Climate budget tagging: attractive option to facilitate just transition, climate action in municipalities

Mpendulo Dlamini is a public sector air quality and climate scientist. Photo: Supplied

Mpendulo Dlamini is a public sector air quality and climate scientist. Photo: Supplied

Published Mar 20, 2024


By Mpendulo Dlamini

We need to invest in climate resilience.

A few days ago, the Presidential Climate Commission (PCC) hosted a dialogue on Mobilising Finance for a Just Transition covering a broad range of issues relating to climate finance tagging, project design and matchmaking, financial structuring, and implementation support, among others.

What was interesting through the dialogue was the convergence of views to address the fundamental question on what constitutes a “just transition” project, and what are the criteria that should inform the tagging of climate finance as well as the institutional and policy alignment needed to support the financing of the just transition.

The current PCC draft “Just transition Finance Mechanism Recommendations Report” tabled for public participation and comments, acknowledges that “just transition projects are less commercial by nature, necessitate a higher proportion of grant finance and risk mitigation tools for capital aggregation and blending”.

The current conventional sources of funding will be unable to meet these financing needs unless a diverse mix of funding is mobilised across the capital spectrum from public finance, grants, concessional debt, commercial debt and equity. This as South Africa is estimated to need R2 trillion up to 2050 to fund the just transition. This is in addition to costs associated with mitigation and adaptation.

In South Africa, due to weak all-encompassing legislation on climate change responsibilities as well as competing developmental interests like housing, healthcare, and education, finance to exclusively tackle climate change is difficult to ring-fence within the government’s fiscal space. The announcement of the Climate Response Fund recently was a step in the right direction.

Climate Budget Tagging: A means to attract more

Accounting for climate action through investment or a public spending lens may assist the governments to undertake an exercise that shows how much they are spending towards climate action to reduce vulnerability and increase resilience.

However, Climate Budget Tagging (CBT) has proven to be a key methodological approach that can be used to identify and indicate the amount of finance allocated or could be potentially allocated towards climate change response activities.

We, therefore, need to continue to persuade the government and policymakers to adopt the CBT approach to be part of the national public finance and fiscal polity discourse to boost the green economy and provide untapped opportunities for inclusive economic growth.

CBT is a data-led evidence-gathering process that allows for the identification and tracking of climate-related finance in a budget. In most cases, budget activities and projects are usually seen as service delivery activities, and not viewed though a climate change response lens. CBT then assists to identify activities and projects within which climate change response actions can be mainstreamed and amplified.

Furthermore, CBT can also be an evidence-based marketing tool to show external development funders, and the government’s ability to receive, manage and channel funds towards climate change initiatives amid its service delivery and development work from limited financial resources.

Accounting for climate spending

A way in which CBT can facilitate a just transition is ensuring that projects budgeted for have aspects of sustainable procurement criteria that promote green and local goods as well as services procurement.

This can lead to the inclusion of deserving and competent local and green entrepreneurs, especially small, medium, and micro-enterprises, especially young women and young people living with disabilities, and previously disadvantaged groupings.

In a real-world application of CBT in the Western Cape’s five district and the metropolitan municipalities it was discovered that climate-related finance flows and climate change response actions undertaken by the government were heavily under-reported creating an impression that the public sector undertakes little to no climate action investment, except for disasters.

These statistics and figures argue for a strong case for CBT to attract development funding to demonstrate the capacity of systems and tools in place to monitor and track climate finance to be received.

CBT puts in place tools to foster climate-conscious budgeting, which assists in attracting and facilitating climate finance in-country and externally to enable a just transition within which many underprivileged may find expression and hope.

Mpendulo Dlamini is a public sector air quality and climate scientist part of the Presidential Climate Committee Youth Ambassador Writers series. He has a master’s in science, environmental and geographical science from the University of Cape Town.