93383 Moving Toward Climate Budgeting Policy Note Moving Toward Climate Budgeting Policy Note Acknowledgements This Policy Note was jointly produced by the Climate Change Group and the Macroeconomics and Fiscal Management Global Practice under the management and guidance of Jane Ebinger.  It is a complement to the Climate Change Public Expenditure and Institutional Review Sourcebook (July 2014) issued by the Poverty Reduction and Economic Management Network and draws on the policy lessons in the Sourcebook.  The main authors of the policy note include Erika Jorgensen and Wei-Jen Leow, with contributions from Grzegorz Peszko.  Ivy Ka-Yee Lau provided valuable editorial contributions. ©2014 International Bank for Reconstruction and Development/ The World Bank The World Bank 1818 H St NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org This work is a product of the World Bank. 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Any queries on rights and licenses, including subsidiary rights, should be addressed to World Bank Publications, The World Bank Group, 1818 H St. NW, Washington, DC 20433, USA; fax: 202-522-2422; email: pubrights@worldbank.org. Cover photos from the World Bank Flickr Site. This note is a companion piece to the World Bank Climate Change Public Expenditure and Institutional Review (CCPER) Sourcebook, available at http://issuu.com/world.bank.publications/docs/climate_change_public_expenditure_a_62ae0031188aa5 Contents SUMMARY...................................................................................................................................................................iv Chapter 1: The Challenges of Financing Climate Change Actions....................................................................... 1 Snapshot of Today’s Climate Finance...................................................................................................................2 Climate Change as a National Policy Objective....................................................................................................4 Chapter 2: Climate Change Public Expenditure and Institutional Reviews: A Helpful Reference for Climate Budgeting.............................................................................................................................5 Chapter 3: Seven Lessons for Ministries of Finance..............................................................................................9 Area I: Setting a Mid-Term Budget Framework for Climate Action.......................................................................9 Lesson I.  Incorporate climate change into longer-term budget frameworks to allow for planning and adjustment of spending across programs..............................................................................................9 Lesson 2.  Send an early and clear signal of the importance of climate action through the budget process, preferably before actual budget development.........................................................................10 Area II: Transparency and Accountability to Inform Resource Allocation Decisions.............................................10 Lesson 3.  Use interagency committees to help mainstream new policy initiatives such as climate change into the plans of line agencies and to allocate resources in balance with other priorities.........10 Lesson 4.  Require more comprehensive reporting at the sub-national level and among state-owned enterprises...............................................................................................................................................10 Lesson 5.  Identify and monitor all off-budget expenditures............................................................................11 Area III: Effectively Receive and Distribute External Finance................................................................................11 Lesson 6.  Identify all externally funded initiatives and establish uniform reporting practices to give a complete picture of climate-related expenditures. Ministries of finance and planning agencies must track and report on these expenditures and reflect them in national budget documentation.......11 Lesson 7.  Respond strategically and effectively to the requirements of external donor funds.......................12 Annex I: Analytical Framework for Public Expenditures Review.......................................................................... 15 Annex II: UNFCCC Planning Instruments................................................................................................................16 Bibliography................................................................................................................................................................18 iii SUMMARY Climate change action by countries—both mitigation measures and change planning after 2020. Governments will be critical actors in adaptation measures—requires planning over a long horizon in climate planning and investment, with finance ministries having the face of uncertainty as well as, for many governments, costly key responsibility. financing in the near term. While flows of international climate Climate change planning shares some common challenges finance have grown in recent years, it has become ever more with other national policy objectives where multiple interests clear that countries need to consider all policy instruments. This need to be managed—but also presents some unique complexities. includes funding from diverse sources within a consistent frame- These include the need for a multi-sectoral response; uncertainty work. Climate change is going to affect, in particular, the core around future climate damages; and uncertainty about national business of finance ministries related to fiscal policy, government obligations to global emissions mitigation. As with other complex budgets, and public debt. This note focuses on public expenditure policy and fiscal challenges, development strategies will likely management for climate actions rather than the full spectrum of fail to translate into plans without the finance ministry’s active finance ministry responsibilities. Budgeting for climate action is involvement in integrating climate actions into long-term budget a complex challenge, but good practice is emerging. It is firmly planning. One way to start moving toward climate budgeting is to rooted in the traditional principles of public expenditure manage- conduct a Climate Change Public Expenditures and Institutional ment. Most recent experience has been captured in the Climate Review (CCPER). Change Public Expenditure and Institutional Review Sourcebook. CCPERs can make unique contributions beyond the benefits This note is the accompanying piece to the sourcebook. of traditional public expenditure and institutional reviews by Overall, climate finance flows fall short of needs. Most funding evaluating the effectiveness and efficiency of climate-related is raised and spent within the same country, and flows from richer public spending and the alignment of expenditures with a coun- to poorer countries are modest. Developing countries have gener- try’s needs and objectives. They can respond to specific public ally been reliant on public funding and have been less successful expenditure policy and management challenges posed by climate in attracting both domestic and foreign private investment. The change, such as decision making under uncertainty, disaster risk shortfall in international public financing for climate action and management, and diverse budget classification of climate-related the failure to create enabling conditions for private finance has activities. These reviews also survey the processes of budget and pushed domestic public funding of climate actions to the forefront. expenditure planning and identify entry points for other instru- Long term, policy reforms will be needed to attract much larger ments of climate policy. financial resources from the private sector to relieve the pressure This policy note presents several measures of immediate inter- on public coffers. In the meantime, given the urgency of the size- est to finance ministries for better fiscal planning and expenditure able expenditures necessary in many countries, careful planning management of climate actions. Drawing on the sourcebook, and good management of public expenditure will be critical. the note highlights three general areas of financial and expendi- National planning now stands at the center of climate action, tures management where improved practice will better prepare and will increasingly feature the integration of UNFCCC require- finance ministries to deal with the fiscal implications of climate ments into national processes and Intended Nationally Determined change: (i) including climate change as a long-term objective in Contributions that are expected to form the basis for climate the national budget and expenditure framework; (ii) improving SUM M ARY financial tracking and performance accountability by spending agencies; and (iii) strengthening government financial manage- Seven Recommendations for ment systems to efficiently use external climate finance. Targeted Ministries of Finance at the climate budget, these actions will also promote financial discipline and overall lead to more efficient and strategic public 1. Incorporate climate change into longer-term budget frame- spending. This policy note provides finance officials with seven works to allow for planning and adjustment of spending detailed recommendations based on the experience of World Bank across programs. client countries. 