The impact of UK overseas aid on environmental protection and climate change adaptation and mitigation

Written evidence submitted by the World Development Movement

Summary

· This submission focuses on UK aid in the context of its contribution towards efforts to tackle global climate change.

· The UK is providing finance for climate change adaptation as loans, rather than as grants. This increases the debt burden on poor countries, reduces resources available for other development goals such as health and education, while achieving little to reduce the impacts of climate change.

· The significant majority of the UK’s adaptation finance has been delivered through the Pilot Program for Climate Resilience. This fund has a donor dominated governance and selection process, is not structured to meet the demands of those most affected and does not encourage strong local ownership of adaptation projects.

· The UK’s finance for climate change mitigation through REDD is achieving questionable results in reducing deforestation or emissions, can involve the transfer of land rights to major financial institutions or multinational corporations, risk countries replacing forests with plantations and risk undermining the UN Framework Convention on Climate Change (UNFCCC) discussions.

· The Green Climate Fund established at Cancun does not go far enough to meet the financial costs of tackling climate change. The UK should push to ensure the fund provides a balanced allocation of adaptation and mitigation finance, is demand led and that a significant proportion of finance comes from public sources.

· All of the UK’s current and planned contributions to climate finance is not additional to the aid budget. The UK should consider the introduction of new finance raising mechanisms such as the removal of subsidies for fossil fuel based electricity generation, taxes on aviation and shipping or a financial transactions tax to cover the costs of climate finance above the UK’s existing aid commitments.

1. Introduction

1.1. The World Development Movement (WDM) campaigns to tackle the root causes of poverty. With our partners around the world, we win positive change for the world’s poorest people. We lobby governments and companies to change policies that keep people poor. WDM is a democratic membership organisation of 15,000 individuals and 60 local groups.

1.2. WDM welcomes the Environmental Audit Select Committee Inquiry into the impact of UK overseas aid on environmental protection and climate change adaptation and mitigation. In particular we welcome the Committee’s recognition that the burden of climate change will fall disproportionately on developing countries and that targeted investment in environmental protection can make a valuable contribution to sustainable development.

2. UK provision of climate change adaptation finance as loans

2.1. At the UNFCCC COP15 summit in Copenhagen the UK government pledged £1.5 billion in "Fast Start" finance from 2010 to 2012. [1] The Copenhagen Accord set out that this finance was to be ‘new and additional resources’, with "balanced allocation between adaptation and mitigation" through a fund whose governance provides "equal representation of developed and developing countries". [2]

2.2. To date £568 million has been committed to specific programmes, £234 million of which is being put towards finance for climate change adaptation. [3] The vast majority of this, £202 million, has been allocated to the Pilot Programme for Climate Resilience (PPCR), part of the Climate Investment Funds administered by the World Bank. [4]

2.3. All of the money allocated to the PPCR by the UK government has been provided in the form of a "capital grant" which means that it can only be provided to recipient nations in the form of loans. The UK government is the only donor not to provide the PPCR with grant finance. [5]

2.4. The only justification for loans can be if they generate revenue to the loan recipient above the interest and principal costs of the loan. The UNFCCC & IPCC define adaptation as "adjustment in natural or human systems in response to actual or expected climatic stimuli or their effects, which moderates harm or exploits beneficial opportunities". [6] , [7] However, given current estimates of the expected devastating impact of climate change on developing countries it is likely that adaptation will predominantly, if not entirely, address ‘moderating harm’ rather than ‘exploiting beneficial opportunities’. Given this situation adaptation activities will aim to maintain revenue at the same rate as before; funding for climate change adaptation will not lead to increased revenue to repay a loan.

2.5. In addition, looking at data on cumulative emissions since 1850, the UK is the sixth largest emitter of CO2. [8] The UK has benefitted from the economic advantages of this high carbon development and now developing countries are suffering the negative impacts of the resulting climate change. It can therefore be seen that finance for climate change adaptation is compensation for the negative effects of our high carbon development, and as such should be given as grants not as loans. This concept of historic responsibility is enshrined in the principle of "common but differentiated responsibilities" in the UNFCCC Kyoto Protocol.

