Anita Boros, Gyula Koi (eds): Sustainability and Law
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4. Constitutional and legal relations to sustainability: terms, environmental constitution(alism), constitutional environment (László Vértesy)
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4.2. Environmental constitution(alism), constitutional environment
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4.2.4. Sustainability and Constitutional Economy

4.2.4. Sustainability and Constitutional Economy

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The incorporation of environmental sustainability into constitutional economics represents a significant advancement in the development of a theory and practice of public law. Traditionally, constitutional economics has addressed concepts of limited government, a balanced budget, and property rights. Nevertheless, with the escalating ecological crises and the clear long-term consequences of unregulated exploitation of Earth’s resources, it is clear that the economic constitution(alism) must also be redefined with respect to sustainability. This shift is being accomplished in two key areas: (i) a redefinition of property and resource rights, (ii) a consideration of ecological priorities in fiscal and budgetary management, (iii) with sound monetary policy and central banking.1
 
Property and Resource Rights

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The central tenet of classical constitutionalism is private property, which many legal systems recognise as the foundational rights of liberty and economic independence of the individual.2 However, the notion of property rights is also subject to broader ecological obligations and public interest constraints in the context of sustainability. More broadly, the transition from dominion to stewardship signifies a legal and ethical reconstruction: the ownership of land or natural resource no longer arises as a sovereign right, accompanied by absolute power; there are now social and, at times, environmental responsibilities for the same "ownership".3

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Take, for example, the first case in the United States, Village of Euclid v. Ambler Realty Co. (1926), in which the Supreme Court upheld a zoning ordinance and recognised the ability of law to impose conditions on land use.4 Within the last ten years, some courts have upheld constraints on property use when imposing limits compelling ecological rationale, such as: wetland preservation, or wildfire risk mitigation. In the UK, property rights are subject to proportionality tests and public interest tests under the Human Rights Act 1998,5 specifically Article 1 of Protocol No 1 of the European Convention on Human Rights (abbr. ECHR; formally the Convention for the Protection of Human Rights and Fundamental Freedoms).6 UK courts have held that environmental regulations, including development prohibitions in conservation areas, or emissions levels, may limit the use of property, provided that this disruption is consistent with law, is proportionate, and serves the public interest. The EU has taken this reasoning a step further by embedding sustainability in the foundation of their legal order. Environmental protection has a binding intent, in the EU Charter of Fundamental Rights; it is found in explicit directives focused on conserving and ensuring ecological health of ecosystems, which includes the Habitat Directive (1992) and the Water Framework Directive (2000),7 in which the EU has put ecological and social sustainability ahead of private exploitation of resources. The Court of Justice of the European Union (abbr. CJEU), when tackling environmental protection issues, has consistently upheld environmentally acceptable outcomes, despite contrary economic or property related arguments.8
 
Figure 22. Evolution of the political connotation of ecological civilisation in [People’s Republic of] China. Source: Xue, B., Han, B., Li, H., Gou, X., Yang, H., Thomas, H., & Stückrad, S. (2023). Understanding ecological civilisation in China: From political context to science. Ambio, 52(12), 1895-1909.
 

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In China’s case, the 2004 amendment to the Constitution of the People’s Republic of China inserted words (‘local interests’) in which the State is charged with protecting the environment. Since 2007, private property has been formally recognised under the Property Law, but the Chinese State has embraced ownership and control over land and natural resources in the name of the ecological civilisation (生态文明, Chin. Shēngtài wénmíng) agenda—an on-going policy framework intended to advance sustainability, biodiversity, and climate resiliency.9 China’s centralized governance framework allows for large-scale resource nationalization or regulation when it is aligned with those environmental goals, as demonstrated in such actions as river basin protection or enforcing mining bans in sensitive areas.

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Whether through limiting ownership by law, regulating for public interest, or outright public ownership, property law continues to evolve to serve the interests not only of owners but of the social and ecological community.
 

