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

Written evidence submitted by the International Institute for Environment and Development (IIED) and Christian Aid

A. Summary

· Northern and Southern NGOs have major concerns about the design, governance and implementation of the Pilot Programme for Climate Resilience (PPCR).

· The Inquiry should give close consideration to whether the World Bank is a suitable administrative body for climate change finance.

· Much WBG lending to the forestry sector remains incompatible with the UK Government’s objectives in relation to natural forest protection and climate mitigation.

· Climate change is a multiplier of development stresses and is therefore relevant to development and aid across the board and needs to addressed in holistic ways. There is a risk that emphasising what are being called ‘triple wins’ or ‘sweet spots’ where development, mitigation and adaptation outcomes converge or coincide will draw DFID away from the more important development areas where only poverty reduction and adaptation objectives overlap.

B. Introduction

1. IIED is an international policy research institute, working for sustainable and equitable global development. Set up in 1971, just before the first UN Earth Summit in Stockholm, IIED was a major contributor to the Brundtland Commission of 1987, the Rio Earth Summit of 1992, and WSSD in 2002 in Johannesburg. Based in London, IIED works through a wide range of long-standing relationships with partners in the developing world – and notably with local research groups – thereby ensuring that our policy advice and advocacy at national and international levels are well informed by local realities. IIED’s work broadly falls into five areas: climate change, natural resources, urban, markets, and governance – all of which emphasise low-income countries’ work towards sustainable development.

2. Christian Aid is a Christian organisation that insists the world can and must be swiftly changed to one where everyone can live a full life, free from poverty. We work globally in over 40 countries for profound change that eradicates the causes of poverty, striving to achieve equality, dignity and freedom for all, regardless of faith or nationality. We are part of a wider movement for social justice. We provide urgent, practical and effective assistance where need is great, tackling the effects of poverty as well as its root causes.

3. IIED provided a written submission to the 10th Report of Session 2005–06: Trade, Development and Environment: The Role of DFID. The Report concluded that ‘DFID must act now to address the climate implications of how it provides aid-both directly and through multilateral organisations’ [1] . It also found that ‘the clear links between economic growth and environmental degradation, particularly with regard to energy consumption and climate change, make it imperative that every effort is made by DFID to pursue a less resource intensive model for growth and ensure all negative environmental impacts are minimised as countries are assisted in their development’. In their response to the 2010 inquiry, DFID should demonstrate how they have responded to these findings.

4. This submission largely focuses on the issue of ‘how the UK’s contribution to the International Climate Finance Fund will be managed’, highlighted in the inquiry’s terms of reference (Section C below). We also respond to the inquiry’s concern with ‘The extent to which UK Aid programmes address the environmental causes of poverty, and the extent to which environmental protection and climate change mitigation and adaptation are prioritised in those programmes’ (Section D below).

C. How the UK’s contribution to the International Climate Finance Fund will be managed

The Pilot Program for Climate Resilience (PPCR)

5. DFID’s decision to channel a significant proportion of the UK’s contribution to climate finance through the World Bank managed Climate Investment Funds (CIFs) needs to be properly assessed. Within this, the main channel is the PPCR, approved in November 2008, which was the first program developed and operational under the Strategic Climate Fund (SCF), which is one of two funds within the design of the Climate Investment Funds (CIFs). However other channels exist, the Adaptation Fund for example, and now, with the progress achieved at COP 16 in Cancun, the UK can put money into the Green Climate Fund. Both Northern and Southern NGOs have had significant concerns about the design, governance and implementation of the PPCR from the outset.

· Design

6. UK funding for the programme, at 35% the largest donor contribution to the US$614 million fund. This is made up of a mixture of loans (90%) and grants (10%) thus violating widely held principles of climate justice and that the polluter should pay, a point also raised by the government of The Netherlands. The then UK Government insisted on using the World Bank as the implementing agency, despite that organisation's lack of expertise and credible track record in implementing risk reduction and adaptation. This also sent a clear but unfortunate message of marginalisation to the Adaptation Fund of the United Nations Framework Convention on Climate Change (UNFCCC), which is seen by developing countries, global civil society and the UNFCCC negotiating process as the appropriate channel for adaptation support. As a result, the PPCR has absorbed nearly half of adaptation funding pledges and the Adaptation Fund, even with recent direct donor support, has received only 7%.