2.6. DfID and DECC have publicly stated that these loans are made at concessional rates and as such 77% of this loan finance can be considered as grant finance. [9] However this ambitious accounting can only be applied if such loans are compared against commercial rates. As the money lent must be paid back in full there is no net flow of capital to developing countries when compared to providing this finance as grants. In addition, by providing this finance as capital the UK aims to reinvest this money in future, implicitly recognising that there will not be a net transfer of wealth to countries affected by climate change.

2.7. As well as directly providing loans to countries to fund climate change adaptation, the first three projects approved by the PPCR have leveraged significant additional external debt. Bangladesh received a total finance package of $625 million, of this 92% ($575 million) came in the form of loans. [10] The fact that this adaptation finance is provided as loans compounds Bangladesh’s high external debt. Bangladesh’s foreign debt stood at $21.9 billion in 2007, rising to $23.8 billion in 2008 despite paying over $1 billion in debt servicing in both 2007 and 2008.

2.8. Many of the countries most affected by climate change are already highly indebted. Finance for climate change adaptation should not be used to add further debt to these countries, forcing them to pay twice for climate change.

2.9. Though providing climate change adaptation finance as loans, rather than grants, the UK government is reducing the finance available domestically within developing countries for other development needs such as health, education or sanitation.

2.10. It should be noted that these policies stand in stark contrast to the pre-election policies of the coalition government. Liberal Democrat party policy is to provide "grants for communities vulnerable to the impact of climate change without increasing the burden on indebted countries". [11] Conservative party pre-election policies were "to continue, as far as possible, to give aid as grants not loans" and to "encourage other donors such as the World Bank to give aid for social objectives, whenever possible, as grants". [12]

2.11. The UK should transfer the current ‘capital grant’ contribution to the PPCR to a full grant; give no further finance to the PPCR while it remains committed to providing adaptation finance as loans and instead provide finance through the UN Adaptation Fund (see below).

3. UK provision of climate change adaptation finance through the PPCR

3.1. The PPCR was set up as part of the Climate Investment Funds in 2008 by the World Bank. These funds were set up and operate outside of the UNFCCC process and are ultimately accountable to the Board of the World Bank, not to the member states that constitute the UNFCCC process. The Funds are therefore strongly donor led and are likely to reflect the priorities of donor, rather than beneficiary states.

3.2. Bernaditas Muller, coordinator of the G77 and China, speaking in April 2008 after the announcement of the climate investment funds said: "The governance of these funds is donor-driven. There is clearly money for climate actions, which is the good news, but the bad news is it is in the hands of institutions that do not necessarily serve the objectives of the Convention." [13]

3.3. The dominance of the interests of donor states can be seen in the decision making process. During the discussions for the approval of the first three projects from the PPCR, members of the PPCR Board noted that the scoping for the Tajikistan project had not been completed, that budgets appeared incomplete and that issues relating to gender and consultation had not been fully addressed. The PPCR Board however, approved the financial package as the US stated that "We need things to move forwards so we can get more money. Congress needs to see results". [14] Decision making for the allocation of adaptation finance should be based on the needs of those affected, not the political needs of donor countries.

3.4. Developing countries cannot apply to the PPCR for funds. Instead, the PPCR Board appointed an expert group to recommend recipient countries. This perpetuates the donor dominated governance model of the PPCR and undermines local ownership of adaptation projects. The expert panel appointed to make recommendations to the Board complained about the process noting that hand-picking countries was arbitrary and would lead to less country ownership than countries choosing to apply for funds:

"Doing a top-down (or even expert judgment-based) selection as opposed to a demand led selection process poses problems of inclusion / exclusion of countries that will seem arbitrary and open to challenge [...] The delay of demand driven activities until after the country selection also opens the process up to the danger of a lack of sufficient country ownership and buy-in." [15]

3.5. The donor-dominated model of the PPCR stands in contrast to the UN Adaptation Fund, formed under the auspices of the UNFCCC. Any member state can apply for funding and the Adaptation Fund Board is made up of representatives of all of the parties of the UNFCCC. Funding through the PPCR can only be delivered through the World Bank, whereas the Adaptation Fund can be delivered by multilateral agencies or national bodies. These organisations are likely to have stronger local engagement than the World Bank and will build stronger local ownership of climate change adaptation projects. Through this model the Adaptation Fund is demand, not donor led, meeting the needs of those most affected.