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Figure 23. Comparative policy governance in fiscal, monetary, and environmental policy. Source: Petrie, M. (2018). Reversing the degradation of New Zealand’s environment through greater government transparency and accountability. Policy Quarterly, 14(2).
1 Stage in Policy Cycle
2 Policy Governance Parameter
3 Fiscal Policy Good Practices
4 Monetary Policy Good Practices
5 Common Environmental Governance Practices
Ex ante elements
Legislated outcome targets
Yes
Yes
No
Targets required
Yes
Yes
No
Milestones required
Yes
Yes
No
Ex post elements
Independent monitoring reports
Yes
Yes
Yes
Alignment with electoral cycle
No
No
No
Independent commentary
Yes
Yes
Yes
Mandated government response
Yes
No
No
 
Fiscal and Budgetary commitments

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As ecological crises become ever more entangled with macroeconomic stability, modern constitutions and economic governance frameworks are already being tested to include notions of climate resilience, biodiversity maintenance, and long-term sustainability as part of the role of fiscal and monetary institutions. While fiscal constitutions – from the 1990s – largely prioritize budget balance and debt ceilings, as well as revenue outcomes, a constitutionally sustainable economic order demands that these priorities be realigned toward internalizing ecological costs, ensuring intergenerational equity, and putting structures in place to facilitate environmental transformations.10
 
Figure 24. Climate budgeting, green budgeting, and green fiscal policy. Source: Petrie, M., & Petrie, M. (2021). The evolution of green budgeting. Environmental Governance and Greening Fiscal Policy: Government Accountability for Environmental Stewardship, 61-108.
 

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Glossary from Petrie, M., & Petrie, M. (2021). Environmental Governance and Greening Fiscal Policy: Government Accountability for Environmental Stewardship, 179-194.
 

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Climate budgeting: the practice of tagging (separately identifying) and tracking (monitoring and reporting) climate change adaptation and mitigation expenditures.
Climate budget tagging: the separate identification of expenditures in a government budget that are related to climate change adaptation and mitigation. These expenditures cut across the standard budget classifications
Green budgeting: a term increasingly used to describe a wide range of activities related to the interface between fiscal policies and the environment not limited to climate change. May refer only to the expenditure side of the budget; or may also include green taxes, hybrid tax and regulatory instruments such as emissions trading schemes. It may also refer to the use of the budget process and the budget cycle to ensure more attention to the impacts of government spending on the environment and the implications of environmental degradation for fiscal sustainability. From 2017, the leading comprehensive definition of green budgeting is that advanced by the OECD: green budgeting is the use of the tools of budgetary governance to help drive improvements in the alignment of national expenditure and revenue processes with climate and other environmental goals.
Green fiscal policy: defined in this book as the interface between the full range of fiscal policy instruments and parameters and all environmental domains, and includes national “State of the Environment” reporting and the wider use by governments of target setting for key environmental outcomes and their incorporation in fiscal strategy.
Green taxes: economic instruments that can be revenue raising for governments and that can improve environmental outcomes. Examples include carbon taxes, emissions trading schemes, congestion charging, and waste disposal levies.
 

