The impact of UK overseas aid on environmental protection and climate change adaptation and mitigation - Environmental Audit Committee Contents

4  Aid through other channels

Multilateral aid

38. Whilst 60% (£4 billion) of the aid provided by the UK in 2009-10 was direct bilateral assistance, a significant proportion (37%, £2.4 billion) was core funding to multilateral organisations.[98] DFID also channelled £1.7 billion of its bilateral aid in 2009-10 (42%) through multilaterals to fund projects in specific countries or for specific purposes.[99]

39. Working through multilateral institutions enables the UK to contribute to development in countries beyond those 27 upon which it now plans to focus its bilateral aid efforts. DFID currently funds over 40 multilateral organisations with different purposes, for example to respond to natural disasters or to tackle HIV and malaria. The UK Government is involved in deciding strategic priorities for the multilateral institutions, but is not involved in operational decision making.[100] There are several advantages to working through multilateral institutions. They can work at a larger scale, have a wider global reach and are more geo-politically neutral, which can enhance their legitimacy in the eyes of recipients.[101] DFID's recent Multilateral Aid Review concluded that the 'multilateral system is a critical complement to what the UK government can do alone'.[102] On the other hand, channelling aid through multilateral institutions can involve reduced national control over expenditure, less transparency and accountability and difficulty in evaluating the impact of individual donors' contributions.

40. The evidence we received highlighted that multilateral aid, like bilateral aid, has different advantages, risks and opportunities for environmental protection and climate change.[103] Greenpeace summed it up: greater capacity in bilateral donors, particularly in-country, would enable them to have a more positive environmental impact, whilst increased transparency and accountability would improve the impact of multilaterals.[104] Multilateral expenditure has the potential for greater environmental impacts as the resources available tend to be on a much larger scale and as a result they have more political leverage.[105]

41. DFID is now facing the challenge of programming an increasing budget whilst reducing administrative costs by a third[106] which will increase the pressure to channel funding through multilaterals.[107] One of the ten assessment criteria in DFID's Multilateral Aid Review included performance on climate change and environmental sustainability.[108] Greenpeace and Water Witness International saw the review as over-simplistic in the way it addressed the environmental impact of the multilateral agencies and believed that it had failed to identify some of the problems on the ground.[109]

42. The Multilateral Aid Review classified five organisations as offering good or very good value for money, but as weak on climate change and the environment.[110] Despite these findings, UK funding to one of them - UNICEF - will almost double and funding to another - the African Development Fund - will increase by a third.[111] The Minister told us that DFID needs to work closely with these organisations to bring about improvements and that there will be a review after 18 months.[112]

43. DFID funds should only be channelled through multilateral institutions where they are assessed to be the most advantageous and effective option, not as the default. DFID must ensure that the multilateral agencies it funds manage their environmental impact effectively. It should not be funding institutions that scored poorly in its Multilateral Aid Review on climate change and the environment unless the organisations make a commitment to improve their environmental performance and they are shown to have delivered those improvements.

The Government's influence over multilateral donors

44. The Government is represented on the boards of some of its multilateral partners which, alongside the funding it provides, enables it to exert influence over their strategies.[113] It is often more effective to exert influence before issues escalate to board level, by engaging with multilateral partners in aid project design and by ensuring that they are aware of donors' interests and concerns.[114] Dr Tanner from the Institute of Development Studies told us that international standards of best practice have not yet been established for low carbon development programming, which makes it difficult for DFID to challenge its multilateral partners.[115] Greenpeace reported nevertheless that the UK has used its influence in "an extraordinarily constructive way" in some cases.[116]

45. There are areas, however, where multilateral agencies' environmental performance has caused concern, particularly that of the World Bank. Greenpeace highlighted the World Bank's intensification and expansion of agriculture and forestry lending, which it considered had been undertaken without consideration for the potential consequences. The World Bank, Greenpeace also noted, had failed to follow through the recommendations of its 2003 Extractive Industries Review.[117] WWF-UK raised concerns that the World Bank's new 'programme-for-results' lending facility would reduce the use of World Bank environmental safeguarding processes and instead rely on country-level safeguards and country-led monitoring, which the World Bank's Independent Evaluation Group had warned against.[118] Concerns were also raised about the environmental credentials of the World Bank's International Finance Corporation. Witnesses highlighted several examples, including support for asparagus cultivation in Peru which has resulted in fast depletion of ground water,[119] investments which encourage extensive exploration in the Amazon region for oil and gas for export,[120] and support for offshore oil exploration off Ghana which would dump the drilling waste at sea.[121] Given the doubts and concerns about the environmental performance of some multilateral institutions, DFID should make transparent its negotiating positions with the institutions, identify which programmes it challenges and whether these challenges lead to any substantial changes. The main concern, however, was about the World Bank's energy programmes, which we discuss below.