7. However the lack of funds to the UNFCCC Adaptation Fund (and diversion of adaptation funds to the PPCR) has meant that while National Adaptation Programmes for Action (NAPAs) have been developed for the 44 poorest and most vulnerable countries (including 6 PPCR countries), they remain largely unfunded and unimplemented. This lack of adequate funding has not allowed the UN Adaptation Fund to achieve anywhere near its full potential in delivering adaptation projects on the ground.

· Governance

8. This is a key issue to consider when assessing climate finance sources. Clear and well-designed governance systems reduce transaction costs and improve outcomes, as experience has shown (see Box 1 below).

9. Different funds have differing governance schemes and the choices available are multifaceted. The table below compares two of the main adaptation players, the World Bank’s Pilot Programme for Climate Resilience and the Adaptation Fund created under the Kyoto Protocol, to illustrate the contrasts across funding sources. Several of their differences, such as the agencies that implement projects and the makeup of decision-making bodies, are of particular interest to developing countries. One main distinction among climate funds is whether the y are created under the UNFCCC, where developing countries can readily inf luence priorities and policies, or outside of it. The Adaptation Fund was and is therefore accountable to all UNFCCC Parties. Representation on oversight committees of non-UNFCCC funds often emphasises contributing countries rather than recipient ones.

Box 1: Governance variations across climate funds

UNFCCC Adaptation Fund

World Bank Pilot Programme for Climate Resilience

Accountable to UNFCCC?

Yes

No

Source

2% share of emissions credits from Clean Development Mechanism projects

Contributions from developed countries

Direct access for developing countries?

Yes

No

Implementing agencies

Nominated by recipient countries

Regional development banks

Management

16-member board plus alternates

World Bank, overseen by subcommittee that selects countries to be funded

Representation

Most board members are from developing countries, with seats designated for countries most vulnerable to climate change

Subcommittee members are split between contributor and recipient countries

Observers and reporting

Observers can speak at board meetings if invited. Board reports to each UNFCCC session.

Observers can speak at subcommittee meetings. Sub-committee reports are put into the public domain.

Consensus decision required?

No; two-thirds majority can approve funds

Yes

Factors for good governance

The Least Developed Countries Fund managed by the GEF is one of the few climate finance sources that has operated long enough to have had an independent performance evaluation. Its 2009 review [1] pinpointed several governance features that make for an effective climate fund, and that can be used to assess other funding options. Well managed funds should have:

large-scale financial resources that will be reliably replenished

clear guidance on funding policy and project design at all stages

clear management strategy focusing on achievements within specific deadlines

national ownership of plans, because government staff are closely involved in implementation and there is investment in national capacity-building

direct access to funds for countries with the capacity to plan and implement responses to climate change - rather than support managed by multilateral implementing agencies.

10. Given the importance of adaptation to all sections of society, one would have expected that the various PPCR missions managed by the World Bank represented an excellent opportunity to organise multi-stakeholders consultations with representation from all sectors. This should result in decision-making and strategy development processes reflecting this diversity and potential. Previous strategy development processes, such as Poverty Reduction Strategy Paper (PRSP) development, have broadly used this type of process, so there is no shortage of past experience in this respect.

11. However, on the evidence provided by the missions' reports and feedback from Southern partners, experience has been very mixed. While most missions have highlighted NGOs as an important or even critical sector to link with, this is largely seen as an extractive exercise, making the most of extensive civil society experience in disaster risk reduction, adaptation and community development. However, stakeholders are then shut out of decision-making roles or involvement in implementation. So while 9 of the 12 missions highlighted NGO involvement and had procedures to consult, only one (Tonga) involved civil society representation in decision-making (as part of the Technical Working Group) and only one (Tonga again) identified specific activities for NGO implementation. This, despite frequent mention in several mission reports of NGO expertise as leading in a variety of community development roles, such as irrigation in Mozambique. Other civil society structures, such as community-based organisations and unions are even less visible in the process. This lack of access for stakeholders to the decision and implementing processes is likely to significantly undermine its effectiveness in the 11 countries/regions in which it operates and consequently the adaptation lessons that can be learned and transferred to other countries and regions.