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One of the most direct routes for environmental sustainability into fiscal constitutionalism relates to green budgets and climate-focused fiscal governance;11 the alignment of public spending and revenue with environmental goals. This practice includes budgeting tools such as climate tagging, environmental expenditure tracking, and ex-ante assessments of the environmental impacts of budgetary decisions. At the European level, the EU Green Deal institutionalises green budgeting by requiring Member States to direct significant portions of public investment toward climate goals.12 The EU Recovery and Resilience Facility,13 linked to post-pandemic economic recovery, mandates that at least 37% of national funding plans contribute to climate action.14 The European Commission also promotes the development of Green Budgeting Frameworks at the national level, intended to ensure that public budgets are tools for climate mitigation and adaptation rather than sources of ecological harm.15 In France, green budgeting is constitutionally relevant via the 2001 Organic Law on Finance Laws, which now includes climate performance metrics in the state budget law.16 As of the country’s 2020 ‘Green Budget’ report, over €40 billion in expenditures were categorised by their economic effects on the environment, a model that other EU members are now following.17 In the United Kingdom there are no formal constitutional obligations for climate budgeting. The Climate Change Act 2008, however, functions quasi-constitutionally, establishing legally binding carbon budgets for successive governments and bounding fiscal policy to emissions targets. The UK Treasury’s ‘Net Zero Review’ (2021) considers policies of taxation, subsidisation and capital investment as forms of climate-specific fiscal policy support to transition to a low-carbon economy.18 Fiscal policies such as budgets supporting sustainability in China can be viewed as more centralised in nature since they are intricately embedded in the State’s development planning process. Actors in the economic strategic plan integrate ecological outcomes through environmental taxation reform initiatives, including reforming development planning for resource tax on coal and minerals extraction and subsidies for renewables. Local governments are also engaging green loans, as well as the Ministry of Finance coordinating climate change investment through a special environmental protection fund.

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A constitutionally sustainable economy must also employ fiscal instruments, such as environmental taxation and carbon pricing instruments that internalise environmental externalities according to the ‘polluter pays’ principle. Carbon pricing instruments (e.g., carbon price numbers, emissions caps, and fossil fuel subsidy removal) are important in developing market incentives towards environmental objectives. In the United States, there is perennial debate about enforcing a carbon tax at the federal level. However, at the state level, several states (California, Washington, and New York) have initiated subnational cap-and-trade programmes.19 The components of those programmes resulted in emission reductions and generated revenues that helped bolster investments in clean infrastructure and climate resilience. In Montana, the state’s constitutional environmental provisions were impactful in allowing the courts to examine fiscal decisions that contributed to changes in emissions growth, moving toward climate responsive fiscal policy through litigation. The European Union continues to operate the world’s largest carbon market within the budgetary policies of the individual nations of the EU, and the ETS system was designed to directly incorporate carbon auction revenues into government fiscal policy.20 The EU has begun sufficing the revenues from carbon auctioning for the Innovation Fund and Modernisation Fund, which focuses on financing for green technologies, industrial decarbonisation, and just transition. China’s National Carbon Trading Market’s inception in 2021 marks a critical milestone toward institutionalising carbon pricing on a scale.21 Though still limited in scope (currently only applicable to the power sector), there is expectation that the system will grow, influencing revenue generation and enterprise fiscal behaviour. The carbon pricing laboratory is part of China’s broader ecological civilisation framework, which paves the way to carbon neutrality by 2060.

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One aspect of sustainability that can sometimes be under-acknowledged within the workings of fiscal constitutions is intergenerational debt and fiscal prudence.22 The constitutional rationale here is that unchecked public debt— especially instigated by unsustainable industry— can perpetuate ecological and economic burdens to generations to come. Therefore, a sustainable fiscal constitution embraces long-term balance sheet thinking, and revises public expenditure, sovereign borrowing, and capital formation decisions, informed by ecological risk and sustainability indicators.23 In the case of New Zealand, the Public Finance Act obligates the Treasury to assess long-term fiscal risks, including climate-related risks and biodiversity loss.24 These assessments are incorporated into the parliamentary oversight and budget planning processes, and illustrate how fiscal restraint is increasingly being re-conceptualised in ecological terms. In the EU, debates about reforming the Stability and Growth Pact have opened up new considerations towards sustainability for fiscal frameworks. Some of the proposals have been green golden rules; budgetary exemptions for investments made for decarbonisation and climate resilience to prevent fiscal constraints from thwarting long-term ambitions for the environment.
 