2. Send an early and clear signal of the importance of climate action through the budget process. 3. Use interagency committees to help mainstream climate initiatives into the plans of line agencies and to allocate resources in balance with other priorities. 4. Require more comprehensive reporting at the subnational level and among state-owned enterprises. 5. Identify and monitor all off-budget expenditures. 6. Identify all externally funded initiatives and establish uniform reporting practices to give a complete picture of climate expenditures. 7. Respond strategically and effectively to the emerging require- ments of external donor funds. v 1 Chapter THE CHALLENGES OF FINANCING CLIMATE CHANGE ACTIONS Climate change action by countries—both mitigation measures achievement but still far below estimates of investment needs. and adaptation measures—requires planning over a long horizon The shortfall in international public financing for climate action in the face of uncertainty as well as, for many governments, and the failure to create enabling conditions for private finance costly financing in the near term. While the need for climate has pushed domestic public funding and government action on action varies, for almost all countries the response will reach across the climate agenda to the forefront. Governments need to set out many economic sectors and will require a transformation of the coherent strategies and plans for national climate action that set economy over the decades to come. This complexity is amplified priorities over a long horizon and implement a diverse mix of by uncertainty around the impact of climate damages as well as policy instruments that will attract much larger financial resources uncertainty about national contributions to global mitigation. available in the private sector. This will decrease the pressure Climate investments often pose substantial up-front costs, with on public coffers in the future. In the meantime, however, given benefits accruing only later; this is true whether they are adaptation the urgency for sizeable expenditures in many countries, good interventions aiming to protect tomorrow’s welfare from climate expenditure management will be critical, and finance ministries damage or mitigation actions designed to reduce greenhouse gas will need to be centrally involved. emissions while preserving production. Climate change will affect the core business of finance For governments, climate change action is a particularly chal- ministries. In most countries, these ministries’ mandate includes lenging planning problem that seemingly threatens the growth a range of responsibilities related to fiscal policy and the govern- and poverty reduction agenda and requires a coordinated multi- ment budget. Managing public debt, administering state assets stakeholder response. Facing the dilemma of lock-in for long-lived and liabilities, and overseeing the financial system are also com- assets, both public and private sectors would like to make well- mon. For ministries of finance, climate change is likely to impose informed decisions, choosing optimal investments within financing multiple challenges, first and foremost being the need for planning constraints. To date, those constraints have been loosened only and financing of climate action. They will also need to address marginally by the establishment of international climate finance. the fact that rising climate damages may undermine the sovereign While flows of international climate finance have grown, ratings of the most vulnerable countries and increase the risk of countries need to consider all sources of funding within a macroeconomic and fiscal imbalances. In addition, fossil-fuel consistent framework. A special feature of climate change plan- dependent economies may face deteriorating terms of trade and ning is the need to consider the international policy setting and stranded assets if global mitigation shifts relative prices away from the related availability of external financing for certain groups of carbon-intensive fuels. At the same time, new fiscal instruments, countries under the global climate finance and carbon finance such as carbon taxes, will require revised taxation structures. As architecture. Overall global climate finance flows are estimated guardians of public spending efficiency and arbiters of compet- to have reached about $359 billion as of 2012, a significant ing choices, ministries of finance will need to become adept at 1 M OVI NG TOW ARD C L IM AT E B U D GE T IN G understanding these challenges and the tools and approaches provides finance officials with seven detailed recommendations available for addressing them. based on emerging lessons from the experience of World Bank cli- This note focuses specifically on public expenditure man- ent countries and illustrates the contribution ministries of finance agement for climate actions. It does not cover the wide variety can make to the success of climate change policy. of other issues related to managing the fiscal and macroeconomic impact of climate change that are within the purview of finance ministries. The implications of rising climate damages and climate SNAPSHOT OF TODAY’S CLIMATE policies and investments on fiscal and macroeconomic stabil- FINANCE ity and on public debt are not considered here. It also does not discuss opportunities to adopt fiscal policy measures to achieve synergies between fiscal and climate policies. Likewise, creating A range of actors, including the public sector, currently finance enabling conditions for mobilizing private finance for climate climate change actions. There is recognition that developing actions is beyond the scope of this note. Instead, it focuses on countries have generally been reliant on public funding and have one specific aspect—public expenditure management for climate been less successful in attracting private domestic and foreign actions—where there is emerging good practice and some practical investment. lessons for Ministries of Finance. Although discussions continue on the precise definition Budgeting for climate action is a complex challenge, but of climate finance, a useful working definition is capital flows good practice is emerging. This good practice is firmly rooted that specifically target low-carbon and climate-resilient devel- in the traditional principles of public expenditure management opment with direct or indirect greenhouse gas mitigation or developed at the World Bank (Annex 1) and elsewhere such as adaptation objectives or outcomes. This definition is accepted the OECD (Box 3). Most recent experience has been captured in by several groups that have done much to advance global under- the Climate Change Public Expenditure and Institutional Review standing of the subject, including the OECD, the World Bank and Sourcebook. This note aims to demonstrate the need of alignment other multilateral development banks (MDBs), and the research of sound climate budgeting practices with finance ministries’ body Climate Policy Initiative (CPI). The World Bank Group is primary fiscal responsibilities. A climate change public expen- a member of the Joint MDB Tracking Effort on Climate Finance, diture and institutional review (CCPER) is one way to uncover which has been instrumental in forging common norms and opportunities to do this better. Many of the recommendations producing the MDB guidelines generally agreed upon by these here are drawn from the sourcebook, released in June 2014, groups for what spending and financing counts as mitigation