The World Bank's energy portfolio

46. Globally 1.5 billion people lack access to electricity, and 2.5 billion rely on wood and biomass for cooking and heating. In some places frequent power cuts and irregular supply of modern fuels inhibit the development of small enterprises.[122] Lack of access to affordable reliable energy in developing countries is a significant barrier to development, but it needs to be addressed in a way that protects the environment and involves low carbon energy generation.[123] Greenpeace and Oil Change International argued, for example, that investment in coal-fired power stations is only acceptable if it is the only viable option for delivering fairer energy access and poverty alleviation.[124]

47. The World Bank continues to give considerable support to carbon-intensive projects, despite being the predominant route for UK spending on climate finance (paragraph 58). In 2010, only 42% of the World Bank's energy portfolio was for low carbon projects.[125] It typically supports large-scale power generation and transmission projects which, we were told, often bypass the communities most in need of access to energy.[126] Research by Oil Change International into the World Bank's fossil fuel lending in 2009-10, found that none of 26 projects it reviewed identified energy access for the poor as a direct aim of the project. The World Bank and the reviewers agreed that none of the projects could be classified as improving energy access.[127] This included a $3.2 billion loan in 2010 to Eskom, the South African utility company, to build the Medupi coal-fired power station.[128] The UK Government abstained from the board vote on the project. The Minister told us that future requests for support to the construction of 'unabated' (that is, without carbon capture and storage) coal-fired power generation would be considered on a case by case basis, but that providing support was not his "expectation or intent".[129] A set of assessment principles for coal-fired power stations are being finalised by the Government which will be used as the basis for future decision-making.[130]

48. We have not been able to get the World Bank's perspective on their energy lending.[131] Encouragingly, however, DFID has been 'actively engaged' with the World Bank as they have developed their new energy strategy.[132] DFID has encouraged a shift in the World Bank from fossil fuel lending to renewables as well as an increased focus on energy access and improving energy efficiency.[133] The Minister saw the World Bank's 75% proposed target for clean energy lending "as a floor rather than a ceiling".[134] The Government was encouraging the World Bank to focus on the most valuable contribution it can make, such as leveraging finance for clean energy production.[135] The Under-Secretary of State told the House that the Government "wants to see the Bank explore all reasonable alternative options before concluding that coal is the appropriate option".[136]

49. The current scale of the World Bank's lending to support fossil fuel powered energy generation is unacceptable and counterproductive to efforts to reduce greenhouse gases. We welcome DFID's active engagement in the consultation on the World Bank's new energy strategy and hope that as a result the new strategy will prioritise low-carbon strategies, affordable energy access for the poor and improving energy efficiency. The World Bank should not assume, however, that the UK will continue to provide financial support if it does not change its practices. DFID should use its position as a major shareholder to ensure that the World Bank's portfolio is 'climate smart'. It should be prepared to vote against any new World Bank funding for coal-fired power stations. DFID should monitor the World Bank's progress in controlling carbon emissions and the suitability of the projects it chooses to support, and report the results in the Department's Annual Report.

Support for clean energy

50. Financial support for clean energy generation is essential because without it, 'economic logic dictates that poor countries will prefer the cheapest forms of energy, which have the highest carbon emissions'.[137] Many developing countries are well located to develop renewable energy, especially solar power.[138] Small-scale local initiatives will also help to achieve energy access for all.[139] Dr Mitchell, from the Overseas Development Institute, felt that it was too soon for carbon capture and storage for fossil fuel powered generation to contribute to the UK aid portfolio,[140] and Greenpeace did not think it would be appropriate as it would not fit DFID's mandate for poverty alleviation and improving energy access.[141] Nevertheless, the availability of coal could make it a source of affordable energy in due course, if carbon capture and storage technology is proven to be effective.

51. DFID does not have any targets on increasing energy access or for increasing renewable energy usage in developing countries.[142] It has however invested £385 million in the World Bank's Clean Technology Fund which aims to finance the demonstration, deployment and transfer of low emission technologies in 13 countries by leveraging in other investment.[143] The Fund aims to make clean technology more affordable and attractive and also to create incentives for the private sector to invest in such technology.[144] DFID needs also to recognise the role to be played by small local initiatives, managed by civil society organisations, in both the UK and in-country, to provide affordable wider access to energy.

52. UK aid, whether bilateral or multilateral, should be helping developing countries to leapfrog high-carbon development and avoid locking in carbon-intensive infrastructure. DFID should set targets for increasing energy access and the proportion of renewable energy usage in developing countries, and report such performance in its Annual Report.