3.6. Andrew Mitchell, Secretary of State for International Development, has stated that the UK government is "supportive of the Adaptation Fund" [16] , however to date the UK government has given no climate finance to it. Members of the UK public have now donated over £1,400 towards the Fund and have called on the government to channel the UK’s ‘Fast Start’ finance through this fund.

3.7. The UK government should ensure that future finance for climate change adaptation is given through the UN Adaptation Fund until at least until 2014, the current confirmed period covered by the Fund.

4. Climate change mitigation finance for clean technologies

4.1. £155 million of the UK’s ‘Fast Start’ finance has been committed to the Climate Investment Fund’s ‘Clean Technology Fund’ (CTF). [17] The CTF promotes scaled-up financing for demonstration, deployment and transfer of low-carbon technologies with significant potential for long-term greenhouse gas emissions savings.

4.2. In a study by WDM of four projects funded through the CTF a key part of the programmes is the removal of energy subsidies, which are claimed to distort the market and increase demand for energy, contributing to climate change. These blanket bans prevent poorer people increasing their access to affordable energy. Projects undertaken to mitigate climate change should ensure that they continue to meet the needs of the world’s poor, and not just provide electricity to private sector industries or the wealthy within developing countries.

4.3. One of the projects undertaken through the CTF in Egypt explicitly aims to export renewable electricity to Europe. Such a project can be seen to be beneficial as it will help meet the EU’s renewable energy and emissions reductions targets. The finance for this project should however not be counted as finance to the developing world for climate change mitigation as it is not providing clean energy to the local society and economy, but producing a new export commodity.

5. Climate change mitigation finance for REDD

5.1. £111 million of the UK’s ‘Fast Start’ finance has been committed to support REDD (Reducing Emissions from Deforestation and forest Degradation). [18] This finance is being used for capacity development, piloting payment systems and supporting institutions with the aim of tackling the 17% of current greenhouse gas emissions resulting from deforestation.

5.2. REDD projects have come under intense criticism from groups in the global south and environmental NGOs relating to a wide range of issues. Analysis by Friends of the Earth International has identified that the REDD projects already undertaken have had a questionable effectiveness in reducing deforestation or emissions, do not effectively engage or respect the rights of indigenous communities and can involve the transfer of land rights to major financial institutions or multinational corporations. [19]

5.3. Documents from the Indonesian government go significantly further than this and indicate that the government aims to exploit weak legal definitions to class forests as 'degraded' and 'rehabilitate' the land with palm trees and biofuel crops. [20]

5.4. In addition the framework for REDD projects has not yet been agreed in the UNFCCC process and there is a danger that the negotiations could be overtaken by the projects already underway. This could force the negotiators to implement an agreement based on the reality ‘on-the-ground’ rather than an agreed consensus between countries. Additionally, many of the REDD projects underway are being driven by high carbon emitting multinational companies who are aiming to use REDD as a mechanism for carbon offsets through carbon trading. This could allow these companies a de facto role in setting the framework for REDD through the pilot projects.

5.5. While not yet agreed, many proponents of REDD aim to provide long term funding through carbon markets. Previous analyses have highlighted the failures of carbon trading to effectively reduce emissions, due to difficulty in verifying emission reductions and the unstable and persistently low price of carbon. In addition offsetting in this way would negate the mitigation purpose of these projects and instead only counterbalance significant emissions in developed countries.

6. Green Climate Fund

6.1. A new ‘Green Climate Fund’ was established at the COP16 summit in Cancun. This Fund is to provide long term climate finance from developed countries from 2012 onwards with a goal of "mobilizing jointly $100 billion per year by 2020 to address the needs of developing countries". [21]

6.2. This target of $100 billion per year falls significantly short of the $300 billion cost of adaptation and mitigation estimated by Yvo de Boer, former head of the UN Climate Change Secretariat. [22] The UK should ensure that its contributions towards international climate finance are not constrained by the $100 billion commitment and seek to provide a fair contribution to the total costs identified.