and which is a compilation of notes and supporting materials that adaptation (CPI 2013). provide practitioners with the tools and information they need The Climate Policy Initiative compilation of various climate to respond to the public expenditure policy and management finance data estimated that climate finance in 2012 amounted challenges resulting from climate change. The sourcebook consoli- to $359 billion globally. Within this, domestic financing and dates research and international experience, identifies emerging South-South flows are significant, suggesting that non-OECD practice, and provides practical guidance to the staff of central countries have been less reliant on OECD countries than is the finance agencies, development agencies, environmental agencies, common perception (Figure 1). Remarkably, 76 percent ($273 bil- and international organizations. This note is the accompanying lion) of all climate finance is spent entirely within country borders piece to the Sourcebook. in both OECD and non-OECD countries. Slightly more than half of This policy note presents several measures of immediate the global total was spent in non-OECD countries ($183 billion), interest to ministries of finance for better fiscal planning and of which half ($120–143 billion) came from domestic sources or expenditure management of climate actions. This note highlights from other non-OECD countries. three general areas of financial and expenditures management Despite the increasing importance of private capital as a where improved practice will better prepare finance ministries to source of global climate finance, non-OECD countries have not deal with the fiscal implications of climate change: (i) including significantly benefited from private sector financing. Private climate change as a long-term objective in the national budget owners of capital provide 62 percent ($224 billion) of climate and expenditure framework; (ii) improving financial tracking and finance globally, but most private climate finance flows occurred performance accountability by spending agencies; and (iii) strength- within and between OECD countries. The flow of private finance ening government financial management systems to be able to use from North to South has been modest, suggesting that developing external climate finance efficiently. While targeted at the climate countries have so far failed to create an enabling policy framework budget, these actions will also promote financial discipline and more for private climate finance. Investors are seeking a robust market efficient and strategic public spending in general. The discussion and policy environment as well as general investment stability and 2 TH E C H A LLEN GES OF FIN A N C IN G C LIMA TE C H AN GE ACTI O NS Figure 1: Geographic Flow of Climate Finance Source: Climate Policy Initiative, Global Landscape of Climate Finance (2013). predictability. South to South private finance has been on the rise, played and will continue to play an important role in influenc- some of it going to climate action, but the scale is still modest. ing institutional arrangements and national planning within Another surprising observation about the climate finance governments. The majority of climate finance flows from OECD landscape is that public climate finance is not solely associ- to non-OECD countries ($39–62 billion) came from governments ated with public works and government programs; in fact, ($35–49 billion) through MDBs and bilateral financial institutions. up to one-third of global public climate finance goes to profit- Only $4–$11 billion was channeled through UN organizations and generating projects. On a global basis, $135 billion in climate bilateral aid agencies, and another $1.4 billion through non-UN finance came from public sources, but not an insignificant amount climate funds. Financial planners and policy makers in non- ($37 billion) was put into private investments that generated a OECD countries need to stay attuned as UNFCCC developments commercial return, including renewable energy and sustainable unfold as the UNFCCC is expected to reconcile different views transport. In many instances, the public sector has not been a on how the financing burden is to be shared among countries majority owner in the private investment structures. The govern- (informed by economic, equity, and ethical considerations). The ment’s direct investment has usually been made in conjunction outcomes of UNFCCC negotiations will have a major influence with a more sizeable amount of private financing, underlining on the design of future international financing instruments both the fact that the role of the public sector in promoting climate within and outside the UN system. To secure reliable financing investments has been much wider in scope than just regulatory for climate actions, governments in non-OECD countries need to and policy making. be sufficiently equipped with knowledge of the new operational Although international public climate finance—channeled requirements of multilateral and bilateral institutions that interme- mainly via multilateral or bilateral institutions—does not pro- diate flows of international public climate finance, while planning vide a large share of the funding for non-OECD countries, it has for domestically-financed climate actions in parallel (Annex II). 3 M OVI NG TOW ARD C L IM AT E B U D GE T IN G CLIMATE CHANGE AS A NATIONAL Climate change planning shares some common challenges POLICY OBJECTIVE with other important national policy objectives where multiple interests need to be managed; it also presents, however, some unique complexities. Mitigation and adaptation action will generate Governments will be critical actors in climate planning and a large demand for funding for most countries. It will create both action, and ministries of finance have special responsibility. winners and losers (e.g., as energy prices rise or public subsidies to Achieving climate action at the national level will require govern- climate-affected regions are increased). As with any policy, climate ments to play a leading role through the application of medium- and policy needs to strike a balance between economic efficiency and long-term planning and strategy; through the implementation of a balanced distribution of costs. Given a fixed fiscal envelope, a policies, laws, and regulations (including taxation); and directly government must prioritize between spending on climate action through both capital investment and current spending from public and on other priorities—and, within climate action, on investing funds. For many countries, substantial financing will be needed, in mitigation or adaptation measures. Some of the particular chal- elevating the importance of careful planning. Furthermore, since lenges of climate action are the need for a multi-sector response, climate action reaches across sectors and ministries, coordination reaching all of the economy; uncertainty around future climate of the policy framework will be important to ensure consistency damages; uncertainty about national obligations to global emissions in supporting national objectives. As such, all major government mitigation; the delayed nature of many of the returns on investment; ministries need to be involved, and Ministries of Finance, who and that benefits tend to be public, whether national or global. control the purse strings and typically also provide medium-term For example, the adoption of clean energy may sometimes reduce financial planning, must be central to climate planning and action. local air pollution, generate jobs during the investment period, Leadership on climate action may lie primarily with a Prime and reduce fuel costs in the long run—but require substantial up- Minister or President’s office or with a planning ministry, but for front costs. These difficult choices appear all over the landscape of a coordinated and long-term national response to climate change climate change policy and must be negotiated within the confines and the need for climate action, ministries of finance cannot afford of scarce financial resources. As a result, climate planning merits to play merely a supporting role in decision making. mainstreaming into the policy process. 