Support to civil society organisations

53. DFID supports civil society in two ways—through their bilateral aid programmes and through particular civil society funds, in total supporting around 500 civil society organisations.[145] Civil society organisations and non-governmental organisations are key to long-term local engagement on environmental protection and action against climate change. Unsurprisingly, therefore, some witnesses advocated increased funding for civil society groups, and suggested that there had been an over-emphasis on 'budget support' and other high volume bilateral aid routes.[146] IIED highlighted the critical role local organisations and processes play in development, sustainable resource use and ecosystem management. IIED proposed that new innovations are sought in aid delivery mechanisms to make them more accountable to poor people who could then determine spending priorities. They cited examples of the International Urban Poor Fund, the Bolsa Floresta Programme and the Global Green Grants Fund.[147]

54. However, there are also particular risks associated with channelling aid through civil society organisations, including potentially reduced accountability and effectiveness. It could also be more expensive for DFID to manage, at a time when DFID's administration budget is under pressure. Malini Mehra told us that DFID should expect to have to write-off a proportion of the return on its investments when working with civil society organisations in challenging environments, but also that that engagement would help those organisations to be strengthened.[148]

55. The amount of bilateral aid DFID delivers through civil society organisations has been growing year on year since 2006, reaching almost £600,000 in 2009-10, 15% of its bilateral aid programme.[149] The Minister highlighted the importance of civil society organisations having good relationships in the countries in which they work,[150] and that decisions on the routes through which DFID channels aid are based on seeking the greatest impact.[151] DFID recognises that civil society groups have a key role in terms of service delivery, advocating policy change, building accountability and empowerment,[152] and DFID anticipates increasing civil society funding.[153] In Tanzania, DFID has funded the 'Improved Governance of Forest Resources' programme which had provided training to 72 civil society groups.[154]

56. We commend the existing support DFID provides to civil society organisations. In light of DFID's increasing aid budget, it should consider which channels would be most effective to deliver its environment and climate change strategy. DFID should increase funding to civil society organisations if that can be shown to improve environmental outcomes.

98   NAO, Aid and the Environment, p8 Back

99   ibid Back

100   ibid Back

101   International Development Committee, Fourth Report of Session 2010-11, The World Bank, HC 606, p29 Back

102   DFID, Multilateral Aid Review, 2011 Back

103   Qq 71,72 Back

104   Q 72 Back

105   ibid Back

106   NAO , The work of the Department for International Development in 2009-10 and its priorities for reform, 2010,p10 Back

107   Q 37. The IDC Committee concluded that increasing spending through multilateral organisations would enable DFID to accommodate the large increase in its budget in 2013-14 without significantly increasing running costs (Department for International Development Annual Report and Resource Accounts 2009-10 , Third Report of Session 2010-11, HC 605). Back

108   NAO, Aid and the environment, p 24 Back

109   Qq 76,81 Back

110   These were as follows: International Committee of the Red Cross, ECHO, UNICEF, African Development Fund and Central Emergency Response Fund. Back

111   Ev171 Back

112   Q 249 Back

113   Q 127 Back

114   Q 130 Back

115   Q 13 Back

116   Q 73  Back

117   ibid Back

118   Q 72. The World Bank states that during the preparation of a programme-for-results operation, their staff would assess the environmental impact management system of the implementing entity and stipulate improvements if necessary (World Bank, A new instrument to advance development effectiveness: programme-for-results lending, revised concept note, 2011). Back

119   Ev109 Back

120   Ev 79 Back

121   Ev102 Back

122   Ev79 Back

123   Ev102 Back

124   Q 85 ;OilChangeInternational,WorldBankGroupEnergyFinancing:EnergyforthePoor?,2010. The International Development Committee concluded that in cases where there is no better alternative to coal, it would be most appropriate for the World Bank to support those projects that are most able to control their carbon emissions (International Development Committee, Fifth Report of session 2008-09, Sustainable Development in a Changing Climate, HC 177-I).  Back

125   WorldBankGroup,EnergyPortfoliobySector,FY2003-2010.TheWorldBank'sdefinitionoflowcarbonprojectsincludesrenewableenergyprojects,energyefficiencyprojects,andprojectsthatsupportincreaseduseofcleanerfuelstodisplacemorecarbonintensiveones. Back

126   Ev78 Back

127   OilChangeInternational,WorldBankGroupEnergyFinancing:EnergyforthePoor?,2010 Back

128   Ev79 Back

129   Q 245 Back

130   Ev 112 Back

131   The World Bank does not give formal evidence to parliaments. Back

132   HC Deb, 3 May 2011, col 713W  Back

133   Q 239 Back

134   Q 237 Back

135   HC Deb, 4 May 2011, col 828W  Back

136   ibid Back

137   Evw73 Back

138   EUGreenPaper,EUdevelopmentpolicyinsupportofinclusivegrowthandsustainabledevelopment,increasingtheimpactofEUdevelopmentpolicy,2010 Back

139   EG. Practical Action ( Back

140   Q 25 Back

141   Q 65 Back

142   Ev177 Back

143   NAO,Aidandtheenvironment,p14 Back

144   Q 132 Back

145   Q 112 Back

146   Ev181 Back

147   Ev165;Ev167 Back

148   Q 210 Back

149   Ev168 Back

150   Q 251 Back

151   ibid Back

152   Q 114  Back

153   Qq 115,250 Back

154   Ev 170 Back

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© Parliamentary copyright 2011
Prepared 29 June 2011