· Implementation

12. In the early stages, DFID repeatedly made the point to NGOs that the PPCR would enable a fast tracking of resources to actual implementation of resilience building, assuming this would be a faster mechanism than the UNFCCC Adaptation Fund. This has not proved to be the case. According to the PPCR sub-committee meeting minutes of March and June 2010, only 6 of the 11 programmes have received approval for funding to support the preparation of Strategic Programmes for Climate Resilience, this is the stage before any implementation takes place. Therefore there will be even more delay before actual activities to tackle the vulnerability of the poorest and most marginalised begin. Meanwhile the UNFCCC Adaptation Fund has established procedures for disbursement of funds and already started to approve projects for implementation, much quicker than the PPCR.

13. The higher level objectives of the CIFs emphasise the need for transformative changes in national systems to allow developing countries to manage climate change better. The CIFs are seen by some donors as a way to bring theses change about. However, an examination of the results frameworks for the CIFs programmes (PPCR, SREP, CTF and the FIP) show that plans for monitoring & evaluation of performance are not sufficient to keep the programmes on track to generate the higher level objectives. DFID should invest in a greater degree of scrutiny of the CIFs management and M&E work to encourage the different fund managers to keep the higher level objectives at the forefront of their minds.

The suitability of the World Bank as an administrative body for climate change finance

14. Despite playing a leading role in managing global climate change finance (through the CIFs), the World Bank currently fails to prioritise a low-carbon approach. Business as usual for World Bank Group energy investment means high-carbon fossil fuel extraction, transportation and power generation.

15. Recent research from the Bank Information Centre in Washington has found that World Bank funding for coal hit a record high of $4.4 billion in FY2010. The FY2010 coal lending far surpasses the Bank's record for new renewable energy and energy efficiency of $3.1 billion set in FY2009. From FY2007 to the present, the World Bank Group has provided $6.5 billion for coal-based energy development predominantly in middle-income countries. This ensures that these countries have a commitment to burn coal for the next 40 to 50 years.

16. Access to modern energy across the developing world will be fundamental to ending poverty. Globally, 1.5 billion people still have no access to electricity, and 2.5 billion cook on open fires using wood, dung or charcoal. Frequent power cuts and irregular supply of modern fuels hold back small enterprise and industrial development.

17. While energy access is a stated priority of the Bank, it more typically supports large-scale generation and power transmission projects, which often bypass communities that need modern energy the most. Recent research by Oil Exchange [2] involving an independent review of the Bank's fossil fuel lending for fiscal years 2009 and 2010 has found that none of the 26 fossil fuel projects independently reviewed clearly identify access for the poor as a direct target of the project. The Bank and the authors agree that no coal or oil projects can be classified as improving energy access.

18. The on-going World Bank Energy Strategy Review could be its chance to lead on low-carbon strategies and to prioritise energy access for the people who need it most. Christian Aid has supported civil society organisations from India, South Africa, Bolivia and Peru to develop responses to the Review. The project brings together their position papers, stories and alternative approaches to World Bank Group business as usual. These are the culmination of workshops and meetings on energy needs especially those of the poor [3] .

19. During 2010 over 200 South African civil society organisations campaigned strongly against a proposed $3.2 billion loan from the World Bank to the state-owned utility company Eskom to build the Medupi coal fired power station. The majority of the power from the 4800MW plant will deliver low-cost power to the foreign-owned smelting industry. The burden of paying back to the World Bank loan is to be delivered through tariff increases for domestic users, many of whom are on a low income. The World Bank approved the loan on the Medupi plant in May 2010. Christian Aid and other UK-based development agencies lobbied the UK government to vote against the proposal. In the end, the UK abstained on the vote.