4 2 Chapter CLIMATE CHANGE PUBLIC EXPENDITURE AND INSTITUTIONAL REVIEWS: A HELPFUL REFERENCE FOR CLIMATE BUDGETING Governments need to make a conscious effort to mainstream on international support for implementation (World Bank 2011). climate change into long-term budget planning in order to In Rwanda and Ethiopia, where development of their strategies ensure the availability of domestic public resources and to has been led by environmental agencies, the strategy documents continue participating in the evolving international climate- explicitly acknowledge the need to integrate the strategy into a change architecture for national policy. In fact, as governments higher-level planning instrument led from the center of govern- increasingly seek to reconcile climate change with their growth ment (Rwanda 2011 and Ethiopia 2011). and poverty reduction agenda, it has become more common to One way to start moving toward climate budgeting is to integrate climate change into the process of national policy and conduct a Climate Change Public Expenditures and Institutional budget planning. Many countries, including Mexico, Brazil, India, Review. A CCPER adopts a similar analytical framework to a and China, have already developed Low-Carbon Development Plans traditional Public Expenditure and Institutional Review: (1) fiscal that attempt to set the broad direction of government policy. These sustainability; (2) strategic resource allocation; (3) the role of gov- development plans mark a milestone in that climate change being ernment; (4) the efficiency and effectiveness of spending; (5) the is regarded as one of the central development agendas instead of incidence of spending; and (6) the capability of institutions and as an add-on component to development. the alignment of incentives. This framework tests the consistency Development strategies will likely fail to translate into plans between intended and actual outcomes (i.e., the economic, social, without the finance ministry’s active involvement in integrating and environmental impacts of public expenditure policies). It climate actions into long-term budget planning. Some countries recognizes that there are tradeoffs among policy objectives, (e.g., have framed their own low emissions development strategies increased spending on public services, reduced taxation, and (e.g., Ethiopia, Rwanda, Vietnam, and Cambodia) by highlight- aggregate fiscal discipline). It also acknowledges that policy objec- ing the low carbon and sustainable development benefits as well tives may be achieved using a range of instruments, by providing as opportunities for technology investments and employment in information, through regulation and taxation, as well as through green industries. In many cases, however, the strategies were not public expenditure, and that public expenditure may not be the developed with budget realities in mind, and thus they did not most cost-effective means of achieving these objectives (Pradhan systematically provide for the aggregate cost of implementation. 1996). The World Bank has undertaken over four hundred public Only selective policy measures were assigned short-term costs, expenditure reviews over the last 15 years to inform expenditure and financing was nearly always assumed to be coming from policy, with some spanning the entire public sector and others external development assistance funds. Moreover, implementation focusing on a few priority sectors. arrangements were not well developed. By 2011, as many as 47 In addition to the benefits of traditional Public Expenditure countries had moved beyond mitigation planning to put forward and Institutional Reviews, CCPERs make unique contribu- low-emissions development strategies—many were contingent tions by evaluating the effectiveness of climate-related public 5 M OVI NG TOW ARD C L IM AT E B U D GE T IN G spending and the alignment of expenditures with a country’s needs and objectives. The CCPER assessment of the financial Climate Change Public Box 1:  implications of climate change policies provides valuable inputs Expenditure and Institutional to the process of prioritizing and allocating scarce resources of Review in Morocco expenditure programs; this in turn facilitates the integration of climate change policies into budgets and the implementation of Morocco is highly vulnerable to climate change, particularly plans. CCPERs can help mobilize resources by highlighting policy in three key areas–water resources, agriculture, and physical infrastructure. Budgetary spending on climate measures is signifi- objectives that require additional financing and by evaluating a cant—and it needs to be efficient given limited budget resources country’s domestic and external financing framework. Moreover, and competing national priorities. The CCPER assessment cov- CCPERs address the absence of an institutional framework for ered five sectors based on their mitigation potential and climate climate change policy making and implementation, and are able vulnerability: agriculture, energy, water and forestry, solid waste, to respond to the particular challenges posed by climate change and sanitation. (e.g., decision making under uncertainty or disaster risk man- The CCPER revealed considerable public investments by the agement). As an aid in dealing with the uncertainties of climate government in the selected sectors, and a more detailed analysis change impacts, CCPERs assess the extent that the government showed a preponderance of infrastructure programs. Much of the incorporates flexibility and learning into its response and decision- funding was in favor of adaptation activities, notably related to making processes. In disaster risk management, CCPERs are useful water resource management. Spending on adaptation accounted in focusing attention on the role played by finance ministries and on average for 64 percent of climate expenditures (and nine can lead to better financial planning to ensure timely funding of percent of national investment expenditures) over the 2005–2010 reviewed period, much of which went to the water and agriculture post-disaster recovery and reconstruction. sectors. Most of the investment programs and projects in these Determining which on-budget and off-budget expenditures sectors addressed water efficiency and were closely linked to are climate items is a complex yet important step in CCPERs traditional development projects (e.g., dams, hydro-agricultural because it generates statistics that guide the allocation of resources, development). evaluate the impact of public expenditures, and track climate About a third of climate-relevant expenditures were funded change expenditures. Differentiated approaches have been applied through special accounts managed by respective sectoral to the classification of climate-related expenditures, responding to ministries. The recently established Fund to Address Natural Di- varying strengths and weaknesses in public financial management saster (Fonds de Lutte contre les Catastrophes Naturelles) is an systems. Developing countries that have completed or are currently important tool for the government in addressing prevention and undertaking CCPERs include Burkina Faso, Ethiopia, Morocco, mitigation aspects, but its management, impact, and sustainabil- Tanzania, and Uganda in Africa, Bangladesh, Cambodia, China, ity raise questions and point to the need for reform. Indonesia, Nepal, Philippines, Samoa, Thailand, and Vietnam in The CCPER also revealed that mainstreaming of climate change issues into strategic decision making and budget pro- Asia. The methodologies and results of these reviews are diverse, cesses remains limited. This is due in part to the lack of a clear and Box 1 shows one approach in the example of Morocco. With and sound climate strategy, as well as to weak climate gover- the support of the World Bank, an assessment of climate change nance arrangements. As a result, (1) the integration of climate public spending was conducted to help the Moroccan government issues in the sectoral strategies and budget planning varied increase climate spending efficiency, tag climate-related expen- among sectors; (2) processes and systems to support climate ditures, and mainstream climate spending in the budget process activities have not yet been developed; (3) the chart of ac- (including the development of a Climate Medium Term Expendi- counts did not allow for identification of specific climate-relevant ture Framework (MTEF). The review covered public expenditure expenditures; (4) central and local government agencies have from 2005 to 2010. not been motivated to develop specific climate activities; and In order to improve the effectiveness of climate budget- (5) existing performance indicators do not yet include climate ing, CCPERs survey the processes of budget and expenditure change. planning and identify the entry points for climate change Budget planning tools, including