6.3. The Cancun agreement states that funds "may come from a wide variety of sources, public and private, bilateral and multilateral, including alternative sources", noting the report of the High-level Advisory Group on Climate Change Financing. It should be noted that some within the Advisory Group argued that carbon offsets should not count towards the $100 billion goal "since these are mechanisms that are designed to reduce the cost of mitigation in developed countries". [23] WDM fully supports this view and believes that the UK should not include any finance transferred through carbon offsets in its accounting of contributions towards climate finance.

6.4. Public finance must play a major role in contributing towards the achievement of the $100 billion target. Many of the sources of finance identified in the report are dependent upon reaching a price for carbon of $20 - $25 / ton, which may be reliant on volatile and unpredictable carbon markets. Private sources of finance may have a role to play, however it is highly likely that private finance will prioritise projects with strong developmental outcomes over those with high expected returns. Public finance is the most reliable and predictable source of climate finance which can be targeted at the poorest and most vulnerable.

6.5. The Cancun Agreement did not include the commitment attached to ‘Fast Start’ finance that it would be balanced between adaptation and mitigation. There is a risk that without a strong commitment to a balance between adaptation and mitigation the majority of this finance will be provided for mitigation where there is likely to be the strongest return on investment. It is vital that a significant proportion of international climate finance supports developing countries adaptation to the impacts of climate change, especially projects protecting the poor and vulnerable.

6.6. Furthermore the UK government should advocate for the new Green Climate Fund to allow direct access through a range of international, regional and national implementing agencies, be demand led, promote local ownership of adaptation projects and provide all adaptation finance as grants; building on the successes of the UN Adaptation Fund.

7. Additionality of UK climate finance

7.1. The Copenhagen Accord set out that ‘Fast Start’ finance was to be ‘new’, in that it was to be money that had not been announced before, and ‘additional’ to developed countries pre-existing aid commitments. [24]

7.2. None of the UK’s budget for climate finance of £2.9 billion set in the Comprehensive Spending Review is additional to aid commitments. It is a vital component of the Accord, and an underlying principle of the UNFCCC process, that climate finance is not aid. By using the UK’s aid budget to achieve climate finance objectives it seriously reduces the availability of aid for wider development objectives, such as supporting the provision of education or healthcare.

7.3. The UK government has a range of innovative options which could be implemented to provide new sources of finance for developing countries to tackle climate change. Increasing taxation on aviation fuel to bring it in line with road or train transport could raise £6.5 billion each year and removing the VAT exemption for aviation could raise a further £2.3 billion. [25] Introducing a tax on shipping fuel or the removal of subsidies for fossil fuel based electricity generation could also help to encourage emission reductions while providing a significant additional source of climate finance. A Financial Transactions Tax, currently a key component of France’s presidency of the G20 could also make a significant contribution to climate finance. A tax of 0.005% on currency transactions could raise an additional $40 billion a year. [26]

References


[1] Department for International Development & Department for Energy & Climate Change (2010) UK Fast Start Climate Change Finance. Available at http://www.dfid.gov.uk/Documents/BROCHURE%20UK%20FAST%20START.pdf

[2] UNFCCC (2010) Report of the Conference of the Parties on its fifteenth session, held in Copenhagen from 7 to 19 December 2009. Addendum. Part Two: Action taken by the Conference of the Parties at its fifteenth session. Available at http://unfccc.int/resource/docs/2009/cop15/eng/11a01.pdf

[3] Department for International Development & Department for Energy & Climate Change (2010) UK Fast Start Climate Change Finance. Available at http://www.dfid.gov.uk/Documents/BROCHURE%20UK%20FAST%20START.pdf

[4] Ibid.

[5] Climate Funds Update (2010) Pilot Program for Climate Resilience. Available at http://www.climatefundsupdate.org/listing/pilot-program-for-climate-resilience . Accessed 09/12/2010.