20. Peruvian civil society has particular concern over International Finance Corporation investments which encourage extensive exploration into the Amazon region for oil and gas, such as the Camisea pipeline. This exploration is directly for export form Peru, despite there being a significant demand for energy access in that country.

21. The Indian groups are concerned that recent investment in coal, such as the Tata Mundhra plant which will be commissioned next year, has done little to increase the access to electricity for poor people in rural areas; that is the majority of people in India. The inefficient grid in India is not an effective means of rural electrification. Therefore much more effort should go into delivering energy through decentralised renewable energy.

22. The biggest worry of each contributor is a common experience of the Bank's bias toward the elite at the expense of the poor, the marginalised and the environment. All papers agreed that, at a minimum, the World Bank Group role in energy provision must be redefined. Without significant change, many say it should no longer have a role in energy or climate change investment at all.

23. We therefore recommend that this inquiry addresses:

· Whether maintaining the World Bank as the main route for UK spending on climate finance is appropriate, or undermines our international low-carbon objectives; and

· Whether there are differences in the environmental impact of DfID's bilateral work compared with UK-funded multilateral aid, and other programmes which assist developing countries.

World Bank Group (WBG) lending in the forest sector.

24. In our view, much WBG lending to the forestry sector remains incompatible with the UK Government’s objectives in relation to natural forest protection and climate mitigation. Most WBG lending for forestry is made by the IFC, which over the period of FY 2003-2006 committed $ 1 billion to forestry projects – for projects with a total cost of $ 4 billion – more than 50% of it for paper and pulp mills.

The Bank commissioned a review of its Forest Strategy which was published in 2007: "The World Bank’s Forest Strategy – Review of Implementation." The review’s main conclusion was that:

 
"The Bank’s current incentive structure, which is targeted at fast, low-cost processing of projects, does not fit well for forestry projects." (p.50). Below this message are some quotes from this review.

25. On harnessing the potential of forests to reduce poverty in the Bank’s overall policy and sector work: The 2007 Review states that in a few countries – such as Albania – poverty reduction was mentioned  "…but in many others poverty concerns and the impacts of forest interventions on forest-dependent peoples have not received adequate attention, either in the Bank’s analytical and economic and sector work or in its lending programs." (p.ix).
 
26. On Safeguard Policies: The 2007 Review found poor implementation of safeguard policies on environmental assessment, natural habitats, indigenous peoples and resettlement.  It concluded that team leaders were viewing safeguards as barriers and not as instruments for reducing risk and recommended urgent improvements in safeguard policy implementation.
 
27. The current forest policies of the WBG were formulated at a time when the international understanding of the challenges of climate change was much less well developed than is the case now, and REDD policies had been widely developed and progressed by the international community.   In our view, the current Multilateral Aid Review, being conducted by the Coalition Government, provides an ideal opportunity for the UK to call for an overhaul of Bank forest policies, to focus WBG lending clearly and specifically on delivering emission reductions from avoided deforestation, protecting natural forests, alleviating poverty, safeguarding biodiversity and protecting the rights and livelihoods of local and indigenous people. 

·  Moratoria on palm oil projects and paper and pulp lending from the World Bank Group.

28. The Multilateral Aid Review also provides a valuable opportunity to review the UK’s engagement with WBG lending in the area of industrial tree plantations.  In our view, this lending is not value for money, and is not closely aligned to Government priorities for poverty alleviation and climate change mitigation and adaptation.

29. In 2009, the IFC and then the wider WBG suspended finance for the palm oil sector, in response to complaints from Indonesian civil society and indigenous peoples, which in turn triggered a damning report from the IFC’s Compliance Advisory Ombudsman.  In 2010, a new draft strategy for the palm oil sector was produced, which in our view fails to address the lack of supply chain traceability and responsibility which is endemic across the sector, and risks a return to ‘business as usual’ for Bank lending in this area.