the Climate Medium-term Expenditure Framework (METF), constitute a key entry point for policy. Ministries of finance have a wide array of tools for cli- mainstreaming climate change in strategic planning. As part of mate budgeting, the effectiveness of which depends in part on the CCPER, a draft framework for a climate MTEF was prepared, the structural features of the budget process. The budget process incorporating key climate programs and projects and climate combines a top-down, whole-of-government policy framework performance indicators. with a bottom-up process of expenditure planning (Box 2). During the budget process, central finance and planning agencies pursue Source: World Bank (2012). Morocco Climate Change Public Expenditure and Institutional Review. government-wide policy objectives, within agreed expenditure 6 CLIMATE CHANGE PUBLIC EXPENDITURE AND INSTITUTIONAL REVIEWS: A HELPFUL REFERENCE FOR CLIMATE BUDGETING Box 2: A Stylized Budget Process 1. Central agencies 2. Government 3. Central agencies 4. Spending propose macro and budget approves guidelines issue budget circular agencies prepare work and ceilings and ceilings expenditure plans 8. Legislature 7. Government 6. Central agencies 5. Central agencies debates, (amends,) and approves budget and consolidate state budget and spending agencies approves state budget submits to legislature negotiate budgets 9. Central agencies 10. Spending 11. Central finance 12. Audit authority release funds to agencies execute budget agency prepares reports on financial spending agencies and report financial statements statements Central finance and planning agencies initiate the budget process six to nine months before the start of the fiscal year by preparing a pre-budget policy document that lays out the macroeconomic framework and proposes the broad allocation of resources in line with government plans and policies (1). This policy statement is generally approved by the government (2). A budget circular is issued with instructions and policy guidance and lays out the resource allocations that spending agencies should use for budget formulation (3). Spending agencies prepare budget propos- als that allocate resources among departments, programs, and projects in line with sector policy and submit them to the central agencies (4). Central agencies assess whether each spending agency proposal is within expenditure limits and aligned with overall policy objectives. Usually, negotiations follow (5). Central agencies consolidate agency budgets into a state budget (6) that is approved by the government (7) and then submitted for legislative appropriation (8). In most parliamentary systems, the legislature has limited authority to alter the budget proposal. Once approved, funds are released to spending agencies according to the availability of funds in the central treasury account and rationed as neces- sary (9). Spending agencies execute the budget and implement plans, providing periodic reports on progress (10). Allocations are adjusted through a mid-year budget review or on an ad hoc basis as needs arise. Financial statements are usually prepared within three to six months following the end of the fiscal year (11) and are subject to independent audit within six to 12 months of year-end (12). Source: World Bank 2014. constraints, while spending agencies seek to maximize the the difficulties that policy makers encounter in shifting resources resources available for agency-specific policy and institutional in support of climate-related policy objectives and in assessing objectives. Besides the CCPER Sourcebook, different resources the impact of climate-related expenditure decisions, which are are being developed to support the expenditure planning process. mostly made outside of the budget and expenditure planning For example, the OECD Council has checklists of good practice process. In response to these challenges, the following section for establishing, reviewing, or reforming public environmental presents seven lessons for central finance and planning agencies, expenditure programs (Box 3). CCPERs can be used to highlight based on country experiences to date. 7 M OVI NG TOW ARD C L IM AT E B U D GE T IN G OECD Recommendations on Good Practices on Public Environmental Box 3:  Expenditure Management The OECD Council adopted the Good Practices for Public Environmental Expenditure Management in 2006. These recommendations were derived from the reviews of many years of diverse practical experiences with different public environmental expenditure programs both in OECD member and non-member countries. The objective of the OECD recommendations is to encourage member countries to ensure that public environmental expenditure programs are environmentally effective, economically efficient, and managed in accordance with sound principles of public expenditure management. The recommendations define specific steps that public authorities need to take when establishing and managing public environmental expenditure programs. They further stipulate that countries should make use of the checklists of specific recommendations organized under the three main headings of (1) environmental effectiveness, (2) budgetary good practice; and (3) management efficiency. The document was adopted by the OECD Council, which is the highest OECD governing body, after a careful review by all OECD com- mittees, including Committees for Fiscal Affairs and Environmental Policy. Source: OECD. Available at http://acts.oecd.org/Instruments/ShowInstrumentView.aspx?InstrumentID=175&Lang=en&Book=False. 8 3 Chapter SEVEN LESSONS FOR MINISTRIES OF FINANCE Ministries of finance have a key role in promoting economic AREA I: SETTING A MID-TERM BUDGET development while ensuring fiscal prudence in public spend- FRAMEWORK FOR CLIMATE ACTION ing in order to set the conditions for macroeconomic stability. Climate change, with its economic implications (both from needed investments and the economic cost of climate damage), is among Lesson I.  Incorporate climate change into the long-term issues that finance ministries have to consider in longer-term budget frameworks to allow for fiscal planning. By focusing on three general areas of financial planning and adjustment of spending across and expenditures management, finance ministries will be better programs. prepared to deal with the fiscal implications of climate change and more effectively set a path for sustainable economic development. Annual budgets offer limited scope for adjusting resource alloca- These three areas are: tions in line with emerging policy priorities, and medium-term expenditure frameworks (MTEF) have become widespread since • Including climate change among the long term needs of the the mid-1990s. Today, 132 countries have introduced some form national budget and expenditure framework. of medium-term expenditure planning. Seventy-one countries • Improving financial tracking and accountability for performance (and 18 out of 33 low-income countries) have a top-down among the spending agencies in order to inform allocation medium-term fiscal framework in place that lays out alloca- decisions of scarce public funds. tions to spending agencies over a 3–5 year period (World Bank • Raising the capability of government financial management 2014). Medium-term expenditure plans allow for adjustments in systems to efficiently use external climate finance. resource allocations within the overall period. Climate change can be introduced into this framework, giving certainty and These principles should help strengthen financial discipline predictability to agencies for their climate expenditure planning and promote more efficient and strategic public spending. In while allowing for alignments with other priorities along the way this regard, they may deserve consideration even in the absence of (World Bank 2012b). The shift away from annual budgeting also major climate action and investment plans. The Climate Change has the advantage of often accelerating implementation speed Public Expenditures and Institutional Review Sourcebook (World and fostering a greater sense of ownership by agencies towards Bank, 2014) presents recommendations on how to put these prin- climate programs. ciples into practice based on country experiences to date, and some highlights for finance ministries are presented here. 9 M OVI NG TOW ARD C L IM AT E B U D GE T IN G Lesson 2.  