] . Some green schemes include afforestation, watershed development, flood control, soil conservation, water infrastructure, urban environmental services and disaster management.

Puducherry

Puducherry^[13] was the first union territory to come up with a green budget. Introduced as part of the Union Territory’s 2023–24 Budget, the initiative seeks to embed climate and environmental considerations across departmental schemes. It highlights Puducherry’s response to its ecological vulnerabilities - coastal erosion, groundwater depletion, pollution, waste generation, and climate-induced risks.

The methodology adopted for the 2023–24 green budgeting exercise follows a multi-dimensional approach mapping where schemes and department are mapped with activities, themes and SDGs, A bottom-up, scheme-based approach is used for identification of environmental components. A baseline exercise was also undertaken. The Finance Department and the Department of Science, Technology and Environment (DSTE), with technical support from Puducherry Climate Change Cell and The Energy and Resources Institute (TERI), coordinated a seven-step process encompassing departmental orientation, pro-forma design, identification of green budget line items, theme and activity mapping, SDG alignment, consolidation of inputs, and preparation of the Green Budget Report. The Green Budget increased from ₹191 crore in the 2022–23 baseline to ₹690 crore in 2025-26, which is a more than three-fold increase. In the baseline, 9 departments had green components. Post the implementation of green budgeting, 21 departments have shared the quantum of green budget.^[14]

Assam

Assam introduced its green budget in 2023–24^[15], becoming the first northeastern state to do so. The exercise is positioned against the state's high climate vulnerability i.e., frequent floods, erosion, biodiversity loss, and rising emissions due to rapid urbanisation. The Green Budget seeks to mainstream climate resilience into public finance through structured expenditure tagging, interdepartmental coordination, and integration with existing frameworks such as SAPCC 2.0 (2021–2030), Renewable Energy Policy 2022, Assam Agenda 2030, and the SDG-linked Outcome Budget. The Green Budget increased from ₹2,314.1 crore in 2023–24 to ₹3,711 crore in 2025–26, reflecting a 1.6-fold rise.^[16]

The Green Budget adopts a methodology rooted in a line-by-line assessment of schemes using four categories - Highly Favourable (Green), Moderately Favourable (Yellow), Neutral (Grey), and Less Favourable (Brown) based on their environmental and climate impacts. 14 key departments were identified and mapped to nine climate-vulnerable sectors identified under SAPCC 2.0: agriculture, water, health, forestry, energy, strategic knowledge, disaster management, human settlements, and transport. Schemes were additionally tagged across three identified domains: climate mitigation, climate adaptation, and environmental sustainability.

Green budgeting can function as an instrument that not only supports planning within the current fiscal space but also helps broaden it by identifying opportunities to access international climate finance and other green funding sources. Although there is ongoing discussion about standardising and harmonising green budgeting methodologies, such alignment should not undermine the flexibility required to adapt frameworks to evolving policy needs.

The Energy and Resources Institute (TERI), an Indian research institute proposes an approach that incorporates multiple analytical perspectives and tools to support policy formulation. This model preserves the ability to add new dimensions over time, allowing green budgeting to evolve as a dynamic self-assessment mechanism.^[17] As central/ federal/ state/ province/ city ministries and departments become more aware of specific environmental priorities, additional dimensions such as international commitments, state climate action plans, biodiversity obligations, and environmental risk, the model can be progressively integrated. For example, linking schemes to the SDGs enables outcome-based monitoring when connected to SDG indicator systems. Thematic mapping strengthens alignment with local environmental needs, while activity mapping ensures that an appropriate mix of policy instruments ranging from programme implementation to technology deployment and public outreach is applied.

A participatory process is essential when determining the dimensions and objectives of green budgeting, supported by consistent stakeholder sensitisation. Over time, the exercise should be enhanced through independent peer review and on-ground impact assessments to ensure credibility, effectiveness and continuous improvement. The Green Budgeting portal^[18] has resources on green budgeting including an open access toolkit^[19] .