Climate change and ODA: Towards integration

Presentation for the APPG on Debt, Aid and Trade June 17th 2009

Prof. Peter Newell School of International Development UEA ESRC Climate Change Leadership Fellow www.clean-development.com

Introduction

 Focus on the issue of UK ODA to support

clean energy development

consistent with goal of tackling climate change.  “For public investment, the challenge is to shift more funds into

less carbon-intensive

, more

climate-proof

measures

without sacrificing development priorities

” (UNFCCC 2008).  In 2007 the UK reported

£4,921 million

as

ODA,

making the UK the

third largest OECD-DAC

donor.

Why climate aid?

 Important way of improving levels of

access to energy for the poor

and meeting UK government targets on climate change.



Multiplier effects

of aid: rather than what it will do in and of itself (e.g GEF Trust Fund & LDCF have demonstrated the ability to catalyse larger investments from elsewhere through

co financing)

flows.

(UNFCCC 2008): levering private  Aid & additional finance as

‘deal breaker’

climate negotiations-

‘You pay we play’

in the

Proposals for Mitigation Aid The G77+ China proposal

 Developed countries provide funding of

0.5% GDP

- mainly for mitigation

Mexican Climate Change Fund proposal

 Countries obliged to contribute to the fund on the basis of

emissions

,

population

and

income

- mainly for mitigation. Middle income countries would contribute.

Profile of climate aid

 The UNFCCC estimated that additional investment and financial flows of

US $ 200-210 billion

a year will be necessary for mitigation by 2030 (UNFCCC 2007).  IPCC (2007) suggests a (wide!) range of between

0.2

and

3.5%

of

global GDP

for

annual mitigation costs

. Looking at costs in excess of the entire global aid budget today (Spratt 2009).  Real need for

public financing for innovation in mitigation technologies

at

R&D

and

demonstration stages

.  Currently very little public finance is available for these stages.

GEF

typically aimed at the

diffusion stage

and the

CDM

is

stimulating adoption

of technologies.

is 

Energy Technologies Institute

could play a role in enabling clean energies (projects on tidal, offshore wind etc).

Adaptation

Range of estimates:   US$4-37 billion annually (Stern review) Additional annual investment and financial flows for adaptation are estimated to be

US $ 86 billion annually by 2015 UNDP.

according to the

2007/08 Human Development Report of the

  Increase in donor aid to 1% GDP (Stern) Challenge of

new

, assistance by 2015

additional

and

predictable

aid in a) context of financial crisis b) projected failure to even meet 0.7% on development

Adaptation Funding Mechanisms

Under UNFCCC: 

Least Developed Countries Fund



Special Climate Change Fund

 GEF Trust Fund’s

Strategic Priority for Adaptation

All based on voluntary pledges and contributions from donors- receipt and dispersal rates low.



Adaptation Fund

CDM transactions paid for by 2% levy on

Why Integration?

 Real danger that

action in one policy area undermines that in another

: (i) climate change actions and investments miss important opportunities to tackle energy poverty and; (ii) attempts to tackle poverty are inconsistent with action to reduce GHGs, thereby further exacerbating poverty.

Climate change

‘is a massive threat to human development and in some places it is already

undermining the international community’s efforts to reduce extreme poverty

’.

(

Human Development Report

2007-8)

Sustainable Development in a Changing Climate

 ‘We are disappointed that DFID could not provide us with more evidence of progress it has made since 2002 towards

fully integrating climate change into its poverty alleviation programmes

, especially in Africa’.  Critical of emphasis on ‘

one-off projects

rather than clear evidence of a

mainstreamed approach

. We believe that such initiatives should become the

norm

throughout DFID's country programmes. The Department should be able to demonstrate much more clearly that

climate change is informing its policy decisions in all the countries in which it works.’

(

IDC

2009)

Examples of integration failure: EIB



Discrepancy

between EIB’s stated climate change awareness and its overall lending in the energy sector with an ongoing bias in financing fossil fuels.  A Bankwatch analysis in 2007 of the EIB’s investments in the energy sector from 2002 to 2006 shows that out of total

EIB energy investments of €23.7 billion

, €11.3 billion went for fossil fuels, while only

€3.0 – 3.6

billion was for

renewable energy

 Globally, over half of the EIB’s

transport investments

have gone to

roads

and

air transport

Integration failure: World Bank



World Bank

: During its 2008 fiscal year the WB and IFC increased funding for fossil fuels by 102% compared with only 11% for new renewable energy (solar, wind, biomass, geothermal, small hydro) (

Bank Information Center 2009

) 

Less than 30%

of the World Bank’s lending to the energy sector has

integrated climate considerations into project decision-making

late as 2007, more than 50% of the World Bank’s energy-sector portfolio

did not include climate change considerations at all

(

WRI

2008) . As

Extractive Industries Review

 It’s own 2004

Extractive Industries Review

called for the Bank to phase out investments in fossil fuels.