Send an early and clear signal allocation review. Review processes that link program-level perfor- of the importance of climate action through mance with agency-level negotiations on resource allocation are the budget process, preferably before actual effective points of intervention (Alonso et al. 2005). The review budget development. function can be formalized by issuing specific guidelines on how climate change issues should be addressed in agency budget pro- Signaling the importance of climate action can be done through posals, such as requiring a description of climate change policy administrative guidelines issued at the start of the budget pro- objectives and an explanation of how these are reflected in the cess. The UK Treasury’s Pre-Budget Report of 2009, for example, budget proposal. highlighted revenue and expenditure measures in support of environmental and climate-change-related policies (HM Treasury Lesson 4.  Require more comprehensive 2009). In South Africa, policy commitments such as the proposed reporting at the sub-national level and among carbon tax and establishment of a fund for green economy initia- state-owned enterprises. tives, are announced in the medium-term budget statement (South Africa 2011). The budget circular supports implementation of these State-owned enterprises (SOEs) and various autonomous agen- policies by providing guidance on the presentation of climate- cies are important economic actors in many countries, for which change-related expenditures in the agency budget proposals. information on climate action and finance is usually not available. The Philippines Budget Circular, meanwhile, requires agencies Important climate action entities such as natural resource manage- to categorize programs according to the government’s five prior- ment agencies and national climate change funds fall into this ity areas of spending, one of which corresponds to environment category. Ministries of finance should encourage these entities to and climate change mitigation and adaptation (Philippines 2012). develop and document climate actions and financing plans and require the reporting of climate-related investments and expendi- tures.1 Many countries have power sectors that are dominated by AREA II. TRANSPARENCY AND state-owned generation and distribution plants; these SOEs are in ACCOUNTABILITY TO INFORM key positions in climate change mitigation. Water infrastructure is also usually state owned and managed, and is critical for effective RESOURCE ALLOCATION DECISIONS adaptation. SoEs often report on the environmental impacts of their operations and related financial transactions on a voluntary Lesson 3.  Use interagency committees to basis or when instructed by their boards. Where climate actions help mainstream new policy initiatives such as undertaken by SOEs are financed from earmarked taxes and other climate change into the plans of line agencies sources of revenue (e.g., levies on domestic and international and to allocate resources in balance with other carbon market transactions), finance ministries should mandate priorities. reporting of expenditures against climate actions. Where climate actions by SOEs are funded through external climate finance, The challenge for sectoral agencies is to link climate change poli- sometimes arranged without coordination with the Ministry of cies and expenditure planning to their operational work. Agencies Finance, finance ministries should similarly mandate reporting. are usually required to highlight and justify expenditures arising Sub-national jurisdictions also tend to identify their climate- from new policy initiatives in their budget submissions; base related expenditures only on a voluntary basis or at the request expenditures (those related to current policy), however, may not of statistical agencies. Better quality and coverage of reporting at be subject to review unless there are pressures to curtail costs. all levels of government will provide a better picture of how much Ministries of finance are typically not expected to advocate realloca- is being spent. Both ministries of finance and planning agencies tions across policy goals or to promote overall increases, but they should consider making financial transfers to sub-national entities are in a position to determine if spending agencies are proposing conditional on the submission of financial reports, and coordinate budgets that meet whole-of-government policy objectives (e.g., this with agencies responsible for territorial administration. CCPERs climate change)—and do so in an efficient and effective manner. Experience from poverty reduction planning has shown that intra- and inter-ministerial committees consisting of sectoral agen- cies and finance ministries can improve the definition of plans 1 In July 2012, South Africa’s Department of Public Enterprises announced that SOEs would develop a climate change response plan, with emissions reductions and realism of implementation timelines. The same holds true for targets, that would not compromise their financial viability. As part of this commit- climate action, where finance ministries can encourage synergies ment, the department became a signatory to the UN Global Compact, a corporate between climate and other agency programs during the resource social responsibility initiative that includes environmental goals. 10 SEVEN LESSON S FOR MIN ISTR IES OF FI NANCE can help to uncover where inter-linkages can be easily made and AREA III. EFFECTIVELY RECEIVE AND to identify the right institutional arrangements for implement- DISTRIBUTE EXTERNAL FINANCE ing mitigation and adaptation projects (i.e., whether and when to assign either a central or a local agency to be responsible for enforcing performance). Lesson 6.  Identify all externally funded initiatives and establish uniform reporting Lesson 5.  Identify and monitor all off-budget practices to give a complete picture of climate- expenditures. related expenditures. Ministries of finance and planning agencies must track and report on Climate policy can be advanced through quasi-fiscal operations,2 these expenditures and reflect them in national tax expenditures, and guarantees.3 The fiscal impact of these tools budget documentation. will only be felt later, when quasi-fiscal operations have to be paid for by government, when taxes are due to be paid, and when guar- As much as possible, all external funds should be received and antees are called. While the delayed fiscal effect can be politically disbursed through the central financial systems. Different types appealing, it can increase fiscal risk as off-budget expenditures are of development assistance financing may use either govern- not transparent. This approach also raises governance concerns ment or parallel systems of reporting, depending on the donor’s since, in the absence of systematic reporting, it is not possible procedural requirements (and the extent that donors assess the to test the policy rationale of implicit subsidies and verify their presence of fiduciary risks in a particular project context). Finance targeting. Ministries of finance should make these hidden costs ministries should aim to have consistent application of reporting more explicit by requiring all entities responsible for guarantee requirements across all programs and actions so that externally payments and other liabilities to report them and periodically assess funded climate expenditures are accurately captured. Public their risk exposure. Ministries of finance should also analyze the entities managing external funds in parallel systems should be risk of accumulated contingent liabilities to the fiscal system and required to include them in their budget and financial reports public debt and include appropriate contingencies in the budget. to the central authority. Ministries of finance may encounter dif- Tax concessions are revenue losses, and come in the form of tax ferent standards of reporting; requirements for loans and other deductions, tax credits, concessional rates, or rules such as those borrowing, for example, are usually rigorous as many loans governing the accelerated depreciation of assets. The concessions require central finance approval and, in some cases, ratification are typically used as incentives to change household behavior or of financing agreements by the legislature. Budget support, or to encourage businesses to invest in low-carbon technologies. The development policy financing, meanwhile, is disbursed through fiscal impact of these tax concession program can be substantial. the treasury and therefore conforms to government systems. In the U.S., for example, the revenue losses associated with the (Committing budget support funds to programs should be done 11 climate-change-related tax expenditures