The Role of Green Public Spending in Reducing Greenhouse Gas Emissions in Selected European Countries: Aligning Regional and Local Budgets with Green Objectives

Abstract

Rising environmental degradation and increasing public awareness have prompted countries to adopt policies to reduce ecological damage. Global warming, climate change, and biodiversity loss pose serious economic and social challenges. At the same time, CO₂ emissions continue to rise, particularly in developing countries like Bosnia and Herzegovina, which faces limited institutional capacity. Transitioning toward net-zero emissions by mid-century is essential to prevent irreversible climate risks. Energy efficiency improvements in energy-intensive sectors are central to mitigation efforts. However, financial constraints limit the widespread adoption of sustainable practices. Private initiatives alone are insufficient, highlighting the importance of public investment in green infrastructure at regional and local levels, filling gaps in private capital and stimulating further private-sector engagement. This paper examines the impact of public spending on environmental protection activities - including waste and wastewater management, pollution abatement, biodiversity and landscape preservation, and ecological R&D - on greenhouse gas (GHG) emissions. Using panel data for EU member states and Bosnia and Herzegovina over 2014-2022, we employ regression models, specifically pooled Ordinary Least Squares (OLS), Fixed Effects (FE), and Random Effects (RE). Lagged effects are also considered, recognising that the benefits of public spending may materialise over time. The findings provide empirical evidence on the effectiveness of fiscal instruments in mitigating environmental degradation and offer insights for aligning regional and local budgets with the EU's and the Western Balkans' long-term climate neutrality objectives. This research further contributes to the limited empirical literature on the role of fiscal policy in reducing GHG emissions.