[6] UNFCCC (2010) Glossary of climate change acronyms. Available at http://unfccc.int/essential_background/glossary/items/3666.php . Accessed 13/12/2010.

[7] IPCC (2001) Working Group II: Impacts, Adaptation and Vulnerability . IPCC Third Assessment Report: Climate Change 2001 (TAR). Cambridge University Press.

[8] World Resources Institute (2010) CAIT – Cumulative Emissions. Available at http://cait.wri.org/cait.php?page=cumul&mode=view . Accessed 10/12/2010.

[9] Department for International Development & Department for Energy & Climate Change (2010) UK Fast Start Climate Change Finance. Available at http://www.dfid.gov.uk/Documents/BROCHURE%20UK%20FAST%20START.pdf

[10] Climate Investment Funds (2010) Strategic Program for Climate Resilience: Bangladesh . 25 October 2010. Available at http://www.climateinvestmentfunds.org/cif/sites/climateinvestmentfunds.org/files/PPCR%205%20SPCR%20Bangladesh%20nov2010.pdf .

[10] The financial package includes a $60 million loan from the PPCR, $300 million loan from the International Development Association and a $215 million loan from the Asian Development Fund.

[11] Liberal Democrats (2010) Self-assessment against BOND vote global manifesto . Liberal Democrats. And Liberal Democrats (2009) Policy Motion: Energy and Climate Change . September 2009.

[12] Conservative Party (2010) One world Conservatism: A Conservative agenda for international development .

[13] Khor , M. (2008). World Bank climate funds under fire from G77 and China . TWN Info Service on Finance and Development. Bangkok . 03/04/2008.

[14] Notes of Civil Society Observer, Ilana Solomon of Action Aid, to the PPCR Meeting of 10 November 2010.

[15] Expert group to the subcommittee of the PPCR. (2009). The selection of countries to participate in the Pilot Programme for Climate Resilience . Report of the expert group to the subcommittee of the PPCR Climate Investment Funds. January 2009.

[16] Mitchell A. (2010) Letter to the World Development Movement and Jubilee Debt Campaign re. ‘No New Debt Send a Pound’ campaign. (Official correspondence, 11/11/2010) .

[17] Department for International Development & Department for Energy & Climate Change (2010) UK Fast Start Climate Change Finance. Available at http://www.dfid.gov.uk/Documents/BROCHURE%20UK%20FAST%20START.pdf

[18] Ibid.

[19] Friends of the Earth International (2010) REDD: The Realities in Black and White. Available at http://www.foei.org/redd-realities .

[20] Vidal, J. (2010) Indonesia eyeing $1bn climate aid to cut down forests, says Greenpeace. The Guardian. 23/11/2010.

[21] UNFCCC (2010) Outcome of the work of the Ad Hoc Working Group on long-term Cooperative Action under the Convention - Advance unedited version. Available at http://unfccc.int/files/meetings/cop_16/application/pdf/cop16_lca.pdf

[22] Doyle, A. (2009) Climate change fight seen costing $300 billion a year. Reuters. 11/08/2009. Available at http://uk.reuters.com/article/idUKTRE57A3NO20090811

[23] UN (2010) Report of the Secretary-General’s High-level Advisory Group on Climate Change Financing. Available at http://www.un.org/wcm/webdav/site/climatechange/shared/Documents/AGF_reports/AGF_Final_Report.pdf

[24] UNFCCC (2010) Report of the Conference of the Parties on its fifteenth session, held in Copenhagen from 7 to 19 December 2009. Addendum. Part Two: Action taken by the Conference of the Parties at its fifteenth session. Available at http://unfccc.int/resource/docs/2009/cop15/eng/11a01.pdf

[25] Green Alliance (2010) Making aviation pay its way - the case for raising more revenue from plane journeys . Available at http://www.green-alliance.org.uk/uploadedFiles/Themes/Sustainable_Economy/Making%20aviation%20pay%20its%20way%20-%20final%20%282%29.pdf

[26] Spratt, S. (2009) Assessing the alternatives: Financing climate change mitigation and adaptation in developing countries. New Economics Foundation and Stamp Out Poverty.

[26]

[26]

[26] 17 December 2010