and energy grants in a timely manner to allow for the funds to be properly identified amounted to $7.23 billion in 2010, almost as much as the reported in budget documentations and for spending to be tracked during funding of $8.8 billion for climate change programs and activities the next spending cycle). Reporting tends to be less rigorous for (GAO 2011). If possible, finance ministries should administer tax grant financing, where authority for approval may be delegated concession programs as transfers that are reported as expenditures to the development cooperation agency or the designated climate and require regular forecasting of all tax credits and concessions change authority. from responsible line agencies. While identifying off-budget expenditures and quantifying subsidies can be technically challenging, conducting a CCPER can 2 Quasi-fiscal operations occur where state-owned banks and enterprises, and help. With these expenditures more clearly highlighted, ministries sometimes private sector companies at the direction of the government, use prices of finance can apply performance metrics to determine if policy that are not “market rate” in their sales and purchasing in order to achieve a gov- objectives are adequately and efficiently met (as tax concession ernment policy objective. 3 Contingent liabilities are another risk, and they may arise where the government programs can sometimes be missing these elements). In addition, provides a guarantee to the private sector to reduce the risk inherent in certain the findings from the review may prompt the establishment of mitigation and adaptation activities. Guarantees are an implicit subsidy, since they new program management structures to review the eligibility of transfer risk from the investor to the public sector and so reduce the cost of capi- individual applications for tax concessions according to the agreed tal.Guarantees are commonly used to encourage investment in high-risk start-up industries (e.g., renewable energy). Because there are limits to the availability of performance criteria. Other types of off-budget instruments, such international climate financing from public sources, recipient governments may begin as national climate change funds (Box 4), should also have per- to acquire more contingent liabilities as they are compelled to look to the private formance stipulations and review requirements. sector, particularly for mitigation projects. 11 M OVI NG TOW ARD C L IM AT E B U D GE T IN G Box 4: Examples of National Climate Change Funds Budget Earmarked External Private Country Name Est’d Finances Governance Transfers Revenues Financing Financing Statutory Funds Brazil Amazon Fund 2008 Combat Development  Oil  deforestation Bank Revenues China Clean Development 2007 National CC strategy Ministerial  Tax on  Mechanism Fund board CERs Germany Special Energy and 2010 15% CC in Government  ETS Climate Fund developing countries Auctions India Clean Energy Fund Future Low carbon and Under  Taxes on renewable energy discussion Coal Philippines Peoples’ Survival 2011 Local adaptation Government,  Fund activities private, and CSO board Rwanda National Fund for 2012 Mitigation and Government   the Environment adaptation Thailand Energy Efficiency 2003 Energy efficiency Government  Petroleum Commercial Revolving Fund projects Taxes Lending National climate funds allow governments to enter long-term commitments by ring-fencing resources so that they remain outside the govern- ment’s budget process. They can be financed by specific revenues earmarked to the fund, one-time government transfers, or deposits from external donor sources. In climate actions that rely on private co-financing, income generating funds, especially funds structured to maintain assets, provide more certainty that governments intend to meet its financial obligations. Climate funds designed to mobilize and blend financ- ing, especially from external sources, can form a critical part of the government’s response to climate resilience and adaptation needs. Being outside the budget process implies less control in the overall efficiency of public resource allocation, as there will be limits in the government’s ability to re-channel resources in extra-budgetary mechanisms. To maintain good governance, national climate funds should be established with clear provisions on performance expectations, and for a review or expiration of mandate. Source: World Bank (2014). Climate Change Public Expenditure and Institutional Review Sourcebook. Lesson 7.  Respond strategically and its “Direct Access” accreditation process in 2010, which assesses effectively to the requirements of external proposed national implementing entities for their financial manage- donor funds. ment, project appraisal, and management capacity, and for their transparency, internal audit, and anti-corruption measures. The Where available, external resources can be an important Green Climate Fund, meanwhile, is finalizing its own Direct Access complement to limited domestic funds. Ideally, these resources criteria. Governments should designate a relevant branch in the should be disbursed centrally so that allocation across various ministries of finance (or a specialized entity such as the national climate actions undergoes the same strategic considerations as development bank) as the point of Direct Access to facilitate inte- is done for domestic funding. Similarly, where national reporting gration of climate finance (from UNFCCC mechanisms and other systems can be used to track spending against the achievement international climate funds) into national planning and budgeting of policy objectives, this approach is preferable to donor-specific systems. Ministries of finance should retain overall responsibility reporting systems. National tracking will also reinforce the ministry for Direct Access, while delegating other required functions (e.g., of finance’s oversight rather than introducing a separate line of project selection, technical appraisal, and so forth) to specialist accountability. environmental agencies. Recent developments in international climate funds give sup- It is important to understand donor requirements as they port to having ministries of finance take a more prominent role evolve. In taking steps to comply with changing requirements, in managing external resources. The Adaptation Fund launched however, it is important to avoid creating major misalignment with 12 SEVEN LESSON S FOR MIN ISTR IES OF FI NANCE existing administrative systems—instead, steps should be taken to reduction projects or programs and assigned to individual donor enhance them. Ongoing discussions at the UNFCCC concerning source) can better demonstrate their readiness for donor funds. monitoring, reporting, and verification (MRV) of climate finance However, this capacity is currently beyond the capabilities of many provides an illustration. New requirements for the monitoring, developing countries, where systems for source-level emissions reporting, and verification of finance provided to mitigation and monitoring are often under the environment agency. Information adaptation actions (NAMAs and NAPAs/NAPs) are being considered on financial inputs is usually available by agency or territorial to strengthen accountability for resource mobilization by devel- jurisdictions, and rarely at the level of individual sources. Measured oped countries and to increase the accountability of developing steps can be taken to close the gap between current capabilities countries using the funds. and what is needed in future, without drastic reform to existing While the MRV requirements are still unclear, there is some administrative arrangements. Recipient governments can begin indication that developing countries with the capacity for granu- by exploring options for creating inter-linkages between national lar level financial reporting (i.e., according to specific emissions systems for emissions source monitoring and financial reporting. 