Monetary Commitments

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In more recent contexts, monetary policy and central banking have been drawn into the sustainability debate. While traditionally focused on the inflation target and monetary stability, central banks have begun to examine their role in climate change as a systemic risk pertinent to both financial stability and macroeconomic performance. In March 2021, the European Central Bank (abbr. ECB) announced it would incorporate climate-related risks into all its monetary operations, as well as its asset purchase program and financial supervision. The ECB is also building a climate stress testing framework for the eurozone banking system and has made adjustments to its collateral framework that would penalise banks for using carbon-intensive assets. The People’s Bank of China (abbr. PBoC) has long been at the forefront of green finance, in terms of engaging the business and investment community in the issuance of green bonds, directing credit to low carbon sectors of the economy, and exploring the use of other forms of green monetary policy tools. The PBoC is also the leading central bank in the Network for Greening the Financial System (abbr. NGFS) - a collaborative group of central banks and financial supervisors aspiring to integrate climate into risk assessment.25 The Bank of England was one of the first central banks in the United Kingdom to include climate change in its prudential regulatory mandate. The Bank’s remit letter from the UK Treasury makes the Bank responsible for supporting the government’s net-zero objectives and ensuring monetary and financial stability.26 In the United States the Federal Reserve does not have the same level of authority but is beginning to recognise that its committee on financial system supervision and its systemic risk assessments need to account for climate considerations. While regulatory mandates in both jurisdictions remain limited in scope, there is increasing awareness that climate-related financial instability has potential to disrupt core objectives of monetary policy.
 

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Figure 25. Green monetary policy and central banking. Source: Compiled by the author
Institution
Green Monetary Measures
Policy Objectives
European Central Bank (ECB)
Climate roadmap including climate-related disclosure in collateral frameworks and alignment of corporate bond purchases with Paris Agreement.
Mitigate climate-related financial risks; support transition to a low-carbon economy.
Bank of England (BoE)
Climate stress testing and integration of climate risk into macroprudential regulation; support for green finance frameworks.
Strengthen resilience of financial system; promote investment aligned with climate goals.
People’s Bank of China (PBoC)
Introduced green bond guidelines; incentivised green credit through differentiated reserve requirements.
Advance environmental objectives via credit policy; green financial market development.
Banque de France
Conducts climate stress tests; develops transition risk indicators; promotes responsible investment practices.
Enhance financial system preparedness; steer capital toward low-carbon sectors.
Hungarian National Bank (MNB)
Supports green finance through bond issuance standards and green refinancing; publishes sustainability reports.
Align monetary tools with sustainability; enhance central bank transparency.
Federal Reserve (USA)
Limited engagement but explores climate risk in financial stability monitoring; pressure to align with climate objectives increasing.
Monitor impacts of climate risk; respond to political and financial pressures.
Bangladesh Bank
Pioneered green banking guidelines; promotes environmental risk assessment and green loan portfolios.
Foster sustainable banking practices; address environmental vulnerability.
1 Schwöbel-Patel, C. (2023). The political economy of global constitutionalism. In: Lang, A.F. (ed.). Handbook on Global Constitutionalism . (Cheltenham (UK)-Northampton (US):Edward Elgar Publishing. 542-555.
2 Schütze, R., & Masterman, R. (2019). Constitutionalism(s). The Cambridge Companion to Comparative Constitutional Law, 40-66.
3

Smidt, C. E. (2024). Dominion, Stewardship, and Perceptions of the Problem of Climate Change. Review of Religious Research, 66(4), 437-461.

Michaels, J. L., Hao, F., Smirnov, J., & Kulkarni, I. (2021). Beyond stewardship and dominion? Towards a social psychological explanation of the relationship between religious attitudes and environmental concern. Environmental Politics, 30(4), 622-643.

4

Hillman, J. (2021). Careless Language: How Euclid v. Ambler Realty Stigmatized Affordable Housing. HLRe: Off Rec., 12, 76.

Durchslag, M. R. (2000). Village of Euclid v. Ambler Realty Co., Seventy-Five Years Later: This is Not Your Father's Zoning Ordinance. Case W. Res. L. Rev., 51, 645.

Bettman, A. (1927). The decision of the Supreme Court of the United States in the Euclid Village zoning case. U. Cin. L. Rev., 1, 188.