30. We believe that the UK should argue for the current moratorium to continue, until the Bank is in a position to focus lending solely on small scale, local production.  Given that many of the same issues apply to the paper and pulp sectors and indeed to the cattle and soy sectors, we would also request that the UK consider carefully, the case for extending the moratorium to cover these areas of lending.  In the absence of such an extended moratorium, we believe the UK should re-think the level and nature of its support for the WBG in this area of activity.

· REDD funding.

31. Reducing Emissions from Deforestation and forest Degradation has the potential to help support rainforest nations in their transition towards sustainable, zero-deforestation economies.  We are grateful for the Government’s continuing support for  REDD, and its promise to maintain the existing commitment of £480 million in this area.

32. However, we are extremely concerned that REDD plans currently going through the World Bank’s Forest Carbon Partnership Facility (FCPF), and the CIFs Forest Investment Programme (FIP), could result in increased support for industrial logging and plantation establishment, at the expense of the protection of natural forests and support for local people.  A recent and particularly worrying example of this is the R-PP of the Democratic Republic of Congo, which was partly financed by the FCFP, and will now underpin DRC’s proposed national REDD plan [4] [1].  Under the proposal, which has been widely criticised not just by civil society groups, but also by the Bank’s own oversight bodies, a further 10 million hectares of natural forest would be converted to plantation, resulting in significant windfall profits for the logging sector, which would be subsidised to double logging intensity from the current levels.

33. In Indonesia, government and industry data underlying their plans to meet their emissions reduction targets, have revealed planned expansion in pulp, palm, agriculture, biofuel and coal operations that could result in the conversion of very large areas of natural forest, at the same time that Indonesia receives international funding for REDD + activities.

34. Central to ensuring that funding for REDD delivers a sustainable outcome for the Democratic Republic of Congo, Indonesia and other rainforest nations facing similar choices, will be the application of safeguards to REDD plans. Whilst some welcome language on safeguards was included in the agreement made on REDD at the recent UNFCCC meeting in Cancun, there is concern that the particular protection afforded to natural forests may not be mandatory on donor and recipient Governments. This is because these Governments are only required to ‘support and promote’ the following safeguard for natural forests:

Actions are consistent with the conservation of natural forests and biological diversity, ensuring that actions referred to in paragraph 70 of this decision are not used for the conversion of natural forests, but are instead used to incentivize the protection and conservation of natural forests and their ecosystem services, and to enhance other social and environmental benefits’

[1] Taking into account the need for sustainable livelihoods of indigenous peoples and local communities and their interdependence on forests in most countries, reflected in the United Nations Declaration on the Rights of Indigenous Peoples, as well as the International Mother Earth Day.

35. As a potential leader in natural forest protection, the UK should now set a precedent by committing itself to applying this safeguard in full to all UK REDD funding, whether this flows through multi-lateral institutions or through interim bilateral agreements.  The UK must also work through the UNFCCC process in 2011, to ensure that REDD plans supported through the new Green Climate Fund meet this safeguard for the protection of natural forests; and that donors and recipients agree to monitor and report against the application of this and other safeguards established in the Cancun agreements.

36. In conclusion, we look forward to the Multilateral Aid Review providing a comprehensive reappraisal of the UK contributions in this area; and to UK REDD funding which is demonstrably aimed at the conservation of natural forests, the provision of sustainable livelihoods and the protection of the rights of indigenous peoples.

D. The extent to which UK Aid programmes address the environmental causes of poverty, and the extent to which environmental protection and climate change mitigation and adaptation are prioritised in those programmes.

37. . Environmental protection is addressed through the environmental screening notes that each DFID initiative has to complete at the planning stage. DFID in common with other development agencies is only just working out how to mainstream climate change mitigation and adaptation into aid programmes. The Strategic Programme Reviews for climate change, which have been carried out in six countries, are a start towards climate change mainstreaming. IIED took part in the Nepal case.

