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Climate change finance must be additional to finance for development


Bill Gates has warned that climate change finance should not be diverted from other development priorities (Health funding in danger, says Gates, 25 January). Whether climate finance will be additional to official development assistance (ODA, or ‘aid') is hotly debated. Some climate finance can be classified as aid (within the OECD-DAC creditor reporting system) so the question remains: is newly announced climate finance really additional, or is it just recycled aid?

The Copenhagen Accord says: ‘ The collective commitment by developed countries is to provide new and additional resources... approaching USD 30 billion for the period 2010- 2012 with balanced allocation between adaptation and mitigation' . But in practice the ‘new and additional' resources will be hard to verify. While the UK government suggests it will provide funding for climate change which is additional to the 0.7% of GDP already committed for development assistance after 2013, the Guardian recently reported that the UK government admits to ‘recycling' funds from existing aid budgets towards a climate fund.

If climate finance really is additional to aid that has already been pledged, current development objectives will not be jeopardised and climate change concerns could be ‘mainstreamed' into development activities. But if existing aid is diverted to finance climate objectives, this would change the very nature of ODA spending in different regions and sectors.

We analyse this issue in a recent ODI study on climate financing and development commissioned by ONE. When aid is diverted to finance future adaptation needs, the sectors that lose out might well be productive sectors and aid for trade (which are already underfunded), and social sectors such as health and education. But aid to some sectors more closely related to climate change, such as water, could increase in relative terms. A reallocation in favour of climate change adaptation priorities is also likely to lead to a shift of resources into Asia, Latin America and Middle East and away from (sub-Saharan) Africa.

Development and adaptation are complementary concepts, with the potential for great synergies. Climate change mitigation offers new opportunities for developing countries, and adaptation will help protect assets that are fostered through development. But while development and adaptation aims often overlap, additional funds are needed to meet specific challenges from global warming. While traditional ODA funding can help developing countries cope with global warming by strengthening social and economic development, the specific impact of climate change means that poor countries need more resources. There is a clear and immediate need to ensure that all climate change finance flowing to developing countries is over and above what is given as development assistance in order to safeguard development objectives.

Bilateral and multilateral proposals (laid out in Section 6 of the ODI study) have been proposed in international climate change negotiations to raise revenue additional to ODA to address adaptation (and some mitigation activities) in developing countries. These proposals aim to generate income by tapping into some of the revenue from the carbon market, or more broadly through carbon taxes or levies, or the private sector as outlined by Dirk Willem te Velde in a recent blog, rather than from existing ODA funding sources.

At present, most international climate funding instruments, with the exception of the Kyoto Protocol's Adaptation Fund, which is financed through a 2% levy on the Clean Development Mechanism (CDM), rely on ODA. So a mechanism that generates resources and guarantees that they are spent in developing countries on combating climate change might be seen as additional to ODA, provided ODA funds to do not decrease.

If secured by an international treaty, such tangible options for raising additional finance might give security to developing countries that need finance both for adaptation efforts (involving the productive sectors) as well as education and health care.