Toelle, J. H. (1927). The Supreme Court and Zoning Legislation. Indiana Law Journal, 2(7), 4.

5 Human Rights Act URL: https://www.legislation.gov.uk/ukpga/1998/42/contents (accessed 29 October 2024).
6

Protocol No 1 of the European Convention on Human Rights URL: https://www.coe.int/en/web/conventions/full-list?module=treaty-detail&treatynum=005 (accessed 29 October 2024).

Protocol to the Convention for the Protection of Human Rights and Fundamental Freedoms (ETS No. 009)

URL: https://www.coe.int/en/web/conventions/full-list?module=treaty-detail&treatynum=009 (accessed 29 October 2024).

Article 1 – Protection of property

Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.

The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties.

7

Habitat Directive: Council Directive 92/43/EEC of 21 May 1992 on the conservation of natural habitats and of wild fauna and flora

Water Framework Directive: Directive 2000/60/EC of the European Parliament and of the Council of 23 October 2000 establishing a framework for Community action in the field of water policy

8

Passer, J. M., & Pazderová, V. (2023). Protection of the Environment and the Court of Justice of the European Union. In: Antonelli, G. et al. Environmental Law Before the Courts: A US-EU Narrative. (Cham: Springer International Publishing). 131-152. ISBN: 9783031415272 ISBN: 3031415272 eBook ISBN: 9783031415265 DOI: 10.1007/978-3-031-41527-2

Aviles, L. A. (2011). Sustainable development and the legal protection of the environment in Europe. Sustainable Dev. L. & Pol'y, 12, 29.

Setiawan, F. (2022). ‘Namur-Est Environment Case (C-463/20): Development Consent Judgment of the Court of Justice.’ Social Science Research 1(1). DOI: 20139/ssrn.4287743

9

Xue, B., Han, B., Li, H., Gou, X., Yang, H., Thomas, H., & Stückrad, S. (2023). Understanding ecological civilisation in China: From political context to science. Ambio, 52(12), 1895-1909.

Meng, F., Guo, J., Guo, Z., Lee, J. C., Liu, G., & Wang, N. (2021). Urban ecological transition: The practice of ecological civilisation construction in China. Science of the Total Environment, 755, 142633.

10

Azariadis, C., & Galasso, V. (2002). Fiscal constitutions. Journal of Economic Theory, 103(2), 255-281.

Blöchliger, H., & Kantorowicz, J. (2015). Fiscal constitutions: An empirical assessment. (Paris:OECD) 45. DOI: https://dx.doi.org/10.1787/5jrxjctrxp8r-en URL: ttps://www.oecd.org/content/dam/oecd/en/publications/reports/2015/07/fiscal-constitutions-an-empirical-assessment_g17a26a6/5jrxjctrxp8r-en.pdf

Niskanen, W. A. (1992). The case for a new fiscal constitution. Journal of Economic Perspectives, 6(2), 13-24.

11 Petrie, M. (2025). Green Public Financial Management. In: Allen, R., Krause, P. (eds.). Contemporary Issues and Challenges in Public Financial Management: Responding to Global Crises . (Cham: Springer Nature Switzerland) 269-314.
12

Krämer, L. (2020). Planning for climate and the environment: The EU green deal. Journal for European Environmental & Planning Law, 17(3), 267-306.

Kolupaieva, I., Nevliudov, I., Romashov, Y., & Vértesy, L. (2024). Automation systems for European green and digital transitions. In: Kahraman, C., Cevik, O., Sezi; C., Selcuk, O., Basar, T., A. C., Ucal Sari, I. (eds.). Intelligent and Fuzzy Systems. Intelligent Industrial Informatics and Efficient Networks Proceedings of the INFUS 2024 Conference II. (Cham:Springer Nature Switzerland). 133-141.

13

Bekker, S. (2021). The EU's Recovery and Resilience Facility: A Next Phase in EU Socioeconomic Governance?. Politics and Governance, 9(3), 175-185.

