Climate Budgeting for Local Government: A Step-by-Step UK Guide

Climate budgeting for local government means running a council’s climate commitments through the same process as its money. Climate actions are costed, approved with the revenue budget and capital programme, assigned to budget holders and monitored in the same cycle. It answers the question many councils face after declaring a climate emergency: which spending decisions will move the net zero target, what they cost, and who is accountable for delivering them.

Climate budgeting is a global practice, used by cities from Oslo to London, and is not limited to authorities in England. This guide applies it within England’s local government finance framework, as local government is devolved in Scotland, Wales and Northern Ireland (House of Commons Library, 2026). It draws on the author’s experience of implementing climate budgeting at the Greater London Authority (GLA) from 2023-24 up to and including 2025-26.

Key Takeaways

• A climate budget belongs inside the budget cycle: same timetable, same budget holders, same reports.
• Classifying spend by its climate relevance tracks allocation, not emissions reductions.
• Assess the climate and revenue consequences of capital schemes before approval.
• Cost the measures the budget cannot fund and publish them as an unfunded list: it makes the gap visible and becomes a pipeline for future funding.
• Report climate measures in the same cycle as budget monitoring, keeping spend and outcomes separate.

What Is Climate Budgeting in Local Government?

Definition: Climate budgeting is a way of managing a council’s climate commitments through its budget process. Climate actions are costed, allocated to the services responsible, approved with the financial budget and monitored through the year, so members can see which emissions-reduction measures are funded, which are not, and who owns each one.

By classifying expenditure according to its climate relevance, councils can see how resources are allocated, identify budget decisions that support or work against climate objectives, and make funding gaps visible. These classifications inform decisions; they do not, on their own, demonstrate emissions reductions.

Climate Budgeting vs Carbon Budgeting: What Is the Difference?

A carbon budget caps emissions over a period; climate budgeting decides how the council’s money will be used to meet it. Under the Climate Change Act 2008, the UK’s carbon budgets are legally binding limits on net emissions over five-year periods, set 12 years in advance (GOV.UK, 2026). A council carbon budget, by contrast, is a local target.

Approach	Purpose	Primary focus	Link to council financial decisions
Climate budgeting	Turn targets into funded, owned actions	Measures, costs, owners	Built into budget setting, MTFS and monitoring
Carbon budgeting	Cap total emissions over a period	Tonnes of CO2e	Sets the emissions target the financial plan works towards

They overlap: a carbon budget can set the target, climate budget classifications can show where money goes, and a climate budget funds delivery.

Where Climate Budgeting Fits Alongside the Budget and MTFS

Budget instructions can ask services for the climate effect of growth bids and savings. The Medium Term Financial Strategy (MTFS) can carry the cost of every climate measure over the planning period, funded or not. Capital appraisals test emissions and whole-life cost, service plans name who delivers, and monitoring tracks progress.

There is a statutory link too. In England and Wales, section 25 of the Local Government Act 2003 requires the chief finance officer to report on whether the budget estimates can be relied on and whether the proposed financial reserves are adequate. Climate cost assumptions are estimates like any other and need the same evidence.

Why Do Councils Need a Climate Budget Now?

Many councils have adopted climate commitments: the National Audit Office (NAO) estimated in 2021 that 91% of English authorities had at least one. A target only moves when it has costed actions, funding and named owners.

Climate Emergency Declarations and Net Zero Targets

The NAO’s estimate came from a sample of 232 authorities and covered commitments to decarbonise in line with net zero. It also found little consistency in how councils reported progress (NAO, 2021). Climate budgeting turns a declaration into decisions members can approve, fund and track.

What the 2026-27 to 2028-29 Settlement Means for Climate Planning

The final local government finance settlement for England, published on 9 February 2026, covers 2026-27 to 2028-29 and is the first multi-year settlement in a decade (MHCLG, 2026). In cash terms, government expects total Core Spending Power in 2028-29 to be about £11.4 billion higher than in 2025-26 (MHCLG, 2026). That figure assumes councils raise council tax by the maximum permitted without a referendum (House of Commons Library, 2026).

Three years of core figures make it easier to phase climate measures across the MTFS. In 2021 the NAO found that net zero funding for councils was piecemeal and fragmented (NAO, 2021). Check the current terms of any scheme you rely on.