13 ANNEX I: ANALYTICAL FRAMEWORK FOR PUBLIC EXPENDITURES REVIEW Fiscal sustainability tests whether the aggregate level of public the level of public spending will depend on the type and degree spending and deficits is consistent with a sustainable medium- of market failure that the public sector is seeking to correct. term macroeconomic framework yielding a sustainable deficit and Efficiency and effectiveness tests the relationship between level of public debt. This assessment requires a broad definition government expenditures and intended outputs in terms of goods of public spending, since fiscal imbalances may arise within the and services (efficiency), as well as the impact of expenditures in central government, autonomous agencies, and/or other levels of terms of changes in social welfare (effectiveness). This entails an government. It also requires an understanding of macroeconomics assessment of the inputs, means, and arrangements for the delivery and other risks and their potential fiscal impacts. of public goods and services and an assessment of whether these The strategic allocation of resources tests whether the provide value for money. allocation of resources within and across sectors (and other Incidence assesses how the costs and benefits arising from categories of expenditures) maximizes social welfare. Given the public policies are distributed across society. This analysis may government’s role in translating society’s preferences into public consider the distribution of costs and benefits between categories policy, this assessment should also determine whether current and defined in terms of income, gender, ethnicity, region, and/or other planned expenditures are aligned with the government’s stated policy-relevant characteristics. policy objectives. The institutional assessment examines whether and how the The role of government assesses whether the public sector institutional framework and incentive structure deliver aggregate complements rather than substitutes for the private sector in gen- fiscal discipline, strategic allocation of resources, efficiency and erating desired social outcomes. Government intervention may be equity in the composition of spending, and technical efficiency justified in cases of market failures, which may occur for a number in the use of budgeted resources. of reasons: public good externalities, natural monopolies, and asymmetrical information. The appropriate public sector response— Source: Pradhan (1996). Evaluating Public Spending. A distinguishing public provisions, financing, or regulations—and Framework for Public Expenditures Reviews. World Bank Discus- sion Papers 323. 15 ANNEX II: UNFCCC PLANNING INSTRUMENTS National Communications and National Inventories. The UNFCCC adaptation needs; in the case of LDCs, these built on NAPAs. The requires States Parties to report on progress in implementation of GEF, through the LDCF and the Special Climate Change Fund the convention through National Communications. Per UNFCCC (SCCF), supports the preparation of the national adaption plan guidance, the National Communication should provide a descrip- process in LDCs and non-LDC developing countries, respectively. tion of national circumstances, including development challenges Nationally Appropriate Mitigation Actions (NAMA) were and policies; a national greenhouse gas inventory;4 a description of established after 2009 to encourage developing countries to imple- steps taken or envisioned to implement the convention; measures ment mitigation activities that will help them reduce the rate of to facilitate adequate adaptation to climate change; measures to growth of emissions below their “business as usual” scenarios. mitigate climate change; measures to raise awareness; and steps to Many NAMAs are entered into a UNFCCC registry to attract finan- integrate climate change into decision making, capacity building cial support. Many will only be implemented if there are adequate and an assessment of constraints and gaps, and related financial, incentives from external sources in the form of technology, finance, technical, and capacity needs. Non-Annex I countries5 are also and capacity-building support. Other projects are listed for recogni- required to submit National Communications (except for the least tion, and countries are proceeding without financial support. The developed countries, who may report at their discretion). From content of NAMAs vary: most present broad statements of policy December 2014, non-Annex I countries should also submit an priorities; some present lists of specific interventions; and a few update, particularly on the progress of mitigation plans, in their present specific projects aimed at reducing emissions (though gener- first biennial update report (again, least developed countries and ally these are less developed than the projects presented in NAPAs). small island developing states which may do this at their discretion). Low Carbon and Low Emissions Development Strategies National Adaptation Programs of Action (NAPAs). These (LCDS and LEDS) have been proposed as a framework for programs were intended to follow up National Communications as adaptation projects identified by developing countries for financ- ing on an urgent basis. These are action-oriented projects that 4 The UNFCCC requires that “each non-Annex I Party shall, as appropriate and to targeted the most vulnerable populations. Technical assistance to the extent possible, provide in its national inventory, on a gas-by-gas basis and in prepare NAPAs was available from the Least Developed Countries units of mass, estimates of anthropogenic emissions of carbon dioxide (CO2), meth- ane (CH4), and nitrous oxide (N2O) by sources and removals by sinks.” Parties are Fund (LDCF), managed by the Global Environment Facility (GEF). encouraged to use standard tables which disaggregate the data by sector (UNFCCC As of July 2014, 50 developing countries have submitted NAPAs, document FCCC/CP/2002/7/Add.2). covering agriculture and food security, terrestrial ecosystems, water 5 Under the UNFCCC, Annex I parties are industrialized countries that were members of the Organization for Economic Cooperation and Development in 1992, resources, and marine and coastal management. COP 16 intro- plus countries with economies in transition (the EIT Parties), including the Russian duced national adaptation plans (NAP) as a means for developing Federation, the Baltic States, and several Central and Eastern European states. Most countries to identify and address their medium- and long-term developing countries are classified as Non Annex I parties. A N N EX II: U N FC C C PLA N N IN G I N STRUM ENTS mitigation actions. This approaches mirror, in some respects, Nationally Determined Contributions may set the basis for the shift from NAPAs to NAPs, and from immediate action to a climate change planning after 2020. This concept was introduced longer-term strategy. LEDS were originally proposed in the con- at the 2013 Conference of the Parties (COP) in Warsaw, where all text of the UNFCCC in 2008 as a means of focusing attention on countries were invited to “initiate or intensify domestic prepara- national efforts in support of low-carbon development. While the tions for their intended nationally determined contributions” and 2010 16th Cancun COP encouraged developing countries to develop to communicate the “contribution” well in advance of the Paris low-carbon development strategies, it did not provide specific COP—possibly by the first quarter of 2015. Although the standards guidance. The intention was that LCDS should be fully integrated and parameters for national contributions have yet to be agreed into the national development strategy, presenting a sustainable upon, the COP decision calls for increased clarity, transparency, pathway to achieve established development goals. This approach and understanding of these contributions. Countries have begun entails the identification of national and sector-specific actions for seeking technical advice on major planning components that are the reduction of GHGs, drawing on an assessment of GHG trends likely to support this. The World Bank’s Partnership for Market and opportunities for low-carbon development alternatives. In Readiness has developed a program of analytic support to help a this context, NAMAs become policy- and project-level actions first set of countries develop their intended nationally determined identified to implement the LCDS. OECD has proposed a frame- contributions. work for LEDS which builds on an assessment of major sources of emissions, the identification of emissions reduction potential, and a climate vulnerability assessment. The framework draws on country experience in developing national climate change strategies. 17 BIBLIOGRAPHY Alonso, Rosa, Lindsay Judge, and Jeni Klugman (2005). PRSPs and the Fiscal Stance. World Bank Policy Research Working and Budgets. A Synthesis of Five Case Studies. World Bank. Paper 5564. Australia (2010). Australia to 2050: Future Challenges. Common- Organization for Economic Cooperation and Development (2006). wealth of Australia. 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