Bokhorst, D., & Corti, F. (2024). Governing Europe's recovery and resilience facility: Between discipline and discretion. Government and Opposition, 59(3), 718-734.

Fabbrini, F. (2025). The recovery and resilience facility as a new legal technology of European governance. Journal of European Integration, 47(1), 85-103.

14

European Commission (2024a). Green transition. URL: https://ec.europa.eu/economy_finance/recovery-and-resilience-scoreboard/green.html (accessed: 29 October 2024).

European Commission (2024b). Progress on climate action. URL: https://climate.ec.europa.eu/eu-action/climate-strategies-targets/progress-climate-action_en (accessed: 29 October 2024).

15

Bova, E. (2021). How green is your budget? Green budgeting practices in the EU. SUERF Policy Briefs No, 140, 1-6.

Petrie, M.(2021). ‘The evolution of green budgeting.’ In: Petrie, M. (ed.). Environmental Governance and Greening Fiscal Policy: Government Accountability for Environmental Stewardship. (Cham:Springer International Publishing). 61-108. ISBN: 9783030837952 (ISBN13) ISBN: 3030837955 (ISBN10) DOI: 10.1007/978-3-030-83796-9_4.

16

Corbett, A. (2010). Public management policymaking in France: legislating the Organic Law on Laws of Finance (LOLF), 1998–2001. Governance, 23 (2).225-249.

French Organic Law on Finance Law URL: https://www.insee.fr/en/metadonnees/definition/c1563 (accessed: 29 October 2024).

17Green Budgeting Database URL: https://economy-finance.ec.europa.eu/document/download/0a441ab8-971b-4970-81b9-5cd930e22919_en?filename=Green%20Budgeting%20Database%20European%20Commission%202023%20Survey.xlsx
18

Mckay, H., Levick, K., & Orozco, D. (2021). Financing the net zero transition why a UK strategy is needed, and what should be in it. 1-11. URL: https://www.jstor.org/stable/resrep32404 (accessed: 29 October 2024).

Skidmore, C. (2023). Mission Zero: The Independent Net Zero Review. Biteback Publishing.

19 Carroll, D. A., & Stevens, K. A. (2021). The short-term impact on emissions and federal tax revenue of a carbon tax in the US electricity sector. Energy Policy, 158, 112526.
20 Ye, S., Dai, P. F., Nguyen, H. T., & Huynh, N. Q. A. (2021). Is the cross-correlation of EU carbon market price with policy uncertainty really being? A multiscale multifractal perspective. Journal of environmental management, 298, 113490.
21

Zhang, Z. (2022). China’s carbon market: development, evaluation, coordination of local and national carbon markets, and common prosperity. Journal of Climate Finance, 1, 100001.

Liao, Z., & Yao, Q. (2022). Flexibility is needed in China’s national carbon market. Nature Climate Change, 12(2), 106-107.

22 Boitan, I. A. (2023). Fiscal sustainability in times of climate challenges: a multidimensional approach of the interlinkages between climate change and sovereign debt. Current Opinion in Environmental Sustainability, 65, 101387.
23 Fodor, L. (2012). Fenntarthatósági indikátorok a jogi szabályozás hatásvizsgálatában. [Sustainability indicators in the impact assessment of legal regulation]. Pázmány Law Working Papers, 3(4), 1-9.
24 Gill, J., & Sharma, U. (2023). Public sector financial management in New Zealand central government: the role of public sector accountants. Journal of Public Budgeting, Accounting & Financial Management, 35(1), 65-72.
25 Khalid, F., Su, C. Y., Weiwei, K., Voinea, C. L., & Srivastava, M. (2025). Financial mechanism for sustainability: the case of China’s green financial system and corporate green investment. China Finance Review International, 15(1), 93-116.
26 DiLeo, M. (2023). Climate policy at the Bank of England: the possibilities and limits of green central banking. Climate Policy, 23(6), 671-688.
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