48. Climate change is a multiplier of development stresses and is therefore relevant to development and aid across the board and needs to addressed in holistic ways. There are areas of concern as to the way DFID addresses climate change and development issues:

· There is danger that DFID will, from an expediency perspective, seek to disconnect mitigation and adaptation into separate initiatives. This will inevitably lead to a loss of synergistic potential. IIED has done community level survey work to establish how poor people perceive the positive links between mitigation oriented interventions (e.g. improved stoves) and adaptation benefits (e.g. time released from fire fuel collection for school, childcare, work etc).

· Working on climate change as a stand alone issue and labeling initiatives as either ‘climate change’ or ‘non climate change’ is likely to underplay the contribution of development initiatives to climate adaptive capacity. Similarly, DFID should fully explore (retrospectively) how its ‘non climate change’ labeled initiatives do contribute to the climate adaptive capacity of the poor and excluded.

· Emphasising what are being called ‘triple wins’ or ‘sweet spots’ where development, mitigation and adaptation outcomes converge/ coincide will draw DFID away from the more important development areas where only poverty reduction and adaptation objectives overlap. DFID has used a concentric circles diagram to show how adaptation, mitigation and development overlap. This then leads to the idea that the segment where these three objectives coincide – triple wins or sweet spot – is where resources should be focused to get highest value for money (vfm). However, mitigation should not be a priority, nor a conditionality, for aid in low emissions countries. But given the "vfm" drive and the fact that DFID - in common with many other donor agencies - are increasingly affected by national policy issues on climate, there is a danger that what should be the aid priority in least developed countries i.e. where poverty reduction and adaptation overlap, will be rejected in favour of trying to find locations/ projects etc where mitigation gains are large enough to make triple wins possible. If this happens, places where there is worst poverty and greatest climate threats to development will become lower priorities.

39. Climate variability and climate change will make developmental goals, particularly poverty reduction, increasingly difficult to achieve and sustain. What is needed includes:

· Investment in a better climate and poverty evidence base for policy making.

· to move on from the distinctions between climate adaptation and development, to strategies that combine development effectiveness experience, adaptation needs and low emissions opportunities.

· Climate finance should become a platform for nationally derived, on-budget & programmatic, evidence-based plans that are coherent with delivering poverty reduction and closing adaptation gaps.

· Delivery of national development and adaptation policies needs to be downwardly accountable and responsive to the needs of the poor and climate vulnerable.

· Interest in development-adaptation-mitigation triple wins should focus on identifying how clean technology and renewable energy investments can be designed to render greatest developmental and adaptation outcomes as important components of climate compatible development.

40. In conclusion, DFID needs to develop a coherent approach to multilateral and bilateral aid funding that takes full advantage of the key role that UK Aid plays in supporting the climate finance mechanisms of the MDBs. IIED and Christian Aid welcome this inquiry by the Environmental Audit Committee and hope that it will offer timely information and compelling ideas that will influence the current International Development Multilateral and Bilateral Aid Review processes.

Attachments

· IIED Submission to the 2006 EAC Inquiry

· Meinhardt Gibbs and Bast, (2010) Energy for the Poor

· Christian Aid, (2010) Energy for Our Common Future

· Denmark Ministry of Foreign Affairs (2010) Operation of the Least Developed Countries Fund for Adaptation t Climate Change

21 December 2010


[1] EAC 10 th Report of Session 2005-6.

[1] Denmark Ministry of Foreign Affairs (2010) Operation of the Least Developed Countries Fund for Adaptation t Climate Change ( http://www.um.dk/en/menu/DevelopmentPolicy/Evaluations/Publications/ReportsByYear/2009/2009.08+Joint+External+Evaluation+Operation+of+the+Least+Developed+Countries+Fund+for+Adaptatio.htm l)

[2] Meinhardt Gibbs and Bast , (2010) Energy for the Poor ( http://priceofoil.org/educate / resources/energy-for-the-poor/ )

[3] Energy for Our Common Future, Christian Aid, (2010).(See the position papers from each of these countries at : http://www.christianaid.org.uk/resources/policy/climate_change.aspx )

[4]