Final allocations for 2027-28 and 2028-29 will be confirmed in their respective years, with consultation as required (MHCLG, 2026). Fair Funding Review 2.0 is the first full reassessment of councils’ relative needs in over a decade. Across the settlement, shire districts are more likely than most authorities to see Core Spending Power fall in cash terms between 2025-26 and 2028-29, and predominantly rural authorities are more likely than not to see a real-terms fall (House of Commons Library, 2026). About half the total is council tax and most of the rest is general un-ringfenced funding (House of Commons Library, 2026), so climate measures compete with other budget pressures.

Scrutiny From Members, Auditors and Residents

Members need to see what climate spending buys. In England, local auditors work to the NAO’s Code of Audit Practice 2024, which requires them to report on councils’ arrangements for securing value for money. Ask your auditor how climate commitments feature in that work. Transparent assumptions and named owners also make decisions easier to defend to residents.

How to Build a Climate Budget: Six Steps

The steps follow a normal budget cycle, and smaller councils can run them at a lighter scale.

Step 1: Set the Carbon Baseline and Targets

Agree the baseline year, the boundary (own estate and fleet, or the whole area) and the data sources, then set measurable targets with an owner for each. Emissions data is a sustainability task, and area-wide or supply-chain emissions may need specialist analysis. Finance makes sure targets connect to budget lines, because a budget classification shows where money goes, not what it saves in emissions.

Step 2: Tag Revenue and Capital Spend by Climate Relevance

Write the classification criteria before anyone tags a line, record the evidence behind each tag, and review contested ones centrally.

Illustrative spending line	Possible classification	Climate relevance	Evidence to check
LED lighting and insulation in council offices	Supports climate objectives	Lower estate energy use	Energy survey, expected kWh saving, payback
Replacing diesel refuse vehicles with electric	Supports, subject to evidence	Lower fleet emissions	Vehicle specification, charging costs, route suitability
Routine grounds maintenance contract	Neutral	Limited direct effect	Fuel and equipment use; reclassify if specification changes
Road scheme adding car capacity	May work against climate objectives	May increase traffic and emissions	Transport modelling, environmental assessment, mitigation

Classifications are indicative only. The right tag depends on project-specific evidence.

Step 3: Assess the Climate Impact of the Capital Programme

Capital schemes can lock in energy use, emissions and maintenance costs for the life of the asset, and they create future revenue commitments. Add climate questions to capital appraisal: effect on emissions, energy consumption, resilience, whole-life cost and running costs. Keep it proportionate, drawing on property, highways and sustainability colleagues for technical evidence.

Step 4: Link Climate Actions to the MTFS and Savings Plans

Each measure needs a cost, a funding source, a payback assumption where relevant, and its revenue consequences shown across the MTFS. An environmental benefit does not automatically create a financial saving, and energy savings that depend on uncertain tariffs need more than one scenario.

Measures the budget cannot fund belong in the climate budget too, costed and published as an unfunded list. At the GLA, the further climate measures that could not be funded through the climate budget process were quantified and published, to be transparent about how far there was still to go. The Mayor of London encouraged that transparency. The GLA treated the unfunded list as a pipeline of activity, continuing to develop the measures and to seek funding or financing for them.

Step 5: Agree Governance and Decision-Making Points

Decide who owns the climate budget, who prepares the evidence, who reviews tags, and when it goes to senior leadership and members. Councils can choose a model that fits their own governance. Approval points should match the budget timetable, and disagreements need an escalation route.

Governance should continue between budget rounds, keeping both funded and unfunded measures under review. At the GLA, Enver Enver set up and chaired a Green Finance Committee. The governance it provided around the unfunded list helped keep green investments alive through continuous improvement and monitoring.

Step 6: Report Progress Alongside Budget Monitoring

Add climate measures to regular monitoring: milestones, forecast spend against budget and progress against agreed indicators. Spending against budget shows money has been used; emissions data shows whether it worked, and it may arrive later than financial data, so agree a reporting date for each indicator. Report on the unfunded list too, so members can see the gap between climate ambitions and available funding.

Need help connecting climate commitments with budget planning? Contact our team to arrange an initial, no-obligation discussion.

Climate Budgeting Examples to Learn From

Oslo. C40 described Oslo’s climate budget, a new chapter in its 2017 city budget that tracked emissions as well as spending, as the first of its kind. It set out 42 measures, each with estimated emissions reductions, financing and a responsible agency (C40 Cities, 2016). It now follows the financial budget’s timetable, the Department of Finance formally owns it, and agencies report on their measures in parallel with financial reporting (Klimaetaten, 2026).