"phase out investments in oil production by 2008 and devote its scarce resources to investments in renewable energy resource development, emissions reducing projects, clean energy technology, energy efficiency and conservation, and other efforts that delink energy use from greenhouse gas emissions. During this phasing out period, WBG investments in oil should be exceptional, limited only to poor countries with few alternatives”.

Towards a coherent aid strategy

 Integrating climate concerns into aid and state support related to trade and investment: Export Credit Agencies. No project has ever been

denied ECGD support on environmental grounds

.



The combined annual emissions of hydrocarbons from 2 ECGD supported projects, the Baku-Tbilisi-Ceyhan (BTC) pipeline and the Bonny Island liquefied-natural-gas plant in Nigeria output from the whole of the UK

(WWF 2007).

–will result in the emission of 660m tonnes of carbon dioxide, more than the entire annual



Guidelines

as recommended by

Change Act

requiring

EAC

(2008) & amendment to

Climate reporting of carbon emissions

for large-scale projects

. ECGD

prefers

voluntary response.



Need to climate-proof

change & clean development considerations into general environmental &

non-environmental

infrastructural lending & lending.

mainstreaming

climate

UK leverage in a global context

 Recipients of DFID multilateral assistance (over 40% of DfiD’s total budget):  The

European Commission’s

programme (£991m) development  

World Bank

(£493m)

United Nations

(£250m) (Figures for 2007/08:

DFID 2008).

Making the most of UK influence: In

Europe



In Europe

: The European Union as a whole provides over half (57%) of the world’s Official Development Assistance (ODA), £36 billion.  The European Commission alone manages 17% of this figure directly, making it the

second largest aid donor in the world

(after the US).  In 2008

EIB

approved

€60 billion

in loans- over twice that of the World Bank including

€9 billion

in the energy sector.

Some positive developments

 €3 billion

Energy Sustainability and Security of Supply Facility

, authorised in June 2007 by the Governors of the Bank  EU

Global Energy Efficiency and Renewable Energy Fund

(GEEREF) was designed in 2006 to support small and medium sized energy projects in order to support sustainable development in developing economies and economies in transition. It offers loans in order to mobilise private investments in energy technologies 

€5 million Climate Change Technical Assistance Facility (CCTAF)

provides advance funding for activities associated with the development of project-based carbon credits under the Joint Implementation (JI) and Clean Development (CDM) mechanisms of the Kyoto Protocol on a conditional loan basis.

Making the most of UK Influence: In

the world

 UK providing £800 million over three years for international work on climate change through the

International Environmental Transformation Fund

, administered by DFID/DEFRA.  Most of this money is to be channeled into the

WB Climate Investment Funds

(£60 million of first £100 million tranche for the Clean Technology Fund)  Issue of

ensuring WB financing does not undermine

or overshadow

UN processes for mitigation funding

- sensitivities of developing countries about access & control.  IDC (2008) has noted UK government (DfiD) should

make use of all positions available to it

to in the WB to advance a reform agenda- does now have full-time executive director to WB. Rt. Hon. D. Alexander MP, has acknowledged that: …

choices made by institutions”. “as well as providing extra resources, we should aim to exert more influence over the policy

Leadership starts at home



Mixed messages

: In 2002, EIB approved a loan of EUR 390 million to BAA for the Terminal Five development at Heathrow airport. 

What’s good enough for you

: Kingsnorth & Malawi ‘In Malawi the market has been coal but 80% of people are without electricity; are we going to turn around to them and say ‘You cannot have this’ or ‘By the way, we can but you cannot?’ (

DfiD Minister

2008)

Future challenges

    

Demand-driven

: Working with and through NGOs to identify

pro-poor interventions

big difference in tackling poverty & climate change simultaneously.

where aid can make a Improving

donor coordination

need aid most receive it, reduce duplication and ensure value for money.

to ensure those that Improving

policy integration

within government and among international institutions to

maximise impact

and enhance

credibility

Not just about what UK can do alone, but how it can

use its regional and global influence

to shape aid, trade and investment flows.

Support IDC (2008) call for an

audit

of current

bilateral

and

multilateral

funds for available for climate change work that should raise many of these issues.