Greater London Authority. Enver Enver implemented climate budgeting at the GLA from 2023-24 up to and including 2025-26. The GLA Group first included a climate budget in its 2023-24 budget process, as a pilot covering both funded actions and those still needing funding (GLA, 2022). For 2026-27, the GLA and each functional body must include four climate tables (funded and unfunded measures at corporate and programme level) showing targets, actions, costs and financing and, to the extent possible, estimated emissions reductions; quarterly monitoring reports cover progress on those measures (GLA, 2025). The GLA’s unfunded list and Green Finance Committee are described in Steps 4 and 5.

Both examples show finance ownership, a shared timetable and visible funding gaps; neither is a ready-made template for other councils. Beyond the GLA, Enver Enver works with C40 Cities as a global advisor on climate budgeting.

Common Mistakes Councils Make

• Running it as a sustainability side project. Put it in the budget timetable and finance reports.
• Inconsistent tags. Use written criteria and central review.
• Treating allocation as reduction. Report spend and emissions outcomes separately.
• No named owner. Assign each measure to a budget holder.
• Ignoring revenue consequences. Show whole-life and running costs in the MTFS.
• Reporting spend only. Add outcome indicators, even if they lag.
• Never revisiting assumptions. Review costs, savings and forecasts each budget round.

How to Pay for Climate Actions

Start with the business case, then the funding route. A measure must be affordable over its whole life, whatever grant it qualifies for.

A Local Government Association (LGA) and Local Partnerships guide for councils in England (updated May 2022) lists routes including Public Works Loan Board (PWLB) borrowing, Salix loans, community municipal investments and grants, and warns that grants are often time-limited and can carry clawback clauses (LGA and Local Partnerships, 2022). Government has asked the National Wealth Fund’s Local Authority Function to continue providing lending and advisory services to local government to support local growth (HM Treasury, 2025). Eligibility and terms change, so verify each route before it enters the MTFS. Green finance support can help assess financing routes and prepare for discussions with funding providers.

When to Bring In Climate Budgeting Consultancy Support

External support makes sense for a defined gap: climate commitments missing from the financial strategy, no consistent tagging approach, an MTFS that cannot show climate costs, or reporting members find hard to follow.

Nonsuch Finance is a financial consultancy, not an environmental one, and works with existing finance and sustainability teams. Its climate budgeting consultancy draws on first-hand experience of implementing climate budgeting at the GLA and covers integrating climate priorities into budget setting, the MTFS and the capital programme; identifying where climate risks affect budgets and investment appraisals; and reporting the climate relevance of budget decisions to members. Its financial planning support for councils covers forecasting and scenario modelling, and our article on the challenges facing local authorities sets out the wider pressures.

Frequently Asked Questions

Is climate budgeting a legal requirement for UK councils?

The NAO reported in 2021 that English councils had no specific statutory responsibility to reduce emissions towards the national net zero target (NAO, 2021). Scotland is different: listed “major players” must report each year, including how they will align their spending plans and use of resources to contribute to reducing emissions (Scottish Government, 2026). Check current duties with your monitoring officer or legal advisor.

How long does it take to implement climate budgeting?

There is no standard timeline. It depends on data quality, the size of the capital programme, and how many budget cycles the council uses to phase it in. The GLA, for example, began with a pilot in its 2023-24 budget and still requires climate tables for 2026-27.

Who should own climate budgeting: finance or sustainability?

A council can follow Oslo’s split: its Department of Finance owns the climate budget and the Climate Agency prepares the technical basis (Klimaetaten, 2026). For a council, this means finance runs the process and sustainability colleagues supply the evidence.

Can small district councils implement climate budgeting?

Yes, at a proportionate scale. Start with the council’s own buildings, fleet and capital programme, where it holds energy and cost data directly. Tag those budget lines, cost the main measures and report them through existing monitoring, then widen the scope as data and capacity allow.

How should councils report climate budgeting progress?

Through existing monitoring reports: spend, milestones and climate indicators side by side, with emissions outcomes reported separately when data arrives.

Connect Climate Commitments With Financial Planning

If your council needs to connect net zero commitments to its budget, MTFS and capital programme, see how Nonsuch Finance provides climate budgeting support.

About the Author

Enver Enver is the founder of Nonsuch Finance and a former Chief Finance Officer of the Greater London Authority, with more than 30 years of experience in public sector finance. He implemented climate budgeting at the GLA from 2023-24 up to and including 2025-26 and is a global advisor on climate budgeting, working with C40 Cities.